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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(Mark One)
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/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
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-8461
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GULFSTREAM AEROSPACE CORPORATION
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DELAWARE 13-3554834
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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P. O. BOX 2206
500 GULFSTREAM ROAD
SAVANNAH, GEORGIA
31402-2206
(912) 965-3000
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange
Title of each class on which registered
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COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
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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/ 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. / /
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, 1998 was $1,728,385,638.
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, there were outstanding 72,667,265 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, 1997 (the "1997 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, 1998 (the "1998 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 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 meet 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
products are the Gulfstream IV-SP, the Gulfstream V, Gulfstream
Shares-Registered Trademark- (fractional ownership interests in Gulfstream
IV-SPs) and pre-owned Gulfstream aircraft. As an integral part of its aircraft
product offerings, the Company offers aircraft completion (exterior painting of
the aircraft and installation of customer selected interiors and optional
avionics) and worldwide aircraft maintenance services and technical support for
all Gulfstream aircraft. In addition, the Company's financial services
subsidiary, Gulfstream Financial Services Corporation, through its private label
relationship with a third-party aircraft financing provider, offers customized
products to finance the worldwide sale of Gulfstream aircraft.
The Company is the ultimate successor to a business (the "Predecessor
Business") established by Grumman Aerospace in 1956. In 1978, the Predecessor
Business was acquired by a group of investors headed by Allen E. Paulson, the
then Chairman of the Predecessor Business. Chrysler Corporation ("Chrysler")
acquired the Predecessor Business in 1985. In March 1990, the Gulfstream
business was acquired from Chrysler by 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 Stock sold 37,940,900 shares of the Company's Common Stock in
an initial public offering at a price of $24.00 per share. As of March 20, 1998,
the Forstmann Little Partnerships owned approximately 43.2% of the outstanding
shares of the Company's Common Stock.
PRINCIPAL PRODUCTS
The business jet aircraft market is generally divided into four
markets--light, medium, large and ultra-long range. These markets are defined on
the basis of range, cabin volume and gross operating weight.
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, the
Gulfstream V set 40 world and national records.
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.
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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's cruising altitude of 51,000 feet, the Gulfstream V cabin
altitude is only 6,000 feet, the lowest cabin altitude of any jet aircraft. 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 enhanced Ground Proximity Warning System are also standard. An additional
safety feature of the Gulfstream V is an optional head-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 currently approximately
$38,000,000 (depending on escalation and selected options). 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'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). The
Company manufactured and sold 114 Gulfstream IV-SPs from 1993 to 1997 and 213
Gulfstream IVs from 1985 to 1992. The Company continues to manufacture the
Gulfstream IV-SP along with the Gulfstream V.
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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 67 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 combining 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 currently approximately
$28,600,000 (depending upon selected options). 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-MPA
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 offers 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. 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 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- program, by teaming Gulfstream and EJI, 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.
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The Gulfstream Shares-Registered Trademark- program is marketed by the
Company. EJI purchases Gulfstream IV-SPs 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 10 hours or 6 hours, respectively. As of December 31, 1997, the Company had
contracted to deliver to EJI 27 Gulfstream IV-SPs and 2 Gulfstream Vs in
connection with the Gulfstream Shares-Registered Trademark- program, 15 of which
had been delivered and 14 of which will be delivered through 2000. EJI also has
an option to purchase two additional GIV-SPs. The customers enter into
management and operating contracts with EJI which provide guaranteed services
and operating costs. EJI's agreement with its customers provides for a term of 5
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.
The Gulfstream IV-SP aircraft are maintained by the Company under a
maintenance agreement with EJI. Further, under a lease arrangement, the Company
provides EJI up to 3 pre-owned Gulfstream IV aircraft (which are included in the
Company's pre-owned aircraft inventory) which make up EJI's core fleet and are
used to facilitate EJI's meeting its response time and service guarantees. The
Company has a proprietary agreement with EJI 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 EJI
revenues. The Company's marketing services agreement for Gulfstream
Shares-Registered Trademark- has a term of three years from 1996 which can be
extended by mutual agreement of the parties.
In addition to providing the Company with an incremental source of revenues,
the Company believes the Gulfstream Shares-Registered Trademark- program
represents an important marketing tool. Fractional ownership provides the
Company 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 for 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 with a group of Middle East investors for the
purchase of up to 12 Gulfstream IV-SP aircraft and the operation of a Middle
East fractional ownership program.
AIRCRAFT COMPLETION
When the Company sells a new Gulfstream V or Gulfstream IV-SP, it generally
contracts with its customer to deliver a green aircraft and a completed
interior. The Company's completion services include painting and installing
customer selected interiors and optional avionics. 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 for the Gulfstream IV-SP, the Company believes it has an advantage over
other suppliers due to Gulfstream's understanding of its own 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.
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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 Gulfstream Vs and Gulfstream IVs.
In 1997, the Company expanded the Service Center operations in Savannah 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) 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. Royalty fees are paid to the Company by the
licensees based on labor hours expended. In addition, Associated Airlines
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(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-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.
AIRCRAFT MAINTENANCE SERVICES. The Company has developed a proactive
marketing and sales effort in its maintenance services operations, which has
supported an increase in market share 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 to 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 adjacent to the Gulfstream Service
Center in Savannah. This facility, which became operational in January 1998,
contains 21 classrooms, 16 briefing rooms and four CPM (cockpit procedures
modules) rooms. In addition, it houses simulators supporting the entire
Gulfstream product line (Gulfstream I through Gulfstream V). Gulfstream, in
conjunction with FSI, facilitates the operation of a Customer Training
Advisory Board which provides direct customer and original equipment
manufacturer input to FSI's training curriculums and course content.
Additionally, pilot 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.
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 jet for each such
customer's specialized needs.
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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. 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. Approximately 38% of the Company's contract backlog is scheduled
for delivery beyond 1998.
Generally, at the signing of a 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 green aircraft. The Company monitors
the condition of its backlog and believes, based on the nature of its customers
and its historical experience, that there will not be a significant number of
cancellations. However, to the extent that there is a lengthy period of time
between a customer's aircraft order and its expected delivery date, there may be
increased uncertainty as to changes in business and economic conditions which
may affect customer cancellations.
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. In addition, the United States
government, including all branches of the United States military, and 38 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 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.
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Gulfstream operates an International Advisory Board of 14 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 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
<PAGE>
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.
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. 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).
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 months notice.
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. In general, the terms 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 the Gulfstream V and prices are determined as a function of the
sale price of the Gulfstream aircraft.
10
<PAGE>
PAST AIRCRAFT PRODUCT OFFERINGS
GULFSTREAM IV
The Gulfstream IV, launched in 1983, has a range of 4,220 nautical miles and
was the first truly intercontinental business jet aircraft. The Gulfstream IV
was designed and built to incorporate the most current technologies in
aerodynamics, propulsion, digital electronics and automated flight management
systems and represented a significant technological advancement over 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 II is a twin-engine fan-jet aircraft powered by
two Rolls-Royce Spey engines with a range of 2,400 nautical miles and a cruising
speed of Mach .80. Beginning in 1981, the Company modified 43 Gulfstream IIs to
Gulfstream IIBs by retrofitting customers' Gulfstream II aircraft with the
Gulfstream III's advanced design wing which enhanced the range capability of the
aircraft to 3,400 nautical miles at Mach .80. When production of the Gulfstream
II ended in December 1979, 256 units had been produced, 95% of which remain in
service. Several specially modified Gulfstream IIs are still used regularly to
train NASA's space shuttle astronauts.
GULFSTREAM I
The Company's product line originated in 1958 with the introduction of the
Gulfstream I, a large twin-engine turboprop powered aircraft built by Grumman
which was the first aircraft of its size and type designed specifically for
business use. The Gulfstream I is powered by Rolls-Royce Dart engines and has a
range of more than 1,700 miles. When production of the Gulfstream I ended in
1966, 200 Gulfstream Is had been built, 69% of which remain in service.
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
<PAGE>
EMPLOYEES
At March 1, 1998, the Company employed approximately 5,800 persons, of whom
approximately 4,100 were employed at the Company's Savannah, Georgia facility,
100 were employed at the Brunswick, Georgia facility, 650 were employed at the
Bethany, Oklahoma facility, 600 were employed at the Long Beach, California
facility and 380 were employed 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 of 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 million in 1997.
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 31 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 production 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 location of the Company's corporate offices. Functions performed at 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
<PAGE>
Any prolonged disruption in the use of the Savannah 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. (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 those aircraft. While there are
currently more than 2,000 twin engine Commander aircraft owners, all of these
owners will not qualify as members of any such class. This product line 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. 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
<PAGE>
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".
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.
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, 1997.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information required by this item is contained on page 39 of Gulfstream's
1997 Annual Report, which information is incorporated herein by reference. The
Company's Credit Agreement restricts its ability to pay dividends.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data for each of
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 of Financial Condition and Results of Operations" and
the consolidated financial statements and notes thereto, incorporated herein by
reference.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
------------ ------------ ------------ ---------- ------------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- ------------------------
(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
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
------------ ------------ ---------- ---------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- ------------------------
(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" on page 22 of the 1997
Annual Report.
(2) During November 1993, the Company converted $469 million of subordinated
debentures (including accrued interest) to 7% Cumulative Preferred Stock in
connection with the 1993 recapitalization.
(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
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information required by this Item is included in Management's Discussion and
Analysis on pages 20 to 25 of Gulfstream's 1997 Annual Report, incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this Item is included in the consolidated financial
statements of the Company for the years ended December 31, 1997, 1996 and 1995,
the notes to the consolidated financial statements, and the report of
independent accountants thereon on pages 26 to 38 of the 1997 Annual Report, and
in the Company's unaudited quarterly financial data for the years ended December
31, 1997 and 1996 on page 39 of Gulfstream's 1997 Annual Report, incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
17
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item is included in the 1998 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 1998 Proxy Statement in the section captioned "Section 16(a) Beneficial
Ownership Reporting Compliance," and such information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is included in the 1998 Proxy Statement in
the sections captioned "Further Information Concerning the Board of the
Directors and Committees--Compensation Committee Interlocks and Insider
Participation" and "--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 1998 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 1998 Proxy Statement in
the sections captioned "Further Information Concerning the Board of the
Directors and Committees--Compensation Committee Interlocks and Insider
Participation" and "Certain Transactions," and such information is incorporated
herein by reference. See also, Note 11 to the consolidated financial statements
on page 36 of Gulfstream's 1997 Annual Report.
18
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
1997
FORM 10-K ANNUAL REPORT
(PAGE) ( PAGE)
---------- ---------------
<S> <C> <C> <C>
(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.
(b) REPORTS ON FORM 8-K
None
</TABLE>
19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
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, 1997 and 1996
and the related consolidated statements of income, stockholders' equity and cash
flows for the three years in the period ended December 31, 1997, and have issued
our report thereon dated January 30, 1998; such financial statements and report
are included in the Company's 1997 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
20
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
(PARENT COMPANY ONLY)
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
1997 1996
--------- ---------
Investment in subsidiary.............................................. $ 200,895 $ (87,393)
--------- ---------
Total Assets...................................................... 200,895 (87,393)
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Payable to subsidiary................................................. $ 8,138 $ 1,418
Note Payable to subsidiary............................................ 100,000 100,000
--------- ---------
Total liabilities................................................. 108,138 101,418
--------- ---------
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)
--------- ---------
--------- ---------
</TABLE>
- ------------------------
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 statements included in the 1997 Annual
Report, incorporated herein by reference.
21
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
(PARENT COMPANY ONLY)
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
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
---------- --------- ---------
---------- --------- ---------
</TABLE>
- ------------------------
Statements of cash flows are not presented since the Company had no cash flows
from operations.
See notes to consolidated financial statements included in the 1997 Annual
Report, incorporated herein by reference.
22
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
SCHEDULE II -- CONDENSED SCHEDULE OF VALUATION AND QUALIFYING
ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS (1) PERIOD
- --------------------------------------------------------------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Year ended December 31, 1995................................. $ 1,312 $ 2,506 $ 381 $ 3,437
Year ended December 31, 1996................................. 3,437 344 538 3,243
Year ended December 31, 1997................................. $ 3,243 $ (1,588) $ 511 $ 1,144
</TABLE>
- ------------------------
(1) Deductions from the allowance for doubtful accounts represent the write-off
of uncollectible accounts.
23
<PAGE>
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 25th day of
March 1998.
GULFSTREAM AEROSPACE CORPORATION
BY: /S/ CHRIS A. DAVIS
-----------------------------------------
Chris A. Davis
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL 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/ THEODORE J. FORSTMANN Chairman of the Board;
- ------------------------------ Director March 25, 1998
Theodore J. Forstmann
/s/ W. W. BOISTURE, JR. Executive Vice President;
- ------------------------------ Director March 25, 1998
W. W. Boisture, Jr.
Executive Vice President,
Chief Financial Officer
/s/ CHRIS A. DAVIS and Secretary; Director
- ------------------------------ (Principal Financial March 25, 1998
Chris A. Davis Officer and Principal
Accounting Officer)
/s/ JAMES T. JOHNSON President and Chief
- ------------------------------ Operating Officer; March 25, 1998
James T. Johnson Director
/s/ BRYAN T. MOSS Vice Chairman of the Board;
- ------------------------------ Director March 25, 1998
Bryan T. Moss
/s/ ROBERT ANDERSON Director
- ------------------------------ March 11, 1998
Robert Anderson
/s/ CHARLOTTE L. BEERS Director
- ------------------------------ March 25, 1998
Charlotte L. Beers
24
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ THOMAS D. BELL, JR. Director
- ------------------------------ March 25, 1998
Thomas D. Bell, Jr.
/s/ LYNN FORESTER Director
- ------------------------------ March 25, 1998
Lynn Forester
/s/ NICHOLAS C. FORSTMANN Director
- ------------------------------ March 25, 1998
Nicholas C. Forstmann
/s/ SANDRA J. HORBACH Director
- ------------------------------ March 25, 1998
Sandra J. Horbach
/s/ HENRY A. KISSINGER Director
- ------------------------------ March 25, 1998
Henry A. Kissinger
/s/ DREW LEWIS Director
- ------------------------------ March 25, 1998
Drew Lewis
/s/ MARK H. MCCORMACK Director
- ------------------------------ March 25, 1998
Mark H. McCormack
/s/ MICHAEL S. OVITZ Director
- ------------------------------ March 25, 1998
Michael S. Ovitz
/s/ ALLEN E. PAULSON Director
- ------------------------------ March 25, 1998
Allen E. Paulson
/s/ ROGER S. PENSKE Director
- ------------------------------ March 25, 1998
Roger S. Penske
/s/ COLIN L. POWELL Director
- ------------------------------ March 25, 1998
Colin L. Powell
/s/ GERARD R. ROCHE Director
- ------------------------------ March 10, 1998
Gerard R. Roche
25
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ DONALD H. RUMSFELD Director
- ------------------------------ March 25, 1998
Donald H. Rumsfeld
/s/ GEORGE P. SHULTZ Director
- ------------------------------ March 25, 1998
George P. Shultz
/s/ ROBERT S. STRAUSS Director
- ------------------------------ March 25, 1998
Robert S. Strauss
26
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
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.)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.)
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
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 10.1 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
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
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 Quarter
1997.*
99.1 Cautionary Statement for Purpose of the "Safe Harbor" Provisions of The Private Securities Litigation
Reform Act of 1995.*
</TABLE>
- ------------------------
A Management contract or compensatory plan.
* Filed herewith.
29
<PAGE>
Exhibit 10.11
LEASE AND OPERATIONS AGREEMENT
THIS AGREEMENT, made and entered into this 22nd day of February, 1995, by
and between the Trustees of the Oklahoma City Airport Trust, hereinafter
referred to as LESSOR, and Gulfstream Aerospace Corporation, hereinafter
referred to as LESSEE,
W I T N E S S E T H:
WHEREAS, the LESSOR now leases and operates a municipal airport designated
as Wiley Post Airport, sometimes hereinafter referred to as "Airport," located
in Oklahoma County, Oklahoma; and
WHEREAS, by virtue of certain written agreements hereinafter set forth,
LESSEE leased from LESSOR various premises, facilities and improvements at the
Airport for the purpose of operating an aircraft manufacturing business; and
WHEREAS, the term of the Lease Agreement for the leasing of Hangars 10 and
11 and associated premises will expire December 31, 1994, and LESSEE has
requested to renew its lease of said hangars for the purpose of operating a
fixed base operation in addition to its aircraft manufacturing business; and
WHEREAS, LESSOR has determined that it is in its best interest to grant
LESSEE's request.
NOW, THEREFORE, in consideration of the mutual obligations and covenants
contained herein, LESSOR and LESSEE do hereby agree to the terms, conditions and
provisions set forth herein, to wit:
ARTICLE I - PREMISES
LESSOR does hereby grant, demise and lease to LESSEE, and LESSEE does
hereby hire, accept and lease from LESSOR certain facilities located on Airport
identified as Hangars 10 and 11, together with associated ramp and premises
adjacent thereto, as well as certain ground space located immediately north of
Northwest 44th Street for storage of materials and equipment, said premises and
facilities described more specifically on Exhibits "A" and "B," which are
attached hereto and made a part hereof.
1
<PAGE>
ARTICLE II - TERM
The term of this Agreement shall be for a five (5) year period commencing
January 1, 1995, and terminating December 31, 1999.
ARTICLE III - RENTALS
It is understood and agreed by the parties hereto that the rental rates
incorporated hereinafter are new rental rates based on LESSOR'S established
formulae for Airport facilities.
During the term of this Lease Agreement LESSEE shall pay LESSOR annual
rental consisting of the amounts set forth in or computed in accordance with the
provisions of Subparagraphs A, B, C, D, and E, infra, to wit:
A. GROUND RENTAL: Ground rental for the total area designated on Exhibit "A"
shall be based on 728,189 square feet of ground area. For the period
commencing January 1, 1995, through December 31, 1999, ground rental shall
be based on $.07 per square foot and shall be payable monthly as follows:
Annual Monthly
Square Footage Ground Rental Ground Rental
-------------- ------------- -------------
728,189 x $.07 p.s.f. = $50,973.23 $4,247.77
B. RAMP MAINTENANCE RENTAL: The rate for the use of improved ground for use
as ramp or apron available for the parking or movement of aircraft as
designated on Exhibit "A" shall be established at twenty percent (20%) of
the average cost of replacement of the ramp or apron with an anticipated
life of fifteen (15) years on a square footage basis payable monthly, to
be calculated as follows:
$5.00 x 20% = $.06 (rate) x 134,200 square feet = $8,052
-----------
15 years
per year, payable at $671 per month.
C. BUILDING RENTAL:
Building rental for Hangars 10 and 11 shall be based on four percent (4%)
per annum of their "Appraised Actual Cash Value." Said rental, which is
payable monthly, shall be computed as follows:
2
<PAGE>
Appraised Annual Total
Actual Cash Building Monthly
Hangar Value Rental Rental
------ ----- ------ ------
10 $119,920.50 x 4% = $ 4,796.82 $ 399.74
11 $424,986.40 x 4% = 16,999.46 1,416.62
---------- ---------
Total Building Rental $21,796.28 $1,816.36
---------------------
D. HANGAR MAINTENANCE RENTAL:
In order to compensate LESSOR for structural and exterior maintenance
obligations on the facilities hereunder, the annual hangar maintenance
rental payable monthly by LESSEE for the facilities hereunder shall be
based on two percent (2%) of their appraised market value. Said rental
shall be computed as follows:
Annual Hangar Total
Market Maintenance Monthly
Hangar Value Rental Rental
------ ----- -------- ------
10 $119,920.50 x 2% = $ 2,398.41 $199.87
11 424,986.40 x 2% = 8,499.73 708.31
---------- -------
Total Hangar Maintenance Rental $10,898.14 $908.18
-------------------------------
E. FUEL FLOWAGE FEES:
In addition to the foregoing payments, the LESSEE further understands and
agrees that all fuel purchases for use and benefit of LESSEE will be
through fuel storage facilities at the Airport and all such purchases
shall be made by LESSEE. In addition to the above enumerated rental
charges, LESSEE agrees to pay LESSOR a fuel flowage fee, separate from any
LESSEE charges by others for aviation fuel or aviation oil, which will be
established annually by the Director of Airports, and which is currently
five cents ($0.05) per gallon on all aviation fuel delivered into LESSEE'S
trucks, and fifteen cents ($0.15) per gallon on all aviation oil purchased
by LESSEE; provided, however, the fuel flowage fees payable by LESSEE
hereunder shall be six cents ($0.06) per gallon on all aviation fuel and
sixteen cents ($0.16) per gallon on all aviation oil, or one cent ($0.01)
above the per gallon fee for aviation fuel and one cent ($0.01) above the
per gallon fee for aviation oil established from time to time by the
Director of Airports, whichever shall be greater, unless LESSEE'S contract
with its fuel supplier requires said fuel supplier to
3
<PAGE>
pay LESSOR one cent ($0.01) per gallon on all aviation fuel and oil
delivered to the premises of the Airport. The fees herein specified shall
be considered as rental in lieu of landing fees for noncommercial general
aviation aircraft or airport use fees hereunder and shall be paid to the
LESSOR not later than the twenty-fifth (25th) day of the month succeeding
the month of purchase; in this connection, the LESSOR shall have the right
and privilege on call to inspect and audit the bills, receipts and records
pertaining to the purchase of aviation fuel and oil for the purpose of
verifying the correctness of the fee payments tendered by LESSEE. Further,
LESSEE agrees to file with the LESSOR through its Director of Airports,
Will Rogers World Airport, 7100 Terminal Drive, Box 937, Oklahoma City,
Oklahoma 73159-0937, on forms prescribed by the LESSOR, monthly reports
showing the number of gallons of aviation fuel and oil so purchased by
LESSEE in order that the money due as fees may be shown. This report shall
be filed not later than the third (3rd) day of the month following the
purchase of said aviation fuel and oil. All payments are to be made at the
office of the Director of Airports, or such other places as the LESSOR may
direct the LESSEE in writing.
F. Rentals under Subparagraphs A, B, C, and D above shall be paid by LESSEE
monthly in advance, and shall become due and payable on or before the
twenty-fifth (25th) day of each month without further billing.
G. The parties hereto agree that no language contained in this Article III
shall ever be construed by the LESSEE to obligate or in any way require
the LESSOR to renew this Lease and Operations Agreement nor to establish a
formula for or otherwise fix rental amounts payable for any tenant of the
LESSEE for the term hereof.
ARTICLE IV - DELINQUENT RENTALS
It is hereby agreed by and between the LESSOR and LESSEE that should
LESSEE fail, for any reason whatsoever, to make timely
4
<PAGE>
remittance of the monthly rentals as required under any of the provisions
hereof, then the outstanding balance of such delinquency shall earn interest at
the rate of one and one-half (1-1/2) percent per month; moreover, said interest
shall be considered additional rental for the leased premises and shall become
due and payable on or before the twenty-fifth (25th) day of each month.
ARTICLE V - BOOKS AND RECORDS
LESSEE shall keep and maintain a complete and adequate set of books and
records of all receipts and all other income from said leased premises for three
years and shall make such books available on leased premises for inspection by
the LESSOR or its authorized representative at any and all reasonable hours and
times.
ARTICLE VI - INGRESS AND EGRESS
Upon paying the rental hereunder and performing the covenants of this
agreement, the LESSEE shall have the right of ingress to and egress from said
leased premises for the LESSEE, its officers, employees, agents, servants,
customers, vendors, suppliers, patrons, and invitees over the roadway provided
by LESSOR serving said premises jointly with other tenants on the Airport and
the LESSEE shall not interfere with the rights and privileges of other persons
or firms using said Airport.
ARTICLE VII - OBJECTS AND PURPOSES
The purposes of this Agreement are to grant to LESSEE the right and
privilege of conducting business related to LESSEE'S use of certain leased
premises and facilities located south of N.W. 50th Street, as well as conducting
business as a Fixed Base Operator on the Airport and LESSEE agrees that the
leased facilities described on Exhibits "A" and "B" which are attached hereto
shall never be used for any other purposes other than those described herein,
except upon written approval by the LESSOR by and through its Director of
Airports. As consideration for this right and privilege, LESSEE agrees to
provide and is hereby obligated to provide the facilities and services described
below; provided, however, the right and privilege to conduct a Fixed Base
Operation hereby granted shall exist only so long as the character of the
5
<PAGE>
facilities operated and/or the services furnished shall be consistent with the
high quality of facilities and services provided by other Fixed Base Operator
lessees at LESSOR'S airports. In the above connection, LESSEE shall be required
to furnish the services specified below in Subparagraphs A, B, and C. In
addition, LESSEE may, but shall not be required to, furnish and provide those
services specified below in Subparagraphs D, E, and F. Provided, however, as
consideration for this right and privilege, LESSEE agrees to provide and is
hereby obligated to maintain and operate said facilities in accordance with the
terms and conditions set forth herein.
A. Public Sales and Services
1. Aviation fuel and jet fuel.
2. An adequate inventory of at least two brands of generally accepted
grades of aviation engine oil and lubricants.
3. Proper mobile fuel dispensing equipment to service all types of
aircraft.
4. Properly qualified and trained line personnel on duty at least eight
hours of every calendar day, seven days a week, and on call by
readily accessible means at other hours during the day or night.
5. Proper equipment for repairing and inflating aircraft tires,
servicing oleo struts, changing engine oil, washing aircraft and
aircraft windows and windshields, recharging or energizing
discharged aircraft batteries and starters.
6. Conveniently located heated and air conditioned lounge or waiting
rooms for passengers and airplane crews or itinerant aircraft,
together with sanitary rest rooms and public telephones.
7. Adequate towing equipment and parking and tie-down areas to safely
and efficiently move aircraft and store them in all reasonably
expected weather conditions.
8. In conducting refueling operations, every operator shall install and
use adequate grounding facilities at fueling
6
<PAGE>
locations to eliminate the hazards of static electricity, and shall
provide approved types of fire extinguishers or other equipment
commensurate with the hazards involved in refueling and servicing
aircraft.
9. Shall provide for the adequate and sanitary handling and disposal,
away from the Airport, of all trash, waste, and other materials
including, but not limited to, used oil, solvents, and other waste.
The piling or storage of crates, boxes, barrels, and other
containers will not be permitted within the leased premises.
10. Suitable hard surfaced aircraft parking, tie-down and hangar storage
facilities.
11. Food - availability of food via vending machines or other
arrangements.
12. Ground Transportation - agreements with local taxi or provide
courtesy car. Rent-a-car operations will, if desired by LESSEE, be
permitted by a separate agreement between LESSEE and LESSOR.
13. Motel - arrangements with at least one local motel operator for the
transportation of overnight guest to motels. LESSEE may provide
transportation if necessary.
B. Aircraft Engine, Airframe and Accessory Sales and Maintenance.
1. In case of airframe or engine repairs, sufficient hangar space to
house any aircraft upon which such service is being performed.
2. Suitable inside and outside storage space for aircraft awaiting
repair or maintenance or delivery after repair and maintenance have
been completed, other than major repairs or alterations of less than
24 hours duration.
3. Adequate shop space to house the equipment and adequate equipment
and machine tools, jacks, lifts and testing equipment to perform top
overhauls as required for FAA certification and repair of parts not
needing replacement on all single engine land and light multi-engine
land general aviation aircraft.
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4. At least one FAA certificated airframe and power plane mechanic
available during eight hours of the day, five days per week.
5. If painting is contemplated, facilities must meet Oklahoma City
Building and Fire Codes.
C. Aircraft Radio. Avionics, and Instrument Sales and Service.
1. Adequate shop space to house equipment.
2. Sufficient inventory of specialized test equipment and personnel as
required for FAA certification and approval for servicing,
repairing, replacing and/or installing said equipment.
The following services are permitted, but not required:
D. Aircraft Charter and Taxi Service. Persons conducting an aircraft charter
and/or air taxi service shall be required to provide:
1. Passenger lounge, restroom and telephone facilities as required of a
Fixed Base Operator for public sales and services.
2. Adequate table, desk or counter for checking in passengers, handling
ticketing or fare collection and handling of luggage.
3. Suitable, properly certificated aircraft with properly certificated
and qualified operating crew, one of which shall be located at the
airport and ready for departure during at least eight hours of
daylight operation daily and at other times, stand-by units and crew
available upon call within one hour's notice.
4. Shall provide passenger liability insurance of at least $75,000 per
passenger seat and property damage liability of at least $100,000.
5. Facilities for washing and cleaning aircraft if operator engages in
said business.
E. Aircraft Rental and Sales.
1. Suitable office space for consummating sales and/or
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rentals and the keeping of the proper records in connection
therewith.
2. Hangar storage space for at least one aircraft to be used for sales
or rentals.
3. For rental, at least two airworthy aircraft suitably maintained and
certificated.
4. For sales activity of a new aircraft, a sales or distributorship
franchise from a recognized aircraft manufacturer of new aircraft
and at least one demonstrator model of such aircraft.
5. Adequate facilities for servicing and repairing the aircraft or
satisfactory arrangements with other operators licensed by the Trust
or the Airport for such service and repair.
6. There shall be available, at least during eight hours of the working
day, a properly certificated pilot capable of demonstrating new
aircraft for sale or for checking out rental aircraft.
7. The minimum stock of readily expendable spare parts, or adequate
arrangements for securing spare parts required for the type of
aircraft and models sold.
8. Current up-to-date specifications and price lists for types and
models of new aircraft sold.
9. Proper check lists and operating manuals on all aircraft rented and
adequate parts catalogue and service manual on new aircraft sold.
F. Flight Training. All persons conducting flight training activities shall
provide:
1. At least one full-time (eight hours per day, six days per week)
properly certificated flight instructor for single engine land
airplanes.
2. At least one dual equipped single engine land aircraft properly
equipped and maintained for flight instruction and such additional
types of aircraft as may be required to give flight instruction of
the kind advertised.
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3. Adequate office and classroom space for at least ten students with
proper restroom and seating facilities.
4. Adequate mock-ups, pictures, slides, film strips or other visual
aids necessary to provide proper ground school instruction.
5. Properly certificated ground school instructor providing regularly
scheduled ground school instructions sufficient to enable students
to pass the FAA written examinations for private pilot and
commercial ratings.
6. Continuing ability to meet certification requirements of the FAA for
the flight training proposed.
7. Adequate public liability and property damage insurance sufficient
to protect the operator and the City from legal liabilities
involved.
8. Adequate facilities for storing, parking, servicing and repairing
all its aircraft or satisfactory arrangements with other operators
licensed or otherwise permitted by the Trust on the Airport for such
services.
9. The Trust reserves the right to waive any of the above if in their
opinion existing conditions justify such waiver.
G. Crop Dusting and Spraying. Persons seeking to conduct crop dusting or
spraying of agricultural chemicals shall be required to satisfy the Trust
that:
1. Operator shall inform the Director of Airports and the appropriate
control tower of the date and area to be sprayed or dusted prior to
operations.
2. Suitable arrangements have been provided for the safe storage and
containment of noxious chemical materials; no poisonous or
inflammable materials shall be kept or stored in close proximity to
other facility installations at the Airport.
3. The operator shall have available properly certificated aircraft
suitably equipped for the agricultural operation undertaken.
4. The operator shall make suitable arrangements for
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servicing, repairing, storing and parking its aircraft with adequate
safeguards against spillage on runways and taxiways or pollution or
disbursal of chemicals by wind to other operational areas on the
Airport.
5. Operator shall provide adequate public liability insurance to
protect the operator, the Trust and the City from liability in
connection with such operations.
ARTICLE VIII - MAINTENANCE AND OPERATIONS
The LESSEE has examined the leased premises and the facilities and has
accepted them in their present condition; and except as may be otherwise
expressly provided herein, LESSOR makes no agreement whatsoever to make
improvements, alterations or repairs to the leased premises or facilities.
LESSOR shall not be liable for acts of injury or damage that may arise on said
premises or may occur during the LESSEE'S tenancy or occupancy to persons or
property. Notwithstanding anything to the contrary contained herein, it is
understood and agreed that all maintenance responsibility is that of the LESSEE,
at LESSEE'S sole expense, with the exception of exterior and structural
maintenance on buildings owned by LESSOR and pavements owned by the LESSOR which
are the responsibility of the LESSOR. Unless otherwise agreed in writing by the
parties hereto, LESSEE shall never use the leased premises for any purpose other
than that which is defined in Article VII above. Moreover, no sales to the
public, whether wholesale or retail, shall be conducted from the leased premises
in any manner prohibited by 60 O.S.A., Sections 178.4 through 178.6.
In addition, LESSEE hereby covenants not to permit or introduce any
Hazardous Material to be brought upon, kept or used in or about the leased
premises by LESSEE, it agents, employees, contractors, or invitees without the
prior written consent of LESSOR, which LESSOR shall not unreasonably withhold as
long as LESSEE demonstrates to LESSOR'S reasonable satisfaction that such
Hazardous Material is necessary or useful to LESSEE'S operation hereunder and
will be used, kept and stored in a manner that complies with all laws regulating
any such Hazardous Material so
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brought upon or used or kept in or about the leased premises. If LESSEE breaches
the obligations stated in the preceding sentence, or if the presence of
Hazardous Material on the leased premises caused or permitted by LESSEE results
in contamination or if contamination of the leased premises by Hazardous
Material otherwise occurs for which LESSEE is legally liable to LESSOR for
damage resulting therefrom, then LESSEE shall indemnify, defend and hold LESSOR,
The City of Oklahoma City, and its officers, agents and employees harmless from
any and all claims, judgments, damages, penalties, fines, costs, liabilities or
losses (including without limitation, diminution in value of the leased
premises, damages for the loss or restriction on use of rentable or usable space
or of any amenity of the leased premises, damages arising from any adverse
impact on marketing of space, and sums paid in settlement of claims, attorneys'
fees, consultant fees and expert fees) which arise during or after the lease
term hereof as a result of such contamination. This indemnification of LESSOR by
LESSEE includes, without limitation, costs incurred in connection with any
investigation of site conditions or any clean-up, remedial, removal or
restoration work required by any federal, state or local governmental agency or
political subdivision because of Hazardous Material present in the soil or
ground water on or under the leased premises. Without limiting the foregoing, if
the presence of any Hazardous Material on the leased premises caused or
permitted by LESSEE results in any contamination of the leased premises, LESSEE
shall promptly take all actions at its sole expense as are necessary to return
the leased premises to the condition existing prior to the introduction of any
such Hazardous Material to the leased premises; provided that LESSOR'S approval
of such actions shall first be obtained, which approval shall not be
unreasonably withheld so long as such actions would not potentially have any
material adverse long-term or short-term effect on the leased premises. The
foregoing indemnity shall survive the expiration or earlier termination of this
Agreement.
As used herein, the term "Hazardous Material" means any
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hazardous or toxic substance, material or waste, including, but not limited to,
those substances, materials, and wastes listed in the United States Department
of Transportation Hazardous Materials Table (49 CFR 172.101) or by the
Environmental Protection Agency as hazardous substances (40 CFR Part 302) and
amendments thereto, or such substances, materials and wastes that are or become
regulated under any applicable local, state or federal law.
LESSOR and its agents shall have the right, but not the duty, to inspect
the leased premises at any time to determine whether LESSEE is complying with
the terms of this Agreement. If LESSEE is not in compliance with this Agreement,
LESSOR shall have the right to immediately enter upon the leased premises to
remedy any contamination caused by LESSEE'S failure to comply, notwithstanding
any other provisions of this Agreement. LESSOR shall use its best efforts to
minimize interference with LESSEE'S business but shall not be liable for any
interference caused thereby.
The LESSEE shall maintain the leased premises at all times in a safe, neat
and sightly condition and shall not permit the accumulation of any trash, ashes,
or debris on the premises of the Airport. The LESSEE shall be responsible for
all maintenance including, but not limited to:
A. Janitorial services, providing janitorial supplies, window washing,
rubbish and trash removal.
B. Supply and replacement of light bulbs in and on all buildings, (except
obstructional lights) and for replacement of all glass in buildings.
C. Cleaning of stoppages in interior plumbing fixtures and drain lines due to
the use of the premises by the LESSEE up to the first manhole or clean out
outside of the exterior of the building.
D. Replacement of floor covering.
E. Maintenance of all doors and door operating systems, including weather
stripping and glass replacement.
F. Building interior maintenance; including painting, repairing, and
replacement not resulting from structural failure.
G. Landscaping and grass cutting services within the leased premises; the
supplies, and utilities including exterior building flood lighting and
planter lighting.
H. Repair or replacement of equipment and utilities in all buildings occupied
by LESSEE under this Agreement, such as electrical, mechanical and
plumbing equipment, and the heating and air conditioning system. All
repairs to electrical and
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mechanical equipment are to be made by licensed personnel. Other repairs
required of LESSEE shall be made by skilled craftsmen who perform such
work regularly as a trade.
I. Cleaning trash and snow from driveway and sidewalk between building and
parking lot. LESSEE will not dispose of any debris or waste materials on
Airport property.
J. Maintenance on LESSEE-owned structures, pavements and equipment; and all
maintenance on utilities to the point where connected to the main source
of supply or outlet.
K. LESSEE shall advise the LESSOR and obtain LESSOR'S consent in writing
before making changes involving partitions or structural changes to
building or premises, modifications, or additions to plumbing, electrical
or other utilities. Any penetration of the roof shall be considered a
structural change.
L. LESSEE is responsible for maintaining electrical loads within the designed
capacity of the system. Prior to any change desired by LESSEE in the
electrical loading which would exceed such capacity, written consent will
be obtained from the Director of Airports.
M. In the event of damage to building structures or equipment, streets or
lighting systems and utilities, LESSEE shall assist the LESSOR in
determining the cause of damage to LESSOR'S property.
N. LESSEE shall maintain and re-lamp flood lights on the buildings.
0. Hand fire extinguishers will be provided and maintained by LESSEE.
Further, sprinkler or fire suppression systems, as applicable, for the
interior of all buildings will be maintained by LESSEE.
P. LESSEE agrees to make its own arrangements for all utility services and to
pay for such services on its leased premises.
Q. No alterations or repairs shall be made in or on said leased premises
except as provided in Article IX hereof. No waste shall be committed or
damage done to the property of the LESSOR.
LESSEE further agrees that upon the expiration of the terms of this
Agreement, or sooner cancellation thereof, said premises subject to the
provisions of Article IX hereof, will be delivered to the LESSOR in as good
condition as when received, reasonable wear and tear excepted. Reasonable wear
and tear shall be determined by LESSOR and LESSEE upon inspection of premises
from time to time. LESSOR reserves the right to make periodic inspection of
leased premises and improvements and equipment therein during normal business
hours.
If said leased premises and facilities are not maintained and kept in a
safe, clean, sightly and healthful condition by LESSEE, as aforesaid, then as an
alternative to termination of this
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Agreement under the provisions of Article XIX infra, the LESSOR, after giving
thirty (30) days' written notice to LESSEE, during which period LESSEE may abate
or correct the omission or objection so set forth in LESSOR'S notice, may
thereupon correct such omission or objection by entering the leased premises
itself or by its agents, servants or employees, without such entering causing or
constituting a termination of this Agreement or an interference with possession
of the premises by the LESSEE, and the LESSOR may cause the leased premises or
facilities thereon to be placed in a state of good repair or in a safe, clean,
sightly, and/or healthful condition; and the LESSEE agrees to pay the LESSOR the
expenses of LESSOR incurred in the above connection as additional rent within
thirty (30) days after submission of an invoice showing the reasonable
expenditure or the incurring of any such reasonable expenditure by the LESSOR.
ARTICLE IX - ALTERATIONS AND REPAIRS TO PREMISES
Further, the LESSEE agrees not to construct, install, remove, modify
and/or repair any of the buildings or premises leased hereunder without prior
written approval of the Director of Airports, such approval not to be
unreasonably withheld but may be contingent upon approval by LESSOR of plans and
specifications for the proposed project as well as other conditions considered
by LESSOR to be necessary. Immediately upon completion of the repairs,
alterations or new construction, LESSEE shall present to LESSOR for examination
and approval a statement of the "Construction and/or Alteration Costs." Where
such alterations or construction have been made on buildings owned by LESSOR,
LESSEE shall within thirty (30) days following completion of the alterations or
construction present to LESSOR a complete set of "as-built" drawings including,
but not necessarily limited to, plumbing and electrical systems. LESSEE shall
keep the premises leased hereunder free and clear of any and all liens in any
way arising out of any construction, improvement, or use thereof by LESSEE.
In the event that LESSEE makes further alterations or improvements to the
leased premises, the use thereof shall be
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enjoyed by LESSEE during the remaining term of this Agreement without the
payment of additional rental therefor, but such alteration or improvements shall
become the property of LESSOR upon the completion of the alteration or
improvements.
"Construction and alteration costs" for the purposes of Article IX are
hereby defined as all money paid by LESSEE for actual demolition, construction
or alteration, including architectural and engineering costs plus pertinent fees
in connection therewith.
ARTICLE X - DESTRUCTION OF PREMISES - TERMINATION
In the event of damage to or destruction or loss of the building or
buildings by an insured risk, which damage, destruction or loss is not capable
of being repaired within six (6) months, LESSOR shall have the option,
exercisable by written notice given to the LESSEE within thirty (30) days after
the occurrence of such event, to terminate this Agreement forthwith, such
termination to be effective as of the date of such damage, destruction, or loss.
In the event the LESSOR does not exercise the foregoing option to terminate this
Agreement, or in the event said damage, destruction or loss is capable of being
repaired within six (6) months, this Agreement shall not terminate and the
LESSOR shall promptly repair, replace, restore, or rebuild said building or
buildings to the extent of the insurance proceeds received by it, as nearly as
possible to the condition said building or buildings were in immediately prior
to such damage, destruction or loss, or with such changes or alterations as may
be approved by the LESSOR. If the building or buildings shall be damaged in such
manner as to render them unusable in whole or in part, the rental provided to be
paid under the terms of this Agreement shall be abated or reduced
proportionately during the period from the date of such damage or destruction
until the work of repairing, restoring or reconstructing said building or
buildings is completed.
In the event of damage to or destruction or loss of either the building or
buildings by an uninsured risk, the LESSOR shall have the option, exercisable by
written notice given to the LESSEE
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within thirty (30) days after the occurrence of such event, to terminate this
Agreement forthwith, such termination to be effective as of the date of such
damage, destruction, or loss.
ARTICLE XI - LESSOR'S RESERVED RIGHTS
A. LESSOR reserves the right to further develop or improve the aircraft
operating area of the Airport as it sees fit and to take any action it
considers necessary to protect the aerial approaches of the Airport
against obstructions, together with the right to prevent LESSEE from
erecting or permitting to be erected, any building or other structure on
the Airport which, in the opinion of LESSOR, would limit the usefulness of
the Airport or constitute a hazard to aircraft.
B. During the time of war or national emergency declared by Congress, LESSOR
shall have the right to lease the Airport or any part thereof to the
United States Government for military or naval use, and if any such lease
is executed, the provisions of this instrument insofar as they are
inconsistent with the lease to the Government shall be suspended and in
that event a just and proportionate part of the rent hereunder shall be
abated.
C. Any other provision of this Agreement notwithstanding, this Agreement
shall be subordinate to the provisions of any existing or future agreement
between LESSOR and the United States, relative to the operation or
maintenance of the Airport, the terms and execution of which has been or
may be required as a condition precedent to the expenditure or
reimbursement to LESSOR of Federal funds for the development of the
Airport.
D. LESSOR, through its duly authorized agent, shall have at any and all times
the full and unrestricted right to enter the leased premises for the
purpose of inspection or maintenance and for the purpose of doing any and
all things which it is obligated and has a right to do under this
Agreement.
ARTICLE XII - NONINTERFERENCE WITH OPERATION OF AIRPORT
LESSEE covenants and agrees that it will not allow any
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condition on the leased premises, nor permit the conduct of any activity on such
premises, which shall materially or adversely affect the development,
improvement, operation, or maintenance of the Airport or its facilities; nor
will LESSEE use or permit the leased premises to be used in any manner which
might interfere with the landing and take-off of aircraft from the Airport or
otherwise constitute a hazard. If any proscribed or prohibited condition or
activity, as described above, shall be permitted to exist on the leased
premises, or on any part thereof, then, as an alternative to termination of this
Agreement under the provisions of Article XIX, the LESSOR, after giving thirty
(30) days' written notice to LESSEE, during which period LESSEE may abate or
correct the omission or objection so set forth in LESSOR'S notice, may thereupon
correct such omission or objection by entering the leased premises itself, or by
its agents, servants or employees, without such entering causing or constituting
a termination of this Agreement or an interference with possession of premises
by LESSEE, and the LESSOR may cause abatement of such proscribed or prohibited
condition or activity; and, in such event, the LESSEE agrees to pay the LESSOR
the expenses of the LESSOR incurred in the above connection as additional rent
within thirty (30) days after submission of an invoice showing the reasonable
expenditure or the incurring of any such reasonable expenditure by the LESSOR.
ARTICLE XIII - UTILITIES TO BE FURNISHED BY LESSEE
The LESSOR shall not be required to furnish any service to the leased
premises, including by way of example but not of limitation, heat, water and
power. Neither the LESSOR nor The City of Oklahoma City shall be liable for any
failure of water supply or electric current or of any service by any utility;
likewise, neither the LESSOR nor The City of Oklahoma City shall be liable for
injury to persons (including wrongful death) or damage to property resulting
from steam, gas, electricity, water, rain, or snow which may flow from any part
of the leased premises or from any pipes, appliances, or plumbing works, from
the street or subsurface, or from any other place; or for interference with any
easements of whatsoever nature,
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however caused. The LESSEE shall make all its own arrangements with utility
companies and shall pay all charges for steam, gas, electricity, water, light,
heat, power, and other services used in or about leased premises and shall
defend and indemnify the LESSOR and The City of Oklahoma City against any and
all liability on such account.
ARTICLE XIV - PERSONS AND PROPERTY ON LEASED PREMISES
AT RISK OF LESSEE
All persons and property of every kind which may be on said leased
premises during the term hereof shall be at the sole risk of the LESSEE or those
claiming under it and the LESSOR shall not be liable to the LESSEE, or any
person whatsoever, for any injury, loss, or damage to any persons or property in
or upon said leased premises, or upon the sidewalks and alleyways contiguous
thereto. The LESSEE hereby covenants and agrees to assume all liability for or
on account of any injury, loss, or damage above described and to defend and to
save the LESSOR and The City of Oklahoma City harmless therefrom.
ARTICLE XV - REMOVAL OF PERSONAL PROPERTY
It is mutually covenanted and agreed that all personal property owned and
placed on the leased premises by the LESSEE may be removed by the LESSEE at the
termination or expiration of this Agreement, even though the same may be
attached to the premises; provided, the LESSEE shall not then be in default in
performance of the covenants hereof. The removal of any such property, as
aforesaid, shall be effected and all damage caused to said premises by such
removal shall be repaired by LESSEE within thirty (30) days after the
termination or expiration of the Agreement. Should the LESSEE fail to remove
said personal property within the prescribed thirty (30) day period, title to
all such property shall vest in the LESSOR and/or the LESSOR may cause the
removal of all or any portion of such property at the sole risk and expense of
the LESSEE.
ARTICLE XVI - TAXES
LESSEE agrees to pay all taxes or, in lieu of taxes, special
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assessments now or hereafter levied or assessed (1) upon the leased premises and
facilities, (2) upon property owned or possessed by LESSEE and situated on the
leased premises, or (3) upon LESSEE'S interest in or use of the leased premises.
LESSEE shall defend, indemnify and save LESSOR and The City of Oklahoma City
harmless from any claims or liens in connection with such taxes or, in lieu of
taxes, assessments.
ARTICLE XVII - MISCELLANEOUS COVENANTS
A. LESSEE shall observe and comply with any and all requirements of the
constituted public authorities and with all federal, state, or local
statutes, ordinances, regulations and standard rules applicable to LESSEE
or its use of the leased premises, including by way of example, but not of
limitation, all general rules and regulations promulgated from time to
time by the Director of Airports of The City of Oklahoma City in
connection with the administration of the Airport.
B. LESSEE shall not erect, maintain, or display any signs or other
advertising at or on the leased premises or other Airport premises without
first obtaining the written approval of the Director of Airports, such
approval not to be unreasonably withheld.
C. LESSEE hereby agrees to make no claims or file or cause to be filed any
legal or equitable actions against LESSOR or The City of Oklahoma City for
any kind of damages which result from noise or sound shock waves due to
aircraft use of said Airport's facilities.
ARTICLE XVIII - INDEMNITY AND INSURANCE BY LESSEE
A. Indemnity - LESSEE hereby agrees to release, to defend, to indemnify, and
to save harmless the LESSOR and The City of Oklahoma City, and its
officers, agents and employees, (i) from and against any and all loss of,
or damage to, property, or injuries to, or death of, any person or
persons, as well as, (ii) from and against any and all claims, damages,
suits, costs, expense, liability, actions or proceedings of any kind or
nature whatsoever (including, without limiting the
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generality of the foregoing, Workers' Compensation), of or by anyone whomever;
in matters resulting from, or arising out of, or alleged to have resulted from
or to have arisen out of, directly or indirectly, LESSEE'S operations or
activities under or in connection with this Agreement, or LESSEE'S use and
occupancy of any portion of the Airport, and including, without limiting the
generality of the foregoing, acts and omissions of LESSEE'S officers, employees,
representatives, suppliers, invitees, contractors or agents. Provided, however,
LESSEE shall not be liable for any loss occasioned by the sole negligence or
wilful misconduct of the LESSOR, The City of Oklahoma City, or their officers,
agents, and employees. LESSOR covenants to give LESSEE prompt notice of any
claims. The minimum insurance requirements set forth below shall not be deemed
to limit or define the obligations of LESSEE hereunder.
B. Liability Insurance - LESSEE shall purchase, or cause to be purchased, and
cause to be maintained in effect for the term of this Agreement with
insurance carriers acceptable to LESSOR the following:
(1) Workers' Compensation Insurance as required by the Statutes of the
State of Oklahoma, or adequate Employers' Liability Insurance; and
(2) General Public Liability in the amount of not less than $1,000,000
for any number of claims arising out of a single occurrence or
accident, with a limit of $25,000 for any claim or to any claimant
who has more than one claim for loss of property arising out of a
single accident or occurrence and with a limit of $100,000 to any
claimant for his claim for any other loss arising out of a single
accident or occurrence.
(3) Hangar Keepers Liability Insurance in the minimum amounts of
$1,000,000 per aircraft and $1,000,000 per occurrence.
(4) Aircraft Liability Insurance for each aircraft owned or regularly
used in LESSEE's business, in the minimum
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amount of $50,000 per seat for passengers and property damage
insurance in the minimum amount of $4,000 for each 1,000 pounds (or
fraction thereof) of maximum gross weight at which aircraft is
certificated to operate, or $50,000, whichever is the greater amount
for each particular aircraft concerned.
Prior to the effectiveness of this Agreement, satisfactory proof of
carriage of such insurance by way of a "Certificate of Insurance" must be
submitted to LESSOR showing the Oklahoma City Airport Trust and The City
of Oklahoma City to be named as additional insured under the policies and
also containing a provision that coverages afforded under the policies
will not be materially altered or cancelled except upon at least ten (10)
days' prior written notice given to the Oklahoma City Airport Trust. The
certificate shall also include coverage for LESSEE'S contractual liability
set forth in Article XVIII(A) entitled Indemnity.
C. Property Insurance - The LESSEE, in its own name and that of LESSOR, as
their interests may appear, shall during the initial and renewal terms
hereof purchase and maintain in effect, with responsible underwriters
approved by LESSOR, a blanket "all-risks" form policy of fire insurance
with the broadest extended coverage endorsements attainable, as well as
vandalism and malicious mischief and boiler and machinery insurance on the
building and improvements situated on the leased premises to the extent of
not less than ninety percent (90%) of the full insurable value thereof.
Also, LESSEE shall in connection with all hazards or risks required to be
insured against in the immediately preceding sentence, purchase and
maintain in effect rental insurance on the buildings and improvements on
the leased premises, in an amount not less than debt service on such
buildings.
The LESSEE shall furnish the LESSOR, with certificates of such insurance,
issued by insurance underwriters, evidencing the existence of valid policies of
insurance with the coverage
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specified, which certificates shall not be amended so as to decrease the
protection below the limit specified herein or be subject to cancellation
without at least ten (10) days advance written notice to LESSOR.
In lieu of the above requirement of LESSEE to purchase and maintain
property insurance as described above, the LESSOR may purchase such insurance.
In the event LESSOR agrees to purchase such insurance, LESSEE shall reimburse
the LESSOR for all expenses incurred by LESSOR in carrying and maintaining such
insurance coverage. In this connection, LESSEE agrees to pay all premiums
immediately upon receipt of an invoice for same from the LESSOR and the LESSEE
shall assume and pay for or reimburse LESSOR for any property loss up to the
amount of any deductible amount under any property insurance policy, regardless
of whether such deductible amount is provided for in the property insurance
policy purchased and maintained by LESSEE or by LESSOR.
ARTICLE XIX - TERMINATION BY LESSOR IN EVENT OF DEFAULT
A. The following are hereby defined as "Events of Default" under this
Agreement:
1. If LESSEE shall fail to pay any installment of rent or any other
sums or charges payable by LESSEE to LESSOR under this Agreement
when and as the same become due and payable, and such failure shall
continue for a period of thirty (30) days after the due date; or
2. If LESSEE shall fail to perform or comply with any other term,
covenant or agreement hereof for a period of thirty (30) days after
written notice thereof from LESSOR to LESSEE, or, in the case of a
default or a contingency which cannot with due diligence be cured
within such period, LESSEE fails to proceed with all due diligence
within the time period to cure the same and thereafter to prosecute
the curing of such default with all due diligence; or
3. If LESSEE shall make a general assignment for the benefit of
creditors, or shall admit in writing LESSEE's
23
<PAGE>
continuing inability to pay LESSEE's debts as they become due, or
shall file a petition for bankruptcy, or shall be adjudicated a
bankrupt or insolvent, or shall file a petition seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute,
law or regulation, or shall file an answer admitting or not
contesting the material allegations of a petition against LESSEE in
any such proceeding, or shall seek or consent to or acquiesce in the
appointment of any trustee, receiver or liquidator of LESSEE or any
material part of LESSEE's properties; or
4. If within sixty (60) days after the commencement of any proceeding
against LESSEE seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, such proceeding shall
not have been dismissed, or if, within sixty (60) days after
appointment without the consent of such LESSEE or of any trustee,
receiver or liquidator of such LESSEE or of any material part of
LESSEE'S properties, such appointment shall not have been vacated;
or
5. If the LESSEE shall voluntarily abandon any of the Leased Premises
for a continuous period of thirty (30) days at any one time, except
when such abandonment be caused by fire, earthquake, war, strike or
other calamity beyond LESSEE'S control;
THEN and in such event, LESSOR at any time thereafter (but prior to the
curing of all such Events of Default) may give notice to LESSEE specifying
such Event of Default or Events of Default and stating that this Agreement
and the lease term shall expire and terminate on the date specified in
such notice, which shall be at least ten (10) days after the giving of
such notice, and on such date, unless all such Events of Default shall
have been cured and there shall not exist any
24
<PAGE>
other Event of Default, all of the right, title and interest of LESSEE
under this Agreement shall terminate and LESSEE shall remain liable as
hereinafter provided. Provided, however, in any case where LESSOR shall be
entitled under this Article XIX to terminate this Agreement for failure of
the LESSEE to correct or cure an Event of Default after due notice as
herein provided, LESSOR, as an alternative to termination of this
Agreement, may but shall be under no obligation to, perform the obligation
imposed under this Agreement for the account of and at the expense of the
LESSEE and the same shall be paid by LESSEE within thirty (30) days
following the date of receipt by LESSEE of an invoice for said reasonable
expense.
B. If any Event of Default shall have occurred and be continuing, LESSOR,
whether or not the lease term shall have been terminated pursuant to
Section XIX.A, may, upon ten (10) days written notice, except in cases of
emergency when no notice need be given and unless the default is cured,
enter upon and repossess the leased premises or any part thereof and
possess the improvements thereon, or any part thereof, and declare all
rent remaining for the unexpired term of the Agreement to be due and
owing (said repossession and possession being hereinafter referred to as
"repossession") by force, summary proceedings, ejectment or otherwise
without being deemed guilty of any manner of trespass, and may remove
LESSEE and all other persons and property therefrom. LESSEE shall release,
defend, indemnify and save harmless LESSOR and The City of Oklahoma City,
and their officers, agents and employees, from all claims, damages, suits,
actions, costs, expense or liability of whatsoever nature arising from the
LESSOR'S repossession of the leased premises as authorized herein;
provided, however, LESSEE shall not be liable for or release the LESSOR or
The City of Oklahoma City from any loss or damage caused by the sole
negligence or willful misconduct of the LESSOR, The City of Oklahoma City,
or their officers,
25
<PAGE>
agents or employees in connection with any repossession activities
authorized herein.
C. From time to time after the repossession of the leased premises or any
part thereof, pursuant to Section XIX.B, whether or not the lease term has
been terminated, (i) LESSOR may, but shall be under no obligation to,
relet the leased premises or any part thereof, for the account of LESSEE
in the name of LESSOR or otherwise, or (ii) the Director of Airports of
The City of Oklahoma City may, but shall be under no obligation to, grant
one or more revocable permits for the occupancy or use of the leased
premises or any part thereof, for such term or terms (which may be greater
or less than the period which otherwise would have constituted the balance
of the lease term) and on such terms (which may include concessions or
reduced rent or fees) and for such uses as LESSOR, or as the Director of
Airports in the event of the issuance of a revocable permit, in LESSOR'S,
or the Director of Airport's, sole discretion may determine, and may
collect and receive as rent or fees therefor. LESSEE shall indemnify and
hold LESSOR harmless for any deficiency received by LESSOR upon such
reletting or grant of one or more revocable permits, all without prejudice
to any other remedy available to LESSOR.
D. No termination of this Agreement and no repossession of the leased
premises or any part thereof pursuant to this Article XIX shall relieve
the LESSEE of LESSEE'S obligations and liabilities under this Agreement,
all of which shall survive any such termination or repossession. In the
event of any such termination or repossession, whether or not the leased
premises or any part thereof shall have been relet, or shall have been
reoccupied or used pursuant to a revocable permit, LESSEE shall pay to
LESSOR the rent and other sums and charges to be paid by LESSEE up to the
time of such termination or repossession. Thereafter LESSEE, until the end
of what would have been the full term of this Agreement, shall pay to
LESSOR, as and for liquidated and agreed current damages for
26
<PAGE>
LESSEE'S default, the equivalent amount of the rent and such other sums
and charges which would be payable under this Agreement by LESSEE if this
Agreement were still in effect, less the net proceeds, if any, of any
reletting, or of any granting of a revocable permit, effected pursuant to
the provisions of Paragraph C, supra after deducting therefrom all
expenses in connection with such reletting by LESSOR, or in connection
with such granting of a revocable permit by the Director of Airports,
including, without limiting the generality thereof, all repossession
costs, operating expenses, reasonable attorneys' fees, alteration costs,
and expense of preparing for such reletting by LESSOR, or for the granting
of a revocable permit by the Director of Airports. LESSEE shall pay such
current damages to LESSOR monthly on those days on which the Rent would
have been payable under this Lease if this Lease were still in effect, and
LESSOR shall be entitled to recover the same from LESSEE on each such day.
E. No failure by LESSOR to insist upon the strict performances of any term
hereof or to exercise any right or remedy consequent upon a breach
thereof, and no acceptance of full or partial rent during the continuance
of any such breach, shall constitute a waiver of any such breach or of any
such term.
F. The various rights, powers, and remedies herein contained and reserved to
LESSOR, or the Director of Airports, shall not be considered as exclusive
of any other right, power or remedy, but the same shall be construed as
cumulative and shall be in addition to every other right, power or remedy
now or hereafter existing at law, in equity or by statute. No delay or
omission of LESSOR, or of the Director of Airports, to exercise any right,
power or remedy arising from any omission, neglect or default of LESSEE
shall impair any such right, power or remedy or shall be construed as a
waiver of any such default or an acquiescence therein.
G. In the event of any breach or threatened breach by LESSEE of
27
<PAGE>
any of the terms contained in this Agreement, LESSOR shall be entitled to
enjoin such breach or threatened breach and shall have the right to invoke
any right and remedy allowed at law or in equity or by statute or
otherwise, except this Agreement shall be terminated only in the manner
set forth herein.
ARTICLE XX - TRANSFER OF STOCK OWNERSHIP
If any individual or group of individuals or any other entity presently
owns in excess of a majority of shares in LESSEE Corporation, then a transfer of
ownership of a majority or more of the stock in LESSEE Corporation without the
prior written approval of LESSOR shall constitute a material breach of this
Agreement for which LESSOR may terminate the same under the provisions of
Article XIX hereof. Moreover, at least ninety (90) days prior to any
contemplated stock transfer LESSEE shall submit a written request to LESSOR
showing good and sufficient financial worth and adequate experience in the
operation of the facilities on the part of the contemplated purchaser or
purchasers of stock and evidencing the intent of such contemplated purchaser or
purchasers to expressly assume in writing and agree to be bound by and fulfill
all of the terms, covenants, obligations, and agreements contained in this
Agreement.
ARTICLE XXI - WAIVER OF STATUTORY NOTICE
In the event LESSOR exercises its option to terminate this Agreement
pursuant to the terms and happenings of any or all of the events set forth in
Article XIX (Termination by LESSOR), any notice of termination given by LESSOR
to LESSEE pursuant to the provisions of said Article XIX shall be sufficient to
cancel and terminate this Agreement; and, upon such termination, LESSEE hereby
agrees that it will forthwith surrender up possession of the demised premises to
the Trustees of the Oklahoma City Airport Trust. In this connection, LESSEE
hereby expressly waives the receipt of any notice to quit or notice of
termination which would otherwise be given by LESSOR under any provisions of the
laws of the State of Oklahoma, including, but not limited to, notices required
to be given under any section of Title 41 of the Oklahoma Statutes.
28
<PAGE>
ARTICLE XXII - ASSIGNMENT AND SUBLETTING
The LESSEE may, with the prior written consent of LESSOR, assign or sublet
all or a portion of the leased premises; provided, however, the term of any
sublease shall not extend beyond a one year period.
Except as specifically provided above, LESSEE shall not assign this
Agreement or any interest therein by an operation of law, process or proceeding
of any Court or otherwise, or sublet the leased premises or any portion thereof
and/or the operation or maintenance of the leased premises without first
obtaining the prior written approval of the LESSOR; moreover, at least ninety
(90) days prior to any contemplated assignment of this Agreement by any
operation of law, process or proceeding of any Court or otherwise, LESSEE shall
submit a written request to the LESSOR, and LESSEE shall submit evidence showing
good and sufficient financial worth and adequate experience in the operation of
the facilities on the part of the contemplated assignee. In any event, no
assignment shall be made or shall be effective unless LESSEE shall not be in
default on any of the terms, provisions, covenants and conditions herein
contained. Further, in no event shall any assignment be effective, regardless of
any submissions to the LESSOR, without the prior written approval of the LESSOR.
The party to whom such assignment is made shall expressly assume in writing and
agree to be bound by and fulfill all of the terms, covenants, obligations and
agreements contained in this Agreement.
In the event of any approved assignment, LESSEE shall remain liable to
LESSOR to pay to LESSOR any portion of the rental and fees provided for herein
upon failure of the assignee to pay the same when due; moreover, no subleasing
shall release the LESSEE from its obligations to pay all rental amounts
hereunder or release LESSEE from any of the terms, covenants or conditions
herein contained on the part of the LESSEE to be performed, kept and observed.
Further, in the event of an approved assignment or subleasing, neither assignee
or sublessee shall assign or sublet any portion of the leased premises except
with the prior approval
29
<PAGE>
of LESSOR and LESSEE herein, and any sublease or assignment by LESSEE shall
contain a clause to this effect.
LESSEE may rent or sublease portions of the demised premises and
facilities for the storage of individual privately owned aircraft or the minor
maintenance thereof without the prior written approval of the LESSOR; provided,
however, the term of any sublease shall not extend beyond a one-year period and
provided, further, that LESSEE shall from time to time and at any time at the
request of the Director of Airports furnish the Director with the following
information as to any and all subleases: (i) the name and address of such
sublessee, (ii) the identity and location of the specific portion of LESSEE'S
leased premises and facilities subleased to such sublessee, (iii) the
identification of any aircraft stored or located in the subleased premises and
facilities, and (iv) any and all other evidence deemed necessary by the Director
of Airports to document that any such sublessee is at all times strictly
complying with all the terms, provisions and restrictions contained in this
Lease Agreement.
ARTICLE XXIII - NONDISCRIMINATION IN EMPLOYMENT
The LESSEE shall comply with all the following nondiscrimination
provisions to the extent that LESSEE'S activities shall be subject to the same:
A. Nondiscrimination in Employment
The LESSEE agrees not to discriminate against any employee or applicant
for employment because of race, creed, color, sex, national origin,
ancestry, age or disability, as defined by the Americans With Disabilities
Act 1990, Section 3 (2). The LESSEE shall take affirmative action to
insure that employees are treated without regard to their race, creed,
color, national origin, sex, ancestry, age or disability, as defined by
the Americans With Disabilities Act 1990, Section 3 (2). Such actions
shall include, but not be limited to, the following: employment,
upgrading, demotion or transfer, recruiting or recruitment, advertising,
lay-off or termination and selection for training, including
apprenticeship. The
30
<PAGE>
LESSEE, or any sublessee, hereby agrees to post, in a conspicuous place,
available to employees and applicants for employment, notices setting
forth the provisions of this Article.
B. Facilities Nondiscrimination
1. LESSEE shall furnish its accommodations and/or services on fair,
equal, and not unjustly discriminatory basis to all users thereof
and it shall charge fair, reasonable, and not unjustly
discriminatory prices for each unit or service; provided, that the
LESSEE may be allowed to make reasonable and nondiscriminatory
discounts, rebates, or other similar type of price reductions to
volume purchasers.
2. LESSEE shall make its accommodations and/or services available to
the public on fair and reasonable terms without unjust
discrimination on the basis of sex, age, race, creed, ancestry,
color, national origin, or disability, as defined by the Americans
With Disabilities Act 1990, Section 3 (2); provided, however,
nothing herein shall require the furnishing to the general public of
the use of any facilities or accommodations customarily furnished by
LESSEE solely to its employees, customers, clients, guests, and
invitees.
3. Noncompliance with Provisions 1 and 2 above shall constitute a
material breach thereof and, in the event of such noncompliance,
LESSOR shall have the right to terminate this Agreement and the
estate hereby created without liability therefor, or at the election
of LESSOR or the United States, either or both said Governments,
shall have the right to judicially enforce said Provisions 1 and 2.
4. LESSEE agrees to insert the above in any leases, agreements, or
contracts, etc. by which said LESSEE grants a right or privilege to
any person, firm, or
31
<PAGE>
corporation to render accommodations and/or services to the public
on the premises herein leased.
C. Affirmative Action Program
LESSEE assures that it will undertake an affirmative action program as
required by 14 CFR Part 152, Subpart E, to insure that no person on the
grounds of race, creed, color, national origin, ancestry, age, sex, or
disability, as defined by the Americans With Disabilities Act 1990,
Section 3 (2) be excluded from participation in any employment activities
covered by 14 CFR Part 152, Subpart E. LESSEE assures that no person shall
be excluded on these grounds from participating in or receiving the
services or benefits of any program or activity covered by this Subpart.
LESSEE assures that its covered suborganizations will give assurances to
LESSEE that they similarly will undertake affirmative action programs and
that they will require assurances from their suborganizations, as required
by 14 CFR Part 152, Subpart E, to the same effect.
The LESSEE agrees not to discriminate against any employee or applicant
for employment because of race, creed, color, sex, national origin, ancestry or
age. The LESSEE shall take affirmative action to insure that employees are
treated without regard to their race, creed, color, national origin, sex,
ancestry or age. Such actions shall include, but not be limited to, the
following: employment, upgrading, demotion or transfer, recruiting or
recruitment, advertising, lay-off or termination and selection for training,
including apprenticeship. The LESSEE, or any Sublessee, hereby agrees to post,
in a conspicuous place, available to employees and applicants for employment,
notices setting forth the provisions of this Article.
ARTICLE XXIV - NOTICES, CONSENTS, AND APPROVALS
Notices or other communications to LESSOR pursuant to the provisions
hereof shall be sufficient if sent by registered or certified mail, postage
prepaid, addressed to the Oklahoma City Airport Trust, Will Rogers World
Airport, 7100 Terminal Drive, Box 937, Oklahoma City, Oklahoma 73159-0937; and
bills, statements,
32
<PAGE>
and notices or communications to LESSEE shall be sufficient if sent by mail,
postage prepaid, or if hand-delivered, to Gulfstream Aerospace Corporation, P.O.
Box 22500, Oklahoma City, Oklahoma 73123; or to such respective addresses as the
parties may designate in writing from time to time.
IN WITNESS WHEREOF, the parties have hereunto set their hands to this
Lease and Operations Agreement as of the day and year first above written.
ATTEST: (SEAL) GULFSTREAM AEROSPACE CORPORATION
/s/ A. Wayne Radko, CONTROLLER /s/ John E. Podger, President
- ----------------------------------- -----------------------------------
Name/Title Name/Title
APPROVAL RECOMMENDED: OKLAHOMA CITY AIRPORT TRUST
/s/ Luther E. Trent /s/ Ken W. Townsend
- ----------------------------------- -----------------------------------
Luther E. Trent Ken W. Townsend, Chairman
Director of Airports
ATTEST: (SEAL)
/s/ Thomas Hurley
- -----------------------------------
Trust Secretary
APPROVED by the Council and signed by the Mayor of The City of Oklahoma
City this 7th day of March, 1995.
/s/ Ronald J. Norick
-----------------------------------
Mayor
ATTEST: (SEAL)
/s/ Thomas Hurley
- -----------------------------------
City Clerk
APPROVED as to form and legality this 21st day of February 1995.
/s/ William O. West
-----------------------------------
Assistant Municipal Counselor
33
<PAGE>
EXHIBIT A
GULFSTREAM AEROSPACE CORPORATION
Parcel 1 - Hangars 10 and 11
A part of the Southeast Quarter of Section 8, Township 12 North, Range 4 West,
of the Indian Meridian in Oklahoma County, Oklahoma, more particularly described
as follows:
COMMENCING at the Southeast corner of said Southeast Quarter; thence North 00
degrees 16'00" West along the East line of said quarter section a distance of
40.00 feet; thence South 89 degrees 26'OO" West along a line parallel to the
South line of said quarter section a distance of 948.42 feet to a point or place
of beginning of the tract of land herein described;
THENCE continuing South 89 degrees 26'00" West a distance of 1059.08 feet;
THENCE North 02 degrees 05'10" West a distance of 411.94 feet;
THENCE North 43 degrees 26'00" East a distance of 86.00 feet;
THENCE North 46 degrees 34'00" West a distance of 70.00 feet;
THENCE North 43 degrees 26'00" East a distance of 332.00 feet;
THENCE North 89 degrees 26'00" East a distance of 254.134 feet;
THENCE South 00 degrees 34'00" East a distance of 320.00 feet;
THENCE North 89 degrees 26'00" East a distance of 545.866 feet;
THENCE South 00 degrees 34'00" East a distance of 440.81 feet to the point or
place of beginning, said tract containing 587,189 square feet or 13.48 acres,
more or less.
Parcel 2 - Ground Lease
The subject property is within an unplatted area and is legally described as
follows:
A part of the Southwest Quarter of Northeast Quarter of Section 17, Township 12
North, Range 4 West, more particularly described as beginning at a point at the
Northeast Corner of Southwest Quarter of Northeast Quarter; thence West 470
feet; thence South 300 feet; thence East 470 feet; thence North 300 feet, to a
point of beginning, or Lots 1, 2, 3, and East 80 feet of Lot 4 of Leavitt's
unrecorded addition as shown on Exhibit B, Page 2 of 2.
Said area containing 141,000 square feet or 3.24 acres, more or less.
EXHIBIT A
GULFSTREAM AEROSPACE CORPORATION
EFFECTIVE JANUARY 1, 1995
<PAGE>
EXHIBIT B, Page 1 of 2
---------------
LEASE AGREEMENT
(Hangars 10 and 11)
Gulfstream Aerospace Corporation
Parcel 1
WILEY POST AIRPORT
DATE: January 1, 1995
[MAP OMITTED]
<PAGE>
EXHIBIT B, Page 2 of 2
LEASE AGREEMENT (PARCEL 2)
GULFSTREAM AEROSPACE CORPORATION
WILEY POST AIRPORT
January 1, 1995
<PAGE>
Exhibit 10.28
EXECUTION COPY
AMENDMENT
AMENDMENT, dated as of December 24, 1997 (this "Amendment"), to the
Credit Agreement, dated as of October 16, 1996 (as the same may be further
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among GULFSTREAM DELAWARE CORPORATION, a Delaware corporation, the
several lenders from time to time parties thereto (the "Lenders"), THE CHASE
MANHATTAN BANK, a New York banking corporation, as administrative agent for the
Lenders (in such capacity, the "Administrative Agent").
W I T N E S S E T H:
WHEREAS, the Company, the Lenders and the Administrative Agent are
parties to the Credit Agreement;
WHEREAS, the Company has requested that the Administrative Agent,
with the consent of the Required Lenders, amend certain provisions of the Credit
Agreement; and
WHEREAS, the Administrative Agent, with the consent of the Required
Lenders, is agreeable to the requested amendments, but only on the terms and
subject to the conditions set forth herein;
NOW THEREFORE, in consideration of the premises herein contained and
for other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms
used herein which are defined in the Credit Agreement are used herein as therein
defined.
2. Amendments to Subsection 8.11. (a) Subsection 8.11(e) of the
Credit Agreement is hereby amended by deleting the word "and" at the end of such
subsection.
(b) Subsection 8.11(f) of the Credit Agreement is hereby amended by
deleting the existing subsection 8.11(f) in its entirety and by substituting in
lieu thereof the following new subsection 8.11(f):
"(f) so long as no Default or Event of Default has occurred or
would occur after giving effect to such declaration or payment, the
Company may, at any time that (i) the Leverage Ratio in effect is
equal to or less than 1.5:1.0 or (ii) the aggregate principal amount
of Term Loans then outstanding is less than $200,000,000, declare
and pay cash
<PAGE>
2
dividends to Holdings on the common stock of the Company, provided
that the aggregate amount thereof paid in any fiscal year of the
Company, together with any Stock Repurchase Dividends (as defined
below) made under paragraph (g) of this subsection 8.11 during such
fiscal year, does not exceed an amount equal to 25% of Consolidated
Net Income for such fiscal year; and"
(c) Subsection 8.11 of the Credit Agreement is hereby amended by
adding the following new paragraph (g) to the end of such subsection:
"(g) so long as no Default or Event of Default has occurred or
would occur after giving effect to such declaration or payment, the
Company may, at any time and from time to time, declare and pay cash
dividends to Holdings on the common stock of the Company, in an
aggregate amount of up to $200,000,000, in order to enable Holdings
to repurchase shares of its own common stock for an aggregate
purchase price of $200,000,000 pursuant to a share repurchase
program (such cash dividends, the "Stock Repurchase Dividends"),
provided that the Company does not use more than $100,000,000 in
proceeds from Revolving Credit Loans to finance such Stock
Repurchase Dividends (it being understood that this proviso shall in
no way limit the Company from using proceeds from Revolving Credit
Loans for any other purpose)."
3. Effectiveness. This Amendment shall become effective as of the
date the Administrative Agent shall have received counterparts hereof duly
executed by the Company, the Administrative Agent and the Required Lenders.
4. Representations and Warranties. The Company hereby represents and
warrants that each of the representations and warranties in or pursuant to
Section 5 of the Credit Agreement or which are contained in any other Credit
Document or in any certificate, document or financial or other statement
furnished by or on behalf of Holdings, the Company or any Subsidiary thereof
shall be, after giving effect to this Amendment, true and correct in all
material respects as if made on and as of the date hereof (unless such
representations and warranties are stated to relate to a specific earlier date,
in which case such representations and warranties shall be true and correct in
all material respects as of such earlier date).
5. Continuing Effect of Credit Agreement. This Amendment shall not
be construed as a waiver or consent to any further or future action on the part
of the Company that would require a waiver or consent of the Administrative
Agent and/or the Lenders. Except as amended hereby, the provisions of the Credit
Agreement are and shall remain in full force and effect.
6. Counterparts. This Amendment may be executed in counterparts and
all of the said counterparts taken together shall be deemed to constitute one
and the same instrument.
<PAGE>
3
7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
8. Expenses. The Company agrees to pay or reimburse the
Administrative Agent for all of its out-of-pocket costs and expenses incurred in
connection with the preparation, negotiation and execution of this Amendment,
including, without limitation, the fees and disbursements of counsel to the
Administrative Agent.
<PAGE>
4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their duly authorized officers as of the date first
written above.
GULFSTREAM DELAWARE CORPORATION
By: /s/ Robert L. Williams
----------------------------------
Title: Vice President & Treasurer
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By: /s/ William J. Caggiano
----------------------------------
Title: Managing Director
ARAB BANKING CORP.
By: /s/ Louise Bilbro
----------------------------------
Title: Vice President
BANK OF AMERICA
By: /s/ Debra Seiter
----------------------------------
Title: Vice President
BANK OF NEW YORK
By: /s/ David C. Siegel
----------------------------------
Title: Vice President
BANK OF TOKYO-MITSUBISHI TRUST
By: /s/ Joseph P. Devoe
----------------------------------
Title: Vice President
<PAGE>
5
CAPTIVA FINANCE LTD.
By: /s/ Illegible
----------------------------------
Title: Director
CERES FINANCE, LTD.
By: /s/ Illegible
----------------------------------
Title: Director
MEDICAL LIABILITY MUTUAL INSURANCE
By: /s/ Reginald J. Woodard
----------------------------------
Title: Assistant Vice President
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Clifford L. Weils
----------------------------------
Title: Vice President
CITIBANK, N.A.
By: /s/ Larry Farley
----------------------------------
Title: Attorney-In-Fact
CREDIT LYONNAIS
By: /s/ Philippe Soustra
----------------------------------
Title: Senior Vice President
<PAGE>
6
DAI-ICHI KANGYO
By: /s/ Stephanie Rogers
----------------------------------
Title: Vice President
BANKBOSTON, N.A.
By: /s/ Illegible
----------------------------------
Title: Division Executive
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Gregory J. Sjullie
----------------------------------
Title: Vice President
INDUSTRIAL BANK OF JAPAN, LTD.
By: /s/ Takuya Honjo
----------------------------------
Title: Senior Vice President
KREDIETBANK
By: /s/ Robert Seauffer
----------------------------------
Title: Vice President
By: /s/ Tod R. Angus
----------------------------------
Title: Vice President
LTCB TRUST COMPANY
By:
----------------------------------
Title:
<PAGE>
7
LEHMAN COMMERCIAL PAPER INC.
By: /s/ Michele Swanson
----------------------------------
Title: Authorized Signatory
MARINE MIDLAND BANK, N.A.
By: /s/ Illegible
----------------------------------
Title: Authorized Signatory #8891
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management,
L.P., as Investment Advisor
By: /s/ Gilles Marchand
----------------------------------
Title: Authorized Signatory
MERRILL LYNCH SENIOR FLOATING RATE FUND,
INC.
By: /s/ Gilles Marchand
----------------------------------
Title: Authorized Signatory
MITSUBISHI TRUST & BANKING CORP.
By: /s/ Scott J. Paige
----------------------------------
Title: Senior Vice President
NATIONSBANK N.A.
By:
----------------------------------
Title:
<PAGE>
8
PNC BANK, N.A.
By: /s/ Robert Mitchell
----------------------------------
Title: Vice President
SOCIETE GENERALE
By: /s/ Illegible
----------------------------------
Title: V.P., Manager
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Mark R. Olman
----------------------------------
Title: Vice President
VAN KAMPEN AMERICAN CAPITAL PRIME RATE
INCOME TRUST
By: /s/ Jeffrey W. Maillet
----------------------------------
Title: Sr. Vice President &
Director
YASUDA TRUST & BANKING COMPANY
By:
----------------------------------
Title:
<PAGE>
9
The undersigned guarantors hereby
consent to the foregoing Amendment:
GULFSTREAM AEROSPACE CORPORATION,
a Delaware Corporation
By: /s/ Robert L. Williams
----------------------------------
Title: Vice President & Treasurer
GULFSTREAM AEROSPACE CORPORATION,
a Georgia Corporation
GULFSTREAM AEROSPACE CORPORATION,
D/B/A GULFSTREAM AEROSPACE
TECHNOLOGIES,
an Oklahoma Corporation
GULFSTREAM AEROSPACE CORPORATION,
a California Corporation
By: /s/ Robert L. Williams
----------------------------------
Title: Vice President & Treasurer
<PAGE>
Exhibit 10.29
AGREEMENT
THIS AGREEMENT ("Agreement") is entered into as of December 24,
1997, by and between Gulfstream Aerospace Corporation, a Delaware corporation
("Gulfstream"), Gulfstream Delaware Corporation, a Delaware corporation and a
wholly-owned subsidiary of Gulfstream Aerospace Corporation ("GDC"), Gulfstream
Aerospace Corporation, a Georgia corporation and a wholly-owned subsidiary of
Gulfstream Delaware Corporation ("GAC") and the Pension Benefit Guaranty
Corporation ("PBGC").
WITNESSETH:
WHEREAS, PBGC is a wholly-owned United States government
corporation, created under Title IV of the Employee Retirement Security Act of
1974, as amended ("ERISA"), which guarantees the payment of certain pension
benefits upon termination of those pension plans to which Title IV of ERISA
applies; and
WHEREAS, GAC is the contributing sponsor, as defined in Section
4001(a)(13) of ERISA, of the Gulfstream Aerospace Corporation Pension Plan, the
Gulfstream Aerospace Technologies Hourly Employees Pension Plan and the
Gulfstream Aerospace Technologies Salaried Employees Pension Plan (each, a
"Plan" and collectively, the "Plans"); and
WHEREAS, Gulfstream in 1996 engaged in an initial public offering,
the repurchase of all outstanding preferred stock and the exchange,
redesignation and 1.5-for-1 stock split of Gulfstream's common stock and certain
related transactions including entering into a Credit Agreement (as hereinafter
defined) for term loans and revolving credit and refinancing certain of the
outstanding indebtedness of Gulfstream, as
<PAGE>
described in Securities and Exchange Commission Registration Statement on Form
S-1 (Regis. No. 333-09897), as amended through October 9, 1996 (the "IPO
Transactions"); and
WHEREAS, PBGC has asserted that, as a result of the IPO
Transactions, its long-run loss with respect to the Plans may reasonably be
expected to increase unreasonably, within the meaning of Section 4042(a)(4) of
ERISA; and
WHEREAS, Gulfstream disputes that any of the IPO Transactions may
reasonably be expected to increase unreasonably the PBGC's long-run loss, if
any, within the meaning of Section 4042(a)(4) of ERISA; and
WHEREAS, Gulfstream is willing to undertake the obligations set
forth below in this Agreement to address PBGC's concerns and to resolve the
parties' dispute as to whether there is long-run loss within the meaning of
Section 4042 of ERISA in connection with the IPO Transactions.
NOW, THEREFORE, in consideration of the foregoing and of the
promises set forth herein, the receipt and adequacy of which are hereby
acknowledged, Gulfstream, GDC, GAC and PBGC hereby agree as follows:
1. Definitions.
As used in this Agreement, the following terms shall have the
meanings set forth below:
"Adjusted Consolidated EBITDA" means for any Test Year, Consolidated
Net Income for that Test Year ((i) including earnings and losses from
discontinued operations, (ii) excluding extraordinary gains, and gains and
losses arising
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<PAGE>
from the proposed or actual disposition of material assets, and (iii) excluding
the non-cash portion of other non-recurring losses) of Gulfstream and its
subsidiaries for such period, plus to the extent reflected as a charge in the
statement of consolidated net income for such period, the sum of (a) interest
expense (net of interest income), amortization (including accelerated
amortization) and write-offs of debt discount and debt issuance costs, including
such write-offs in connection with the prepayment of debt, and commissions,
discounts and other fees and charges associated with letters of credit, (b)
taxes measured by income, (c) depreciation and amortization expenses including
acceleration thereof and including the amortization of the increase in inventory
resulting from the application of APB 16 for transactions contemplated by the
Credit Agreement including acquisitions permitted under the Credit Agreement,
(d) non-cash compensation expenses arising from the sale of stock, the granting
of stock options, the granting of stock appreciation rights and similar
arrangements, (e) the excess of the expense in respect of post-retirement
benefits and post-employment benefits accrued under Statement of Financial
Accounting Standards No. 106 ("FASB 106") and Statement of Financial Accounting
Standards No. 112 ("FASB 112") or any successor standards over the cash expense
in respect of such post-retirement benefits and post-employment benefits and (f)
the amount of any non-cash charges made or required to be made in connection
with the refinancing (including, in the case of stock appreciation rights, any
charge thereafter on a cumulative basis) in respect of (A) the charge to expense
for compensation relating to stock options, stock appreciation rights and stock
purchases by officers, directors and key employees of Gulfstream or any of its
subsidiaries and (B) the charge to expense for deferred financing costs
resulting from the prepayment of all amounts owing and payable under the
Existing Credit Agreement and the 1996 Credit Agreement, plus the sum of (g) the
cash expense in respect of post-retirement medical benefits and post-employment
medical benefits and (h) the Normal Cost for Gulfstream's
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<PAGE>
defined benefit pension plans; provided, that Adjusted Consolidated EBITDA
during any period shall be increased by research and development expense
incurred during such period in respect of the Gulfstream V program (if the
amount of such expense for such period is greater than $0), but only to the
extent of customer deposits received, net of cancellations, during such period.
"Agreement" shall have the meaning set forth in the Preamble hereto.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Interest Expense" means for any Test Year, the amount
of interest expense, both expensed and capitalized (excluding amortization and
write-offs of debt discount, and debt issuance costs), net of interest income,
of Gulfstream and its subsidiaries, determined on a consolidated basis in
accordance with GAAP, for such period.
"Consolidated Net Income" means for any Test Year, the net income or
net loss of Gulfstream and its subsidiaries for such period, determined in
accordance with GAAP on a consolidated basis, as reflected in Gulfstream's
financial statements.
"Contributions" shall have the meaning set forth in Section 2(a)
hereof.
"Credit Agreement" means the 1996 Credit Agreement or any subsequent
refinancing of the 1996 Credit Agreement by Gulfstream or its subsidiaries.
"Credit Balance" means the accumulated credit, if any, existing from
time to time with respect to the Plans' funding standard accounts as established
under Section 412(b)(1) of the Code.
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<PAGE>
"Credit Balance Adjustment" means the amount of the Credit Balance
in a Plan's funding standard account that is excluded from the credit balance
maintenance requirement set forth in Section 3 of this Agreement with respect to
the Plans beginning in the first Plan Year commencing after December 31, 2000.
The Credit Balance Adjustment for the Plans as of December 31, 2000 equals (i)
$12 million, plus (ii) the amount of any contributions made from July 31, 1996
through December 31, 2000 that are in excess of the Contributions increased by
interest to December 31, 2000 at the Interest Rate, minus (iii) that portion of
any Contribution not contributed to any Plan on or before December 31, 2000 by
virtue of the operation of Section 4(a) hereof.
"Deduction Schedule Period" shall have the meaning set forth in
Section 6(j) hereof.
"Effective Date" means the latest date that this Agreement is
executed by a party hereto.
"ERISA" shall have the meaning set forth in the Recitals hereto.
"Excess Contributions" means the excess of the Contributions over
minimum funding obligations for a Plan under Code Section 412.
"Existing Credit Agreement" means the collective reference to (i)
the credit agreement, dated as of March 19, 1990, among GDC, the banks and other
financial institutions parties thereto and The Chase Manhattan Bank, as amended,
and (ii) the credit agreement, dated as of November 30, 1993, among GDC, the
banks and other financial institutions parties thereto and The Chase Manhattan
Bank, as amended.
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<PAGE>
"Fixed Charge Coverage Ratio" means as at the last day of any Test
Year, the ratio of Adjusted Consolidated EBITDA to Fixed Charges, in each case
determined cumulatively for the four fiscal quarters ending the last day of such
Test Year.
"Fixed Charges" means for any Test Year, the sum of (i) Consolidated
Interest Expense incurred during the four fiscal quarters ending the last day of
such Test Year, (ii) the Normal Cost for the Plans and (iii) the cash expense
for post-retirement medical benefits and post-employment medical benefits
incurred during the four fiscal quarters ending the last day of such Test Year.
"GAAP" means generally accepted accounting principles in the United
States of America in effect from time to time.
"GAC" shall have the meaning set forth in the Preamble hereto.
"GDC" shall have the meaning set forth in the Preamble hereto.
"Gulfstream" shall have the meaning set forth in the Preamble
hereto.
"Interest Rate" shall have the meaning set forth in Section 3
hereof.
"IPO Transactions" shall have the meaning set forth in the Recitals
hereto.
"1996 Credit Agreement" means the credit agreement, dated as of
October 16, 1996, among Gulfstream Delaware Corporation, certain lenders and The
Chase Manhattan Bank as Administrative Agent, as amended, supplemented or
modified from time to time.
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<PAGE>
"Normal Cost", for any Plan means (i) for any Test Year that
coincides with the Plan's Plan Year, the amount of normal cost in the funding
standard account under Code Section 412(b)(2)(A) for the Plan Year determined as
of the first day of the applicable Plan Year, and (ii) for any Test Year that
does not coincide with the Plan's Plan Year, a proportionate amount of the
normal cost (as specified above) for the portions of each of the Plan Years
included in the Test Year.
"PBGC" shall have the meaning set forth in the Preamble hereto.
"Plan Year" means for each Plan, the calendar year, or such other
period specified in each Plan as amended, supplemented or modified from time to
time.
"Plans" shall have the meaning set forth in the Recitals hereto.
"Required Contribution" means a contribution provided for in Section
2 or a contribution made pursuant to the credit balance requirement of Section
3.
"Term Loans" shall have the meaning set forth in Section 2.1 of the
1996 Credit Agreement or, in the event of a refinancing of the 1996 Credit
Agreement while this Agreement is in effect, such term shall refer to all loans
made pursuant to such refinancing agreement which may not be reborrowed after
they are repaid thereunder.
"Termination Date" shall have the meaning set forth in Section 5
hereof.
"Test Year" means each year which is being measured for purposes of
determining whether the Fixed Charge Coverage Ratio described in Section
5(a)(iii)(C) has been satisfied.
"Total Unfunded Liabilities" means all unfunded benefit liabilities
(as defined in Section 4001(a)(18) of ERISA) with respect to the Plans,
calculated using
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<PAGE>
PBGC assumptions for interest, mortality and the expected retirement ages for
the Plans, including annual cost of living adjustments ("COLAs") projected at a
3% growth rate, to the extent the Plans provide for a COLA capped at 3%. To the
extent that the COLA cap is modified, COLA adjustments will be projected at a
rate equal to the new cap. To the extent that any Plan is overfunded under this
definition, Total Unfunded Liabilities for that Plan will equal zero (0).
2. Gulfstream's Contributions to the Plans.
(a) By the end of 1996, Gulfstream contributed to the Plans such amounts
so that its aggregate contributions made after July 31, 1996 equaled $20
million. Gulfstream will contribute an additional $100 million to the Plans,
inclusive of any minimum funding obligations, on or before December 31, 2000
(together, the "Contributions"). The Contributions as of the Effective Date
have, and thereafter will, be paid in equal installments of $6.25 million by the
last day of each calendar year quarter, with the first such payment due March
31, 1997 and the final such payment due December 31, 2000. The Contributions
will be allocated to the Plans in the following order:
(i) The Contributions in any Plan Year first will be applied to
the minimum contributions, if any, required under Code Section
412.
(ii) The Excess Contributions will be allocated among the Plans in
a reasonable manner as determined by the Plan actuary in
consultation with Gulfstream; provided, however, that no
Excess Contribution will be allocated to a Plan once that Plan
has reached a funded current liability percentage (as defined
in Code Section 412(l)(9)(C)) of 100%, unless and until all
Plans have a 100% funded current liability percentage. The
funded current liability percentage shall be
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<PAGE>
calculated on an expected basis, i.e., with assets and
liabilities projected from the first day of the prior Plan
Year; provided, however, that once the actuarial valuation
report for the current Plan Year has been delivered to
Gulfstream, the funded current liability percentage shall be
based on the assets and liabilities at the valuation date for
the current Plan Year and shall be used for allocation of
Excess Contributions after receipt of the actuarial valuation
report.
(b) The parties agree that, throughout the term of this Agreement, the
Plans' Credit Balances may be used in calculating the minimum funding
obligations consistent with the provisions of Code Section 412, e.g., for
determining any deficit reduction contribution.
3. Credit Balance Maintenance Requirement.
Beginning with the Plan Year ending December 31, 2001 and annually
thereafter during the term of this Agreement, Gulfstream shall make any cash
contributions to each of the Plans necessary to maintain the Plan's year end
Credit Balance at the December 31, 2000 level increased by interest at the
interest rate at which the Credit Balance increases pursuant to Code Section
412(b)(5)(A) (the "Interest Rate") and including Contributions required under
Section 2 but excluding other contributions, if any, which have accrued but not
been paid as of December 31, 2000, minus the portion of the Credit Balance
Adjustment allocated to that Plan increased by interest at the Interest Rate.
The Credit Balance Adjustment will be allocated among the Plans as of December
31, 2000 in proportion to each Plan's Credit Balance before taking the Credit
Balance Adjustment into account. Any contributions required pursuant to this
Section 3 shall be made on or before April 15 following the end of the Plan Year
in issue; provided,
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<PAGE>
however, that any minimum funding contributions due shall be deemed made in
accordance with Code Section 412(c)(10)(A).
4. Tax Deductibility Limitation on Contributions.
(a) If any Contribution provided for in Section 2 hereof for a Plan would
not be deductible in full for federal income tax purposes for the calendar year
in which such Contribution is otherwise required to be made or for the previous
calendar year, the portion that would not be deductible for that Plan shall be
contributed to one or more of the other Plans, as designated by Gulfstream. If
the Contribution still exceeds the maximum tax deductible limitations for all
Plans, then any portion of the Contribution not contributed will be contributed
in the first calendar year for which it is deductible.
(b) To the extent permissible under Code Section 404(a)(6), any
Contribution provided for in Section 2 hereof paid for a Plan in a calendar year
shall be allocated, for the purpose of Code Section 404, to the previous
calendar year.
(c) If any of the contributions made pursuant to the credit balance
maintenance requirement of Section 3 hereof for a Plan would not be deductible
in full for federal income tax purposes for the calendar year for which such
contribution is otherwise required to be made or for the previous calendar year,
the portion that would not be deductible for that Plan shall be contributed to
one or more of the other Plans, as designated by Gulfstream. If the contribution
still exceeds the maximum tax deductible limitations for all Plans, then any
portion of the contribution not contributed will be contributed for the first
calendar year for which it is deductible.
(d) To the extent permissible under Code Section 404(a)(6), any
contribution provided for in Section 3 hereof paid for a Plan for a calendar
year may be allocated, for the purpose of Code Section 404, to the prior
calendar year; provided, however,
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<PAGE>
Gulfstream may not make such an allocation if, as a result of the allocation,
the contribution to be paid for the current calendar year would be limited by
Section 4(c).
(e) Determination of current liability for tax deductibility purposes
under this Section will be computed using the lowest interest rate in the
permissible range prescribed in Code Section 412(b)(5)(B)(ii).
5. Term of Agreement.
(a) This Agreement shall commence as of the Effective Date and will
terminate on the later of (1) October 31, 2001 and (2) the earliest of the date
that one of the following conditions have been satisfied (the later of (1) and
(2), the "Termination Date"):
(i) The Total Unfunded Liabilities, as calculated at the end of the
Plan Year for two consecutive years, is zero (0); or
(ii) A Plan undergoes a valid standard termination, but only with
respect to such Plan; or
(iii) Upon receipt by the PBGC on or after October 31, 2001 of
satisfactory evidence that one of the following three conditions has been
satisfied:
(A) Gulfstream's unsecured debt is rated BBB- or better by
Standard & Poor's and Baa3 or better by Moody's; or
(B) In the event there is no rating as provided in subsection
(A) above, Gulfstream has obtained a private rating on a
hypothetical issue of unsecured debt at the rating level (or
better) specified below from two of the following four rating
agencies; provided, however,
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<PAGE>
that at least one of the two ratings is from Moody's or
Standard & Poor's:
Rating Agency Rating
Standard & Poor's BBB-
Moody's Baa3
Fitch BBB-
Duff & Phelps BBB-
For purposes of obtaining such private ratings analysis, the
amount of the hypothetical debt issue will equal 95% of the
Total Unfunded Liabilities determined as of December 31 of the
preceding calendar year in which such private ratings analysis
is made;
or
(C) The average of Gulfstream's Fixed Charge Coverage Ratio
for three consecutive Test Years has been at least 7.5 to 1.0,
and is at least 7.5 to 1.0 in the third such Test Year and the
following conditions have been met:
(1) Gulfstream has not received a rating on public
unsecured debt by Standard & Poor's and Moody's;
and
(2) Gulfstream's Term Loan and revolving credit under
the Credit Agreement remain unsecured (other than by the
stock of certain of its subsidiaries and/or by
intercompany notes) as provided in the Credit Agreement.
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<PAGE>
The first three Test Year period for this Section 5(a)(iii)(C)
will commence on October 1, 1998 and end on September 30, 2001
(with each individual Test Year running from October 1 to
September 30 of the next year). The second three Test Year
period shall commence on January 1, 1999, and subsequent Test
Years shall commence annually thereafter so long as this
Agreement is in effect.
(b) Upon the occurrence of the condition described in Sections
5(a)(iii)(A) or (B) above, Gulfstream shall provide PBGC with written evidence
of such occurrence from the named rating agencies. Upon the occurrence of the
condition described in Section 5(a)(iii)(C) above, Gulfstream shall provide PBGC
with a letter from the independent certified public accountants responsible for
reporting on Gulfstream's financial statements certifying that the Fixed Charge
Coverage Ratio specified in Section 5(a)(iii)(C) has been satisfied, with
calculations supporting such certificate, for the final Test Year of the three
Test Year Period.
(c) Gulfstream's obligations under this Agreement shall terminate on the
Termination Date, provided that Gulfstream has given PBGC notice of which
termination provision under this Section 5 has been satisfied and any written
documentation required to be provided the PBGC under this Section 5. In
connection with a condition described in Section 5(a)(iii)(C) above, within
thirty (30) days of its receipt of the requisite documentation, PBGC will
confirm the occurrence of such a condition in writing. The Termination Date for
purposes of Section 5(a)(iii)(C) shall be the last day of the relevant three
Test Year period.
(d) The determination that the Fixed Charge Coverage Ratio has been
satisfied as set forth in a certificate referenced in Section 6(l) hereof shall
be conclusive for any
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<PAGE>
Test Year in a three Test Year period other than the final Test Year unless the
PBGC provides written notice to Gulfstream within thirty (30) days after its
receipt of such certificate that it believes the Fixed Charge Coverage Ratio
reflected in the certificate has been erroneously calculated. If PBGC provides
Gulfstream with such timely notice, Gulfstream, at its option, may elect to
provide the PBGC with a letter from the independent certified public accountants
responsible for reporting on Gulfstream's financial statements certifying that
the Fixed Charge Coverage Ratio specified in Section 5(a)(iii)(C) has been
satisfied. The certificate of the independent certified public accountants shall
be conclusive that the Fixed Charge Coverage Ratio has been satisfied for that
year. With respect to the third and final Test Year of any three Test Year
period, the certificate from the independent certified public accountants
required by Section 5(b) shall be deemed conclusive evidence that the Fixed
Charge Coverage Ratio specified in Section 5(a)(iii)(C) has been satisfied.
6. Notice and Information to PBGC.
Until this Agreement is terminated, Gulfstream shall deliver or
cause to be delivered to PBGC the following:
(a) Written notice of the amount and date of Contributions made within ten
(10) days of payment, or failure to make Contributions specified herein within
two (2) days of the due date;
(b) Written notice thirty (30) days prior to any Plan merger which shall
be subject to PBGC's consent in advance, such consent not to be unreasonably
withheld;
(c) Written notice thirty (30) days prior to any change in any of the
Plans' actuarial assumptions or methods for the purpose of the minimum funding
standard of
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<PAGE>
Code Section 412, which shall be subject to PBGC's consent in advance, such
consent not to be unreasonably withheld;
(d) For each Plan Year, the annual actuarial valuation report for the
Plans within ten (10) days from such date as such reports are received by
Gulfstream but no later than October 15 following the end of the Plan Year;
(e) For each Plan Year, Form 5500 for each of the Plans (or their
successors), promptly after filing with the IRS, but no later than October 15 of
the following Plan Year; provided, however, that the Form 5500s for the 1995
Plan Year shall be filed within ten days of the Effective Date;
(f) A copy of material plan amendments within ten (10) days after
adoption;
(g) A copy of any reportable event notice at the same time such notice is
filed with the PBGC in accordance with ERISA Section 4043 (excluding enclosures
filed in accordance with ERISA Section 4043);
(h) The following certified actuarial statements:
(i) By April 15, 2001 a certified actuarial statement specifying
the December 31, 2000 Credit Balance for each Plan as adjusted
in accordance with Section 3 hereof.
(ii) By April 15, 2002 and annually thereafter for each Plan a
certified actuarial statement specifying:
(A) The contribution, if any, required by Section 3 hereof.
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<PAGE>
(B) The funding standard account charges and credits for the
previous Plan Year.
(C) If Gulfstream concludes that any portion of a Required
Contribution must be deferred in accordance with Section
4 hereof, a determination (including intermediate
calculations) of the maximum tax deductible
contribution.
(i) Written notice of the amount and date of contributions made to the
Plan pursuant to the credit balance maintenance requirement of Section 3 hereof
within thirty (30) days after the contributions are made or on May 15, whichever
is sooner, or failure to make such contributions within ten (10) days of the due
date;
(j) Within thirty (30) days after Gulfstream files its U.S. Corporation
Income Tax Return each year, a schedule covering the period which includes the
1997 calendar year through the taxable year for which the relevant income tax
return has been filed (the "Deduction Schedule Period") that specifies the
amount of the maximum tax deductible contribution that would be permitted in
accordance with Code Section 404 for each Plan if the Required Contributions
made during the Deduction Schedule Period had been allocated for purposes of
Code Section 404 to the same year such contributions were made.
(k) Written notice within ten (10) days after the occurrence of any Event
of Default, as defined in the Credit Agreement;
(l) Written notice within ten (10) days after reaching agreement on any
change in Gulfstream's quarterly installments due under the Term Loans; and
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<PAGE>
(m) Within ninety (90) days after the end of each Test Year, a copy of the
certificate of the chief financial officer of Gulfstream specifying the Fixed
Charge Coverage Ratio, with calculations supporting such statement, for such
Test Year.
7. PBGC Forbearance From Termination Proceedings.
In consideration of Gulfstream's obligations hereunder, PBGC will
forbear from instituting proceedings to terminate the Plans in connection with
the IPO Transactions. In addition, PBGC agrees that the expiration of this
Agreement pursuant to any provision of Section 5 hereof shall not constitute a
basis for PBGC to seek termination of the Plans under ERISA Section 4042.
Nothing in this Agreement shall affect or in any way diminish the PBGC's
authority to seek termination of the Plans or any other pension plans sponsored
by Gulfstream or any of its subsidiaries in existence on the date hereof (or
hereafter created) for any reason other than by reason of the consummation of
the IPO Transactions or expiration of this Agreement.
8. Remedies.
(a) In the event any Contribution under this Agreement is not made when
due and such failure to make the Contribution continues unremedied for a period
of thirty (30) days after its due date, the remaining Contributions will become
immediately due and payable upon PBGC's written demand providing Gulfstream with
five (5) days advance notice that such Contributions are immediately due and
payable; provided, however, that upon receipt of such demand from PBGC,
Gulfstream hereby waives protest of any kind other than to dispute whether a
Contribution has been made.
(b) Except as expressly provided in this Agreement, nothing in this
Agreement shall affect or in any way diminish or constitute a waiver of any
rights and/or remedies of PBGC. Except as expressly provided in this Agreement,
no remedy herein conferred
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<PAGE>
upon or reserved to PBGC is intended to be exclusive of any other remedy, and
the remedy shall, to the extent permitted by law, be cumulative and in addition
to any other remedy given hereunder or now or hereafter existing at law or in
equity or otherwise.
(c) Nothing in this Agreement shall affect or in any way diminish or
constitute a waiver of any rights and/or remedies of Gulfstream in respect of
the subject matter of this Agreement or any other matter relating to the PBGC or
ERISA.
9. Gulfstream, GDC and GAC Representations and Warranties.
Gulfstream, GDC and GAC each represent and warrant to PBGC as
follows:
(a) That it has full power and authority to enter into this Agreement and
that this Agreement constitutes a legal, valid and binding obligation,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting creditors' rights
generally and by principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law);
(b) That as of the Effective Date, there are no past due minimum funding
contributions owed to the Plans under ERISA Section 302 and Code Section 412;
(c) That this Agreement has been duly authorized and executed;
(d) That the execution, delivery and performance of this Agreement by it
(i) does not and will not violate, conflict with, or result in a breach of any
of the terms of any material indenture, agreement, or instrument to which it is
a party or by which it is bound, or constitute a default thereunder; and (ii) to
the best of its knowledge, does not and will
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<PAGE>
not violate any law, rule, regulation, order, writ, judgment, injunction,
decree, determination, or award presently in effect; and
(e) That the execution, delivery and performance of this Agreement does
not and will not violate any of the provision of any of its articles of
incorporation or bylaws.
10. PBGC Representations and Warranties.
PBGC represents and warrants to Gulfstream, GDC and GAC as follows:
(a) That PBGC has full power and authority to enter into this Agreement
and that this Agreement constitutes a legal, valid and binding obligation,
enforceable against PBGC in accordance with its terms; and
(b) That this Agreement has been duly authorized and executed.
11. No Admission of Liability.
This Agreement is not and shall not be construed as or deemed to be
an admission or concession by or on the part of any party of any liability or
the applicability of any provision of ERISA in connection with any matter
described in this Agreement, and each party expressly denies any liability
whatsoever.
12. No Reliance.
Except for the representations and warranties set forth in Sections
9 and 10 of this Agreement, each party to this Agreement has made its own
independent inquiry concerning the matters, facts and circumstances material to
the settlement embodied in this Agreement, including without limitation, the
legal, tax, actuarial and accounting aspects of the transactions contemplated in
the Agreement and any related transactions. No party to this Agreement has
relied and no party will rely upon any other party to this
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<PAGE>
Agreement, or any other party's legal counsel or financial or actuarial
advisors, for any information or advice of any kind in connection with any of
the transactions contemplated in this Agreement or with any related
transactions.
13. Limitation of Rights.
This Agreement is intended to be and is for the sole and exclusive
benefit of PBGC and Gulfstream and its consolidated subsidiaries. Nothing
expressed or mentioned in or to be implied from the Agreement gives any person
other than PBGC and Gulfstream and its consolidated subsidiaries any legal or
equitable right, remedy or claim against PBGC or Gulfstream and its consolidated
subsidiaries under or in respect of this Agreement.
14. No Change to Governing Plan Documents or Plan Administration.
This Agreement is not a document or instrument governing the Plans
nor does anything in this Agreement amend, supplement or derogate from the
documents and instruments governing such Plans. Further, nothing in this
Agreement alters, amends or otherwise modifies the operation or administration
of those Plans.
15. Venue.
Any dispute arising out of the execution or interpretation of this
Agreement, or any proceeding to enforce this Agreement or to collect Required
Contributions, shall be within the exclusive jurisdiction of the federal courts
of the United States. PBGC may bring any such action in any federal court of
competent jurisdiction or in any other jurisdiction where Gulfstream or any of
its property may be found.
16. Governing Law.
This Agreement and the rights and obligations or the parties
hereunder shall be governed by and construed in accordance with the Code, ERISA
and the laws of
- 20 -
<PAGE>
Delaware (without reference to its conflict of law rules) except to the extent
such laws are preempted by federal law.
17. Notices.
Any notices, requests or other communication hereunder shall be in
writing, and shall be deemed to have been duly given when mailed by registered
or certified mail postage prepaid, or upon receipt if overnight delivery service
or facsimile is used, addressed as follows:
To the PBGC:
Director
Corporate Finance and Negotiations Department
Pension Benefit Guaranty Corporation
1200 K Street N.W., Suite 270
Washington, D.C. 20005-4026
Facsimile: (202) 842-2643
With a copy to:
General Counsel
Pension Benefit Guaranty Corporation
1200 K Street, N.W.
Washington, D.C. 20005-4026
Telephone: (202) 326-4020
Facsimile: (202) 326-4112
To Gulfstream:
Gulfstream Aerospace Corporation
P.O. Box 2206
500 Gulfstream Road
Savannah, Georgia 31402-2206
Telephone: (912) 965-3000
Facsimile: (912) 965-3752
Attn: Chris A. Davis
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<PAGE>
With a copy to:
Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Avenue N.W., Suite 800
Washington, D.C. 20004-2505
Telephone: (202) 639-7309
Facsimile: (202) 639-7003
Attn: Diane E. Burkley
18. Weekends and Holidays.
If the last date (whether measured by calendar days or business
days) for performing any act or exercising any right provided for in this
Agreement falls on a Saturday, Sunday or federal holiday, unless otherwise
expressly provided in this Agreement, the act may be performed or the right
exercised on the next day that is not a Saturday, Sunday or federal holiday with
the same force and effect as if done on the date provided in the Agreement.
19. Captions.
The captions used herein are for reference only and shall not in any
way affect the meaning or construction of any provision of this Agreement.
20. Severability.
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
or provisions of this Agreement, which shall remain in full force and effect.
21. Execution.
This Agreement may be executed in any number of identical
counterparts, each of which shall be deemed an original as against the party who
signed it, and all of which together shall constitute one and the same
instrument.
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<PAGE>
22. Survival.
This Agreement shall inure to the benefit of, and may be enforced
solely by the parties hereto, and, in each case, their respective successors and
assigns.
23. Modifications.
This Agreement shall not be modified or amended, except by a written
instrument signed by all of the parties hereto.
24. Entire Agreement.
This Agreement constitutes the entire final agreement between the
parties hereto with respect to the matters provided for herein, and no other
agreement or understanding, written or oral, exists except as expressly set
forth herein.
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<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be duly executed and delivered by their respective duly authorized
officers as of the day and year indicated below.
PENSION BENEFIT GUARANTY CORPORATION
BY:
-------------------------------
Its:
Dated:
GULFSTREAM AEROSPACE CORPORATION (Del)
BY: /s/ Chris A. Davis
-------------------------------
Its: Executive Vice President & Chief Financial
Officer
Dated: 12/24/97
GULFSTREAM DELAWARE CORPORATION
BY: /s/ Chris A. Davis
-------------------------------
Its: Executive Vice President & Chief Financial
Officer
Dated: 12/24/97
GULFSTREAM AEROSPACE CORPORATION (Ga)
BY: /s/ Chris A. Davis
-------------------------------
Its: Executive Vice President & Chief Financial
Officer
Dated: 12/24/97
- 24 -
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be duly executed and delivered by their respective duly authorized
officers as of the day and year indicated below.
PENSION BENEFIT GUARANTY CORPORATION
BY: /s/ Andrea E. Schneider
-------------------------------
Its: Director Corporate Finance & Negotiations
Dated: Dec. 11, 1997
GULFSTREAM AEROSPACE CORPORATION (Del)
BY:
-------------------------------
Its:
Dated:
GULFSTREAM DELAWARE CORPORATION
BY:
-------------------------------
Its:
Dated:
GULFSTREAM AEROSPACE CORPORATION (Ga)
BY:
-------------------------------
Its:
Dated:
- 24 -
<PAGE>
Exhibit 10.30
AEROLEASE LONG BEACH
dba
AEROPLEX AVIATION
USE & OCCUPANCY AGREEMENT
-------------------------
Schedule A
1. User 2. Commencement Date(s):
(a) 30 days after execution of this
Gulfstream Aerospace Corporation, agreement main hangar, shop/office
a California Corporation (b) 15 days thereafter Hangar #3
4150 Donald Douglas Drive (c) 30 days after (b) Hangar #4
Long Beach, CA 90808 (d) 30 days after (c) Hangar #5
3. Utilities 4. Fee (per month)
- -Electrical supplied by User a. Main hangar: $20,000
Meter #'s b. Lean to office/shop: $7,200
1st floor lighting & a/c: P264-11868 c. Hangar #3: $5,000
shop and floor utilities: P376-169 d. Hangar #4: $5,000
Hangar #3: Y367-7735 e. Hangar #5: $5,000
Hangar #4: Y367-7725 Security Deposit: $42,200
Hangar #5: Y367-7726 (Check # )
TOTAL MONTHLY FEE: $42,200
5. Term
Two (2) years from date of occupancies 6. Aircraft Types:
for the units listed in Item 2. Various Gulfstream aircraft for
One (1)- Two (2) year renewal option related services and interior
(180 day notice required for each unit) modifications
7. Space (office/hangar #) 8. Special Terms:
a. Main hangar: 25,000 sq/ft Rent during the (2) year option
b. 1st floor Lean to period will be "at market" as
office/shop: 6,000 sq/ft mutually agreed.
c. Hangar #3: 10,000 sq/ft
d. Hangar #4: 10,000 sq/ft
e. Hangar #5: 10,000 sq/ft
AEROLEASE LONG BEACH, dba Authorization: The undersigned is
AEROPLEX AVIATION authorized to accept the terms and
conditions hereinabove
GULFSTREAM AEROSPACE CORP.,
CALIFORNIA CORPORATION
By: /s/ Milton A. Widelitz By: /s/ Ken Kelley
----------------------------- -------------------------------
Milton A. Widelitz, General Partner Ken Kelley, General Manager
Date: 4/4/97 Date: April 10, 1997
----------------------------- -------------------------------
<PAGE>
TERMS & CONDITIONS
This use and occupancy agreement is made between Aerolease Long Beach, dba
Aeroplex Aviation, 3333 East Spring Street, Long Beach, CA 90806 ("Aeroplex")
and User, identified in Item I of Schedule A.
RECITALS
A. Aeroplex leases certain facilities and Premises (the "Site") at the Long
Beach Airport (the "Airport"). Gulfstream is entitled to ingress and
egress to the facility at all times. Gulfstream is entitled to use,
without charge, 15 parking spaces in the Aeroplex main parking lot, where
designated by Aeroplex General Manager and agreed to by Gulfstream.
B. Aeroplex leases the Site from the City of Long Beach, a municipal
corporation (the "City"). Said Agreement is hereinafter referred to as the
"Master Lease".
C. Aeroplex desires to grant to User the right to use and occupy a portion of
the Site (the "Premises").
D. In consideration of the mutual covenants herein stated:
1. Grant: Aeroplex upon the terms and conditions herein stated, grants to
User, and User takes from Aeroplex, the Premises described in Schedule A
above, Aeroplex is responsible for providing the premises and each
additional portion of the premises as called for in Schedule A, attached
hereto, free of all previous tenants and their belongings and equipment,
in a timely manner.
2. Term: This agreement shall commence on the date set forth in Item 2 of
Schedule A and continue for the period of time set forth in Item 5. In the
event User holds over at the expiration of the term or any renewal, said
holdover shall create a tenancy from month to month at one and one-half
the monthly rental specified above and shall otherwise be on the terms and
conditions hereunder.
3. Rental: User shall pay the fees set forth in Item 4 of Schedule A in
advance on the first day of each month during the term of this Agreement.
Fees shall be prorated in the event the commencement date shown in Item 2
falls on a day other than the first of the month. The fees shall be
payable without deduction or setoff, and without prior notice or demand.
Lessee hereby acknowledges that late payment by Lessee to Lessor of rent
or other sums due hereunder will cause Lessor to incur cost not
contemplated by this Agreement, the exact amounts of which are extremely
difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed
upon Lessor by the term of any mortgage or deed of trust covering the
Premises. Accordingly, if any installment or rent or other sum due from
Lessee shall not be received by Lessor or Lessor's designee within five
(5) business days of its due date, then Lessee shall pay to Lessor a late
charge equal to ten percent (10%) of such amount overdue. The parties
hereby agree that such late charge represents a fair and reasonable
estimate of the cost that the Lessor will incur by reason of the late
payment by Lessee.
4. Adjustments to Fees:
(a) The total monthly fee set forth in Item 4 of Schedule A shall,
beginning with the second year of the term, be adjusted after the
end of each year and during the term of this Agreement according to
the changes in the Consumer Price Index (CPI) or the Bureau of Labor
Statistics of the U.S. Department of Labor for all Urban Consumers,
Los Angeles - Anaheim. Riverside California. "All Items". The CPI
for February, 1997 is 159.2. Adjustments shall be made in the ratio
that the change in CPI between February. 1997 and each succeeding
February, has to the earlier year. Thus, if February, 1998 CPI will
be 162.4, then the increase shall be (l62.4-l59.2)/159.2=.02 or 2%.
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<PAGE>
(b) The total monthly fee in Item 4 of Schedule A, as adjusted annually
pursuant to this provision, shall be determined at the beginning of
each annual term by multiplying the monthly fee as adjusted by a
fraction, the numerator of which shall be the CPI for the same
month, which is three (3) months prior to the end of the annual
term, and the denominator of which shall be the CPI for the month
which is three (3) months prior to the beginning of the term of this
Agreement. Notwithstanding that Aeroplex may, at its sole
discretion, elect not to adjust the fees, or to only partially
adjust them, the adjustment to the fees hereunder shall be
calculated as if Aeroplex had made the entire adjustment permitted
hereunder. In no event shall the annual fee as adjusted be reduced.
(c) In the event the compilation and/or publication of the CPI is to be
changed or discontinued, then an index most nearly the same as the
CPI shall be used to make the above calculations.
5. Use of Premises: Premises shall be used for the purpose set forth in
Schedule A and any other purpose authorized under the Master Lease, except
the sale of aircraft fuel by User. This agreement does not give User the
right to conduct a business at the Airport; any such right can only be
obtained from the City.
6. Aircraft Support: Aeroplex hereby authorizes User to utilize any vendor it
chooses on the Premises, except for aircraft refueling. Aeroplex reserves
the right to maintain this service or designate an exclusive fuel service
provider for aircraft on the Premises only. At the time of this lease
execution the aircraft refueling service provider on the Site and Premises
is Million Air Long Beach, Inc.
7. Security Deposit: Prior to occupancy and upon execution of this Agreement,
User will deposit with Aeroplex a sum equal to the fee for one (1) month.
In the event User defaults in the performance of any of the terms and
conditions herein, Aeroplex may use, apply or retain, the deposit for the
payment of any fees, or for any sum which Aeroplex may be required to
expend by reason of User's default. In the event User fully and faithfully
complies with all terms and conditions of this Agreement the deposit shall
be returned to User at its expiration and after delivery of the Premises
to Aeroplex. User shall not apply the security deposit as rent, whether
for first or subsequent months of tenancy, including the 30 day period
after notice to vacate is provided by User to Aeroplex.
8. Alterations: User shall not make any alteration, improvements, additions
or utility installations (including power panels) in or about the
Premises, without Aeroplex's prior written consent, which consent shall
not to be unreasonably withheld. Such approvals shall also require
Aeroplex's obtaining, on behalf of User, the consent of the City. User
acknowledges that consent may be conditioned upon User's agreement to
restore Premises to the condition they were in at the commencement of the
term of this Agreement. Any such improvements that Aeroplex wants removed
at the termination of the Agreement shall be done solely at the User's
expense. Aeroplex recognizes that User is contemplating the improvements
shown in Exhibit A. Aeroplex and User agree to equally share (50% each)
the cost associated with the recommendation made by User's insurance
carrier (Factory Mutual) to provide additional support bracing to the
existing fire protection system located in the Aeroplex hangars listed in
Schedule A.
9. Repairs: User, at its sole cost and expense, shall keep the interior of
the Premises and all glass therein in good condition and repair. Upon the
expiration or sooner termination of this Agreement, the Premises shall be
returned to Aeroplex in the same condition as they were in at the
beginning of the term, normal wear and tear excepted. Except as set forth
in an addendum, if any, attached and initialed by the parties hereto,
Aeroplex makes no representation to User about the condition of the
Premises.
10. Utilities: User shall supply at its own expense, the utilities named in
Item 3 of Schedule A. Aeroplex shall not be liable for any damages caused
as a result of its failure to supply said utility services, unless such
failure is due to its gross negligence. User agrees to pay promptly all
utility obligations incurred by it on the Premises.
11. Taxes: Aeroplex shall pay all Real Estate Taxes and/or possessory interest
taxes, as presently assessed, or which may be assessed as a result of a
reappraisal of the Premises, except for appraisals caused by improvements
made by or requested to be made by User. In such event, User will only be
responsible for any increase in the taxes associated with such
reappraisal. Aeroplex will be responsible for any taxes assessed
3
<PAGE>
on improvement made to the property which were not requested by User. User
shall pay prior to delinquency all taxes assessed against and levied upon
trade fixtures, furnishings, equipment, and all other personal property of
User contained in the Premises or elsewhere on the Site. When possible,
User shall cause said trade fixtures, furnishings, equipment, and all
other personal property to be assessed and billed separately from the real
property of User. Also, User shall pay Aeroplex any increase in Real
Estate taxes attributable to the real property and improvements of the
User located on the Premises over and above the taxes assessed on the
Premises for the fiscal year of July 1, 1997 to June 30, 1998. By
executing this Agreement and accepting the benefits thereof, a property
interest may be created, known as a "possessory interest". If such
property interest may be created, User, as the party in whom the
possessory interest is vested, shall be responsible for the property taxes
levied upon such interest.
12. Signs: User shall not erect or display any signs without prior written
consent of Aeroplex, which consent shall not be unreasonably withheld.
13. Insurance/Indemnification: User agrees that at all times in which this
Agreement is in effect it will maintain, in full force and effect, an
airport (general) liability policy, including contractual, in an amount
not less than $200,000,000 combined single limit, which will be used to
indemnify and hold harmless Aeroplex Long Beach dba Aeroplex Aviation, the
City of Long Beach, members of the City Council, all of the City's boards
and commissions, and every officer and employee of the City (hereinafter
the "Additional Insured") against liability resulting from any suits,
claims, demands, actions or loss, including all costs and expense of
litigation, brought or made by reason of the use and/or occupancy by User
its officers, agents, employees, licensees, patrons, or visitors of the
Site and Premises, and of the Long Beach Airport or any of its facilities,
except for liability resulting from the sole negligence of Aeroplex, its
officers, agents, employees, licensees, patrons, or visitors
In the event Aeroplex contests User's contention that an incident is the
result of Aeroplex' sole negligence, User shall defend Aeroplex and User's
insurance carrier may subrogate against Aeroplex' insurance carrier.
Aeroplex will reimburse User if it is determined that the negligence in an
incident was solely that of Aeroplex. Aeroplex agrees to maintain
$20,000,000 of general liability insurance to protect User in the event of
an incident caused by Aeroplex' sole negligence. In such event User agrees
to cap the maximum liability of Aeroplex in the amount of $20,000,000 and
to waive any and all claims in excess of that amount. Aeroplex and User
will equally share (50% each) the additional annual premium for the
insurance necessary as a result of increasing Aeroplex' general liability
insurance policy from $10,000,000 to $20,000,000.
In addition, User will carry aircraft liability insurance, and adequate
hangarskeepers, ground and flight, and adequate automobile liability
insurance. User will carry worker's compensation insurance coverage for
all of its employees.
Except to the extent such liability has been caused by the sole negligence
of Aeroplex, its officers, agents, employees, licensees, patrons, or
visitors, all policies required by this provision shall include a
severability of interest (cross liability) clause. Said coverage shall be
primary with respect to Aeroplex. The Additional Insured shall be named as
additional insured on said policy(ies) to the extent of the protection
specified above. All insurance policies secured by User shall contain the
following: "The inclusion herein of any person or entity as an insured
shall not effect any right such person or entity would have as a claimant
hereunder if not so included".
All insurance policies shall require notification to Aeroplex by certified
mail of any modification, termination, or cancellation by the insurance
company of any policy of insurance no less than thirty (30) days prior to
the effective date of such modification, termination, or cancellation.
Notice by the insured shall be effective upon receipt of said notice by
Aeroplex.
In addition to any other requirements of this Agreement, the User shall
notify Aeroplex of any modification, termination, or cancellation of any
policy of insurance secured by User pursuant to this paragraph as soon as
User learns of any such modification, termination, or cancellation.
4
<PAGE>
The procuring of such insurance shall not be construed to be a limitation
upon User's liability or as full performance on User's responsibility to
indemnify and hold harmless Aeroplex for any and all claims brought by
others due to the negligence of User. User understands and agrees that not
withstanding any policies of insurance, User's obligation to protect and
hold harmless the Additional Insured hereunder is for the full amount of
any damage, injuries, loss expense, costs or liabilities caused by, or
attributed to, the sole negligence of the User, its officers, agents, or
employees.
14. Aircraft Ownership: Deleted - not necessary
15. Assignment and Subletting: This Agreement may not be voluntarily or by
operation of law assigned, or the Premises transferred, mortgaged, sublet,
or encumbered in whole or in part without Aeroplex's prior written consent
which consent will not be unreasonably withheld.
16. Storage: No outside ramp, alleyway, or parking lot storage of aircraft
parts or service equipment, lumber, metal, machinery, liquids, vehicles,
trailers, or other materials will be permitted. No hazardous materials
will be stored in any facility on the Site or Premises, except at the sole
responsibility of User, and in accordance with all applicable Federal,
State, and local laws and regulations.
17. FAA Regulations: User shall abide by Part 107 ("Airport Security") and
Part 139 ("Airport Safety") of the Federal Aviation Regulations, and
reimburse Aeroplex, and/or the City for the full amount of any fine,
penalty or other financial loss resulting from its failure to do so.
18. Towing of Aircraft: User, or its designated agent, shall perform all
aircraft towing at the Site.
19. Compliance with Laws: User, at its sole expense, shall comply with all
applicable statutes, ordinances, rules, regulations, and orders regulating
the use by User of the Premises. User also agrees to observe all
reasonable rules which Aeroplex, or the City may make from time to time
for the management, safety, care and cleanliness of the Premises, the
common areas, the parking of vehicles and aircraft, and the preservation
of good order therein, as well as for the convenience of other occupants
and tenants. Aeroplex rules shall be presented to User for concurrence
prior to being effected.
20. Right to Entry: Aeroplex and its designees shall have the right to enter
the Premises at reasonable times and upon prior notice for the purpose of
inspecting, showing to prospective purchasers, lenders or tenants, and
making repairs or alterations as it may deem necessary or desirable, and
at any time without notice in the event of any emergency. Such entry shall
be in accordance with User's security policies and shall be accompanied by
User's designee if User so requires, and entry shall not interfere with
User's business or maintenance of aircraft.
21. Damage: In the event the Premises are totally destroyed by fire or other
casualty, or are damaged to such an extent that Aeroplex, at its sole
option, determines to raze or remodel the building(s) located thereon,
then the term hereby created by this use and occupancy agreement shall end
on the date of such fire or casualty, and the User shall pay the rent
apportioned to the time of such fire or casualty and shall surrender
possession of said Premises. If, however, said Premises, in Aeroplex's
judgement, can be repaired with reasonable promptness so as to be in as
good condition as they were at the beginning of the term, the Agreement
and term herein created shall not be affected except that the rent shall
be apportioned or suspended while such repairs are made. If, however, said
Premises are slightly damaged by fire, accident, or casualty, and are not
thereby rendered unfit for occupancy, then the same shall be repaired by
Aeroplex with reasonable promptness and no abatement or apportionment of
rent shall be made, except to the extent such damages prevent User from
conducting the maintenance work or service work on the aircraft
22. Eminent Domain: If the whole of the buildings of which the Premises are
part shall be acquired or condemned by eminent domain for any public or
quasi-public use or purpose, then the term of this Agreement shall cease
and terminate as of the date of title vesting in such proceeding, and all
fees shall be paid
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<PAGE>
up to that date, and User shall have no claim against Aeroplex or the
condemning authority with respect to any compensation for such taking
awarded Aeroplex whether through a negotiated settlement or formal
condemnation proceedings.
If any part of the building of which the Premises are a part shall be
acquired or condemned as aforesaid, and in the event that such partial
taking or condemnation shall render the portion of the building occupied
hereunder by the User unsuitable for the User's business, then the term of
this Agreement shall cease and terminate as of the date of title vesting
in such proceeding. User shall have no claim against Aeroplex, or the
condemning authority with respect to any compensation for such taking
awarded to Aeroplex, whether through a negotiated settlement or formal
condemnation proceedings, and provided, however, fees shall be adjusted to
the date of such termination. In the event a partial taking or
condemnation, which is not extensive enough to render that portion of the
building occupied hereunder to User unsuitable for the business of the
User, at User's sole judgement, Aeroplex shall promptly restore said
portion of said leased hereunder to its condition as nearly as possible as
existed at the time of such condemnation less the portion lost in the
taking, and this Agreement shall continue in full force and effect, and
rent shall be adjusted on the basis of the number of square feet taken on
a pro-rata basis.
23. Master Lease and Agreement: This Agreement is, and shall be at all times,
subject to and subordinate to the Master Lease. Aeroplex agrees to
maintain the Master Lease in full force and effect during the term of this
Agreement, provided however that it shall not be liable for any earlier
termination of the Sublease which is not due to its fault.
24. Default and Remedies: The occurrence of any one or more of the following
events shall constitute a material default and breach of this Agreement by
the User.
(a) User shall default in the due and punctual payment of the fees
payable hereunder, and such default shall continue for five (5) days
after Aeroplex shall have given User written notice of such default.
(b) User shall neglect or fail to perform or observe any of the
covenants herein contained on User's part to be performed or
observed other than described in subparagraph (a) above, and User
shall fail to remedy same within thirty (30) days after Aeroplex
shall have given to User written notice specifying such neglect or
failure, or if such default is incapable of being cured within
thirty (30) days, then in such event, if User shall fail to commence
the cure of such default within thirty (30) days of receipt of
written notice of same, and continue thereafter in good faith and
with due diligence to cure same; or,
(c) User shall be involved in financial difficulties as evidenced by (1)
its admitting in writing its inability to pay its debts generally as
they come due, or (2) by it its filing a petition in Bankruptcy or
for reorganization or for the adoption of an arrangement under the
Bankruptcy Act or an answer or other pleading to be filed by or on
behalf or User admitting the material allegations of such a petition
or seeking, consenting to or acquiescing in the relief provided for
under such Act, or (3) by its approving a petition filed against it
for the effecting of an arrangement in bankruptcy or for a
reorganization pursuant to said Bankruptcy Act.
In the event of any such material default or breach by User,
Aeroplex may, at anytime thereafter, with or without notice or
demand and without limiting Aeroplex in the exercise of any right or
remedy which Aeroplex may have by reason of such default or breach.
(i) Terminate User's right to possession of the Premises by any
lawful means, in which case this Agreement shall terminate and
User shall immediately surrender possession of the Premises to
Aeroplex. In such event, Aeroplex shall be entitled to recover
from User all damages incurred by Aeroplex by reason of User's
default, including but not limited to, the cost of recovering
possession of the Premises; expense of reletting, including
removal of
5
<PAGE>
the alterations User may have made during the occupancy of the
Premises, reasonable attorney fees, and any real estate
commission actually paid; that portion of any leasing
commission paid by Aeroplex applicable to the unexpired term
of this Agreement
(ii) Pursue any other remedy now or hereafter available to Aeroplex
under the laws or judicial decisions of the state wherein the
Premises are located.
25. General Provisions:
(a) Waiver: The waiver by either party of any term, covenant, or
condition herein contained shall not be deemed to be a waiver of
such term, covenant, or condition on any subsequent breach of same,
or any other term, covenant, or condition herein contained.
(b) Marginal Headings: The marginal headings and paragraph titles to the
paragraphs of this Agreement are not a part of this Agreement, and
shall have no effect upon the construction or interpretation of any
part hereof.
(c) Time: Time is of the essence in this Agreement, and each and all of
its provisions in which performance is a factor.
(d) Successors and Assigns: The covenants and conditions herein
contained, subject to the provisions as to assignment, apply to and
bind the heirs, successors, executors, administrators, and assignees
of the parties hereto.
(e) Recordation: Neither Aeroplex nor User shall record this Agreement
without prior written consent of the other party, but either party
at the request of the other shall execute a short form memorandum of
the Agreement for recording.
(f) Quiet Possession: Upon User's paying the rent reserved hereunder,
and observing and performing all of the covenants, conditions, and
provisions on User's part to be observed and performed hereunder,
User shall have quiet possession of Premises for the entire term
hereof, subject to all provisions of this Agreement.
(g) Prior Agreements: This Agreement contains all of the agreements of
the parties hereto with respect to any matter covered or mentioned
in this Agreement, and no prior agreements or understandings
pertaining to any such matters shall be effective for any purpose.
No provision of this Agreement may be amended or added to, except by
an agreement in writing assigned by the parties hereto or their
respective successors in interest. This Agreement shall not be
effective or binding upon any party until fully executed by both
parties hereto.
(h) Inability to Perform: This Agreement and the obligations of the User
hereunder shall not be affected or impaired because Aeroplex is
unable to fulfill any of its obligations hereunder or is delayed in
doing so, if such inability or delay is caused by a reason of
strike, labor troubles, acts of God, or any other caused beyond
reasonable control of Aeroplex, except that rent shall not commence
until the existing tenants have been vacated from the Premises.
(i) Attorney Fees: In the event of any action or proceeding brought by
either party against the other under this Agreement, the prevailing
party shall be entitled to recover all costs and expenses, including
the fees of its attorneys in such action or proceeding, in such
amount as the court may deem just and proper as attorney fees.
(j) Separability: Any provision of this Agreement which shall prove to
be invalid, void, or illegal shall in no way affect, impair, or
invalidate any other provision hereof, and such other provision
shall remain in full force and effect.
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(k) Cumulative Remedies: No remedy or election hereunder shall be deemed
exclusive, but shall, wherever possible, be cumulative with all
other remedies at law or in equity.
(l) Choice of Law: This Agreement shall be governerd and construed in
accordance with the laws of the State of California.
26. Premises Free of All Tenants: Deleted - not applicable.
27. Use of Premises: The Premises may be used, without approval of Aeroplex
for interior refurbishing of fixed wing aircraft, completions and other
service-related work for aircraft, or for any other use permitted under
the Master Lease, or any use required by Gulfstream and currently being
conducted by Gulfstream on its primary leased property, unless
specifically excluded by the Master Lease. Gulfstream may not sell
aircraft fuel or be fuel serviced on the premises by any provider other
than Long Beach Million Air, Inc.
28. Right to Remove Equipment or Personal Property: All personal property and
all trade fixtures placed on the Premises at the direction or with the
consent of Gulfstream, its employees, agents, licensees or invitees, shall
be the property of Gulfstream. Gulfstream may remove any such personal
property or trade fixtures at the termination of the Agreement; provided,
however, should Gulfstream cause any damage to the Premises upon the
removal of such personal property or trade fixtures, Gulfstream shall
immediately repair the damage resulting from the removal of the personal
property or trade fixtures.
29. Notice and Requests: All notices and requests hereunder shall be in
writing and shall be deemed to be effective when received at the addresses
listed below (or such other addresses as may hereafter be designated in
writing)
For Gulfstream: Kenneth D. Kelley
General Manager
Long Beach Operations
Gulfstream Aerospace Corporation, a California
Corporation
4150 Donald Douglas Drive
Long Beach, CA 90808
For Aeroplex: Milton A. Widelitz
Aerolease Long Beach, A California General
Partnership, dba Aeroplex Aviation
10850 Wilshire Boulevard, Suite 740
Los Angeles, CA 90024
30. Consent to Use and Occupancy agreement: This Agreement is contingent upon
the receipt of consent to this Agreement by the City of Long Beach Airport
Bureau.
ACCEPTANCE OF TERMS AND CONDITIONS
Aerolease Long Beach, A California Gulfstream Aerospace Corporation,
General Partnership, dba Aeroplex a California Corporation
Aviation
By:
/s/ Milton A. Widelitz /s/ Ken Kelley
- ---------------------------------- ------------------------------------
General Partner General Manager, authorized signature
DATE 4/4/97 DATE April 10, 1997
------------------------------ ------------------------------
8
<PAGE>
[COVER]
Exhibit 13.1
Gulfstream
Exceeding Expectations
[Picture]
1997 Annual Report
Exceeding Expectations
Two simple, but powerful words which act as a common thread uniting the
nearly 5,800 employees of Gulfstream Aerospace Corporation.
Incorporating this theme into all that we do has resulted in Gulfstream
setting the standard for business aviation through excellence in
product, service and financial return. By continuing to do so, we will
remain the leader in large cabin business aviation far into the future.
On the Front Cover
Nearly twice the size of the windows on other corporate jets,
Gulfstream's signature oval windows offer exceptional interior
lighting, panoramic views and enhance the already spacious
cabin's appeal.
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
Financial Highlights
<TABLE>
<CAPTION>
December 31,
-------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------- --------- --------- ---------
(Dollars in millions, except per share amounts and units)
<S> <C> <C> <C>
Aircraft Deliveries............................................................ 51 27 26
Net Revenues................................................................... $ 1,903.5 $ 1,063.7 $ 1,041.5
Net Income..................................................................... $ 243.0 $ 47.0 $ 28.9
Earnings per Share (EPS)*...................................................... $ 3.12 $ 0.60 $ 0.37
Pro Forma Fully Taxed EPS*..................................................... $ 1.68 $ 0.37 $ 0.23
Contractual Backlog............................................................ $ 2,782.1 $ 3,104.0 $ 1,938.3
</TABLE>
[BAR GRAPH]
* Diluted EPS, see notes to the Consolidated Financial Statements.
TABLE OF CONTENTS
- -----------------
LETTER TO SHAREHOLDERS 2
GULFSTREAM V 7
GULFSTREAM IV-SP 11
GULFSTREAM SHARES 12
MANUFACTURING 13
CUSTOMIZED INTERIORS 15
AIRCRAFT SERVICES 16
BOARD OF DIRECTORS 18
1997 FINANCIAL REVIEW 19
CORPORATE INFORMATION 42
COLLIER TROPHY 43
<PAGE>
DEAR SHAREHOLDERS
As Gulfstream enters its fortieth year as the world's leading
business aviation company, we are pleased to report that the Company's
strong momentum continues. We met or exceeded all of our key operating
and financial goals in 1997 and are positioned for significant growth
going forward. Demand for our products remains strong as evidenced by
the Company's backlog which totaled 88 aircraft valued at $2.8 billion
at the end of 1997. Our production expansion plans are ahead of schedule
and we are continuing to invest in new services and technology to
position Gulfstream for the 21st century.
1997: Delivering On Our Promises
For 1997, Gulfstream reported record revenues and earnings.
Revenues increased nearly 80 percent over 1996 to $1.9 billion and
earnings per share increased almost five-fold to $3.12 or $1.68 on a pro
forma fully taxed basis. Net income was $243 million and we ended the
year with a cash balance of $306 million.
The Gulfstream V,-Registered Trademark- the world's
only ultra-long range business jet in service, received final
FAA certification in April and has already set 47 world and
national records. The Gulfstream V has met or exceeded all
performance specifications and customer reaction continues to
be extremely positive. With a significant first-to-market
advantage over the competition, we had taken 81 orders through
December 31 and, in 1997, we delivered 29 Gulfstream Vs as
planned.
In a fitting tribute to the remarkable achievement of the
Gulfstream V, Gulfstream and the Gulfstream V Industry Team received
aviation's most prestigious award, the 1997 Robert J. Collier Trophy.
Presented annually by the National Aeronautics Association, this award
recognized Gulfstream for the successful application of advanced design,
efficient manufacturing techniques and innovative international business
partnerships, to place into customer service the Gulfstream V - the
world's first ultra-long range business jet.
Demand also remains strong for the Gulfstream
IV-SP-Registered Trademark-. This outstanding aircraft has
dominated the large cabin business jet category since its
introduction. Its success continued as we ended the year with
43 aircraft in backlog and delivered the 327th Gulfstream
IV/IV-SP.
Aircraft on runway
Mechanic working on landing gear
Aircraft on tarmac
[Picture]
<PAGE>
In total, we received firm orders for 46 new aircraft in 1997. Our
customer base continues to be predominately Fortune 500 companies with
nearly 80 percent of our backlog held by North American corporations and
the Gulfstream Shares-Registered Trademark- program. In addition, we are
continuing to enhance our network of international sales and service
offices to support our growing business worldwide.
The strong backlog and demand for Gulfstream products has led to an
expansion of the Company's manufacturing and completion capacity. In
1997, in support of our announced production goal of 60 aircraft per
year by 1999, we initiated cross-functional teams focused on quality and
efficiency in product design, manufacturing and interior completion. As
a result, we ended the year ahead of our initial production plans and
delivered 51 new aircraft in 1997. We are now targeting production in
excess of 60 aircraft for 1999.
Setting The Stage For Future Growth
Looking forward, we are investing for continued revenue and
earnings growth. For 1998, we are targeting nearly a 70 percent increase
in fully taxed earnings per share to $2.85 as we ramp up production,
reduce costs and continue to expand the products and services offered
under the Gulfstream brand.
The Company is investing $35 million over 1997 and 1998 to support
the targeted increase in our manufacturing and completion capabilities.
These investments, along with our quality teams, are driving cost
efficiencies ahead of our original forecast and we are on track to
realize continued improvements in margins in 1998 and beyond. In our
completions business, we are improving our processes while maintaining
the quality craftsmanship and reliability which distinguish Gulfstream
aircraft. We now provide aircraft interiors for nearly every aircraft we
sell, up from 70 percent at the beginning of the decade.
Anticipating and effectively meeting the aviation transportation
needs of corporations, governments and leaders worldwide is a hallmark
of Gulfstream's success. Gulfstream Shares and Gulfstream Financial
Services Corporation (GFSC) are both examples of the Company's efforts
to meet the changing needs of its customers. The Gulfstream Shares
program has exceeded our initial expectations for market expansion by
providing new customers the benefits of Gulfstream ownership at a
fraction of the cost and by offering existing customers a cost effective
means of expanding their aircraft fleet. In the U.S., 29 aircraft are
either in service or under contract for the Gulfstream Shares program.
GIV-SP flying
Green aircraft in production
GIV-SP flying
[Picture]
<PAGE>
[Picture]
Gulfstream Management Committee
Our announced expansion of this program into the Middle East positions
us for continued growth to other strategic areas of the world, including
the Far East.
Gulfstream Financial Services Corporation also positions the
Company for future growth by making it easier to finance the purchase of
Gulfstream aircraft. Today, GFSC has a portfolio of 27 aircraft, valued
at $580 million, which have been financed through private label
relationships. In 1997, GFSC provided financing for over $300 million of
our products.
We are also exploring new opportunities to complement our existing
portfolio of products and services. These include comprehensive
maintenance programs, aircraft management services and short-term
operating lease capabilities.
1997 was a very strong year for Gulfstream, one in which we
exceeded customer and shareholder expectations in all key areas of our
business. We are proud of our accomplishments and of the nearly 5,800
Gulfstream employees who contributed to the Company's outstanding
performance. We also want to thank our suppliers, customers, partners
and investors for their continued support.
Going forward, we will continue to capitalize on our growth
opportunities and enhance shareholder value. Our decision, in early
1998, to initiate a Common Stock Repurchase Program for up to $200
million supports our investment strategy and our firm belief that
Gulfstream is well positioned for earnings growth in 1998 and beyond.
We intend to continue our commitment to setting the standards for
business aviation and exceeding the expectations of our customers and
our shareholders.
Sincerely,
/s/ THEODORE J. FORSTMANN
-------------------------
THEODORE J. FORSTMANN
Chairman of the Board
Chairman of the Management Committee
<TABLE>
<S> <C> <C> <C>
/s/ W. W. BOISTURE /s/ CHRIS A. DAVIS /s/ JAMES T. JOHNSON /s/ BRYAN T. MOSS
------------------ ------------------ -------------------- -----------------
W.W. BOISTURE, JR. CHRIS A. DAVIS JAMES T. JOHNSON BRYAN T. MOSS
Executive Vice President Executive Vice President and President and Vice Chairman
Member of the Chief Financial Officer Chief Operating Officer Member of the
Management Committee Member of the Member of the Management Committee
Management Committee Management Committee
</TABLE>
February 28, 1998
<PAGE>
[Picture]
GV flying over water
<PAGE>
[Picture]
(left to right/top to bottom)
Cockpit of GV
GV in flight
Interior of GV
GIV-SP at service center
<PAGE>
Gulfstream V: A TRADITION OF EXCELLENCE
On April 11, 1997, Gulfstream introduced a new era
in the history of business aviation with the final FAA
certification of the Gulfstream V, the world's first
ultra-long range, large cabin business jet.
The Gulfstream V has already distinguished itself
as the premier business jet by meeting or exceeding all
performance specifications as promised. The Gulfstream
V has set 47 world and national records for nonstop
distance, speed, time to climb, cruise altitude and
payload.
As of December 31, 1997, Gulfstream had received 81
orders for the Gulfstream V. Twenty-nine Gulfstream Vs
were delivered to customers in 1997, and at year end,
the backlog for the Gulfstream V was 45 aircraft.
Advanced Technology Leads To Unmatched Performance
As a confirmation The Gulfstream V features the most sophisticated
of its innovative technology available to support the rigorous demands of
design and advanced intercontinental missions. From the unique engine
technology, the design and highly advanced communications capabilities
Gulfstream V was to the cabin that offers maximum passenger comfort and
awarded the 1997 flexibility, the Gulfstream V continues the Gulfstream
Robert J. Collier legacy of innovation and high quality.
Trophy for
aeronautical The Gulfstream V's ability to travel nonstop for
achievement. 6,500 nautical miles at speeds up to Mach 0.885 sets
the benchmark for world travel. For the first time,
nonstop business travel between destinations such as
New York and Tokyo, London and Beijing, Los Angeles and
Moscow is routine. No other business jet in service can
match the Gulfstream V's performance for distance.
Additionally, we designed the Gulfstream V to
provide maximum passenger and crew comfort and
productivity. Featuring a spacious cabin with a 1,669
cubic foot interior, the Gulfstream V offers room for
up to 19 passengers and more baggage capacity than any
other corporate jet.
<PAGE>
The Gulfstream V also features a 100 percent fresh
air ventilation system and maintains a constant cabin
altitude pressure of 6,000 feet. Other corporate and
commercial aircraft recirculate air, typically allowing
less than 75 percent fresh air. Both of these features
minimize the stress of long range travel by reducing
passenger fatigue and offering a healthier travel
environment.
The Gulfstream V's ability to cruise at 51,000
feet, well above commercial traffic and adverse
weather, permits more direct routing and shorter time
en route. In contrast, commercial airliners are
required to fly at considerably lower altitudes (31,000
to 37,000 feet), leaving them susceptible to turbulent
conditions and rerouting due to weather and traffic.
Able to fly Finally, the Gulfstream V offers significant
comfortably technical advancements, including an innovative
above weather aerodynamic design and an all new wing. Powered by twin
and traffic, BMW Rolls-Royce BR710 turbofan engines, developed
the Gulfstream V especially for the Gulfstream V, the aircraft can take
connects key off under the most arduous conditions without fuel or
cities such as payload restrictions. This gives the Gulfstream V more
New York and travel flexibility than any other current or planned
Tokyo, and corporate jet. The Gulfstream V is able to land and
remote depart from thousands of airports worldwide, which
locations larger corporate jets are unable to access, including
worldwide. remote locations like Aspen, Bogota and Nairobi.
With these enhanced features, the Gulfstream V
offers a lower operating cost than other business jets
in its class. Its excellent short runway
[Picture]
GV in flight
Statue of Liberty and New York skyline
GV flying over mountains
<PAGE>
performance, advanced flight control systems, low noise
and clean emissions, combined with unmatched stability
and maneuverability make the Gulfstream V an aircraft
with truly exceptional performance standards.
Superior Capabilities Meet Government
and Special Mission Requirements
In testimony to the Gulfstream V's exceptional
performance, the United States Air Force (USAF)
selected the Gulfstream V to provide intercontinental
transportation for senior government officials and
dignitaries.
The versatility This builds on a long legacy of Gulfstream aircraft
and exceptional used for special missions and provides the opportunity
performance of for expansion to other governments worldwide. Over 130
the Gulfstream V Gulfstream aircraft are currently in service with 38
provides an nations in a variety of roles such as photo
effective reconnaissance, maritime surveillance, medical
platform for evacuation, weather research and astronaut training.
special mission
applications. The Gulfstream V was also chosen by Lockheed Martin
and Northrop Grumman as the aircraft platform for bids
for the United Kingdom's Royal Air Force Airborne
Standoff Radar (ASTOR) program. The selection of the
Gulfstream V by two of the ASTOR contenders underscores
the flexibility and adaptability of this unique
aircraft.
[Picture]
GV flying over water
Mt. Fuji
Frontview of GV in flight
<PAGE>
[Picture]
GIV-SP on runway
<PAGE>
GULFSTREAM IV-SP:
THE WORLD'S BEST-SELLING
LARGE CABIN BUSINESS AIRCRAFT
The Gulfstream IV-SP continues to dominate the long
range, large cabin market. The 327th Gulfstream
IV/IV-SP was delivered in 1997 and worldwide demand for
the aircraft remained strong with 39 new orders and 43
aircraft in backlog at December 31, 1997.
The Gulfstream IV-SP is the world's best selling
large cabin business jet with a record for technical
performance, safety and reliability. The aircraft holds
67 flight records, has more than 850,000 flight hours
and boasts a 99.4 percent reliability rate.
Unprecedented The Gulfstream IV-SP's range of 4,220 nautical miles
demand for the connects many major North American cities with most of
Gulfstream Western Europe, South America and Northern Africa. It
IV-SP continued flies at 45,000 feet, maintaining a constant 6,500 foot
in 1997 as we cabin pressure and a 100 percent fresh air
received orders environmental control system to maximize passenger
for 39 aircraft comfort.
and ended the
year with a Demand for pre-owned Gulfstream IV-SPs is also
backlog of 43. strong. Like their predecessors, Gulfstream IV-SPs
retain their value long after their depreciable life.
Rugged and Reliable, A Proven Platform For Special
Missions
The Gulfstream IV-SP's robust construction and
reputation for reliability allow the aircraft to be
used for challenging special missions without
sacrificing the Gulfstream performance advantage.
The Gulfstream IV-SP is used as a hurricane tracker
for the U.S. National Oceanic and Atmospheric
Administration (NOAA) in Honolulu, Hawaii. With a
cruising altitude of 45,000 feet, the Gulfstream IV-SP
provides observation coverage at levels critical for
defining weather systems in the upper atmosphere. The
aircraft's extensive range allows NOAA to monitor and
assess storm systems worldwide. Other key uses include
special military missions and governmental use for VIP
travel. The Gulfstream IV-SP's efficient short-field
operations make it popular for medical evacuations.
<PAGE>
GULFSTREAM SHARES:
EXPANDING OWNERSHIP
OPPORTUNITIES WORLDWIDE
Now in its fourth year, the Gulfstream Shares
program continues to successfully expand the market for
Gulfstream aircraft. The program offers eighth, quarter
and half shares in Gulfstream IV-SP aircraft and allows
customers with more limited aviation requirements to
own the world's most prestigious business jet. For the
individual or corporation that has not previously
operated aircraft, the Gulfstream Shares program
provides the opportunity to realize the benefits of a
Gulfstream at a fraction of the cost. The program has
also become popular as a way to supplement the fleets
of existing aircraft operators.
Growth of Gulfstream Shares, a joint program with
Executive Jet International (EJI), has exceeded
expectations. There are currently 15 Gulfstream Shares
aircraft in service today. In total, 27 Gulfstream
IV-SPs and two Gulfstream Vs have been ordered for the
Gulfstream Shares program. Of these, eleven were
ordered by EJI in 1997. Gulfstream sells the GIV-SPs
into the program and provides supporting technical
The highly services and maintenance, while EJI manages scheduling,
successful customer service and daily flight operations.
Gulfstream
Shares The Gulfstream Shares program also provides an
program provides opportunity to expand Gulfstream's presence worldwide.
ownership of a In 1997, Gulfstream announced the expansion of the
Gulfstream Gulfstream Shares program to the Middle East with a
aircraft at a commitment of 12 aircraft to the region. This
fraction of the represents the first step in creating a global
cost and has fractional ownership network. Gulfstream is also
significantly considering expanding the program into the Far East, as
expanded the well as including Gulfstream V aircraft.
market for our
products.
GIV-SP over water
San Francisco Golden Gate bridge
Front view of GIV-SP in flight
[Picture]
<PAGE>
MANUFACTURING:
MEETING THE CHALLENGES
OF STRONG PRODUCT DEMAND
The strong demand for Gulfstream products and
services has challenged the Company to seek new ways of
In 1997 we improving delivery while maintaining the highest
established quality standards. For the first time in the Company's
cross- history, we are producing two Gulfstream models
functional simultaneously, the Gulfstream IV-SP and new ultra-long
teams to focus range Gulfstream V.
on quality and
efficiency in By strategically redeploying resources and
product design increasing productivity, we made significant strides in
and 1997 toward achieving our goal of producing 60 aircraft
manufacturing. by 1999 without having to add new manufacturing
The Company is facilities. In 1997, 51 aircraft (22 Gulfstream IV-SPs
now positioned and 29 Gulfstream Vs) were produced versus 27 in 1996
to cost (24 Gulfstream IV-SPs and three Gulfstream Vs). In
effectively June, the Company delivered its 1,000th aircraft,
produce 60 continuing a tradition of leadership in aviation that
aircraft by spans forty years.
1999, more than
double the 1996 In 1997, cross-functional teams were initiated to
level. focus on quality and efficiency in product design,
manufacturing and interior completions. Capitalizing on
the collective expertise of Gulfstream's highly skilled
work force, we reduced final assembly production time
for the Gulfstream V from 75 to 30 days in just over
six months. At the same time, the manufacturing process
was redesigned to allow Gulfstream the flexibility to
change its annual product mix between Gulfstream IV-SPs
and Gulfstream Vs depending upon customer demand.
As a result of these efficiencies and our focus on
quality, the Company expects to produce 58 aircraft in
1998 and in excess of 60 aircraft in 1999.
[Picture]
GIV-SP in flight
Big Ben, London skyview
GIV-SP over cityscape
<PAGE>
[Picture]
Interior of GV
<PAGE>
CUSTOMIZED INTERIORS:
ENSURING THAT GULFSTREAM AIRCRAFT
MEET CUSTOMER NEEDS
For many customers, the look and feel of the
aircraft interior and exterior are as important as the
aircraft's performance specifications. Gulfstream
understands this and has built a reputation for
Gulfstream offering the finest quality craftsmanship available to
continues to meet its customers' demand for superior quality, both
invest in inside and outside the aircraft. Interiors designed for
technology and business customers include the most advanced
capability to communications technology to ensure that time spent
provide the traveling is as productive as time spent in the office.
highest quality Gulfstream has also certified configurations for
and most government and military applications which include
productive features such as oversized cargo doors, electronic and
designs to meet optical airborne surveillance equipment and advanced
the needs of medical technology.
our customers.
Today In 1997, Gulfstream invested significant capital to
Gulfstream enhance its full-service design and completions
completes capabilities. A new design presentation center was
nearly 100 unveiled at the Company's completion center in
percent of its Savannah, Georgia. Using advanced computer modeling,
customer Gulfstream designers can manipulate a variety of cabin
interiors. configurations and color schemes to match the
customer's exact needs and specifications. Gulfstream's
newly installed video conferencing technology enables
the customer to participate in the design process from
anywhere in the world.
In addition, in 1997, the Company invested $8.5
million to build a state-of-the-art paint facility at
its Long Beach, California location. The nearly 60,000
square foot facility gives Gulfstream the ability to
paint up to 40 additional aircraft per year, doubling
the Company's current paint capacity. The hangar,
operating on a three shift, 24 hour a day basis,
includes three individual bays which allow three
aircraft to be worked on simultaneously. The new
facility incorporates the latest technology in
environmental air and water pollution control systems
and exceeds current federal and state regulatory
standards.
Gulfstream's customized completions business is an
important source of revenue. The Company now completes
virtually 100 percent of customer interiors, up from 70
percent at the beginning of the decade.
<PAGE>
AIRCRAFT SERVICES:
PROVIDING VALUE AND SECURITY
FOR CUSTOMERS WORLDWIDE
Manufacturing and completing the world's finest
business jets is only part of what makes Gulfstream a leader
in its industry. Gulfstream customers also know that they
can count on outstanding service and support wherever their
travels may take them.
To support the Company's products, Gulfstream has built
a 24 hour a day, seven day a week network of service
providers. In Savannah, Georgia, the Company's flagship
service center covers more than four football fields and can
house up to 22 aircraft. Gulfstream also operates
Company-owned service centers in Brunswick, Georgia and Long
Gulfstream Beach, California. Outside the U.S., Gulfstream customers
continues to will find five additional Gulfstream Authorized Service
expand our Centers or Warranty Repair Facilities located on three
worldwide continents.
maintenance and
technical In 1997, Gulfstream introduced the first phase of an
support on-line spare parts system. This enables Gulfstream
services, operators to order spare parts from anywhere in the world
providing through the Company's website (www.gulfstreamaircraft.com).
customers easy Also in 1997, the Company launched ServiceCare for
access 24 hours Gulfstream IV-SP customers. ServiceCare is the industry's
a day. most comprehensive nose-to-tail, guaranteed hourly
maintenance program. ServiceCare covers virtually every
part, component, assembly and system on the aircraft,
offering customers predictable operating costs and around
the clock service.
With over 900 aircraft in the Gulfstream fleet
worldwide, managing the service needs of Gulfstream
customers is a growing and profitable source
Gulfstream employee manufacturing
GV on tarmac
Landing gear
[Picture]
<PAGE>
of revenue. At year end, Gulfstream had approximately 60
percent service market share and is on track to achieve
its goal of 65 percent share in 1998.
Comprehensive Training: Benefiting Customers
Through Partnerships
To ensure that customers take advantage of the full
Gulfstream's capabilities of our aircraft, Gulfstream has formed
focus is on long-term partnerships with FlightSafety International
providing value (FSI) and SimuFlite Training International. Through these
added products partnerships Gulfstream offers its customers comprehensive
and service pilot and maintenance training. FSI maintains and operates
offerings its training facilities which are co-located with
which meet the Gulfstream operations in Savannah and Long Beach. In 1997,
entire spectrum FSI opened a new 65,000-square-foot learning center in
of our Savannah which incorporates fully computerized, automated
customers' training on all Gulfstream products. SimuFlite training
aviation needs. sessions are conducted at the Dallas-Ft. Worth
International Airport.
Aircraft Financing: Providing Customized Solutions
To Funding Aircraft Acquisitions
Gulfstream Financial Services Corporation (GFSC) makes
it easier to acquire Gulfstream aircraft by offering
customers a variety of financing alternatives such as
capital and operating leases, loans, tax advantaged leases,
like-kind exchange options and Export-Import Bank support.
In 1997, GFSC provided financing, through private label
relationships, for over $300 million of our products.
Employee working
Open engine
Aircraft on tarmac
Tech rep working
on aircraft
[Picture]
<PAGE>
Board of Directors
[Full page picture]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
[Photo] [Photo]
BOARD OF DIRECTORS
ROBERT ANDERSON CHARLOTTE L. BEERS
Chairman Emeritus Chairman Emeritus
Rockwell International Ogilvy and Mather
Worldwide, Inc.
[Photo] [Photo] [Photo] [Photo]
THOMAS D. BELL, JR. W.W. BOISTURE, JR. CHRIS A. DAVIS LYNN FORESTER
President & Executive Vice President Executive Vice President & President &
Chief Executive Officer Gulfstream Aerospace Corporation Chief Financial Officer Chief Executive Officer
Burson-Marsteller Gulfstream Aerospace FirstMark Holdings, Inc.
Corporation
[Photo] [Photo] [Photo] [Photo]
NICHOLAS C. FORSTMANN THEODORE L. FORSTMANN SANDRA J. HORBACH JAMES T. JOHNSON
Founding General Partner Chairman General Partner President &
Forstmann Little & Co. Gulfstream Aerospace Corporation Forstmann Little & Co. Chief Operating Officer
Founding General Partner Gulfstream Aerospace
Forstmann Little & Co. Corporation
[Photo] [Photo] [Photo] [Photo]
HENRY A. KISSINGER DREW LEWIS MARK H. McCORMACK BRYAN T. MOSS
Chairman Former Chairman & Chairman, President & Vice Chairman
Kissinger Associates, Inc. Chief Executive Officer Chief Executive Officer Gulfstream Aerospace
Former U.S. Secretary of Union Pacific Corporation International Management Group Corporation
State
[Photo] [Photo] [Photo] [Photo]
MICHAEL S. OVITZ ALLEN E. PAULSON ROGER S. PENSKE COLIN L. POWELL
Former Chairman & Co-Owner Chairman Emeritus Chairman Chairman, America's
Creative Artists Agency, Inc. Gulfstream Aerospace Corporation Penske Corporation Promise-The Alliance
for Youth
Former Chairman
Joint Chiefs of Staff
[Photo] [Photo] [Photo] [Photo]
GERARD R. ROCHE DONALD H. RUMSFELD GEORGE P. SHULTZ ROBERT S. STRAUSS
Chairman Chairman Former U.S. Secretary Founder & Partner
Heidrick & Struggles, Inc. Gilead Sciences, Inc. of State Akin, Gump, Strauss,
Former U.S. Secretary Hauer & Feld
of Defense Former U.S. Ambassador
to Russia
</TABLE>
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
1997 Financial Review
Management's Discussion and Analysis of
Financial Condition and Results of Operations 20
Consolidated Balance Sheets 26
Consolidated Statements of Income 27
Consolidated Statements of Stockholders' Equity 28
Consolidated Statements of Cash Flows 29
Notes to Consolidated Financial Statements 30
Report of Independent Accountants and
Report of Management's Responsibilities 38
Quarterly Financial Results 39
Selected Financial Data 40
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto beginning on page 26,
which are incorporated herein by reference. Narrative descriptions of
Gulfstream Aerospace Corporation's ("Gulfstream" or the "Company") principal
products begin on page 7.
Business
Gulfstream is recognized worldwide as a leading designer, developer,
manufacturer and marketer of the most technologically advanced
intercontinental business jet aircraft. The Company's current principal
aircraft products are the Gulfstream IV-SP, the Gulfstream V, Gulfstream
Shares (fractional ownership interests in Gulfstream IV-SPs) and pre-owned
Gulfstream aircraft. As an integral part of its aircraft product offerings,
the Company offers aircraft completion and worldwide aircraft maintenance
services and technical support for all Gulfstream aircraft. In addition, the
Company's financial services subsidiary, Gulfstream Financial Services
Corporation, through its private label relationship with a third-party
aircraft financing provider, offers customized products to finance the
worldwide sale of Gulfstream aircraft.
Operating Data
The Company recognizes revenue for the sale of a new "green" aircraft
(i.e., before exterior painting and installation of customer selected
interiors and optional avionics) when that aircraft is delivered to the
customer. Revenues from completion services are recorded when the outfitted
aircraft is delivered to the customer. Revenues on all other products and
services, including pre-owned aircraft, are recognized when such products are
delivered or such services are performed. Generally, production of aircraft
for delivery remains relatively smooth throughout a year. However, deliveries
of such aircraft can vary significantly depending upon the timing of contract
execution and final customer acceptance. Accordingly, the Company's revenues
can vary significantly from quarter to quarter.
The following sets forth certain statistical data concerning the
Company's deliveries, orders and backlog for new aircraft.
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
1997 1996 1995
--------- ----------- ---------
<S> <C> <C> <C>
Operating Data:
Units delivered during period:
Gulfstream IV-SP.................................. 22 24 26
Gulfstream V...................................... 29 3 0
--- --- ---
Total green deliveries............................ 51 27 26
Units ordered during period:
Gulfstream IV-SP.................................. 39 44 30
Gulfstream V...................................... 7 21 12
--- --- ---
Total orders...................................... 46 65 42
Units in backlog at end of period:
Gulfstream IV-SP(1)............................... 43 27 7
Gulfstream V(2)................................... 45 67 50
--- --- ---
Total backlog (in units)(3)....................... 88 94 57
Estimated backlog (in billions)(3)................ $ 2.8 $ 3.1 $ 1.9
</TABLE>
- ------------------------
(1) Net of 1 cancellation in 1997, which relates to an order placed in that
year.
(2) Net of cancellations of 1 and 2 in 1996 and 1995, respectively, which
generally relate to orders placed in prior years.
(3) See discussion of contractual backlog on page 24.
Comparison of the Years Ended
December 31, 1997 and 1996
Net Revenues. Total net revenues increased by $839.8 million, or 79.0%,
to $1,903.5 million in 1997 from $1,063.7 million in 1996. Revenues from
green aircraft increased $739.3 million due primarily to the delivery of 29
Gulfstream V aircraft in 1997, as full scale production commenced, compared
to three Gulfstream V aircraft in 1996. During 1997, a total of 51 green
aircraft were delivered as compared to 27 in 1996. Also contributing to the
revenue gain was a $57.1 million increase in the sale of pre-owned aircraft
related to trade-ins on the higher level of Gulfstream V deliveries. In
addition, completion revenues increased by $11.5 million in 1997 principally
due to initial Gulfstream V completion deliveries. Aircraft Services revenue
increased by $22.7 million in 1997, as the Company continues
[BAR GRAPH]
to aggressively market and expand its aftermarket products and
maintenance services.
<PAGE>
Cost of Sales. Total cost of sales increased to $1,557.5 million in 1997
compared to $839.3 million in 1996. Excluding pre-owned aircraft, which are
generally sold at break-even levels, the gross profit percentage for 1997 was
20.0% compared to 24.8% for 1996. The decline in gross profit percentage is
primarily attributable to the introduction of the Gulfstream V aircraft into
production and the higher costs associated with the early stages of the
Gulfstream V production and completions. Timing of the learning curve on the
Gulfstream V completions is expected to delay margin improvements somewhat in
the first half of 1998. Overall the Company expects the margin percentage of
revenue on the Gulfstream V to continue to improve as it realizes increased
manufacturing efficiencies.
Selling and Administrative Expense. Selling and administrative expense
decreased by $2.0 million, or 2.0%, to $97.5 million in 1997 from $99.5
million in 1996 and, as a percentage of net revenues, decreased to 5.1% in
1997 from 9.4% in 1996. Expenses were higher in 1996 due principally to the
level of advertising and marketing expense associated with the certification
and initial customer deliveries of the Gulfstream V.
[BAR GRAPH]
Stock Option Compensation Expense. The issuance of options to purchase
common stock of the Company resulted in a non-cash compensation charge of
$1.6 million in 1997 and $7.2 million in 1996.
Research and Development Expense. Research and development expense was
$10.8 million in 1997 a decrease of $47.3 million from 1996, and as a
percentage of net revenues was 0.6% versus 5.5%. Research and development
expense decreased during 1997 principally as a result of the substantial
completion of the Gulfstream V development program. Research and development
expense for 1997 and 1996 are net of credits of $10.0 million and $8.0
million, respectively, for launch assistance funds received from vendors
participating in the development of the Gulfstream V. Research and
development expenditures in 1998 and the near-term future are expected to
stem principally from product improvements and enhancements, rather than new
aircraft development.
Amortization of Intangibles and Deferred Charges. This non-cash expense
includes amortization of goodwill and other intangible assets consisting of
aftermarket service and aftermarket product support, as well as deferred
financing charges related to the Company's pre-existing and new bank credit
facilities. Amortization of intangibles and deferred charges of $7.3 million
for 1997 were $2.1 million lower than 1996. This decrease was a result of the
accelerated amortization in 1996 of financing charges associated with the
Company's prior bank credit facilities, which were repaid in October 1996.
See "Liquidity and Capital Resources."
Interest Income and Expense. Interest income decreased by $3.1 million
to $11.5 million in 1997 from $14.6 million in 1996 as a result of lower
average cash balances the Company had invested in 1997 compared to 1996.
Interest expense consists almost entirely of interest paid on long-term
borrowings under the Company's bank credit facilities. Interest expense
increased to $31.2 million for 1997 from $17.9 million in 1996. This increase
was due to an increase in average borrowings partially offset by the
Company's lower average borrowing costs of 7.7% in 1997 versus 9.0% in 1996.
See "Liquidity and Capital Resources."
Income Taxes. The Company recorded an income tax benefit of $33.9
million for 1997. No provision for income taxes was recorded in 1996,
principally due to the utilization of net operating loss carryforwards. The
Company, in estimating its ability to realize the benefit of its net deferred
tax assets, considers both positive and negative evidence and gives greater
weight to evidence that is objectively verifiable. As a result of numerous
factors including, but not limited to, recent earnings trends and the size of
its contractual backlog, the Company currently believes that its net deferred
tax asset is more likely than not to be realized. In the third quarter of
1997, the Company released its deferred tax valuation allowance, totaling
$94.2 million. Of this amount, $29.4 million related to the exercise of stock
options and was credited to additional paid-in capital and $64.8 million was
recorded as a one-time non-cash income tax benefit. During the fourth quarter
of 1997, the Company recorded a provision for income taxes based on its
overall estimated effective tax rate of 37.5%. The Company had available at
December 31, 1997 and 1996, net operating loss carryforwards for regular
federal income tax purposes of approximately $65.0 million and $228.0
million, respectively, which will begin expiring in 2006.
Earnings Per Share. The Company reported diluted earnings per share of
$3.12 during 1997, up from 1996 diluted earnings per share of $0.60. On a pro
forma basis, assuming an effective tax rate of 37.5%, the Company's earnings
per share would have been $1.68 and $0.37 for 1997 and 1996, respectively.
[BAR GRAPH]
<PAGE>
Comparison of the Years Ended
December 31, 1996 and 1995
Net Revenues. Total net revenues increased by $22.2 million, or 2.1%, to
$1,063.7 million in 1996 from $1,041.5 million in 1995. Revenues from green
aircraft increased $55.1 million due to the delivery of one more unit and the
commencement of Gulfstream V deliveries which have higher selling prices. In
1996, a total of 27 green aircraft, 24 Gulfstream IV-SPs and 3 Gulfstream Vs,
were delivered as compared to 26 Gulfstream IV-SP deliveries in 1995. In
addition, Aircraft Services revenues increased by $33.2 million in 1996
principally due to international spares sales and the opening in 1996 of a
new service center in Savannah. Offsetting these increases was a decrease of
$67.3 million in the sale of pre-owned aircraft resulting from a reduced
number of trade-ins and a decrease of $14.0 million in revenues attributable
to the conclusion in 1995 of a U.S. Department of Defense logistical supply
contract.
Cost of Sales. Total cost of sales of $839.3 million in 1996 was
relatively unchanged compared to $835.5 million in 1995. Excluding pre-owned
aircraft, which are generally sold at break-even levels, the gross profit
percentage for 1996 was 24.8% compared to 25.6% for 1995. This decline is
primarily attributable to higher costs associated with the early part of the
production learning curve on Gulfstream V aircraft.
Selling and Administrative Expense. Selling and administrative expense
increased by $6.3 million, or 6.8%, to $99.5 million in 1996 from $93.2
million in 1995 and as a percentage of net revenues increased to 9.4% in 1996
from 9.0% in 1995. The increase principally resulted from increased
advertising and marketing expenses associated with the Gulfstream V program,
higher sales commission and aircraft demonstration costs resulting from
increased levels of sales activity, and continued emphasis on the expansion
of international sales activities.
Stock Option Compensation Expense. The issuance of options to purchase
common stock of the Company during 1996 resulted in a non-cash compensation
charge of $7.2 million.
Research and Development Expense. Substantially all research and
development expense during 1996 and 1995 was associated with the Gulfstream V
development program, which was substantially completed at the end of 1996.
Research and development expense was $58.1 million in 1996, a decrease of
$5.0 million from 1995, and as a percentage of net revenues was 5.5% versus
6.1%. Research and development expense for 1996 is net of an $8.0 million
credit for launch assistance funds received from vendors participating in the
development of the Gulfstream V.
Amortization of Intangibles and Deferred Charges. This non-cash expense
includes amortization of goodwill and other intangible assets consisting of
aftermarket service and aftermarket product support, as well as deferred
financing charges related to the Company's pre-existing and new bank credit
facilities. Amortization of intangibles and deferred charges of $9.4 million
for the year ended December 31, 1996 was $1.9 million higher than 1995. This
increase resulted from the accelerated amortization of financing charges
associated with the Company's pre-existing bank credit facilities, which were
repaid in October 1996. See "Liquidity and Capital Resources."
Interest Income and Expense. Interest income increased by $9.1 million
to $14.6 million in 1996 from $5.5 million in 1995 as a result of higher
average cash balances the Company had invested in 1996 compared to 1995. The
Company generated these higher cash levels from operations, principally
through the receipt of customer deposits and associated progress payments on
new aircraft orders. Interest expense consists almost entirely of interest
paid on borrowings under the Company's new and pre-existing bank credit
facilities. Interest expense decreased to $17.9 million for 1996 from $18.7
million in 1995. This decrease was due to the Company's lower average
borrowing costs of 9.0% in 1996 versus 10.1% in 1995, partially offset by an
increase in average borrowings. See "Liquidity and Capital Resources."
Income Taxes. At December 31, 1996 and 1995 the Company had available
net operating loss carryforwards for regular federal income tax purposes of
approximately $228 million and $150 million, respectively, which will begin
expiring in 2006. Although the Company recorded net income during 1996 and
1995, no provision for income taxes was recorded in either period principally
as a result of the utilization of net operating loss carryforwards.
Liquidity and Capital Resources
The Company's liquidity needs arise from working capital requirements,
capital expenditures, principal and interest payments on long-term debt and
the Company's share repurchase program described below. During 1997 and 1996,
the Company relied on its available cash balances to fund these needs.
[BAR GRAPH]
Net cash generated by operating activities was $120.4 million, $243.4
million and $282.4 million in 1997, 1996 and 1995, respectively. The
reduction in 1997 was primarily due to the decrease in customer progress
payments associated with new aircraft in backlog. The reduction in 1996 was
primarily due to the temporary build-up in inventory associated with
Gulfstream V production and the timing
<PAGE>
of cash receipts to satisfy customer receivables, partially offset by the
increase in customer progress payments associated with aircraft in backlog
and new sales activities.
During the year ended December 31, 1997, additions to property and
equipment amounted to $26.7 million. At December 31, 1997, the Company was
not committed to the purchase of any significant amount of property and
equipment. Additions to property and equipment were $16.2 million in 1996 and
$25.2 million in 1995. The increased level of spending of $10.5 million in
1997 over 1996, primarily related to the Company's strategic initiative to
increase its annual production rate to approximately 60 aircraft by 1999, a
twofold increase over its 1996 annual production rate. As a result, in 1997,
the Company's capital expenditures increased $15 million and in 1998 are
expected to increase by approximately another $20 million above previously
planned annual levels of approximately $15 million. At December 31, 1997, the
Company was nearing completion on a new $8.5 million paint facility located
at its Long Beach, California plant. This facility is part of the Company's
60 aircraft plan and will allow the Company to double its present volume of
painting new, pre-owned and customer aircraft. The Company continually
monitors its capital spending in relation to current and anticipated business
needs. As circumstances dictate, facilities are added, consolidated, or
modernized.
During 1997, 1996 and 1995 the Company invested $3.0 million, $2.1
million and $25.7 million, respectively, for tooling associated with the
Gulfstream V program. As of December 31, 1997, the Company had recorded, net
of amortization, an aggregate of $42.7 million in tooling associated with the
Gulfstream V program. Gulfstream V tooling is being amortized to cost of
sales on a unit basis over the first 200 units of the Gulfstream V program.
Tooling associated with the Gulfstream IV and IV-SP has been fully amortized
to cost of sales.
In January 1998, the Company established a program to repurchase up to
$200 million of its common stock. The purchases will be made from time to
time in the open market or through negotiated transactions as market
conditions warrant. The Company expects to fund the stock purchases from cash
on hand. As of January 30, 1998, approximately 2.5 million shares, at an
average price of $30.01 per share, had been repurchased under this plan for
an aggregate amount of $74.6 million.
On October 16, 1996, Gulfstream Delaware Corporation, a wholly owned
subsidiary of the Company, entered into a $650 million credit facility (the
"Credit Agreement"). The Credit Agreement consists of a $400 million term loan
facility and a $250 million revolving credit facility. A portion of the
revolving credit facility, in an amount not to exceed $150 million, may be
used (to the extent available) for standby and commercial letters of credit,
and up to $200 million of the revolving credit facility will be available to
the Company for borrowings. In addition, up to $20 million of the revolving
credit facility may be used for swing line loans. The revolving credit
facility expires September 30, 2002 with any amounts outstanding due on that
date. There were no amounts outstanding under the revolving credit facility
on December 31, 1997. The Credit Agreement contains customary affirmative and
negative covenants including restrictions on the ability of the Company and
its subsidiaries to pay cash dividends, as well as financial covenants under
which the Company must operate. As of December 31, 1997, the Company was in
compliance with the covenants contained in the Credit Agreement. Payments
under the term loan facility were $20.0 million in 1997, and scheduled
repayments are $75.0 million in each of the years 1998 through 2001 and $80.0
million in 2002.
On October 16, 1996, the Company completed an initial public offering
(the "Offering") from which the Company received net proceeds of approximately
$100 million after deducting underwriting discounts and other expenses. In
connection with the Offering, certain members of senior management and other
employees of the Company exercised options to purchase approximately 4
million shares of common stock of the Company and sold those shares in the
Offering, resulting in additional net proceeds to the Company of $14.2
million. The Company used the net proceeds of the Offering, together with the
$400 million term loan under the new Credit Agreement and available cash from
operations, to (i) repurchase the remaining $450 million of 7% Cumulative
Preferred Stock and pay accrued dividends, (ii) repay all the outstanding
indebtedness under the Company's pre-existing credit facilities, which
totaled $107.7 million, and (iii) pay fees and expenses incurred in
connection with the Offering and the refinancing of the Company's
indebtedness. During 1996, the Company had previously repurchased
approximately four shares of 7% Cumulative Preferred Stock at their stated
value of $18.9 million and paid accumulated dividends of $105.3 million out
of available cash from operations.
<PAGE>
The Company's principal source of liquidity both on a short-term and
long-term basis is cash flow provided from operations, including customer
progress payments and deposits on new aircraft orders. Occasionally, however,
the Company may borrow against the Credit Agreement to supplement cash flow
from operations. The Company believes, based upon its analysis of its
consolidated financial position, its cash flow during the past 12 months and
its expected results of operations in the future, that operating cash flow
and available borrowings under the Credit Agreement will be adequate to fund
operations, capital expenditures, debt service and the Company's share
repurchase program for at least the next 12 months. The Company intends to
repay its remaining indebtedness primarily with cash flow from operations.
There can be no assurance, however, that future industry specific
developments or general economic trends will not adversely affect the
Company's operations or its ability to meet its cash requirements.
As of December 31, 1997, in connection with orders for 21 Gulfstream V
aircraft in the backlog, the Company has offered customers trade-in options
(which may or may not be exercised by the customer) under which the Company
will accept trade-in aircraft (primarily Gulfstream IVs and IV-SPs) at a
guaranteed minimum trade-in price. Additionally, in connection with recorded
sales of new aircraft, the Company has agreed to accept pre-owned aircraft
with trade-in values totaling $174.6 million as of December 31, 1997.
Management believes that the fair market value of all such aircraft exceeds
the specified trade-in value.
The Company is currently engaged in the monitoring and cleanup of certain
ground water at its Savannah facility under the oversight of the Georgia
Department of Natural Resources. Expenses incurred for cleanup have not been
significant. Liabilities are recorded when environmental assessments and/or
remedial efforts are probable and the costs can be reasonably estimated. The
Company believes other aspects of the Savannah facility, as well as other
Gulfstream properties, are being carefully monitored and are in substantial
compliance with current federal, state and local environmental regulations.
The Company believes the liabilities, if any, that will result from the above
environmental matters will not have a material adverse effect on its
financial statements.
On December 24, 1997, the Company executed final documents with the
Pension Benefit Guaranty Corporation (the "PBGC") concerning funding of the
Company's defined benefit pension plans. The terms were essentially the same
as those set out in the agreement in principle reached between the PBGC and
the Company during October 1996. Pursuant to this agreement, the Company
contributed $25.0 million in 1997 and has agreed to contribute a total of
$25.0 million annually from 1998 through 2000 to its pension plans which
payments are expected to result in such plans being fully funded. The
payments to be made under this agreement were already part of the Company's
overall financial planning and therefore, are not expected to have a material
adverse effect on the Company's financial statements. The funding required
under this agreement will not result in any increase in the Company's annual
pension expense.
The Company is involved in tax audits by the Internal Revenue Service
covering the years 1990 through 1994. The revenue agent's report and the
notice of proposed adjustments include several proposed adjustments involving
the deductibility of certain compensation expense, items relating to the
initial capitalization of the Company, the allocation of the original
purchase price for the acquisition by the Company of the Gulfstream business,
including the treatment of advance payments with respect to and the cost of
aircraft that were in backlog at the time of the acquisition, and the
amortization of amounts allocated to intangible assets. The Company believes
that the ultimate resolution of these issues will not have a material adverse
effect on its financial statements because the financial statements already
reflect what the Company currently believes is the expected loss of benefit
arising from the resolution of these issues.
Contractual Backlog
At December 31, 1997, the Company had a firm contract backlog of
approximately $2.8 billion, representing a total of 43 contracts for
Gulfstream IV-SPs and 45 contracts for Gulfstream Vs, compared with $3.1
billion at the end of 1996, representing a total of 27 contracts for
Gulfstream IV-SPs and 67 contracts for Gulfstream Vs. The decline in backlog
from 1996 is directly related to the increased level of Gulfstream V
deliveries during 1997.
[BAR GRAPH]
The Company includes an order in backlog only if the Company has entered
into a purchase contract (with no contingencies) with the customer and has
received a significant (generally non-refundable) deposit from the customer.
In total, approximately 38% of the Company's contractual backlog is scheduled
for delivery beyond 1998.
The Company continually monitors the condition of its backlog and
believes, based on the nature of its customers and its historical experience,
that there will not be a significant number of cancellations. However, to the
extent that there is a lengthy period of time between a customer's aircraft
order and its expected delivery date, there may be increased uncertainty as
to changes in business and economic conditions which may affect customer
cancellations.
<PAGE>
Foreign Exchange
The Company does not have any significant assets located outside the
United States. All the Company's sales and contracts have historically been
and currently are denominated in U.S. dollars and, as a result, are not
subject to changes in exchange rates. In addition, substantially all of the
Company's material purchases are currently denominated in U.S. dollars.
Inflation
The Company continually attempts to minimize any effect of inflation on
earnings by controlling its operating costs and selling prices. During the
past few years, the rate of inflation has been low and has not had a
significant impact on the results of the Company's operations.
A significant portion of the Company's Gulfstream V contracts contain an
adjustment in the purchase price to account for inflation. Such adjustments
are generally capped at an aggregate of 3% per year. These adjustments are
intended to minimize the Company's cost risk associated with the small
portion of material contracts which are not under long-term agreements.
Outlook
The Company plans to deliver 58 green aircraft in 1998 and to double its
completion rate. The gross margins are expected to improve from 20% in 1997
to the mid-20s by the end of 1998. Based on projections of increasing
aircraft production and improving margins, Gulfstream now expects 1998
diluted earnings per share of approximately $2.85. The Company also expects
diluted earnings per share to increase 15% per year in 1999 and 2000.
Forward-Looking Information Is Subject To
Risk and Uncertainty
Certain statements contained in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations", including the
statements under the heading "Outlook", as well as other statements elsewhere
in this Annual Report to Stockholders, contain forward-looking information.
These forward-looking statements are subject to risks and uncertainties.
Actual results might differ materially from those projected in the
forward-looking statements. Additional information concerning factors that
could cause actual results to materially differ from those in the
forward-looking statements is contained in Exhibit 99 to the Company's
Securities and Exchange Commission filings.
<PAGE>
Consolidated Balance Sheets
GULFSTREAM AEROSPACE CORPORATION
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
- ------------------------------------------- ---------- ------------
(In thousands, except for share amounts)
<S> <C> <C>
Assets
Cash and cash equivalents.................. $306,451 $ 233,172
Accounts receivable (less allowance for
doubtful accounts:$1,144 and $3,243)..... 177,228 137,342
Inventories................................ 629,876 655,237
Deferred income taxes...................... 33,795 --
Prepaids and other assets.................. 11,318 7,915
---------- -----------
Total current assets..................... 1,158,668 1,033,666
Property and equipment, net................ 134,611 126,503
Tooling, net of accumulated amortization:
$7,680 and $600.......................... 43,471 47,677
Goodwill, net of accumulated amortization:
$8,433 and $7,322........................ 38,957 35,799
Other intangible assets, net............... 50,485 55,556
Deferred income taxes...................... 32,950 --
Other assets and deferred charges.......... 14,525 14,014
---------- -----------
Total Assets............................... $1,473,667 $ 1,313,215
---------- -----------
---------- -----------
Liabilities and Stockholders' Equity
Current portion of long-term debt.......... $75,000 $ 20,000
Accounts payable........................... 147,618 129,410
Accrued liabilities........................ 93,798 111,243
Customer deposits-current portion.......... 546,441 634,922
---------- -----------
Total current liabilities.................. 862,857 895,575
Long-term debt............................. 305,000 380,000
Accrued postretirement benefit cost........ 115,405 108,705
Customer deposits-long-term................ 88,075 109,037
Other long-term liabilities................ 9,573 8,709
Commitments and contingencies
Stockholders' equity
Common stock; $.01 par value; 300,000,000
shares authorized; 86,522,089 shares
issued in 1997 and 85,890,212 shares
issued in 1996........................... 865 859
Additional paid-in capital................. 370,258 333,686
Accumulated deficit........................ (225,960) (468,971)
Minimum pension liability.................. (762) (1,464)
Unamortized stock plan expense............. (1,155) (2,432)
Less: Treasury stock: 11,978,439 shares in
1997 and 1996............................ (50,489) (50,489)
---------- -----------
Total stockholders equity.................. 92,757 (188,811)
---------- -----------
Total Liabilities and Stockholders'
Equity................................... $1,473,667 $1,313,215
---------- -----------
---------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Consolidated Statements of Income
GULFSTREAM AEROSPACE CORPORATION
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1997 1996 1995
- ---------------------------------------------------------------- ---------- ---------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net revenues.................................................... $1,903,494 $1,063,713 $1,041,514
Cost and expenses
Cost of sales................................................. 1,557,520 839,254 835,547
Selling and administrative.................................... 97,499 99,452 93,239
Stock option compensation expense............................. 1,640 7,186 --
Research and development...................................... 10,792 58,118 63,098
Amortization of intangibles and deferred charges.............. 7,347 9,434 7,540
---------- ---------- ----------
Total costs and expenses.................................... 1,674,798 1,013,444 999,424
---------- ---------- ----------
Income from operations.......................................... 228,696 50,269 42,090
Interest income................................................. 11,532 14,605 5,508
Interest expense................................................ (31,159) (17,909) (18,704)
---------- ---------- ----------
Income before income taxes...................................... 209,069 46,965 28,894
Income tax expense (benefit).................................... (33,942) -- --
---------- ---------- ----------
Net income.................................................... $ 243,011 $ 46,965 $ 28,894
---------- ---------- ----------
---------- ---------- ----------
Earnings per share:
Net income per share--basic................................... $ 3.28 $ .64 $ .39
---------- ---------- ----------
---------- ---------- ----------
Net income per share--diluted................................. $ 3.12 $ .60 $ .37
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Consolidated Statements of Stockholders' Equity
GULFSTREAM AEROSPACE CORPORATION
<TABLE>
<CAPTION>
Additional Minimum Unamortized Total
Preferred Common Paid-in Accumulated Pension Stock Plan Treasury Stockholders'
Stock Stock Capital Deficit Liability Expense Stock Equity
- ------------------------- ---------- ----------- ---------- ------------ --------- ------------ ---------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of
December 31, 1994...... $ 468,938 $ 523 $210,621 $(439,507) $(1,136) $ $(50,489) $ 188,950
Net income for fiscal
1995................... 28,894 28,894
Exercise of common stock
options................ 10 10
Minimum pension liability
adjustment............. (314) (314)
---------- ----- ---------- ------------ --------- ------------ ---------- ------------
Balance as of
December 31, 1995...... 468,938 523 210,631 (410,613) (1,450) (50,489) 217,540
Net income for fiscal
1996................... 46,965 46,965
Repurchase of preferred
stock.................. (468,938) (468,938)
Dividends paid on
preferred stock........ (105,323) (105,323)
Issuance of compensatory
common stock options... 9,618 (9,618)
Amortization of stock
plan expense........... 7,186 7,186
Conversion of common
stock.................. (8) 8 --
Stock split of
1.5 for 1.............. 258 (258) --
Common stock offering,
net of expenses........ 46 99,557 99,603
Exercise of common stock
options................ 40 14,130 14,170
Minimum pension liability
adjustment............. (14) (14)
---------- ----- ---------- ------------ --------- ------------ ---------- ------------
Balance as of
December 31, 1996...... -- 859 333,686 (468,971) (1,464) (2,432) (50,489) (188,811)
Net income for fiscal
1997................... 243,011 243,011
Issuance of compensatory
common stock options... 363 (363) --
Amortization of stock
plan expense........... 1,640 1,640
Tax benefit of
exercised common stock
options................ 33,682 33,682
Exercise of common stock
options................ 6 2,527 2,533
Minimum pension liability
adjustment............. 702 702
---------- ----- ---------- ------------ --------- ------------ ---------- ------------
Balance as of
December 31, 1997...... $ -- $ 865 $370,258 $(225,960) $ (762) $(1,155) $(50,489) $ 92,757
---------- ----- ---------- ------------ --------- ------------ ---------- ------------
---------- ----- ---------- ------------ --------- ------------ ---------- ------------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Consolidated Statements of Cash Flows
GULFSTREAM AEROSPACE CORPORATION
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------ ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income.................................................................... $ 243,011 $ 46,965 $ 28,894
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................... 33,022 26,910 23,094
Postretirement benefit cost................................................. 6,700 6,684 6,395
Provision for loss (recovery) on pre-owned aircraft......................... (1,600) 1,000 2,050
Non-cash stock option compensation expense.................................. 1,640 7,186
Deferred income tax benefit................................................. (37,867)
Other, net.................................................................. 1,428 417 2,277
Change in assets and liabilities:
Accounts receivable....................................................... (39,978) (55,029) 91,817
Inventories............................................................... 26,961 (263,112) (105,844)
Prepaids, other assets, and deferred charges.............................. (5,080) (5,578) 1,368
Accounts payable and accrued liabilities.................................. 763 102,551 11,975
Customer deposits......................................................... (109,443) 432,365 217,934
Other long-term liabilities............................................... 864 (56,956) 2,412
---------- ---------- ----------
Net Cash Provided by Operating Activities..................................... 120,421 243,403 282,372
Cash Flows from Investing Activities
Expenditures for property and equipment....................................... (26,692) (16,167) (25,186)
Dispositions of property and equipment........................................ 1 28 18
Expenditures for tooling...................................................... (2,984) (2,085) (25,693)
---------- ---------- ----------
Net Cash Used in Investing Activities......................................... (29,675) (18,224) (50,861)
Cash Flows from Financing Activities
Proceeds from issuance of common stock........................................ 99,603
Proceeds from exercise of common stock options................................ 2,533 14,170 10
Repurchase of preferred stock................................................. (468,938)
Dividends paid on preferred stock............................................. (105,323)
Proceeds from issuance of long-term debt...................................... 400,000
Payment of financing costs.................................................... (8,500)
Principal payments on long-term debt.......................................... (20,000) (146,331) (31,814)
---------- ---------- ----------
Net Cash Used in Financing Activities......................................... (17,467) (215,319) (31,804)
---------- ---------- ----------
Increase in cash and cash equivalents......................................... 73,279 9,860 199,707
Cash and cash equivalents, beginning of year.................................. 233,172 223,312 23,605
---------- ---------- ----------
Cash and cash equivalents, end of year........................................ $ 306,451 $ 233,172 $ 223,312
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Notes to Consolidated Financial Statements
GULFSTREAM AEROSPACE CORPORATION
NOTE 1 Summary of Significant Accounting Policies
Business
Gulfstream is primarily engaged in the design, development, production
and sale of large business jet aircraft. The Company is also engaged in
a number of related businesses, including: product support and services
for customer-owned aircraft, which include maintenance services and
replacement parts for the Company s world-wide fleet; aircraft
completion services, which involve the installation of customized
interiors and optional avionics as well as exterior painting; and the
sale of pre-owned aircraft. The majority of the Company s aircraft are
sold to domestic and multinational corporations and domestic and
foreign governments.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. All
significant intercompany transactions and balances have been
eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make assumptions
and estimates that directly affect the amounts reported in the
consolidated financial statements. Significant estimates for which
changes in the near term are considered reasonably possible and that
may have a material effect on the financial statements are addressed in
these notes to the consolidated financial statements.
Revenue Recognition
Contracts for new aircraft are segmented between the manufacture of the
"green" aircraft (i.e., before exterior painting and installation of
customer selected interiors and optional avionics) and its completion.
Sales of new Gulfstream green aircraft are recorded as deliveries are
made to the customer prior to the aircraft entering the completion
process. With respect to completed aircraft, any costs related to parts
to be installed and services to be performed under the contract, after
the delivery of the aircraft, which are not significant, are included
as cost of sales at the time of the sale of the new aircraft. Sales of
all other products and services, including pre-owned aircraft, are
recognized when delivered or the service is performed.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid financial
instruments which have maturities of less than three months upon
purchase. The Company places its temporary cash investments with high
credit quality financial institutions.
Inventories
Inventories of work in process and finished goods for aircraft are
stated at the lower of cost (based on estimated average unit costs of
the number of units in a production lot) or market. Raw materials,
material components of other work in process and substantially all
purchased parts inventories are stated at the lower of cost (first-in,
first-out method) or market. Pre-owned aircraft acquired in connection
with the sale of new aircraft are recorded at the lower of the trade-in
value or estimated net realizable value.
Property and Equipment
Property and equipment are stated at cost and depreciated by the
straight-line method over their estimated useful lives, ranging from 15
to 25 years for buildings and improvements and 4 to 12 years for all
other property and equipment. The cost of maintenance and repairs is
charged to operations as incurred; significant renewals and betterments
are capitalized.
Tooling
Tooling is stated at cost and represents primarily production tooling
relating to the Gulfstream V aircraft program. Tooling associated with
the Gulfstream V is amortized to cost of sales on a unit basis over the
first 200 units of the Gulfstream V program.
Intangibles and Other Assets
Goodwill is being amortized on a straight-line basis over 40 years.
Other intangible assets consisting of aftermarket service and product
support (i.e. customer lists) are being amortized on a straight-line
basis over the expected useful lives which range from 10 to 21 years.
The costs of obtaining bank financing have been included in other
assets and deferred charges and are being amortized over the lives of
the related bank borrowings.
Research and Development
Research and development expenses are charged directly to operations as
incurred.
Product Warranties
Product warranty expense is recorded as aircraft are delivered based
upon the estimated aggregate future warranty costs relating to the
aircraft.
Customer Deposits
Substantially all customer deposits represent advance payments for new
aircraft purchases. The deposits on aircraft that are expected to be
delivered in the following year are classified as current in the
accompanying consolidated balance sheets.
<PAGE>
Concentrations of Credit
Financial instruments which may potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments and trade and contract receivables. Approximately 32.0% and
34.0%, respectively, of accounts receivable outstanding at December 31,
1997 and 1996 are represented by a contract receivable associated with
the sale of multiple aircraft to one customer. Generally, contract
receivables are satisfied prior to delivery of the outfitted aircraft.
In the normal course of business the Company performs ongoing credit
evaluations of its customers financial position, and for trade
receivables, generally requires no collateral from its customers.
Overall, credit risk with respect to trade receivables are limited due
to the Company's large number of customers and their dispersion across
many industries and geographic regions.
Income Taxes
Deferred income taxes reflect the impact of temporary differences
between the amounts of assets and liabilities recognized for financial
reporting purposes and the amounts recognized for tax purposes as well
as tax credit carryforwards and loss carryforwards. These deferred
income taxes are measured by applying enacted tax rates in the years in
which the differences are expected to reverse. A valuation allowance
reduces deferred tax assets when it is "more likely than not" that some
portion or all of the deferred tax assets will not be realized.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities reflected in the financial
statements approximates fair value because of the short-term nature of
these instruments. Based on the borrowing rates currently available to
the Company for bank loans with similar terms and maturities, the
Company estimates that the carrying value of its long-term debt
approximates fair value.
Impairment of Long-Lived Assets
The Company periodically assesses the recoverability of assets based on
its expectations of future profitability and undiscounted cash flow of
the related operations and, when circumstances dictate, adjusts the
carrying value of the asset. These factors, along with management s
plans with respect to the operations, are considered in assessing the
recoverability of goodwill, other purchased intangibles, and property
and equipment.
Stock Options
Statement of Financial Accounting Standard No. 123, Accounting for
Stock-Based Compensation (SFAS No. 123) defines a fair value based
method of accounting for an employee stock option or similar equity
instrument. This statement gives entities a choice of recognizing
related compensation expense by adopting the fair value method or to
measure compensation using the intrinsic value approach under
Accounting Principles Board (APB) Opinion No. 25. The Company has
elected to continue using the measurement method prescribed by APB
Opinion No. 25, and accordingly, this pronouncement did not affect the
Company's financial position or results of operations.
Earnings per Share
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, Earnings per Share, which simplifies the standards for computing
earnings per share (EPS) information and makes the computation comparable to
international EPS standards. SFAS No. 128 replaces the presentation of
"primary" (and when required "fully diluted") EPS with a presentation of
"basic" and "diluted" EPS. Basic EPS is computed based on net income divided
by the weighted average common shares outstanding. Diluted EPS is computed
by dividing net income by the weighted average common shares outstanding plus
the incremental shares that would have been outstanding under stock option
plans. All EPS information for 1996 and 1995 has been restated to conform to
the requirements of SFAS No. 128.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information, which are both
effective no later than for the Company s 1998 fiscal year. Management
believes that the adoption of these statements will not have a material
effect on the Company's consolidated financial statements.
NOTE 2 Inventories
Inventories consisted of the following at:
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
(In thousands)
Work in process................................... $ 330,155 $355,198
Raw materials..................................... 134,973 108,041
Vendor progress payments.......................... 60,606 104,318
Pre-owned aircraft................................ 104,142 87,680
------------ -----------
$ 629,876 $655,237
------------ -----------
------------ -----------
</TABLE>
NOTE 3 Property and Equipment
The major categories of property and equipment consisted of the
following at:
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
------------- -----------
<S> <C> <C>
(In thousands)
Land............................................. $ 4,109 $ 4,109
Buildings and improvements....................... 101,836 96,201
Machinery and equipment.......................... 118,077 107,428
Furniture and fixtures........................... 12,414 10,451
Construction in progress......................... 9,074 1,826
------------ ----------
Total............................................ 245,510 220,015
Less accumulated depreciation.................... (110,899) (93,512)
------------ ----------
$ 134,611 $126,503
------------ ----------
------------ ----------
</TABLE>
NOTE 4 Other Intangible Assets
Other intangible assets were comprised of the following at:
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
(In thousands)
Aftermarket--Service Center...................... $ 15,000 $ 15,000
Aftermarket--Product Support..................... 75,000 75,000
----------- -----------
Total............................................ 90,000 90,000
Less accumulated amortization.................... (39,515) (34,444)
----------- ------------
$ 50,485 $ 55,556
----------- ------------
----------- ------------
</TABLE>
<PAGE>
NOTE 5 Income Taxes
The components of income tax expense (benefit) consisted of the
following at:
<TABLE>
<CAPTION>
December 31,
--------------
1997
-------------
<S> <C>
(In thousands)
Current......................................................... $ 3,925
Deferred........................................................ 26,934
Decrease in valuation allowance................................. (64,801)
-------------
Income tax expense (benefit).................................... $(33,942)
-------------
-------------
</TABLE>
Although the Company recorded net income during 1996 and 1995, no
provision for income taxes was recorded, principally as a result of
utilization of net operating loss carryforwards. The Company made
income tax payments of $4.8 million and $0.3 million for 1997 and 1996,
respectively. No income tax payments were made in 1995. The Company's
provision for income taxes differed from the amount computed by
applying the U. S. federal income tax rate as follows:
<TABLE>
<CAPTION>
December 31,
--------------
1997
--------------
<S> <C>
(In thousands)
Tax expense at statutory rates.................................. $ 73,174
Decrease in valuation allowance................................. (64,801)
Net operating loss carryforwards................................ (43,613)
Foreign Sales Corporation tax benefit........................... (1,888)
State income taxes.............................................. 1,605
Other, net...................................................... 1,581
--------------
Income tax expense (benefit).................................... $(33,942)
--------------
--------------
</TABLE>
The tax effects of significant components of the Company's deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
------------- -----------
<S> <C> <C>
(In thousands)
Deferred Tax Assets
Postretirement benefits............................. $43,386 $40,873
Net operating loss carryforwards.................... 24,500 85,760
Intangible assets................................... 7,031 13,072
Pension and other benefits.......................... -- 3,253
Other............................................... 10,169 17,559
---------- ----------
Total............................................... 85,086 160,517
Less valuation allowance............................ -- (145,490)
--------- - ----------
85,086 15,027
Deferred Tax Liabilities
Property and equipment,
principally due to
basis difference.................................. (17,392) (15,027)
Other............................................... (949) --
---------- ----------
Net deferred tax assets............................. $ 66,745 $ --
---------- ----------
---------- ----------
</TABLE>
At December 31, 1997, the Company had available a net operating loss
carryforward for regular federal income tax purposes of approximately
$65.0 million which will expire beginning in 2006.
As a result of numerous factors, including, but not limited to recent
earnings trends and the size of its contractual backlog,
the Company currently believes that its net deferred tax asset is more
likely than not to be realized, and in the third quarter of 1997
released its deferred tax valuation allowance, totaling $94.2 million.
Of this amount, $29.4 million related to the exercise of stock options
and was credited to additional paid-in capital and the remainder, $64.8
million, was recorded as a one-time, non-cash income tax benefit.
The Company is involved in tax audits by the Internal Revenue Service
covering the years 1990 through 1994. The revenue agent s report and
the notice of proposed adjustments include several proposed adjustments
involving the deductibility of certain compensation expense, items
relating to the initial capitalization of the Company, the allocation
of the original purchase price for the acquisition by the Company of
the Gulfstream business, including the treatment of advance payments
with respect to and the cost of aircraft that were in backlog at the
time of the acquisition, and the amortization of amounts allocated to
intangible assets. The Company believes that the ultimate resolution of
these issues will not have a material adverse effect on its financial
statements because the financial statements already reflect what the
Company currently believes is the expected loss of benefit arising from
the resolution of these issues.
NOTE 6 Accrued Liabilities
Accrued liabilities were comprised of the following at:
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
------------- ------------
<S> <C> <C>
(In thousands)
Employee compensation and benefits................ $ 33,245 $ 47,424
Accrued warranty.................................. 23,844 11,644
Uncompleted work on delivered aircraft............ 11,098 8,737
Deferred income................................... 9,499 18,758
Other............................................. 16,112 24,680
------------- ------------
$ 93,798 $111,243
------------- ------------
------------- ------------
</TABLE>
NOTE 7 Long-term Debt
Long-term debt consisted of the following at:
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
------------- ------------
<S> <C> <C>
(In thousands)
Term loans......................................... $380,000 $400,000
Less current portion............................... (75,000) (20,000)
------------- ------------
$305,000 $380,000
------------- ------------
------------- ------------
</TABLE>
On October 16, 1996, the Company entered into a new long-term credit
agreement under which the lenders who are parties to the credit
agreement made available to the Company a $400 million term loan
facility and a $250 million revolving credit facility. A portion of the
revolving credit facility, in an amount not to exceed $150 million, may
be used (to the extent available) for standby and commercial letters of
credit, and up to $200 million of the revolving credit facility is
available to the Company for borrowings. Concurrently with entering
into the credit agreement, the Company repaid all amounts outstanding
under its pre-existing credit agreements totaling $107.7 million, and
terminated such agreements.
<PAGE>
The term loan is repayable in consecutive quarterly installments which
commenced June 30, 1997 with a final maturity on September 30, 2002, in
aggregate amounts for each of the following years as follows: 1998
through 2001-$75.0 million; 2002-$80.0 million. The revolving credit
facility expires September 30, 2002 with any outstanding amounts due on
that date. The Company is required to pay commitment fees on the
average daily unutilized portion of the term loan facility and the
revolving credit facility, which fees were initially set at 0.375% per
annum. The credit agreement permits the Company to choose either the
Adjusted Base Rate (the "ABR") interest option which is based on the
greater of the prime rate or the federal funds rate, or a Eurodollar
rate (LIBOR), in each case, plus an applied margin. The interest rates
and commitment fees are subject to change based on the Company's
performance with respect to certain financial ratios set forth in the
credit agreement.
The credit agreement includes restrictions as to, amongst other things,
the amount of additional indebtedness, contingent obligations, liens,
capital expenditures, and dividends, and requires the maintenance of
certain financial ratios. In addition, under the credit agreement,
certain changes in control of the Company would cause an event of
default and the banks could declare all outstanding borrowings under
the credit agreement immediately due and payable. None of the
restrictions contained in the credit agreement are expected to have a
significant effect on the ability of the Company to operate. As of
December 31, 1997, the Company was in compliance with all financial and
operating covenants under the credit agreement.
The Company has pledged the common stock of certain of its subsidiaries
as well as certain intercompany notes as collateral under the credit
agreement, and the Company and certain of its subsidiaries have
guaranteed repayment of amounts borrowed under the credit agreement.
The available revolving credit commitment was $203.6 million at
December 31, 1997. At December 31, 1997 and December 31, 1996, the
Company had outstanding letters of credit totaling $46.4 million and
$23.1 million, respectively.
The effective interest rate on the Company's long-term debt
at December 31, 1997 and 1996 was 6.93% and 7.44%, respectively. The Company
paid interest of $32.3 million, $12.9 million and $19.4 million during the
years 1997, 1996 and 1995, respectively.
NOTE 8 Leases
The Company has various operating leases for both real and personal
property including Company aircraft. Rental expense for 1997, 1996 and
1995 was $10.9 million, $13.4 million and $14.9 million, respectively.
Future minimum lease payments for all noncancelable operating leases
having a remaining term in excess of one year at December 31, 1997
aggregated approximately $40.3 million, and payments during the next
five years are: 1998, $10.3 million; 1999, $8.7 million; 2000, $5.9
million; 2001, $4.3 million; 2002, $1.5 million. The Company also
receives sub-lease rental income under an operating lease, which the
approximate annual future minimum sub-rentals are $2.5 million through
November 1999.
NOTE 9 Employee Benefit Plans
Pension Plans
The Company maintains three noncontributory plans covering
substantially all employees. Benefits paid to retirees are based
primarily on age at retirement, years of credited service
and compensation earned during employment. The Company's funding policy
complies with the requirements of Federal law and regulations. The
Company's total pension fund contributions were $25.0 million, $34.4
million and $14.3 million in 1997, 1996 and 1995, respectively. The
Company's contributions are made to a master trust and invested in a
diversified portfolio consisting primarily of equity and debt
securities.
The Company has recorded an additional minimum liability representing
the excess of the accumulated benefit obligation over the fair value of plan
assets and accrued pension liability. The additional liability has been
offset by intangible assets to the extent of previously unrecognized prior
service cost. Amounts in excess of previously unrecognized prior service cost
are recorded as a reduction of stockholders' equity of $0.8 million, $1.5
million and $1.5 million in 1997, 1996 and 1995, respectively.
Net periodic pension cost was as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
(In thousands)
Service cost--benefits
earned during the period....... $ 12,466 $ 11,258 $ 9,232
Interest cost on projected
benefit obligation.............. 16,743 14,966 13,158
Actual return on
plan assets..................... (49,892) (14,431) (15,937)
Net amortization
and deferral.................... 33,974 1,794 5,570
------------- ------------ ------------
$ 13,291 $ 13,587 $ 12,023
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
Actuarial assumptions used were:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Discount rate................... 7.50% 8.00% 8.00%
Rate of increase in future
compensation levels............ 4.75% 4.75% 4.75%
Expected long-term rate
of return on plan assets....... 9.50% 9.50% 9.50%
</TABLE>
The following table sets forth the funded status at September 30 and
amounts recognized in the Company's balance sheet at December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
(In thousands)
Actuarial present value of benefits:
Vested............................................ $177,399 $151,048
Nonvested......................................... 26,879 20,623
--------- ----------
Accumulated benefit obligation......................... 204,278 171,671
Projected benefit obligation........................... 255,074 213,080
Plan assets at fair value.............................. 239,001 163,598
--------- ----------
Projected benefit obligation
in excess of plan assets.......................... 16,073 49,482
Unrecognized prior service cost........................ (5,860) (6,327)
Contributions paid in fourth quarter................... (6,250) (14,446)
Unamortized loss resulting from
changes in plan experience
and actuarial assumptions......................... 3,900 (9,137)
Adjustment required to recognize
additional minimum liability...................... -- 3,612
--------- ----------
Accrued pension cost................................... $ 7,863 $ 23,184
--------- ----------
--------- ----------
</TABLE>
<PAGE>
Other Postretirement Benefits
In addition to pension benefits, the Company provides certain health
care insurance benefits to retired Company employees and their
dependents. The Company currently funds these plans on a pay-as-you-go
basis. Substantially all of the Company s salaried employees and
certain hourly employees become eligible for such benefits when they
attain certain age and service requirements while employed by the
Company.
The status of the Company's unfunded postretirement benefit obligation
is as follows at December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
(In thousands)
Accumulated postretirement
benefit obligation
Retirees........................................... $28,696 $29,577
Fully eligible active
plan participants............................. 3,371 1,645
Other active plan participants..................... 59,672 51,394
--------- ----------
Accumulated postretirement
benefit obligation in excess
of plan assets..................................... 91,739 82,616
Unrecognized prior service cost......................... 7,848 7,678
Unrecognized net loss................................... 15,818 18,411
--------- ----------
Accrued postretirement benefit cost..................... $115,405 $108,705
--------- ----------
--------- ----------
</TABLE>
Net postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
(In thousands)
Service cost-benefits
attributed to service
during the period............... $4,091 $3,957 $3,795
Interest cost of postretirement
benefit obligation.............. 6,467 6,237 6,268
Other net amortization
and deferral.................... (1,527) (1,261) (1,139)
----------- ---------- ----------
$9,031 $ 8,933 $ 8,924
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.50% in 1997, 8.0% in 1996 and
8.0% in 1995. The assumed health care cost trend rate used in measuring
the accumulated postretirement benefit obligation pre-age 65 was 8.50%
in 1997, 9.25% in 1996 and 10.0% in 1995, declining annually 0.75% to a
rate of 5.5%; and for post-age 65 was 6.50% in 1997, 7.25% in 1996 and
8.0% in 1995, declining annually 0.75% to a rate of 5.0%. If the health
care cost trend rate assumptions were increased by 1.0%, the
accumulated postretirement benefit obligation as of December 31, 1997
would be increased by 14.9%. The effect of this change on the sum of
the service cost and interest cost components would be an increase of
16.2%.
Investment Plan
The Company sponsors two voluntary 401(k) investment plans which cover
substantially all employees and are designed to enhance existing
retirement plans. The Company generally matches between 37.5% to 50.0%
of employee contributions up to a maximum of four percent. Total
expense for the plans were $2.6 million, $2.2 million and $2.1 million
for 1997, 1996 and 1995, respectively.
Other Employee Benefits
The Company has supplemental benefit plans covering certain key
executives. These plans provide for benefits which supplement those
provided by the Company s other retirement plans. The Supplemental
Executive Retirement Plans are unfunded plans of deferred compensation
for certain key executives. These supplemental plans are non-qualified
and are being provided for by charges to operations sufficient to meet
the projected benefit obligation. The Executive Insurance Plan provides
additional death benefits to certain key executives. The Company
acquired life insurance policies or annuity contracts to provide
funding of the benefits. The costs for these plans are based on
substantially the same actuarial methods and economic assumptions as
those used for the defined benefit pension plans. The Company s expense
for these plans was $0.9 million in 1997, $1.1 million in 1996 and $1.3
million in 1995. The accumulated benefit obligation related to these
plans totaled approximately $5.0 million and $4.5 million, at December
31, 1997 and 1996, respectively, and is recorded in other long-term
liabilities.
The Company has an Incentive Compensation Plan administered by the
Compensation Committee of the Board of Directors which provides for
payment of cash awards to officers and key employees based upon
achievement of specific goals by the Company and the participating
employees. For the years ended 1997, 1996 and 1995 provisions of
approximately $5.8 million, $5.5 million and $4.5 million,
respectively, were charged against income related to the plan. Payouts
are based entirely on achievement of financial and business objectives.
NOTE 10 Stockholders' Equity
On October 16, 1996, the Company issued 4,559,100 shares of common
stock, and selling stockholders sold 37,940,900 shares of common stock,
in an initial public offering pursuant to the Securities Act of 1933
(the "Offering"). In connection and simultaneously with the closing of
the Offering, the Company (a) effected a recapitalization plan (the
"Recapitalization") which included (i) the repurchase of all of its
outstanding 7% Series A Cumulative Preferred Stock for a purchase price
of $450 million plus approximately $1.3 million of unpaid dividends,
(ii) the exchange of all outstanding shares of Class A, Series A-2 and
Class B common stock for Class A, Series A-1 common stock, (iii) the
redesignation of all Class A, Series A-1 common stock into common
stock, (iv) a 1.5-for-1 stock split of the common stock, and (v) the
restatement of the Company s certificate of incorporation to provide
that the authorized capital stock of the Company consists of
300,000,000 shares of common stock, par value of $.01 per share, and
20,000,000 shares of Preferred Stock, par value of $.01 per share, and
(b) issued 3,949,346 shares of common stock to certain option holders
pursuant to existing option agreements, who subsequently sold those
shares in the Offering.
<PAGE>
Stock Options
Under the Amended and Restated 1990 Stock Option Plan approved by its
stockholders effective March 28, 1997, the Company has granted options
to purchase its common stock to certain Company employees, directors
and advisors. Generally, options granted prior to July 1, 1994 vest
25.0% on date of issuance, 25.0% on the first anniversary of the date
of issuance and 25.0% annually thereafter. Generally, options granted
on or after July 1, 1994 vest 33.3% on the first anniversary of the
date of issuance, 33.3% on the second anniversary of the date of
issuance and the last 33.3% on the third anniversary of the date of
issuance. In addition, the Company has granted options to purchase its
common stock to certain of its executive officers, directors and
advisors outside the Stock Option Plan with vesting periods ranging
from immediately up to three years. Generally, such options expire ten
years from date of grant. The Company recorded compensation expense of
$1.6 million and $7.2 million in 1997 and 1996, respectively, related
to stock option grants. At December 31, 1997, approximately 7.8 million
shares of common stock were reserved for issuance under the Stock
Option Plan and non-plan options.
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Had compensation cost for the Company s stock options granted been determined
based on the fair value at the grant dates for awards under those plans
consistent with a method prescribed in SFAS No. 123, the Company s net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
(In thousands, except per share amounts)
Net income--
As reported...................... $243,011 $46,965 $28,894
Pro forma........................ 240,769 46,480 28,148
Net income per share--
basic--As reported................. $ 3.28 $ .64 $ .39
Pro forma.......................... 3.25 .63 .38
Net income per share-
diluted--As reported............... $ 3.12 $ .60 $ .37
Pro forma.......................... 3.09 .59 .36
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in 1997, 1996 and 1995,
respectively: expected volatility of 32.01%, 36.02% and 36.02%,
respectively; risk-free interest rate of 5.96%, 6.27% and 6.67%,
respectively; expected lives of 3 years for all years; and no dividend
yield.
A summary of the status of the Company's stock option plans as of
December 31, 1997, 1996 and 1995, and changes during the years ending
on those dates is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------ --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Shares Price Shares Price Shares Price
- ------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.. 5,673,029 $ 3.91 8,635,323 $3.88 7,918,691 $3.83
Granted........................... 1,566,000 26.72 1,020,000 4.10 1,740,000 4.10
Exercised......................... (631,877) 4.01 (3,949,346) 3.88 (2,914) 3.51
Forfeited......................... (168,424) 3.90 (32,948) 4.10 (1,020,454) 3.89
--------- -------- --------- -------- --------- --------
Outstanding at end of year........ 6,438,728 $ 9.45 5,673,029 $3.91 8,635,323 $3.88
--------- --------- ---------
--------- --------- ---------
Options exercisable at year-end... 4,112,728 3.86 3,817,582 3.80 5,630,948 3.81
Weighted average fair value
of options granted during
the year..................... $26.95 $13.53 $4.10
</TABLE>
Information with respect to stock options outstanding and exercisable
at December 31, 1997, is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ ------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
-------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 3.11-$ 4.10 4,872,728 6.4 $ 3.90 4,112,728 $3.86
$21.50-$22.75 202,000 9.2 22.09 -- --
$26.93-$29.75 1,364,000 9.7 27.40 -- --
----------- ----------- -------- ----------- --------
6,438,728 7.2 $ 9.45 4,112,728 $3.86
----------- ----------- -------- ----------- --------
----------- ----------- -------- ----------- --------
</TABLE>
<PAGE>
The Company had granted stock appreciation rights (SARs) to certain
officers and key employees. During 1996, the Company recorded
compensation expense related to SARs of approximately $0.4 million and
terminated its agreements with the holders of the SARs.
NOTE 11 Related Party Transactions
At December 31, 1997 and 1996, certain partnerships formed by Forstmann
Little & Co. ("Forstmann Little") owned approximately 42.1% and 42.5%,
respectively, of the Company's common stock.
During 1997, the Company purchased a pre-owned aircraft for $21.0
million from a company controlled by a director of the Company.
Under a usage agreement which ended in August 1996, the Company paid an
affiliate of Forstmann Little for the use of a Gulfstream IV which was
utilized as a demonstrator aircraft by the Company. Total expenses
associated with this agreement were $1.6 million in 1996 and $2.3
million in 1995. Beginning in August 1996, the Company engaged an
affiliate of Forstmann Little to manage the operations of the
Gulfstream IV aircraft discussed below. Total payments were $2.1
million and $0.7 million in 1997 and 1996, respectively. The Company
also procures certain inventory items from a former Forstmann Little
affiliate engaged in the aircraft industry. Management believes all
these transactions with related parties are on terms similar to those
of other customers and vendors.
In August 1996, the Company entered into agreements with the Company's
Chairman pursuant to which the Company will provide the Chairman with the use
of a Gulfstream V for a period of ten years. Until the Gulfstream V becomes
available, the Company has made available to the Chairman a Gulfstream IV,
which the Company received through an assumption of a lease from an affiliate
of Forstmann Little. During January 1997, the Company exercised its early buy
out option under the lease and purchased the aircraft from the lessor, an
international financial institution. The Chairman paid $0.8 million in 1997
and has agreed to pay the Company up to $1.0 million annually for non-company
use of the aircraft. If the Chairman is no longer serving as a director or
official of the Company, he has agreed to reimburse the Company $1,800 per
hour for all use of the aircraft, or other such rate required so as not to
exceed FAA regulatory requirements.
NOTE 12 Commitments and Contingencies
In the normal course of business, lawsuits, claims and proceedings have
been or may be instituted or asserted against the Company relating to
various matters, including product liability. Although the outcome of
litigation cannot be predicted with certainty and some lawsuits, claims
or proceedings may be disposed of unfavorably to the Company,
management has made provision for all known probable losses related to
lawsuits and claims and believes that the disposition of all matters
which are pending or asserted will not have a material adverse effect
on the financial statements of the Company.
The Company is currently engaged in the monitoring and cleanup of
certain ground water at its Savannah facility under the
oversight of the Georgia Department of Natural Resources. Expenses
incurred for cleanup have not been significant. Liabilities are
recorded when environmental assessments and/or remedial efforts are
probable and the costs can be reasonably estimated. The Company
believes the remainder of the Savannah facility, as well as other
Gulfstream properties, are being carefully monitored and are in
substantial compliance with current federal, state and local
environmental regulations. The Company believes the liabilities, if
any, that will result from the above environmental matters will not
have a material adverse effect on its financial statements.
The Company has agreements with certain of its suppliers to procure
major aircraft components such as engines, wings and avionics. The
agreements vary in length from three to five years and generally
provide for price and quantity of components to be supplied. In
connection with the Gulfstream V program, the Company has entered into
revenue sharing agreements with two suppliers. The terms of such
agreements require the suppliers to design, manufacture and supply
certain aircraft components in exchange for a fixed percentage of the
revenues of each Gulfstream V sold. Progress payments under the revenue
sharing agreements are generally required to be made on a pro rata
basis concurrent with the associated deposits received on Gulfstream V
contracts.
As of December 31, 1997, in connection with orders for 21 Gulfstream V
aircraft in the backlog, the Company has offered customers trade-in
options (which may or may not be exercised by the customer) under which
the Company will accept trade-in aircraft (primarily Gulfstream IVs and
IV-SPs) at a guaranteed minimum trade-in price. Additionally, in
connection with recorded sales of new aircraft, at December 31, 1997
the Company has agreed to accept pre-owned aircraft totaling $174.6
million. Management believes that the fair market value of all such
aircraft exceeds the specified trade-in value.
The Company purchases its major aircraft components from a limited
number of suppliers. Although the Company purchases from a limited
number of suppliers, management believes that there are other suppliers
who could provide similar components on comparable terms without
significant disruption of its production.
NOTE 13 Export Sales and Major Customers
Foreign sales by geographical area consisted of the following at:
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996 1995
-------- --------- --------
<S> <C> <C> <C>
(In thousands)
Europe.......................................... $186,560 $ 24,764 $ 51,330
Asia............................................ 168,829 88,101 102,990
Latin America and Caribbean..................... 117,884 103,706 36,479
Africa.......................................... 3,827 73,155 6,773
Other........................................... 30,515 736 19,460
-------- --------- --------
$507,615 $290,462 $217,032
-------- --------- --------
-------- --------- --------
</TABLE>
During 1997 and 1996, aircraft sales and services provided to one
customer comprised 8.3% and 11.7%, respectively, of the Company's net revenues.
<PAGE>
NOTE 14 Earnings Per Share
Net income per share ("EPS") information for 1996 and 1995 is based on
historical unadjusted net income divided by pro forma weighted average
number of shares. Shares included for basic EPS give retroactive effect
to the Recapitalization, the shares issued to option holders upon the
exercise of options at the date of the Offering, and the shares issued
pursuant to the Offering (all of which are described in Note 10) as if
such transactions had occurred at the beginning of the period. Diluted
EPS further includes the effects of options granted in 1996 and 1995 as
if such options had been outstanding for all periods presented.
The following table sets forth the reconciliation of per share data as
of:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
(In thousands, except per share amount)
Net Income................................... $243,011 $46,965 $28,894
-------- ------- -------
-------- ------- -------
Basic EPS
Average shares issued
and outstanding
(after giving effect to
the Recapitalization)................... 74,095 67,530 65,403
Exercise of certain stock
options with
the Offering............................ 2,962 3,949
Shares issued pursuant
to the Offering......................... 3,419 4,559
-------- ------- -------
Weighted average common
shares outstanding...................... 74,095 73,911 73,911
Diluted EPS
Incremental shares
from stock options...................... 3,800 4,624 4,624
-------- ------- -------
Weighted average
common and common
equivalent shares
outstanding............................. 77,895 78,535 78,535
-------- ------- -------
-------- ------- -------
Earnings Per Share:
Net income
per share--basic................... $ 3.28 $ .64 $ .39
-------- ------- -------
-------- ------- -------
Net income
per share--diluted................. $ 3.12 $ .60 $ .37
-------- ------- -------
-------- ------- -------
</TABLE>
NOTE 15 Subsequent Event
During January 1998, the Company began the repurchase of up to $200
million of its common stock. The repurchase will be funded from the
Company's available cash. As of January 30, 1998, the Company had
repurchased approximately 2.5 million shares, at an average price of $30.01 per
share, for an aggregate amount of $74.6 million.
<PAGE>
Report of Independent Accountants
The Board of Directors and Stockholders of
Gulfstream Aerospace Corporation:
We have audited the consolidated balance sheets of Gulfstream Aerospace
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Gulfstream
Aerospace Corporation and subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- --------------------------
Deloitte & Touche LLP
Atlanta, Georgia
January 30, 1998
Report of Management's Responsibilities
The management of Gulfstream Aerospace Corporation is responsible for
the preparation and integrity of the consolidated financial statements
of the Company. The financial statements and notes have been prepared
by the Company in accordance with generally accepted accounting
principles and, in the judgment of management, present fairly the
Company s financial position and results of operations. The financial
information contained elsewhere in this annual report is consistent
with that in the financial statements. The financial statements and
other financial information in this annual report include amounts that
are based on management s best estimates and judgments and give due
consideration to materiality.
The Company maintains a system of internal accounting controls to
provide reasonable assurance that assets are safeguarded and that
transactions are executed in accordance with management's authorization
and recorded properly to permit the preparation of financial statements
in accordance with generally accepted accounting principles.
The Company's independent auditors were engaged to perform an audit of
the consolidated financial statements. This audit provides an objective
outside review of management's responsibility to report operating
results and financial condition. They review and perform tests, as
appropriate, of the data included in the financial statements.
The Board of Directors discharges its responsibility for the Company's
financial statements primarily through its Audit Committee. The Audit
Committee, comprised solely of outside directors, meets periodically
and privately with the independent auditors and representatives from
management to appraise the adequacy and effectiveness of control
systems and quality of our financial accounting and reporting.
/s/ Chris A. Davis
- ----------------------
Chris A. Davis
Executive Vice President and
Chief Financial Officer
January 30, 1998
<PAGE>
Quarterly Financial Results (Unaudited)
The following table sets forth the unaudited consolidated statement of
operating data for each quarter of 1997 and 1996.
The operating results for any quarter are not indicative of results for
any future period.
<TABLE>
<CAPTION>
1997(1)
-------------------------------------------------
First Second Third Fourth
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
(In thousands, except deliveries and per share amounts)
Net revenues.................................................... $ 375,626 $ 522,906 $ 464,036 $ 540,926
Gross profit.................................................... 70,474 76,010 91,053 108,437
Income from operations.......................................... 47,037 45,445 60,668 75,546
Net income...................................................... 40,030 39,504 119,088(2) 44,389(2)
Earnings per share:
Earnings per share--basic...................................... $ .54 $ .53 $ 1.61 $ .60
Earnings per share--diluted.................................... $ .51 $ .50 $ 1.54 $ .58
Pro forma (fully taxed)
Earnings per share--diluted(3)................................. $ .33 $ .32 $ .45 $ .58
Aircraft deliveries (in units):
Gulfstream IV-SP (green)....................................... 5 5 6 6
Gulfstream V (green)........................................... 6 7 8 8
Completion..................................................... 5 5 5 11
Pre-owned aircraft............................................. 1 9 2 2
</TABLE>
<TABLE>
<CAPTION>
1996(1)
------------------------------------------------
First Second Third Fourth
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(In thousands, except deliveries and per share amounts)
Net revenues..................................................... $ 215,063 $ 243,609 $ 283,834 $ 321,207
Gross profit..................................................... 46,791 57,040 61,339 59,289
Income from operations........................................... 6,317 8,615 16,819 18,518
Net income....................................................... 6,077 9,282 17,247 14,359
Earnings per share:
Earnings per share--basic........................................ $ .08 $ .13 $ .23 $ .20
Earnings per share--diluted...................................... $ .08 $ .12 $ .22 $ .18
Pro forma (fully taxed)
Earnings per share--diluted(3).................................. $ .05 $ .07 $ .14 $ .11
Aircraft deliveries (in units):
Gulfstream IV-SP (green)........................................ 5 6 9 4
Gulfstream V (green)............................................ -- -- -- 3
Completion...................................................... 6 6 5 10
Pre-owned aircraft.............................................. 3 4 3 6
</TABLE>
- ------------------------
(1) Non-cash compensation expense of $0.5 million, $0.5 million, $0.3 million
and $0.3 million was recorded in each of the 1997 quarters, and $0.1
million, $5.1 million, $1.5 million and $0.5 million was recorded in each
of the 1996 quarters, respectively, related to the issuance of options to
purchase common stock. See Note 10 to the consolidated financial
statements.
(2) As described under the caption Income Taxes on page 21, the Company
recorded a net income tax benefit of $63.1 million during the third
quarter of 1997. During the fourth quarter of 1997, the Company recorded
an income tax provision of $26.6 million based on an estimated effective
tax rate of 37.5%.
(3) Pro forma (fully taxed) Earnings per sharediluted is presented for all
periods assuming an estimated effective tax rate of 37.5%.
Quarterly Common Stock Price Range
<TABLE>
<CAPTION>
1997
------------------------------------------
First Second Third Fourth
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
High............................................................. $ 24.13 $ 32.75 $ 31.13 $ 32.06
Low.............................................................. 21.25 21.75 26.00 26.50
</TABLE>
<TABLE>
<CAPTION>
1996 (Beginning October 10th)
------------------------------------------
First Second Third Fourth
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
High............................................................. -- -- -- $ 26.00
Low.............................................................. -- -- -- 20.75
</TABLE>
Gulfstream Aerospace Corporation's common stock is traded principally
on the New York Stock Exchange under the symbol GAC. At March 5, 1998 there
were approximately 220 holders of record. The Company has never paid cash
dividends on the common stock and does not anticipate paying any cash
dividends in the near future.
<PAGE>
Selected Financial Data
<TABLE>
<CAPTION>
Fiscal Year 1997 1996 1995 1994 1993
- ---------------------------------------------- ------------ ------------ ------------ ---------- -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data
Revenues...................................... $ 1,903,494 $ 1,063,713 $ 1,041,514 $ 901,638 $ 887,113
Income (loss) from operations(1).............. 228,696 50,269 42,090 43,883 $ (226,773)
Net income (loss)............................. 243,011 46,965 28,894 23,564 (275,227)
Earnings per share:
Earnings per share--basic(2).................. 3.28 .64 .39 N/A N/A
--diluted(2)................ 3.12 .60 .37 N/A N/A
------------ ------------ ------------ ---------- -----------
Balance Sheet Data
Working capital............................... $ 295,811 $ 138,091 $ 356,976 $ 301,913 $ 302,369
Total assets.................................. 1,473,667 1,313,215 981,253 745,761 799,470
Total debt(3)(4).............................. 380,000 400,000 146,331 178,145 206,145
Total stockholders' equity deficit(3)......... 92,757 (188,811) 217,540 188,950 164,395
</TABLE>
- ------------------------
(1) In 1993, the Company recorded a charge for a restructuring plan based upon
the Company's reassessment of its business plan and its products from
which it has realized improved operating efficiencies, reduced costs and
increased overall profitability.
(2) Earnings per share ("EPS") information for 1996 and 1995 is based on
historical unadjusted net income divided by pro forma weighted average
number of shares. Shares included for basic EPS give retroactive effect to
the Recapitalization, the shares issued to option holders upon the exercise
of options at the date of the Offering, and the shares issued pursuant to
the Offering (all of which are described in Note 10 to the consolidated
financial statements) as if such transactions had occurred at the beginning
of the period. Diluted EPS further includes the effects of options granted
in 1996 and 1995 as if such options had been outstanding for all periods
presented. See also Note 14 to the consolidated financial statements for a
reconciliation of per share data.
(3) Total stockholders'equity and total debt at December 31, 1996 gives effect
to the Recapitalization and Offering which occurred during the fourth
quarter 1996. See "Liquidity and Capital" Resources on page 22 of the 1997
Annual Report.
(4) During November 1993, the Company converted $469 million of subordinated
debentures (including accrued interest) to 7% Cumulative Preferred Stock in
connection with the 1993 recapitalization.
<PAGE>
GV flying
[FULL PAGE PICTURE]
Gulfstream Aerospace Corporation is a leading designer, developer,
manufacturer and marketer of the world's most technologically advanced
intercontinental business jet aircraft. Gulfstream has developed a range of
products and services to meet the aviation needs of its customers, including
the Gulfstream IV-SP, the Gulfstream V, Gulfstream Shares, Pre-owned
Gulfstream Aircraft and Gulfstream Financial Services. In 1997, Gulfstream
delivered its 1,000th aircraft, continuing a tradition of leadership in
business aviation which spans forty years. Nearly two-thirds of all large
cabin aircraft operated by Fortune 500 corporations bear the Gulfstream name.
In addition, 38 governments around the world employ Gulfstream aircraft for a
variety of special missions.
<PAGE>
Corporate Information
Corporate Offices
Gulfstream Aerospace Corporation
500 Gulfstream Road
Savannah, Georgia 31408
(912) 965-3000
Website
www.gulfstreamaircraft.com
Annual Meeting
9:30 a.m.
May 14, 1998
St. Regis Hotel
Two East 55th Street
New York, New York 10022
Transfer Agent and Registrar
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, New Jersey 07660
(800) 526-0801
www.chasemellon.com
Stock Listing
New York Stock Exchange
Symbol "GAC"
Independent Accountants
Deloitte & Touche LLP
100 Peachtree Street
Atlanta, Georgia 30303-1943
Financial Information
Copies of Gulfstream's annual
report and Form 10-K submitted
to the Securities and Exchange
Commission may be obtained
by visiting the Company's website
or by written request to:
Investor Relations
P.O. Box 2206, Mail Stop B-14
Savannah, Georgia 31402-2206
<PAGE>
Robert J. Collier Trophy
[FULL PAGE PICTURE]
GULFSTREAM AND THE GULFSTREAM V INDUSTRY TEAM
ARE PROUD TO BE THE RECIPIENTS OF THE
1997 ROBERT J. COLLIER TROPHY.
- ------------------------------------------------------------------------------
Awarded annually by the National Aeronautic Association, the Collier
Trophy is recognized as the aviation industry's most prestigious award and
honors the year's top aeronautical achievement.
Gulfstream and the Gulfstream V Industry Team were recognized "for
successful application of advanced design and efficient manufacturing
techniques, together with innovative international business partnerships, to
place into customer service the Gulfstream V -- the world's first ultra-long
range business jet."
Gulfstream joins a distinguished list of past Collier Trophy recipients
which includes Orville Wright, Chuck Yeager, John Glenn and Neil Armstrong.
The Collier Trophy is on permanent display at the Smithsonian Institute's
National Air and Space Museum in Washington, D.C.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> $306
<SECURITIES> 0
<RECEIVABLES> 177<F1>
<ALLOWANCES> 1<F1>
<INVENTORY> 630
<CURRENT-ASSETS> 1,159
<PP&E> 135<F2>
<DEPRECIATION> 111<F2>
<TOTAL-ASSETS> 1,474
<CURRENT-LIABILITIES> 863
<BONDS> 305
0
0
<COMMON> 1
<OTHER-SE> 92
<TOTAL-LIABILITY-AND-EQUITY> 1,474
<SALES> 1,903
<TOTAL-REVENUES> 1,912
<CGS> 1,558
<TOTAL-COSTS> 1,675
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20
<INCOME-PRETAX> 209
<INCOME-TAX> (34)
<INCOME-CONTINUING> 243
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 243
<EPS-PRIMARY> 3.28
<EPS-DILUTED> 3.12
<FN>
<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>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30 AND YEAR-ENDED DECEMBER 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 SEP-30-1996
<PERIOD-END> SEP-30-1996 DEC-30-1996
<CASH> 233 264
<SECURITIES> 0 0
<RECEIVABLES> 137 148<F1>
<ALLOWANCES> 0 0<F1>
<INVENTORY> 655 598
<CURRENT-ASSETS> 1,034 1,016
<PP&E> 127 124<F2>
<DEPRECIATION> 0 0<F2>
<TOTAL-ASSETS> 1,313 1,288
<CURRENT-LIABILITIES> 896 848
<BONDS> 400 40
0 0
0 450
<COMMON> 1 1
<OTHER-SE> (190) (317)
<TOTAL-LIABILITY-AND-EQUITY> 1,313 1,288
<SALES> 1,064 743
<TOTAL-REVENUES> 1,071 754
<CGS> 839 577
<TOTAL-COSTS> 1,013 711
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3 (1)
<INCOME-PRETAX> 47 33
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 47 33
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 47 33
<EPS-PRIMARY> .64 0.44
<EPS-DILUTED> .60 0.42
<FN>
<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>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE QUARTERS ENDED MARCH 31, JUNE 30 AND SEPTEMBER 30, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 201 249 242
<SECURITIES> 0 0 0
<RECEIVABLES> 125 105 129<F1>
<ALLOWANCES> 0 1 1<F1>
<INVENTORY> 630 610 654
<CURRENT-ASSETS> 964 974 1,087
<PP&E> 124 122 122<F2>
<DEPRECIATION> 0 102 107<F2>
<TOTAL-ASSETS> 1,238 1,246 1,397
<CURRENT-LIABILITIES> 797 758 798
<BONDS> 400 343 323
0 0 0
0 0 0
<COMMON> 1 1 1
<OTHER-SE> (149) (109) 40
<TOTAL-LIABILITY-AND-EQUITY> 1,238 1,246 1,397
<SALES> 376 899 1,363
<TOTAL-REVENUES> 379 904 1,369
<CGS> 305 752 1,125
<TOTAL-COSTS> 329 806 1,209
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 5 10 15
<INCOME-PRETAX> 42 82 138
<INCOME-TAX> 2 2 (61)
<INCOME-CONTINUING> 40 80 199
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 40 80 199
<EPS-PRIMARY> .54 1.07 2.68
<EPS-DILUTED> .51 1.01 2.54
<FN>
<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>
<PAGE>
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", "target" and similar expressions are intended to identify forward
looking statements. In addition, these factors relate specifically to the
Company's statements regarding earnings per share for 1998 and subsequent
years and the assumptions underlying those statements, including assumptions
regarding green aircraft deliveries, completions, margin improvements, new
aircraft sales and backlog stability.
Aircraft Production and Completion
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 the green aircraft is
delivered to the customer. The Company records revenues from completion
services when the outfitted aircraft is delivered to the customer. The
Company is currently targeting 58 green aircraft deliveries in 1998 and in
excess of 60 green aircraft deliveries in 1999. Completions are projected to
double in 1998. Risks associated with green deliveries and completions
include the following:
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 a
disruption should occur, the failure of the Company's suppliers to meet
the Company's performance specifications, quality standards or delivery
schedules could have a material adverse impact on the Company's
delivery schedule.
Workforce. The Company's ability to meet its production and
completion schedules depends on the Company meeting its needs for
skilled labor. Although the Company's ability to hire required skilled
labor has not to date adversely affected its ability to meet its
production and completion schedules, there can be no assurance that
this favorable condition will continue. In 1996, the Company entered
into a 5-year contract with a union representing certain of its
employees at its Oklahoma Facility. Although employee relations are
generally good, a work stoppage or other labor action could materially
and adversely affect the Company's production schedule.
Facilities. Green aircraft are assembled at one facility. Detailed
parts and subassemblies are manufactured at two additional facilities.
Completions are performed at three facilities. Although the Company
maintains property and business interruption insurance, any severe
property damage or other casualty loss at one of these facilities could
materially and adversely affect the Company's delivery schedule.
Gulfstream V Efficiency. The Company expects to become more efficient
at producing and completing Gulfstream V aircraft as it gains more
experience in this aircraft program. If the Company is unable to achieve
anticipated efficiencies, its delivery schedule could be adversely
impacted.
Period-to-Period Fluctuations. Since the Company relies on the sales
of a relatively small number of high unit selling price new aircraft to
provide the substantial portion of its revenues, even a small decrease in
the
<PAGE>
number of deliveries in any period could have a material adverse effect on
the results of operation for that period. 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.
Margin Improvements
The Company expects gross margins (excluding pre-owned aircraft,
which are typically sold at break-even levels) to improve from 20% in 1997 to
the mid-20s by the end of 1998. Risks associated with projected margin
improvement include the following:
Gulfstream V Learning Curve. The Company expects production and
completion costs to fall as the Company gains more experience in producing
and completing Gulfstream V aircraft. Delays in anticipated cost
reductions would adversely affect projected margin improvements.
Additional costs associated with the learning curve on Gulfstream V
completions are expected to delay margin improvements somewhat in the
first half of 1998. If subsequent improvement is not achieved as quickly
or to the extent anticipated, the Company may be unable to achieve its
margin targets.
Cost of Materials. 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. Although the Company has in
place revenue share and long-term supply arrangements that help protect it
against materials price increases, if the Company experiences price
pressure on materials, margins could be adversely affected.
Stability of Backlog
At December 31, 1997, the Company had a backlog of $2.8 billion. The
Company is currently selling outfitted Gulfstream IV-SPs for delivery in the
fourth quarter of 1999 and outfitted Gulfstream Vs for delivery in the first
half of 2000. Although the Company's revenues are, therefore, essentially under
contract for the foreseeable future, the following factors could adversely
affect the stability of the backlog:
New Orders. 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 the potential
purchaser deferring its purchase or changing its operating requirements
and electing to purchase a competitor's lower priced aircraft. In
addition, if a significant number of customers resell their purchase
contracts, the Company's new order intake could be adversely affected. If
the Company's new order intake rate varies, the Company could be required
to adjust its production rate.
Production Delays. While the Company generally receives
non-refundable deposits in connection with each order, an order may be
canceled (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
or completion 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.
Business and Economic Conditions. Although 80% of the Company's
backlog consists of North American customers and 65% of North American
customers are Fortune 500 companies, adverse business and economic
conditions could cause customers to be unable or unwilling to consummate
the purchase of an aircraft and could, therefore, increase the number of
cancellations experienced by the Company.
2
<PAGE>
Year 2000 Compliance
As part of the Company's initiatives, begun in 1996, to increase
production rates and co-produce the Gulfstream IV and Gulfstream V, the Company
has, and continues to, upgrade and replace business systems and facility
infrastructure. These initiatives help to reduce the potential impact of the
Year 2000 date issue on the Company's operations. In addition, the Company has
implemented a Year 2000 Compliance Plan designed to ensure that all other
hardware, software, systems, and products with microprocessors relevant to the
Company's business are not adversely affected by the Year 2000 date issue. The
Company is also reviewing compliance by suppliers and vendors and the impact of
the Year 2000 issue on in-service customer aircraft. The Company does not
believe that the implementation of this Year 2000 Compliance Plan will have a
material effect on the Company's business operations, financial condition,
liquidity or capital resources. However, there can be no assurance, with regard
to compliance by customers and suppliers, that all aspects of their Year 2000
compliance plans will be successfully completed in a timely manner.
Safety Record
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.
Pre-Owned Aircraft Market
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 IV-SP or Gulfstream V. Based on the current market for
pre-owned aircraft, the Company expects to continue to be able to resell
pre-owned aircraft taken in trade, and does not expect to suffer a loss with
respect to these trade-ins and resales. 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.
Competition
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. 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 that 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.
Increased price-based competition by the Company's competitors could
pressure the Company to also reduce its prices. Price reductions could have a
significant impact on the Company's margins. In addition, if a significant
number of customers were to cancel orders for the Company's aircraft in order to
purchase a competitive product, there could be a material adverse effect on the
Company's backlog.
3
<PAGE>
Pending Tax Audit
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 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.
4
