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FINAL COPY
FOR IMMEDIATE RELEASE Contact: Tricia Bergeron
- --------------------- (912) 965-3700
GULFSTREAM REPORTS 30 PERCENT INCREASE IN EARNINGS
PER SHARE FOR SECOND QUARTER 1999
FIRST HALF EPS UP 37 PERCENT;
COMPANY MEETING ALL FINANCIAL AND OPERATING GOALS
- ---------------------------------------------------------------------------
SAVANNAH, GA, JULY 15, 1999 - Gulfstream Aerospace Corporation (NYSE:
GAC) today reported revenues of $707.8 million for the second quarter ended
June 30, 1999, an increase of 27 percent from revenues of $557.0 million in
the 1998 second quarter. Net income for the 1999 quarter was $69.8 million,
up 26 percent from net income of $55.6 million in the same period last
year. Diluted earnings per share for the 1999 second quarter were $0.95, up
30 percent from $0.73 in the second quarter 1998.
The Company's income from operations for the second quarter was $115.5
million, an increase of 26 percent from $91.6 million in the second quarter
of 1998. Gulfstream delivered 17 aircraft (nine Gulfstream IV-SPs, eight
Gulfstream Vs) in the 1999 second quarter, versus 15 aircraft (eight
Gulfstream IV-SPs and seven Gulfstream Vs) in the second quarter last year.
As a percentage of revenues, second quarter gross margin, excluding
pre-owned aircraft, was 24.3 percent, versus 24.0 percent for the three
months ended June 30, 1998.
"Gulfstream has again delivered excellent financial performance for
the quarter," said Theodore J. Forstmann, Gulfstream chairman and chief
executive officer. "We're seeing strong demand for both the Gulfstream
IV-SP and Gulfstream V in the United States and internationally and we
remain on track to meet our earnings per share goal of at least $3.75 in
1999."
As expected, Gulfstream recorded 10 aircraft orders (five Gulfstream
IV-SPs and five Gulfstream Vs) for the three months ended June 30, 1999.
The total number of contracts signed to date in 1999 was 21 bringing the
Company's backlog, including 18 options and ten undelivered aircraft on
order for the Middle East Shares program, to 122 aircraft (56 Gulfstream
IV-SPs and 66 Gulfstream Vs) valued at approximately $3.9 billion as of
June 30, 1999. The Company has sold 146 Gulfstream Vs since its
introduction - with nearly 50 of them in operational service today.
For the six months ended June, 30, 1999, revenues were $1.33 billion,
up 26 percent from the comparable 1998 period. Net income increased 34
percent to $128.3 million in the first six months of 1999, from net income
of $96.1 million in the first half of 1998. Diluted earnings per share were
$1.74, an increase of 37 percent from $1.27 in the same period one year
ago. Gross margin, as a percentage of revenues (excluding pre-owned
aircraft) for the first half was 24.1 percent versus 23.1 percent a year
ago.
In May, Gulfstream and General Dynamics announced that they had
entered into a definitive agreement for General Dynamics to acquire
Gulfstream in a one-for-one stock swap. The transaction, which will be
accounted for as a pooling of interests, is expected to be tax-free to
Gulfstream shareholders. A special meeting of stockholders of Gulfstream
will be held on Friday, July 30, 1999 to consider and vote on the proposal
to adopt and approve the Agreement and Plan of Merger.
Gulfstream Aerospace Corporation is the leading designer, developer,
manufacturer and marketer of the world's most technologically advanced
intercontinental business jet aircraft. The Company has produced more than
1,000 aircraft for customers around the world since 1958. Gulfstream offers
a range of aircraft products and services to meet the aviation needs of its
customers, including the Gulfstream IV-SP(R), the ultra-long range
Gulfstream V(R), Gulfstream Shares(R), Gulfstream Financial Services,
Gulfstream LeaseSM, Gulfstream Pre-Owned Aircraft Sales, Gulfstream Charter
ServicesSM, Gulfstream Management ServicesSM and Gulfstream ServiceCareSM.
In 1998, Gulfstream reported revenues of $2.4 billion. The Company employs
approximately 7,800 people at eight locations.
===========================================================================
This press release includes forward-looking statements which are subject to
risks and uncertainties. Actual results might differ materially from those
projected in the forward-looking statements. Additional information
concerning factors that could cause actual results to materially differ
from those in the forward-looking statements is contained in the
Company's Securities and Exchange Commission filings.
===========================================================================
###
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<TABLE>
<CAPTION>
GULFSTREAM AEROSPACE CORPORATION
($ in millions, except per share data)
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CONDENSED STATEMENT OF INCOME INFORMATION (1)
---------------------------------------------
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Net revenues $ 707.8 $ 557.0 $1,332.9 $1,060.4
Gross margin 153.7 125.8 288.4 225.2
Income from operations 115.5 91.6 212.8 160.9
Net income (2) 69.8 55.6 128.3 96.1
Earnings Per Share: (3)
Earnings per share - basic $ .97 $ .75 $ 1.78 $ 1.31
Earnings per share - diluted .95 .73 1.74 1.27
- ------------------------------------------------------------------------------------
Aircraft orders (4) 10 17 21 30
Mid East Shares orders - - 1 -
---------- ---------- ---------- ----------
Total New Aircraft orders 10 17 22 30
Aircraft contracted - not in
Financial Contract Backlog (4) - - 10 12
New Aircraft deliveries:
Green - GIV-SP 9 8 19 14
Green - GV 8 7 15 14
---------- ---------- ---------- ----------
Total Green deliveries 17 15 34 28
Completion - Gulfstream Aircraft 18 9 28 16
- Non - Gulfstream Aircraft 1 - 2 -
---------- ---------- ---------- ----------
Total Completion deliveries 19 9 30 16
Pre-Owned Aircraft deliveries 4 4 6 7
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<CAPTION>
FINANCIAL CONTRACT BACKLOG (4)
------------------------------
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Units 94 106
Dollars (in billions) $ 3.0 $ 3.3
- --------------------------------------------------------------------------------
<CAPTION>
SELECTED BUSINESS SEGMENT INFORMATION (5)
-----------------------------------------
QUARTER ENDED JUNE 30,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net Revenues
New Aircraft $ 556.4 $448.0
Aircraft Services 81.0 55.3
Segment Gross Margin
New Aircraft $ 135.4 $110.4
Aircraft Services 19.2 11.0
- --------------------------------------------------------------------------------
<CAPTION>
CONDENSED BALANCE SHEET INFORMATION
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
Cash and cash equivalents $ 118.6 $ 38.1
Inventories 794.9 729.9
Total current assets 1,294.3 1,055.6
Customer deposits 726.0 582.7
Long-term debt 323.5 361.0
Total stockholders' equity (6) 280.1 195.7
- --------------------------------------------------------------------------------
<FN>
(1) The Company's financial results for the quarter and six month period
ended June 30, 1999 include the results of operations of K-C Aviation.
This acquisition took place during the third quarter of 1998.
Acquisition related charges of inventory step-up and goodwill
amortization totaled $1.2 million and $2.9 million for the quarter and
six month period ended June 30, 1999, respectively, and are included
in Income from operations.
(2) In the quarter and six month period ended June 30, 1999, the Company
recorded an income tax provision of $40.1 million and $73.7 million
based on an estimated effective tax rate of 36.5% compared with an
income tax provision of $32.1 million and $56.4 million based on an
estimated effective tax rate of 37.0% in the quarter and six month
period ended June 30, 1998.
(3) Basic earnings per share ("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.
(4) During the first quarter of 1998, the Company signed a $335 million
contract for 12 Gulfstream IV-SPs to expand its highly successful
Gulfstream Shares fractional ownership program to the Middle East
region. In 1993, the Company established very stringent deposit
requirements for recording aircraft into its backlog. The contract for
the Middle East Shares expansion includes modestly different deposit
requirements early in the program. The Company has decided for the
initial phase of the program to record these orders into backlog when
the aircraft are delivered. The first green aircraft delivery for this
Program occurred during the third quarter of 1998 and the second
delivery occurred in the first quarter of 1999. The remaining 10
undelivered aircraft are not included in the Company's financial
contract backlog.
(5) The Company operates in three reportable segments: New Aircraft,
Aircraft Services and Pre-Owned Aircraft. See Note 15 to the Company's
1998 Annual Report to Stockholders for a detailed description of the
Company's reportable segments.
(6) During March 1999, the Company established a program to repurchase up
to an additional $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. At June 30, 1999, the
Company had repurchased 1,272,800 shares, at an average price of
$45.54 per share, for an aggregate amount of $58.0 million. In June
1999, Gulfstream announced that it had rescinded its stock repurchase
program due to the pending merger with General Dynamics.
</FN>
</TABLE>
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
2Q99 EARNINGS CONFERENCE CALL
JULY 15, 1999
FINAL COPY
OPENING REMARKS - CHRIS DAVIS
- -----------------------------
Good morning and welcome to Gulfstream's report on the second quarter.
With me today is Bill Boisture. Together we will provide an overview of
Gulfstream's financial and business performance in the second quarter of
1999.
I'll begin by reviewing the highlights of another record quarter for the
Company. Bill will then discuss our operational accomplishments and market
outlook in greater detail.
SUMMARY OF SECOND QUARTER AND FIRST HALF HIGHLIGHTS
- ---------------------------------------------------
Once again, Gulfstream outperformed expectations in the second quarter. We
saw continued revenue growth, strong margin performance and excellent
demand for our products.
o Revenues for the quarter were $707.8 million, up 27 percent over the
second quarter of 1998. Net income was $69.8 million, up 26 percent
year over year. And, earnings per share were $ 0.95, up 30 percent
over 1998 and well above the consensus estimate.
o Total gross margin performance for the quarter remained strong at 24.3
percent of revenue, excluding pre-owned aircraft, versus 24 percent in
the second quarter of 1998. We have continued to make significant
progress in reducing the build times on the production aircraft. Hours
on the GV have dropped 16.7 percent since the end of last year while
GIV hours are down 11.4 percent. This performance is in addition to a
27% decline in GV hours in 1998 and a 14 percent decline in GIV hours
last year.
o In addition, we saw substantial improvement in our gross margins in
our service and spare parts business, from 19 percent in the first
quarter to 23.7 percent in the second quarter.
o We delivered 17 production aircraft (9 GIV-SPs and 8 GVs) in the
quarter compared with 15 production aircraft deliveries (8 GIV-SPs and
7 GVs) in the same period last year. More significantly, we delivered
19 completions including one non-Gulfstream -- in the second quarter
-- over double the 9 completions recorded in the second quarter of
1998 and significantly up from the 11 completions delivered in the
first quarter.
o First half revenues were $1.33 billion, up 26 percent over the $1.06
billion recorded in first half 1998.
o In the first half, Gulfstream delivered 34 production aircraft versus
28 in 1998, and 30 completions versus 16 for the same period last
year.
o Net income increased 34 percent in the first half of 1999 to $128.3
million versus $96.1 million in the comparable 1998 period.
o And diluted earnings per share for the first half of 1999 were $1.74 -
an increase of 37 percent over the $1.27 reported a year ago.
o Also for the first half of 1999, overall gross margins as a percent of
revenue, excluding pre-owned, showed a very strong performance at 24.1
percent versus 23.1 percent last year.
o Order momentum remains strong. As expected, Gulfstream recorded ten
aircraft orders in the second quarter, bringing the total number of
orders to date in 1999 to 22, including the second Middle East Share
Program aircraft which was delivered in the first quarter. And we
again had no cancellations.
o Gulfstream ended the quarter with 122 aircraft under contract valued
at $3.9 billion of future revenues, including the ten aircraft ordered
for, but not yet delivered to, the Middle East Shares fractional
ownership program and 18 options signed in 1998. Approximately 75
percent of the backlog is to be delivered in 2000 and beyond, offering
a solid foundation for continued growth and clear visibility into
future revenues and earnings.
o SG&A for the quarter was $32.4 million versus $30.1 million for the
same period in 1998 principally driven by the G&A associated with the
Dallas, Appleton and Westfield facilities which were acquired in third
quarter 1998, plus about $700,000 of merger related expenses. On a
more comparable basis, SG&A for the first quarter 1999 was $31
million.
o As expected, R&D for the quarter was $2.5 million versus $2.3 million
last year.
o Amortization of intangibles totaled $3.3 million while net interest
expense was $5.6 million.
o And, we ended the quarter with $118.6 million in cash and expect to
continue to generate strong cash flow going forward.
o Weighted average shares outstanding were 73.2 million for the second
quarter and 73.5 million for the first half of 1999.
Now, I'd like to turn it over to Bill who will provide a more detailed look
at the Company's operational and market performance.
BILL BOISTURE REMARKS
- ---------------------
ORDERS
- ------
o Order momentum remains strong for both the Gulfstream IV-SP and the
Gulfstream V. As we have frequently said, we look at orders on an
annualized basis since orders in any one quarter can be affected by
timing of negotiations, contract signature or funding. As a matter of
point, we had several letters of intent in negotiations as we closed
the quarter. We have booked a total of 22 new aircraft orders so far
this year, and for the full year 1999, we continue to expect 45-55 new
aircraft orders.
o We're seeing activity not only in the U.S. but from customers and
prospects around the world. At the Paris Air Show held last month, we
exhibited the GIV and GV to an estimated 100 qualified buyers and
hosted approximately ten government delegations.
o GV sales continue to climb and we expect to maintain our commanding
lead in orders and deliveries in the ultra-long range market segment
well into the future. Last year at this time, we celebrated the sale
of the 100th GV. Now, the total GVs sold, including options, is 146
with nearly 50 GVs in customer service. Our lead in the market over
Bombardier is very obvious as they only delivered their first Global
Express to a customer late last week.
o While we've heard more noise from the competition in the past few
weeks. Nearly all of the announced increase in Global Express orders
since NBAA last fall is into their own fractional ownership program.
As you know, when we have shares orders, they are placed as third
party, arms length transactions from Executive Jet or National Air
Services.
o At the recent Paris Air Show, Bombardier announced a winglet re-design
and retrofit in addition to their previous request to BRR for more
engine power for the Global Express in order to attempt to achieve
promised range numbers. While they've made claims to several
performance records of late, let me just say that the records the GV
holds were made in a fully outfitted aircraft with eight passengers
and a full crew.
o As most of you have already heard, we did not win the ASTOR program.
While we are disappointed, we recognize that this decision was based
on the radar which accounted for 70% + of the cost and which is
manufactured in the UK. We were proud to have the GV selected by two
of the competing teams. We continue to see opportunities for the GV to
play an important role in special mission programs such as NATO air to
ground system and classified programs.
o One of the reasons the GV continues to outsell the competition is that
it performs exceptionally well. Nonetheless, we continue to strive to
enhance its performance and offer our customers the best technology
available. In Paris, we also announced that we will soon offer an
Enhanced Vision System or EVS for the GV. EVS is an infrared thermal
imaging system that greatly improves the pilot's ability to see the
runway and terrain in low visibility conditions. It is a major
advancement in safety and Gulfstream will be the first manufacturer to
offer this advanced technology on its aircraft.
o Order momentum for the Gulfstream IV-SP also remains strong. We have
recorded 12 orders year-to-date and don't see an end to the popularity
of this fine aircraft for many years to come. There are now 348 GIVs
in service today.
o In the pre-owned market, demand also remains strong. While the supply
of GIIIs on the market is normal - running about 10% of the GIII fleet
- the GIV market is heading toward the same short supply we saw 18-24
months ago with only about 2% of the fleet available for sale.
o Our expansion of the Gulfstream Shares fractional ownership concept
outside the U.S. is going well. The first aircraft for the Middle East
Shares program will enter service shortly with the second one in the
completion process. The first core fleet aircraft is operational and
the program is generating a high degree of interest from prospective
customers in the region.
o We continue to have excellent relationships with Warren Buffet's
companies - Executive Jet and FlightSafety. Two new GIV-SPs entered
service in the North America Shares program in the second quarter,
bringing the total aircraft in the program to 23 GIV-SP including the
two core fleet aircraft and bringing a total of 128 customers into the
Gulfstream family. Demand remains strong in this segment as well, with
Executive Jet sold out well in advance of availability.
o We also signed a 30-year agreement with FlightSafety for pilot and
maintenance training. As those of you who have visited our facilities
in Savannah and Long Beach know, FlightSafety operates a state-of-the
art facility on-site at Gulfstream's facilities. This agreement
continues a long-standing and successful relationship with
FlightSafety.
OPERATING HIGHLIGHTS
- --------------------
o Operationally, Gulfstream had an excellent quarter. We met all of our
operating goals and aggressively managed costs across all areas.
o More significantly, we delivered 19 completions in the second quarter
1999 compared to 9 completions in the same period last year and 11 in
the first quarter of this year. Increasing the volume in completions
while ensuring we maintain our focus on quality is a key priority for
1999 and we are making very good progress.
o Earlier this year, we implemented new design and production processes
which we expect to favorably impact margins in this part of our
business going forward. We began efforts in the second quarter to
design GV interiors on CATIA, a three-dimensional computer-aided
design system, which will reduce completion production times by
eliminating potential interferences and allowing more efficient
drawing re-use. We will have a similar program on the GIV-SP initiated
by year-end.
o In the service arena, we continue to have excellent success capturing
not only Gulfstream service business, but also service on Challengers,
Falcons and Hawkers. For the nine months from September 1998 through
May 1999, we've serviced nearly 900 non-Gulfstream aircraft including
302 Challengers, 238 Falcons and 336 Hawkers. We're also pleased with
margins in this business, which we believe are some of the highest
among service providers.
NOW, I'LL TURN IT OVER TO CHRIS, WHO WILL WRAP UP BY PROVIDING A QUICK
SUMMARY OF OUR SEGMENT RESULTS.
- ----------------------------------------------------------------------
o As you know, the company operates in principally three segments:
o The two major segments are New Aircraft which includes both production
and outfitted deliveries, and Aircraft Services, which includes
Gulfstream aircraft service, non-Gulfstream aircraft service, spare
parts and the engine business. In addition, we have Pre-owned Aircraft
which is targeted to operate at breakeven.
o Second quarter revenues for the New Aircraft business segment were
$556.4 million versus $448 million in the second quarter of 1998.
Gross margin, as a percentage of revenue was 24.3 percent, versus 24.6
percent for the same period last year, reflecting the increase in the
number of completion deliveries with GVs at slightly lower margins. On
a year-to-date basis total gross margin for this segment was 24.5
percent versus 23.7 percent a year ago.
o The Aircraft Services segment revenues for the quarter increased 46
percent to $81.0 million compared to $55.3 million in second quarter
1998. On a year-to-date basis, revenues for Aircraft Services were
$164.1 million, up 56 percent over the $105.2 million for the first
half of 1998. This increase is due largely to the addition of the
Dallas, Appleton and Westfield locations.
o Gross margin for this business segment was 23.7 percent of revenues in
the second quarter versus 19.9 percent in the same period in 1998. For
the first half, gross margin performance improved to 21.3 percent from
the 19.9 percent for the same period last year.
o Also, in the second quarter, Gulfstream repurchased 312,800 shares of
common stock at an average price of $41.69 before rescinding the
company's stock repurchase program in conjunction with the announced
merger with General Dynamics.
1999 OUTLOOK
- ------------
o In summary, 1999 performance to date has been excellent and we expect
to have another record year at Gulfstream. We are meeting all of our
financial and operating goals and continue to see further
opportunities for margin expansion in all key areas. We are well on
track to earn at least $3.75 per share in 1999 (excluding merger
related expenses) and at least 15 percent growth in 2000.
ENDING COMMENTS
- ---------------
CHRIS: As you know, on May 17th we announced our pending merger with
General Dynamics. The Hart-Scott Rodino waiting period has expired and our
special shareholder meeting is scheduled for July 30th. We expect the
transaction to close on that date.
Gulfstream became a public company in October 1996 at $24 a share. Today
our stock price is nearly $70. We are proud of the significant increase in
shareholder value that we've created over the past three years. I want to
thank all of you who have followed us and supported us throughout this
exceptional chapter in Gulfstream's history.
BILL: On behalf of Gulfstream's employees and customers - we thank you for
your support and your interest in our company. We look forward to
continuing this excellent performance and making a major contribution to
General Dynamics' ongoing success.
CHRIS: The press release and this conference call have included forward
looking statements, including statements regarding our earnings targets for
1999 and beyond and some of the underlying assumptions; such as green
aircraft and completion deliveries, margin improvements, new aircraft order
rates and stability of backlog. 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 our SEC filings. We urge you to also refer to that
information.
