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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-8461
GULFSTREAM AEROSPACE CORPORATION
DELAWARE 13-3554834
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. BOX 2206
500 GULFSTREAM ROAD
SAVANNAH, GEORGIA
31402-2206
(912) 965-3000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. X
The aggregate market value of the shares of common stock held by
non-affiliates of the registrant (based on the closing price for the common
stock on the New York Stock Exchange on March 1, 1999 was $2,605,156,713.
For purposes of this computation, shares held by affiliates and by
directors of the registrant have been excluded. Such exclusion of shares
held by directors is not intended, nor shall it be deemed, to be an
admission that such persons are affiliates of the registrant.
As of March 1, 1999, there were outstanding 72,765,418 shares of the
registrant's common stock, par value $.01, which is the only class of
common stock of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the
fiscal year ended December 31, 1998 (the "1998 Annual Report") are
incorporated by reference in Parts II and IV of this Form 10-K. Portions of
the Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 19, 1999 (the "1999 Proxy Statement") are
incorporated by reference in Part III of this Form 10-K to the extent
stated herein. Except with respect to information specifically incorporated
by reference in this Form 10-K, neither the Annual Report nor the Proxy
Statement is deemed to be filed as a part hereof.
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PART I
ITEM 1. BUSINESS
GENERAL
Gulfstream Aerospace Corporation (the "Company") is recognized
worldwide as a leading designer, developer, manufacturer and marketer of
advanced intercontinental business aircraft. Since 1966, when the Company
created the large cabin business jet category with the introduction of the
Gulfstream II, the Company has dominated this segment of the market,
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 operates principally in three segments: New Aircraft,
Aircraft Services and Pre-owned Aircraft. Within New Aircraft, the
Company's current product offerings are the Gulfstream IV-SP, the
Gulfstream V, Gulfstream Shares(R) (fractional ownership interest in
Gulfstream IV-SPs and Gulfstream Vs), and Gulfstream LeaseSM. Also, the
Company's financial services subsidiary, Gulfstream Financial Services
Corporation, through its private label relationship with third-party
aircraft financing providers, offers customized products to finance the
worldwide sale of Gulfstream aircraft. Within it's Aircraft Services
segment, the Company offers aftermarket maintenance services, spare parts,
engine overhaul and auxiliary power unit service and overhaul for both
Gulfstream and other business aircraft. The Company's Pre-owned Aircraft
segment markets and sells pre-owned Gulfstream aircraft and other business
aircraft, acquired in trade, to a worldwide market.
On October 16, 1996, the Company sold 4,559,100 shares of the
Company's Common Stock, and certain partnerships (the "Forstmann Little
Partnerships") formed by Forstmann Little & Co. ("Forstmann Little") 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. In May 1998, the Forstmann Little Partnerships
and certain stockholders and option holders completed the sale of 18
million shares of common stock in a secondary offering at a price of $43.00
per share. As of March 1, 1999, the Forstmann Little Partnerships owned
approximately 22.8% of the outstanding shares of the Company's common
stock.
ACQUISITION OF K-C AVIATION
On August 19, 1998, the Company completed the acquisition of K-C
Aviation, Inc. for approximately $250 million, including acquisition costs.
The acquisition is a key part of Gulfstream's growth strategy and has
allowed the Company to obtain a skilled workforce, as well as add
additional capacity to accelerate its aircraft completions business,
diversify and grow its aircraft maintenance and parts business, and
strongly establish the Gulfstream name in the aircraft engine and auxiliary
power unit service market.
K-C Aviation was a leading provider of business aviation services and
the largest independent completion center for business aircraft in North
America. The acquisition has provided the Company with the capacity for
approximately 21 additional aircraft interior completions. In addition to
custom aircraft interiors, K-C Aviation was the second largest independent
aircraft engine service center in the United States and also offered
maintenance services, spare parts, auxiliary power unit service, avionics
retrofit, non-destructive testing and component overhaul.
NEW AIRCRAFT
The Company's New Aircraft segment operates in the business aircraft
market which is generally divided into four segments -- light, medium,
large and ultra-long range. These market segments are defined on the basis
of range, cabin volume and gross operating weight. The Company sells new
aircraft on a completed basis, including exterior paint, installation of
customer selected interiors and optional avionics. The Company's principal
product offerings are discussed below:
GULFSTREAM V
The Company's newest aircraft product is the Gulfstream V, which
serves the ultra-long range market. The Company believes the Gulfstream V
provides the longest range, fastest cruising speed and most technologically
advanced avionics of any ultra-long range business jet aircraft currently
in operation. The Gulfstream V received final type certification from the
Federal Aviation Administration ("FAA") on April 11, 1997. Deliveries of
the first outfitted aircraft to customers began in 1997. To date, the
Gulfstream V has set 55 world and national records. The Company had
received a total of 121 orders, 136 including options, for the Gulfstream V
and had manufactured and delivered 61 Gulfstream Vs through 1998. As
confirmation of the product's innovative design and outstanding
performance, the Gulfstream V received the 1997 Robert J. Collier Trophy
for aeronautical achievement and was selected by the United States Air
Force to provide intercontinental transportation for senior government
officials and dignitaries.
The Gulfstream V has a maximum operating speed of Mach .885. It can
accommodate up to 19 passengers and has a range of up to 6,500 nautical
miles. These capabilities permit routine intercontinental travel at
cruising speeds comparable to commercial airline cruising speeds, while
operating efficiently at altitudes as high as 51,000 feet, flying above
most commercial airline traffic and adverse weather. The Gulfstream V is
versatile enough to fly long-range missions, such as New York to Tokyo in
approximately 14 hours, as well as high-speed missions, such as New York to
London, in approximately six hours.
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 aircraft utilizes dual cabin pressurization systems to minimize
cabin altitude. At its cruising altitude of 51,000 feet, the Gulfstream V
cabin altitude is only 6,000 feet, the lowest cabin altitude of any jet
aircraft in its class. This low cabin altitude, together with a 100% fresh
air ventilation system (instead of a recirculating air system),
significantly reduces passenger fatigue.
The advanced flight systems on the Gulfstream V include automatic
throttle systems, an integrated performance computer system, an engine
information crew advisory system, a dual global positioning system and
independent inertial reference systems. These systems provide accurate
flight planning, as well as automatic control, throughout the planned
flight profile. For maximum safety, a Traffic Collision Avoidance System,
turbulence and wind shear-detecting radar and an Enhanced Ground Proximity
Warning System are also standard. An additional safety feature of the
Gulfstream V is an optional heads-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 list price for a completed Gulfstream V is expected to be
approximately $39.5 million depending upon selected options, escalation and
availability. The Company provides a purchaser of a Gulfstream V with a 20
year or 20,000 flight hour warranty (whichever comes first) on the airframe
structure and a six-year warranty on components (other than the engines).
BMW Rolls-Royce GmbH provides a direct five-year or 2,500 flight hour
warranty (whichever comes first) on the engines to purchasers of a
Gulfstream V.
GULFSTREAM IV-SP
The New Aircraft segment's other principal aircraft product is the
Gulfstream IV-SP, serving the large cabin business jet market. The Company
believes that the Gulfstream IV-SP offers the best combination of large
cabin size, long range, fast cruising speed and technologically advanced
avionics of any large business jet aircraft in its market segment. The
Gulfstream IV-SP is an enhanced version of the Gulfstream IV. In total, the
Company has manufactured and sold 359 Gulfstream IV/IV-SPs from 1985 to
1998, making it the best selling large cabin business jet in the history of
business aviation.
The Gulfstream IV-SP can accommodate up to 19 passengers, has a range
of up to 4,220 nautical miles and a cruising speed of up to Mach .85. These
capabilities permit routine intercontinental travel at cruising speeds
comparable to commercial airline cruising speeds, while operating
efficiently at altitudes as high as 45,000 feet, flying above most
commercial airline traffic and adverse weather. The Gulfstream IV/IV-SP is
the holder of over 70 distance, altitude and speed records for aircraft of
its class including east-bound and west-bound around-the-world speed
records (36 hours and 8 minutes (east-bound) and 45 hours and 25 minutes
(west-bound)).
The 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,
combine 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 Gulfstream IV-SP, is expected to be approximately
$29.5 million depending upon selected options, escalation and availability.
The Company provides a purchaser of a Gulfstream IV-SP with a 15 year or
15,000 flight hour warranty (whichever comes first) on the airframe
structure and a 30 month warranty on most other parts (other than the
engines). Rolls-Royce provides a direct 5 year or 2,500 flight hour
warranty (whichever comes first) on the engines to purchasers of a new
Gulfstream IV-SP.
GULFSTREAM SHARES(R)
The Company has offered customers fractional ownership in Gulfstream
IV-SP aircraft through a program established by the Company in 1995 in
conjunction with Executive Jet ("EJ"). In 1998, the Company and EJ
announced the expansion of that program to include Gulfstream V aircraft.
This program is designed to provide customers with the benefits of aircraft
ownership at a substantially lower cost than the purchase of an entire
aircraft. The program significantly expands the market for Gulfstream IV-SP
and Gulfstream V aircraft to include those customers whose aircraft usage
patterns or financial resources do not justify or permit the direct
purchase of a Gulfstream aircraft. The Gulfstream Shares program, by
teaming Gulfstream and EJ, has brought the Gulfstream name, quality,
reputation and marketing infrastructure together with the operational
experience and reputation of the founder and leader in the business jet
aircraft fractional ownership market.
The Gulfstream Shares program is marketed by the Company. EJ purchases
Gulfstream IV-SPs and Gulfstream Vs from the Company and then sells
fractional ownership interests in such aircraft generally in one-eighth or
one-quarter increments for which the customer receives 100 or 200 hours of
flying time per year, respectively, with a guaranteed response time for
pick-up of ten hours or six hours, respectively. As of December 31, 1998,
the Company had contracted to deliver to EJ 44 Gulfstream IV-SPs and 12
Gulfstream Vs in connection with the North American Gulfstream Shares
program, plus options for additional 12 Gulfstream Vs. Of these, 18
Gulfstream IV-SPs are in service, and the remaining 50 Gulfstream IV-SPs
and Gulfstream Vs are scheduled for delivery through 2007. The customers
enter into management and operating contracts with EJ which provide
guaranteed services and operating costs. EJ's agreement with its customers
provides for a term of five 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 EJ.
The Gulfstream aircraft are maintained by the Company under a
maintenance agreement with EJ. Further, under a lease arrangement, the
Company provides EJ up to 3 pre-owned Gulfstream IV aircraft (which are
included in the Company's pre-owned aircraft inventory) which make up EJ's
core fleet and are used to facilitate EJ's meeting its response time and
service guarantees. In 1998, EJ exercised an option to purchase three new
aircraft to replace these core-fleet aircraft. The Company has a
proprietary agreement with EJ 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 EJ
revenues. The Company's marketing services agreement for Gulfstream Shares
has a term of five years to 2003 and can be extended by mutual agreement of
the parties.
In 1998, the Company expanded the Shares Program into the Middle East,
with a 12 aircraft $335 million contract with a group of Middle East
investors. The first Middle East Shares aircraft was delivered green in the
third quarter of 1998 and will enter service in the second quarter of 1999.
SPECIAL MISSION AIRCRAFT
The Company has designed and manufactured several derivatives of the
Gulfstream V and Gulfstream IV-SP which are utilized for military and
government Special Mission applications. These derivatives include the
cargo door equipped Gulfstream IV/IV-SP aircraft in service with the U. S.
Navy and Japanese Air Force which are designated the C-20G and U-4,
respectively, and the long established U. S. Air Force C-20H Special Air
Mission Gulfstream IV-SPs. Additional Special Mission derivatives are in
military and government use throughout the world in diverse roles including
signal intelligence, reconnaissance, medical evacuation, hurricane
tracking, airways flight inspection and priority transport.
In 1997, a Gulfstream V derivative was selected by the U. S. Air Force
for its VCX high priority transport program. With the 1998 order for a
Gulfstream V for the U. S. Army and the additional C-37 option exercised in
February 1999, the program currently includes four firm orders and three
options for Gulfstream V C-37A aircraft. The C-37A aircraft will be
operated by the U. S. Air Force Special Air Mission Wing and the U. S.
Army.
There are currently 49 Gulfstream IV/IV-SP and four Gulfstream V
aircraft in military or government service in 34 countries, with an
additional 13 Special Mission aircraft to be delivered. The Company
believes the Special Mission derivatives of the Gulfstream IV-SP and
Gulfstream V will continue to be important products for meeting the needs
of government operators, military organizations, civil authorities and
intelligence gathering agencies.
GULFSTREAM LEASE
In 1998, Gulfstream announced Gulfstream Lease, a venture between the
Company and GATX Capital. The venture, Gulfstream GATX Leasing Company, LLC
("GGLC"), has signed a contract to purchase six aircraft (five Gulfstream
Vs and one Gulfstream IV-SP) and options to purchase an additional three
Gulfstream Vs and three Gulfstream IV-SPs. GGLC is owned 85% by GATX
Capital and 15% by Gulfstream. This program is expected to provide an
important vehicle for new Gulfstream aircraft sales, by offering customers
an additional solution for their interim aircraft operating needs and
introducing customers with less initial capital to Gulfstream's product
offerings. Gulfstream will market the leases and provide maintenance
services, while GATX Capital will provide account management services.
GULFSTREAM CHARTER AND AIRCRAFT MANAGEMENT SERVICES
The Company has developed Gulfstream Charter Services to provide its
customers with easy access to the Gulfstream charter market. The program
helps customers meet their interim and supplemental lift requirements by
connecting potential Gulfstream charter customers with operators through a
private label relationship with a charter services manager. In addition,
Gulfstream, in conjunction with Chrysler Pentastar Aviation, Inc., offers
Gulfstream Management Services, a program for the management of Gulfstream
aircraft. Through this service, individual and corporate owners of
Gulfstream aircraft can receive aircrew, dispatch and maintenance
management services.
AIRCRAFT FINANCING
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 aircraft for each such customer's specialized needs.
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.
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.
TRAINING
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 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 owners and operators by SimuFlite Training International
("SimuFlite") located at Dallas-Fort Worth International Airport, Texas.
SimuFlite provides training services for Gulfstream II, Gulfstream III and
Gulfstream IV aircraft. Gulfstream, in conjunction with SimuFlite,
facilitates the operation of a Customer Training Advisory Board which
provides direct customer and original equipment manufacturer input to
SimuFlite training curriculums and course content.
MATERIALS AND COMPONENTS
Approximately 70% of the production costs of both the Gulfstream IV-SP
and the Gulfstream V consist of purchased materials and equipment. Many
materials and items of equipment used in the production of the Company's
aircraft, such as the engines, wings, landing gear and avionics systems,
are purchased from manufacturers, generally pursuant to long-term purchase
orders. For the Gulfstream V, the Company has entered into revenue sharing
agreements for the wing and empennage. Under these agreements, the revenue
share partner is responsible for the detailed design, tooling and
manufacture of the systems in exchange for a fixed percentage of revenues
of each Gulfstream V sold. The terms of the revenue share agreements with
Northrop Grumman Corporation for the wing and Fokker Aviation B.V. for the
empennage continue so long as the Company is manufacturing the Gulfstream V
and prices are determined as a function of the sale price of the Gulfstream
aircraft.
As is typical among general aviation aircraft manufacturers, the
Company relies on single source suppliers for complex aircraft components
and systems. These single sources are selected based on overall aircraft
systems requirements, quality and certification requirements and
competitiveness in the market. The Company's major suppliers include
Rolls-Royce Commercial Aero Engines Limited (Gulfstream IV-SP engines), BMW
Rolls-Royce GmbH (Gulfstream V engines), Honeywell Incorporated (Gulfstream
IV-SP and Gulfstream V flight management systems/avionics), The
Aerostructures Corporation (Gulfstream IV-SP wing), Northrop Grumman
Corporation (Gulfstream V wing revenue share partner and Gulfstream IV-SP
nacelle supplier), Fokker Aviation B.V., a subsidiary of Stork B.V.,
(Gulfstream V empennage revenue share partner), The B.F. Goodrich Co.
(Gulfstream IV-SP and Gulfstream V landing gears and air speed sensors),
Sundstrand Corp. (Gulfstream V electrical system and actuators) and
AlliedSignal, Inc. (Gulfstream IV-SP and Gulfstream V auxiliary power unit
and environmental control systems and Gulfstream IV-SP electrical systems).
The Company has negotiated multi-year agreements with its major Gulfstream
IV-SP and Gulfstream V suppliers. All of the agreements, with the exception
of the revenue share agreements, allow schedule flexibility and have no
cost termination clauses at the Company's option, subject to certain
conditions and prior notification periods.
Suppliers are selected on the basis of their ability to produce high
quality systems and components at competitive prices on a timely basis.
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.
AIRCRAFT SERVICES
Within its Aircraft Services segment, the Company offers aftermarket
maintenance services, spare parts, engine overhaul and auxiliary power unit
service and overhaul for both Gulfstream and other business jets.
As part of its customer-oriented strategy, the Company is committed to
supporting and servicing the Gulfstream aircraft fleet, which presently
numbers over 900 aircraft in service. The Company provides worldwide
service and support by integrating a network of Company-owned service
centers, three levels of authorized third-party service providers,
worldwide parts depots, worldwide service representatives and 24 hour-a-day
technical/AOG (aircraft on the ground) support.
The Company also provides airframe and engine service and parts
support for non-Gulfstream aircraft. As a result of the K-C Aviation
acquisition in 1998, Gulfstream now offers services for Challenger, Hawker,
Falcon and other aircraft types at their Appleton, WI; Dallas, TX; and
Westfield, MA locations. In addition to the incremental revenues and
margins that these services generate, they provide the Company with an
additional channel to establish new customer relationships with aircraft
owners/operators that could ultimately result in the sale of new Gulfstream
aircraft.
The Company has 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. In
addition, Jet Aviation Business Jets (Geneva and Basel, Switzerland), Jamco
(Japan) and Linden Airtaxi (Sao Paulo, Brazil) serve as authorized warranty
centers.
Parts are provided worldwide to Gulfstream and non-Gulfstream aircraft
owners and maintenance facilities through a network of nine distribution
centers. Sales force initiatives include aggressive new aircraft provision
sales, replacement, modification and enhancement sales to existing airframe
and engine customers.
The Company markets aircraft support publications and technical
documents to its 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.
Additionally, the Company provides, through its ServiceCareSM program,
a comprehensive airframe, engine and avionics maintenance program, 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.
The Company has developed a proactive marketing and sales effort in
its maintenance services operations. This has resulted in an increase in
the Gulfstream maintenance service market share to approximately 75% in
1998. The Company's estimated market share was approximately 60% in 1997.
PRE-OWNED AIRCRAFT
Pre-owned aircraft are routinely accepted in trade to facilitate the
sale of new Gulfstream IV-SPs and Gulfstream Vs. The Company backs
pre-owned Gulfstream aircraft with a five year warranty on the airframe
structure and a 12 month warranty on virtually all other parts, including
the engines under a separate warranty from Rolls-Royce Commercial Aero
Engines Limited.
Trade-in values for pre-owned aircraft are based on estimated fair
market value ("FMV") at the trade-in date. If the trade-in date is greater
than twelve months into the future, the Company's current practice is to
reserve the right to determine FMV not more than six months prior to
delivery of the 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 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 less 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.
BACKLOG
At December 31, 1998, the Company had a financial contract backlog of
approximately $3.3 billion, representing a total of 50 contracts for
Gulfstream IV-SPs, 56 contracts for Gulfstream Vs, compared with $2.8
billion at the end of 1997, representing a total of 43 contracts for
Gulfstream IV-SPs and 45 contracts for Gulfstream Vs. Including the 11
undelivered aircraft in the Middle East Shares contract, the Company had a
total of 117 aircraft, valued at approximately $3.6 billion of potential
future revenues, under contract at December 31, 1998. This excludes 18
options valued at $0.7 billion.
During the third quarter of 1998, Gulfstream GATX Leasing Company
executed agreements to purchase five Gulfstream Vs and one Gulfstream
IV-SP, valued at approximately $210 million, with deliveries from 1999
through 2001. It also executed options to purchase three Gulfstream Vs and
three Gulfstream IV-SPs, valued at approximately $200 million, with
potential deliveries from 2001 through 2004.
During the first 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.
The first green aircraft delivery for the Middle East Shares Program
occurred during the third quarter of 1998. The remaining 11 undelivered
aircraft are not included in the Company's financial contract backlog. In
1993, the Company established very stringent deposit requirements for
recording aircraft into its backlog. The contract for the Middle East
Shares expansion includes modestly different deposit requirements early in
the program. The Company has decided for the initial phase of the program
to record these orders into backlog when the aircraft are delivered.
As of December 31, 1998, the Company had contracted to deliver to EJ
44 Gulfstream IV-SPs and 12 Gulfstream Vs in connection with the North
American Gulfstream Shares program plus options for additional 12
Gulfstream Vs. Of these, 18 Gulfstream IV-SPs are in service, with the
remaining 50 Gulfstream IV-SPs and Gulfstream Vs to be delivered through
2007.
The Company includes an order in financial contract backlog only if
the Company has entered into a purchase contract (with no contingencies)
with a customer and has received a significant (generally non-refundable)
deposit from the customer. Approximately 50% of the Company's contractual
backlog is scheduled for delivery beyond 1999. Approximately 80% of the
Company's backlog is North American and approximately 20% is international.
Generally, at the signing of a Gulfstream IV-SP or Gulfstream V
contract, a customer makes a non-refundable deposit with the Company, and
subsequently makes a series of significant progress payments, prior to
delivery of the aircraft. The 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.
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-seven
percent of the Gulfstream fleet is based in North America and 23% of the
fleet is based in 50 countries worldwide. Current owners of Gulfstream
aircraft include 32 of the Fortune 50 companies and 119 of the Fortune 500
companies. In addition, the United States government, including all
branches of the United States military, and 33 foreign governments operate
Gulfstream aircraft. Gulfstream aircraft provide air transportation for the
President, Vice President and other senior members of the United States
government. Over 40 Gulfstream aircraft are 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, and its products and services,
while the sales approach is highly personalized and focused on the key
decision makers, as well as flight departments and other managers within
the customer's organization.
Gulfstream operates an International Advisory Board of 16 prominent
international business executives and senior statesmen to advise the
Company on international activities in support of the Company's strategic
initiatives to further penetrate the international markets.
The Company's marketing and communications program is a carefully
integrated combination of business and trade advertising, direct mail,
press coverage, trade shows and special events. These activities are
specifically developed to create personal selling opportunities for the
sales team and senior management with assistance from the Board of
Directors and International Advisory Board.
The Company has 28 sales executives located both in North America and
around the world. Internationally, the Company also utilizes independent
agents who facilitate transactions in selected local markets.
The Company's revenues by geographic area are included on page 38 of
Gulfstream's 1998 Annual Report, which information is incorporated herein
by reference. During 1996, revenues from one customer, Executive Jet,
included in the New Aircraft and Aircraft Services reportable segments,
represented approximately 11.7% of the Company's total revenues.
COMPETITION
The business aircraft market generally is divided into four segments
- -- (light, medium, large and ultra-long range) of aircraft either designed
or converted for business use.
The Gulfstream IV-SP competes in the large cabin business aircraft
market segment, principally with Dassault Aviation S.A.'s Falcon 900 EX and
900B. The Gulfstream V competes in the ultra-long range business aircraft
market segment, primarily with Bombardier's Global Express, and, to a
lesser extent, corporate versions of the Boeing 737 and Airbus A319. The
Company's competitors may have access to greater resources (including, in
certain cases, governmental subsidies) than are available to the Company.
The Company believes, however, that it competes favorably with its
competitors on the basis of the performance characteristics of its
aircraft, the quality, range and timeliness of the service it provides and
its innovative marketing techniques. In addition, the Company was able to
certify the Gulfstream V significantly in advance of its competition. The
Company believes its aircraft's operating costs are comparable to or lower
than those of its competitors and that its products are competitively
priced.
RESEARCH AND DEVELOPMENT
The Company conducts an internally funded research and development
program primarily for the enhancement of the existing Gulfstream aircraft
fleet, through product and process improvement to satisfy changing customer
needs and changing regulatory requirements. The Company's research and
development efforts have focused on improving operating efficiencies,
performance, safety and reliability, reducing pilot workloads, realizing
environmental benefits, reducing weight and improving ease of manufacture.
The Company believes that its emphasis on technology and product
improvements for aircraft in the Gulfstream fleet has provided and will
continue to provide added value for the Gulfstream customer. For aircraft
already produced and in service, aircraft changes, which incorporate
product improvements, are generally made available for purchase by existing
owners of Gulfstream aircraft.
In 1998, the Company announced plans, in collaboration with a division
of the Lockheed Martin Corp., to study the feasibility of a supersonic
business jet. The study is expected to take 18-24 months and require only
an insignificant level of research and development spending. The companies
expect that if they do decide to develop such a jet it would not be
introduced to the market for at least eight to ten years.
Information regarding the Company's research and development
expenditures is contained on page 22 of Gulfstream's 1998 Annual Report,
which information is incorporated herein by reference.
REGULATION
In order for an aircraft model to be manufactured for sale, the FAA
must issue a Type Certificate and a Production Certificate for the aircraft
model and, in order for an individual aircraft to be operated, an
Airworthiness Certificate. Type Certificates are issued by the FAA when an
aircraft model is determined to meet certain performance, environmental,
safety and other technical criteria. The Production Certificate ensures
that the aircraft is built to specifications approved under the Type
Certificate. An Airworthiness Certificate is issued for a particular
aircraft when it is certified to have been built in accordance with
specifications approved under the Type Certificate for that particular
model aircraft. Gulfstream has never had a Type Certificate or a Production
Certificate suspended, nor had any jet aircraft grounded as the result of
regulatory action.
All of the Company's aircraft models comply with all currently
applicable federal laws and regulations pertaining to aircraft noise and
engine emissions. Due to their weight (under 75,000 pounds), all Gulfstream
II, III, IV and IV-SP aircraft are currently exempt from the FAA Stage 3
noise requirements. Notwithstanding federal requirements, foreign and local
jurisdictions and airport authorities may establish more stringent
restrictions pertaining to aircraft noise. Such local and foreign
regulations in several locations currently restrict the operation of
certain jet aircraft, including the Gulfstream II, IIB and III and certain
of their competitors from landing or taking off during late evening and
early morning hours. Each of the Gulfstream IV, IV-SP and V aircraft
produce noise levels below the FAA's Stage 3 and ICAO's Chapter 3 noise
ceilings.
EMPLOYEES
At March 1, 1999, the Company employed approximately 7,740 people, of
whom approximately 4,410 were employed at the Company's Savannah, Georgia
facility, 130 at the Brunswick, Georgia facility, 630 at the Bethany,
Oklahoma facility, 810 at the Long Beach, California facility, 730 at the
Dallas, Texas facility, 370 at the Appleton, Wisconsin facility, 130 at the
Westfield, Massachusetts and 530 at the Mexicali, Mexico facility. 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 employees at the Company's 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 $2.0 million in 1998.
The Company has been named as a Potentially Responsible Party with
respect to two cleanup sites, one operated by the Mountaineer Refinery and
the other operated by Omega Chemical Company. Based on the Company's
limited involvement with such sites, the Company believes that it will not
incur material costs in respect of such cleanup sites.
The Company is currently engaged in the monitoring and cleanup of
certain groundwater at its Savannah facility under the oversight of the
Georgia Department of Natural Resources. The continuing expenses for the
cleanup are not expected to be material. The Company believes other aspects
of the Savannah facility, as well as other Gulfstream properties, are being
carefully monitored and are in substantial compliance with current federal,
state and local environmental regulations.
The Savannah facility has been in existence for over 30 years. Like
the Savannah facility, certain of the Company's other facilities have been
in operation for a number of years and, over such time, these facilities
have used substances or generated and disposed of wastes which are or may
be considered hazardous. As a result, it is possible that the Company could
become subject to additional environmental liabilities in the future in
connection with these sites.
ITEM 2. PROPERTIES
The locations and square footage of the Company's principal operating
properties at March 1, 1999, are indicated in the following table:
<TABLE>
<CAPTION>
Approximate Lease
Square Expiration
Location Purpose Footage Date
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Savannah, Georgia Corporate offices, 1,500,000 Owned
principal manufacturing
facility, aircraft
services and engineering
Brunswick, Georgia Aircraft services and
completions 53,000 May 31, 1999
Long Beach, California Aircraft services and
completions 250,000 Owned
Aircraft services and
completion 62,000 August 14, 1999
Aircraft completions 22,000 March 31, 2000
Aircraft painting 59,000 Owned
Dallas, Texas Aircraft services and
completions 200,000 Owned
Aircraft services and
completions 35,000 January 1, 2003
Aircraft services and
completions 57,000 October 31, 2001
Engine and auxiliary power
unit maintenance and
overhaul 48,000 April 30, 2002
Appleton, Wisconsin Aircraft services and
completions 120,000 Owned
Aircraft services 35,000 August 31, 2001
Westfield, Aircraft services 50,000 Owned
Massachusetts Aircraft services 20,000 July 31, 2000
Oklahoma City, Manufacturing operations 500,000 December 31, 2007
Oklahoma
Mexicali, Mexico Manufacturing operations 75,000 December 31, 1999
</TABLE>
Any prolonged disruptions in the use of a major facility due to
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.
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 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 certain
aircraft. These aircraft were part of a product line which was discontinued
in 1985 and sold during 1989. This lawsuit is not an insured claim. Other
than an allegation that the plaintiffs' damages exceed jurisdictional
requirements, the plaintiffs have not specified a dollar value of the
extent of their damages. The Company believes it has meritorious defenses
to all these claims based upon the facts that underlie them. Class
certification has been denied, but plaintiffs have filed an appeal. The
Company does not expect the results in this action to have a material
adverse effect on its financial condition or results of operations.
Although there are other lawsuits pending involving the Company's
discontinued light aircraft product lines, those claims are (i) covered by
the General Aviation Revitalization Act of 1994, which is a federal statute
of repose, (ii) the responsibility of the purchasers of those light
aircraft product lines, or (iii) covered by the Company's product liability
insurance. There are no accident or incident claims pending with respect to
any Gulfstream jet aircraft.
The Company maintains product liability insurance coverage of $500
million per occurrence and in the aggregate per year, subject to $10
million of self-insurance retention. Management believes this coverage is
adequate.
The Company 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 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 the Company's Securities and Exchange Commission filings.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the last quarter of the year ended December 31, 1998.
ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY
The following paragraphs set forth the name, age and offices with the
Company of each present executive officer of the Company, the period during
which each executive officer has served as such and each executive
officer's business experience during the past five years:
Theodore J. Forstmann, age 59, has served as Chairman of the Board of
the Company since November 1993 and as Chief Executive Officer since
December 1998. Mr. Forstmann has been a general partner of FLC
Partnership, L.P. since he co-founded Forstmann Little & Co. in 1978.
He is also a director of General Instrument Corporation. Theodore J.
Forstmann and Nicholas C. Forstmann are brothers.
W.W. Boisture, Jr., age 54, has served as President and Chief
Operating Officer of the Company since December 1998 and as a director
since February 1995 and is a member of the Office of the Chief
Executive. Mr. Boisture served as Executive Vice President from
February 1994 to December 1998. Prior to joining the Company, he was
President and Chief Executive Officer of British Aerospace Corporate
Jets from October 1992 through 1993, where he was responsible for the
"Hawker" business jet product line and its worldwide marketing, sales
and support organization. From early 1990 to 1992, Mr. Boisture was
Chairman, President and Chief Executive Officer of Butler Aviation, a
nationwide aviation services company.
Chris A. Davis, age 48, has served as Executive Vice President and
Chief Financial Officer of the Company since July 1993, Secretary
since August 1996, Chief Administrative Officer since December 1998
and a director since March 1997 and is a member of the Office of the
Chief Executive. She is also President and Chief Operating Officer of
Gulfstream Financial Services Corporation. Ms. Davis served in
increasingly senior financial management positions at General Electric
Company from 1978 to 1993, most recently as chief financial officer of
its Electronic Systems Division. Ms. Davis is also a director of
Wolverine Tube, Inc.
Bryan T. Moss, age 59, has served as Vice Chairman and a director of
the Company since March 1995. Prior to joining the Company, he was
President of Bombardier Business Aircraft Division, where he was
responsible for the Challenger and Global Express business jet
programs from 1989 to March 1995.
Ira P. Berman, age 37, has served as Senior Vice President and General
Counsel of the Company since March 1997. Before joining the Company,
Mr. Berman was a partner in the corporate department of the law firm
of Fried, Frank, Harris, Shriver & Jacobson, New York, New York, from
September 1997 to March 1998, and an associate from June 1996 to
September 1997.
G. Kenneth Burckhardt, age 44, has served as Senior Vice President,
Finance of the Company since December 1998. Mr. Burckhardt served as
Vice President, Finance from June 1996 to December 1998 and Director
of Finance from December 1994 to June 1996. Prior to joining the
Company, he was Director, Financial Planning & Analysis of a division
of GE Capital Corp. from September 1991 to December 1994.
Patrick C.G. Coulter, age 58, has served as the Company's Senior Vice
President, Corporate Communications since January 1999. Prior to
joining the Company, he was Vice President of Communications for The
Boeing Company Commercial Airplane Group from July 1997 to December
1998. Mr. Coulter was Vice President of Corporate Communications for
Bell Atlantic Corporation from July 1995 to June 1997, and Director of
Corporate Communications of The Raytheon Company from January 1991 to
July 1995.
Larry R. Flynn, age 47, has served as Senior Vice President, Aircraft
Services since December 1998. Mr. Flynn was Vice President, Aircraft
Services from June 1995 to December 1998. Prior to joining the
Company, Mr. Flynn served as Vice President of Stevens Aviation from
April 1993 to May 1995.
Preston A. Henne, age 51, has served as the Company's Senior Vice
President, Programs since September 1994. He was employed by McDonnell
Douglas Corporation from July 1969 to August 1994, most recently as
Vice President & General Manager.
Joseph T. Lombardo, age 51, has served as Senior Vice President,
Operations of the Company since December 1998. Mr. Lombardo served as
Vice President, Co-Production from June 1996 to December 1998. Prior
to joining the Company, he was Director of Twin-Jet Production at
McDonnell Douglas from February 1993 to June 1996.
Joseph K. Walker, age 45, has served as Senior Vice President, Sales &
Marketing of the Company since December 1998. Mr. Walker served as the
Company's Senior Vice President, International Sales from September
1997 to December 1998, and as Vice President, North American Sales
from 1995 to September 1997. Prior to joining the Company, Mr. Walker
served as Vice President, Worldwide Sales of Cessna Aircraft, Inc.
from 1994 to 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information required by this Item is contained on page 40 of
Gulfstream's 1998 Annual Report, which information is incorporated herein
by reference. At December 31, 1998, the Company's Credit Agreement
prohibited the payment of dividends.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is included under the caption
"Selected Financial Data" on page 41 of Gulfstream's 1998 Annual Report,
and that information is hereby incorporated by reference in this Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information required by this Item is included in "Management's
Discussion and Analysis" on pages 20 to 25 of Gulfstream's 1998 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, 1998,
1997 and 1996, the Notes to the Consolidated Financial Statements, and the
independent auditors' report thereon on pages 26 to 39 of the 1998 Annual
Report, and in the Company's unaudited quarterly financial data for the
years ended December 31, 1998 and 1997 on page 40 of Gulfstream's 1998
Annual Report, incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item is included in the 1999 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 1999 Proxy Statement in the section
captioned "Section 16(a) Beneficial Ownership Reporting Compliance," and
such information is incorporated herein by reference. Information
concerning executive officers required by this Item 10 is located under
Part I, Additional Item on pages 14 and 15 of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is included in the 1999 Proxy
Statement in the sections captioned "Further Information Concerning the
Board of 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 1999 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 1999 Proxy
Statement in the sections captioned "Further Information Concerning the
Board of Directors and Committees -- Compensation Committee Interlocks and
Insider Participation" and "Related Party Transactions," and such
information is incorporated herein by reference. See also, Note 12 to the
Consolidated Financial Statements on page 37 of Gulfstream's 1998 Annual
Report.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
1998
FORM 10-K ANNUAL REPORT
(PAGE) (PAGE)
------------- --------------
(a) FINANCIAL STATEMENTS
Consolidated Statements of Income for the
years ended December 31, 1998, 1997, and 26
1996
Consolidated Balance Sheets at December
31, 1998 and December 31, 1997 27
For the years ended December 31, 1998,
1997, and 1996:
Consolidated Statements of Stockholders' 28
Equity
Consolidated Statements of Cash Flows 29
Notes to Consolidated Financial 30-38
Statements
Independent Auditors' Report 39
Supplementary Information (Unaudited)
Quarterly Financial Results for 1998 40
and 1997
FINANCIAL STATEMENT SCHEDULES
Independent Auditors' Report 19
I. Condensed financial information 20-21
II. Valuation and qualifying 22
accounts
All other schedules have been omitted because they are not applicable,
not required or the information required is included in the consolidated
financial statements or notes thereof.
EXHIBITS
The exhibits are listed in the accompanying Index to Exhibits on pages
26 to 30.
(b) REPORTS ON FORM 8-K
None in the fourth quarter of 1998.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Gulfstream Aerospace Corporation:
We have audited the consolidated balance sheets of Gulfstream
Aerospace Corporation and subsidiaries (the "Company") as of December 31,
1998 and 1997 and the related consolidated statements of income,
stockholders' equity and cash flows for the three years in the period ended
December 31, 1998, and have issued our report thereon dated February 1,
1999 (March 1, 1999 as to Note 16); such financial statements and report
are included in the Company's 1998 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
February 1, 1999
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
(PARENT COMPANY ONLY)
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
ASSETS
1998 1997
------------ -----------
------------ -----------
Investment in subsidiary $ 310,538 $ 200,895
============ ===========
Total Assets 310,538 200,895
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
------------ -----------
Payable to subsidiary $ 14,858 $ 8,138
Note Payable to subsidiary 100,000 100,000
------------ -----------
Total liabilities 114,858 108,138
------------ -----------
Stockholders' equity:
Preferred stock; Series A, 7% Cumulative; $.01
par value; 20,000,000 shares authorized; - -
no shares outstanding
Common stock, $.01 par value;
300,000,000 shares authorized;
Shares issued: 89,818,774 and 86,522,089 898 865
Additional paid-in capital 444,301 370,258
Accumulated deficit (672) (225,960)
Accumulated other comprehensive income (2,441) (762)
Unamortized stock plan expense (52) (1,155)
Less: Treasury stock: 17,244,581 and 11,978,439 (246,354) (50,489)
shares
------------ -----------
Total stockholders' equity 195,680 92,757
============ ===========
Total Liabilities and Stockholders' Equity $ 310,538 $ 200,895
============ ===========
- --------------
Notes:
(1) The Company accounts for its investment in its subsidiary using the
equity method of accounting.
(2) The Company received cash dividends in 1996 of approximately $355.0
million from its subsidiary in satisfaction of intercompany balances.
See notes to Consolidated Financial Statements included in the 1998 Annual
Report, incorporated herein by reference.
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
(PARENT COMPANY ONLY)
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
STATEMENTS OF INCOME
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
Interest expense $ (6,720) $ (6,720) $ (1,418)
Net income of subsidiary 232,008 249,731 48,383
---------- ---------- ----------
Net income $ 225,288 $243,011 $ 46,965
Other comprehensive income,
net of tax (1,679) 702 (14)
---------- ---------- ----------
Total comprehensive income $ 223,609 $243,713 $ 46,951
========== ========== ==========
- ----------------
Statements of cash flows are not presented since the Parent Company had no
cash flows from operations.
See notes to Consolidated Financial Statements included in the 1998 Annual
Report, incorporated herein by reference.
<PAGE>
<TABLE>
GULFSTREAM AEROSPACE CORPORATION
SCHEDULE II -- CONDENSED SCHEDULE OF VALUATION AND QUALIFYING
ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
(IN THOUSANDS)
<CAPTION>
BALANCE CHARGED
AT CHARGED TO BALANCE
BEGINNING TO OTHER AT END
OF COSTS AND ACCOUNTS DEDUCTIONS OF
DESCRIPTION PERIOD EXPENSES (1) (2) PERIOD
- ------------------------- --------- ---------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
Year ended December $ 3,437 $ 344 $ - $ 538 $ 3,243
31, 1996
Year ended December 3,243 (1,588) - 511 1,144
31, 1997
Year ended December 1,144 326 1,484 429 2,525
31, 1998
- --------------
<FN>
(1) The amount of $1,484 represents amounts assumed in connection with the
acquisition of K-C Aviation. See Note 2 to the Consolidated Financial
Statements included in the 1998 Annual Report, incorporated herein by
reference.
(2) Deductions from the allowance for doubtful accounts represent the
write-off of uncollectible accounts.
</FN>
</TABLE>
<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
29th day of March 1999.
GULFSTREAM AEROSPACE CORPORATION
By: /s/Chris A. Davis
-------------------------------------------
Chris A. Davis
Executive Vice President &
Chief Financial & Administrative Officer
and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- -------------------------------- ---------------------------- --------------
/s/Theodore J. Forstmann Chairman of the Board, Chief March 29, 1999
- -------------------------------- Executive Officer and
Theodore J. Forstmann Director
/s/W. W. Boisture, Jr. President, Chief Operating March 29, 1999
- -------------------------------- Officer and Director
W. W. Boisture, Jr.
/s/Chris A. Davis Executive Vice President, March 29, 1999
- -------------------------------- Chief Financial
Chris A. Davis & Administrative Officer,
Secretary and
Director (Principal
Financial Officer and
Principal Accounting
Officer)
/s/Bryan T. Moss Vice Chairman of the Board March 29, 1999
- -------------------------------- and Director
Bryan T. Moss
/s/Robert Anderson Director March 29, 1999
- --------------------------------
Robert Anderson
/s/Charlotte L. Beers Director March 29, 1999
- --------------------------------
Charlotte L. Beers
/s/Thomas D. Bell, Jr. Director March 29, 1999
- --------------------------------
Thomas D. Bell, Jr.
/s/Lynn Forester Director March 29, 1999
- --------------------------------
Lynn Forester
/s/Nicholas C. Forstmann Director March 29, 1999
- --------------------------------
Nicholas C. Forstmann
/s/Sandra J. Horbach Director March 29, 1999
- --------------------------------
Sandra J. Horbach
/s/James T. Johnson Director March 29, 1999
- --------------------------------
James T. Johnson
/s/Henry A. Kissinger Director March 29, 1999
- --------------------------------
Henry A. Kissinger
/s/Drew Lewis Director March 29, 1999
- --------------------------------
Drew Lewis
/s/Mark H. McCormack Director March 29, 1999
- --------------------------------
Mark H. McCormack
/s/Michael S. Ovitz Director March 29, 1999
- --------------------------------
Michael S. Ovitz
/s/Allen E. Paulson Director March 29, 1999
- --------------------------------
Allen E. Paulson
/s/Roger S. Penske Director March 29, 1999
- --------------------------------
Roger S. Penske
/s/Colin L. Powell Director March 29, 1999
- --------------------------------
Colin L. Powell
/s/Gerard R. Roche Director March 29, 1999
- --------------------------------
Gerard R. Roche
/s/Donald H. Rumsfeld Director March 29, 1999
- --------------------------------
Donald H. Rumsfeld
/s/George P. Shultz Director March 29, 1999
- --------------------------------
George P. Shultz
/s/Robert S. Strauss Director March 29, 1999
- --------------------------------
Robert S. Strauss
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
INDEX TO EXHIBITS
Exhibit Description
2.1 Agreement of Purchase and Sale, dated as of July 23, 1998 by and
between Kimberly-Clark Corporation and Gulfstream Aerospace
Corporation. (Incorporated herein by reference to Exhibit 10.28 of
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998.)
3.1 Restated Certificate of Incorporation of the Company. (Incorporated
herein by reference to Exhibit 3.1 of Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996.)
3.2 Restated By-Laws of the Company. (Incorporated herein by reference to
Exhibit 3.2 of Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.)
4.1 Specimen Form of Company's Common Stock Certificate. (Incorporated
herein by reference to Exhibit 4.1 of Registrant's Registration
Statement on Form S-1, No. 333-09897.)
10.1 Gulfstream Aerospace Corporation Pension Plan, amended and restated
January 1, 1989, as amended ("GAC Pension Plan"). (Incorporated
herein by reference to Exhibit 10.1 of Registrant's Registration
Statement on Form S-1, No. 333-09897.) **
10.2 First Amendment to GAC Pension Plan, dated December 10, 1996.
(Incorporated herein by reference to Exhibit 10.2 of Registrant's
Annual Report on Form 10-K for the year ended December 31,
1996.)**
10.3 Gulfstream Aerospace Corporation Supplemental Executive Retirement
Plan, effective as of April 1, 1991. (Incorporated herein by
reference to Exhibit 10.2 of Registrant's Registration Statement on
Form S-1, No. 333-09897.)**
10.4 Gulfstream Aerospace Corporation November 1, 1991 Supplemental
Executive Retirement Plan. (Incorporated herein by reference to
Exhibit 10.3 of Registrant's Registration Statement on
Form S-1, No. 333-09897.)**
10.5 Form of Indemnification Agreement between the Company and its
directors and executive officers. (Incorporated herein by reference
to Exhibit 10.4 of Registrant's Registration Statement on
Form S-1, No. 333-09897.)
10.6 Form of Outside Director Stock Option Agreement. (Incorporated herein
by reference to Exhibit 10.5 of Registrant's Registration Statement
on Form S-1, No. 333-09897.)**
10.7 Form of Outside Director Stockholder's Agreement. (Incorporated
herein by reference to Exhibit 10.6 of Registrant's Registration
Statement on Form S-1, No. 333-09897.)**
10.8 [Reserved]
10.9 Form of Employee Stock Option Agreement. (Incorporated herein by
reference to Exhibit 10.9 of Registrant's Annual Report on Form
10-K for the year ended December 31, 1996.)**
10.10 Form of Employee Stockholder's Agreement. (Incorporated herein by
reference to Exhibit 10.10 of Registrant's Annual Report on Form
10-K for the year ended December 31, 1996.)**
10.11 Lease Agreement, dated as of February 22, 1995, between Oklahoma City
Airport Trust and Gulfstream Aerospace Corporation. (Incorporated
herein by reference to Exhibit 10.11 of Registrant's Annual Report
on Form 10-K for the year ended December 31, 1997.)
10.12 Lease Agreement, dated as of March 14, 1989, between City of Long
Beach and 7701 Woodley Avenue Corporation d/b/a Gulfstream
Aerospace. (Incorporated herein by reference to Exhibit 10.12 of
Registrant's Registration Statement on Form S-1, No. 333-09897.)
10.13 Form of Lease Agreements, dated January 1, 1994 between Immuebles El
Vigia, S.A., and Interiores Aeros, S.A. De C.V. (Incorporated
herein by reference to Exhibit 10.13 of Registrant's Registration
Statement on Form S-1, No. 333-09897.)
10.14 Lease Agreement, dated May 1, 1996, between Immuebles El Vigia, S.A.,
and Interiores Aeros, S.A. De C.V. (Incorporated herein by
reference to Exhibit 10.14 of Registrant's Registration Statement
on Form S-1, No. 333-09897.)
10.15 Sublease Agreement, dated June 1, 1992, between Brunswick and Glynn
County Development Authority and Gulfstream Aerospace Corporation.
(Incorporated herein by reference to Exhibit 10.15 of Registrant's
Registration Statement on Form S-1, No. 333-09897.)
10.16 Credit Agreement, dated as of October 16, 1996, among Gulfstream
Delaware Corporation, The Chase Manhattan Bank, and the banks and
other financial institutions parties thereto (including guaranty
and pledge agreement). (Incorporated herein by reference to
Exhibit 10.16 of Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.)
10.17 Registration Rights Agreement, among Gulfstream Aerospace Corporation,
Gulfstream Delaware Corporation, Gulfstream Partners, Gulfstream
Partners II, L.P., and MBO-IV. (Incorporated herein by reference
to Exhibit 10.17 of Registrant's Registration Statement on Form
S-1, No. 333-09897.)
10.18 Repurchase Agreement, dated as of May 15, 1996, between Gulfstream
Aerospace Corporation and MBO-IV. (Incorporated herein by
reference to Exhibit 10.18 of Registrant's Registration Statement
on Form S-1, No. 333-09897.)
10.19 Repurchase Agreement, dated as of August 8, 1996, between Gulfstream
Aerospace Corporation and MBO-IV. (Incorporated herein by
reference to Exhibit 10.19 of Registrant's Registration Statement
on Form S-1, No. 333-09897.)
10.20 Amendment No. 1 to Sublease Agreement, dated May 23, 1996, by and
between Brunswick and Glynn County Development Authority and
Gulfstream Aerospace Corporation. (Incorporated herein by
reference to Exhibit 10.20 of Registrant's Registration Statement
on Form S-1, No. 333-09897.)
10.21 Amendment No. 2 to Sublease Agreement, dated May 25, 1996, by and
between Brunswick and Glynn County Development Authority and
Gulfstream Aerospace Corporation. (Incorporated herein by
reference to Exhibit 10.21 of Registrant's Registration Statement
on Form S-1, No. 333-09897.)
10.22 Agreement, effective August 9, 1996, between Gulfstream Aerospace
Technologies and the International Union, United Automobile,
Aerospace and Agricultural Implement Workers of America Local
#2130. (Incorporated herein by reference to Exhibit 10.22 of
Registrant's Registration Statement on Form S-1, No. 333-09897.)
10.23 Lease Agreement, dated as of August 27, 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.)**
10.28 Amendment dated December 24, 1997 to Credit Agreement among
Gulfstream Delaware Corporation, The Chase Manhattan Bank, and
the banks and other financial institutions parties thereto.
(Incorporated herein by reference to Exhibit 10.28 of
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997.)
10.29 Agreement dated December 24, 1997 between Gulfstream Aerospace
Corporation and its wholly owned subsidiaries, Gulfstream
Delaware Corporation, Gulfstream Aerospace Corporation, a
Georgia Corporation and the Pension Benefit Guaranty
Corporation. (Incorporated herein by reference to Exhibit
10.29 of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997.)
10.30 Lease Agreement, dated April 11, 1997, between Aeroplex Aviation
and Gulfstream Aerospace Corporation. (Incorporated herein by
reference to Exhibit 10.30 of Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997.)
10.31 Amendment dated February 26, 1998 to Credit Agreement among
Gulfstream Delaware Corporation, The Chase Manhattan Bank, and
the banks and other financial institutions parties thereto.
(Incorporated herein by reference to Exhibit 10.31 of
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998.)
10.32 Amendment dated July 15, 1998 to Credit Agreement among Gulfstream
Delaware Corporation, The Chase Manhattan Bank, and the banks
and other financial institutions parties thereto.
(Incorporated herein by reference to Exhibit 10.32 of
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998.)
10.33 Amendment dated October 6, 1998 to Credit Agreement among
Gulfstream Delaware Corporation, The Chase Manhattan Bank, and
the banks and other financial institutions parties thereto.
(Incorporated herein by reference to Exhibit 10.33 of
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998.)
10.34 Lease Agreement, dated January 1, 1998, by and between Immuebles
El Vigia, S.A., and Interiores Aeroes, S.A. De C.V.
(Incorporated herein by reference to Exhibit 10.34 of
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998.)
10.35 Amendment No. 3 to Sublease Agreement, dated February 23, 1998, by
and between the Brunswick and Glynn County Development
Authority and Gulfstream Aerospace Corporation. (Incorporated
herein by reference to Exhibit 10.35 of Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998.)
10.36 Amendment No. 4 to Sublease Agreement, dated March 23, 1998, by
and between the Brunswick and Glynn County Development
Authority and Gulfstream Aerospace Corporation. (Incorporated
herein by reference to Exhibit 10.36 of Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998.)
10.37 Lease Agreement, dated January 25, 1968, by and between Outagamie
County, Wisconsin and K-C Aviation Incorporated which was
assigned to K-C Aviation on October 9, 1980; as amended by
Addendum No. 1, dated December 24, 1980, Addendum No. 2, dated
February 9, 1988, Addendum No. 3 dated January 26, 1989,
Addendum No. 4 dated October 22, 1996, and Addendum No. 5 to
Lease Agreement, dated March 11, 1997. (Incorporated herein by
reference to Exhibit 10.37 of Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998.)
10.38 Lease Agreement, dated February 1, 1978, by and between City of
Dallas and K-C Aviation, Incorporated for lease of land and
facility at Dallas Love Field; as amended by Agreement
Amending Lease dated October 28, 1981, Second Amendment dated
June 1, 1989, and that certain letter from the City of Dallas
to K-C Aviation dated December 9, 1997. (Incorporated herein
by reference to Exhibit 10.38 of Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998.)
10.39 Sublease Agreement, dated January 17, 1989, by and between Dalfort
Aviation Services, a division of Dalfort Corporation and K-C
Aviation, Incorporated, as amended by that certain First
Additional Agreement effective January 17, 1989. (Incorporated
herein by reference to Exhibit 10.39 of Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998.)
10.40 Sublease Agreement, dated December 1, 1996, by and between Dallas
Airmotive, Incorporated and K-C Aviation, Incorporated.
(Incorporated herein by reference to Exhibit 10.40 of
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998.)
10.41 Lease Agreement, dated May 1, 1997, by and between Carpenter
Freeway Properties and K-C Aviation, Incorporated.
(Incorporated herein by reference to Exhibit 10.41 of
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998.)
10.42 Amendment dated December 2, 1998 to the Amended and Restated
Gulfstream Aerospace Corporation 1990 Stock Option Plan.* **
10.43 Form of Stock Option Agreement effective December 1998.* **
10.44 Form of Stock Option Agreement for partners or employees of FLC
Partnership effective December 1998.* **
10.45 Fifth Amendment dated March 1, 1999 to Credit Agreement among
Gulfstream Delaware Corporation, The Chase Manhattan Bank, and
the banks and other financial institutions parties thereto.*
10.46 Secured Promissory Note dated November 30, 1998 between Gulfstream
Aerospace Corporation and The CIT Group/Equipment Financing,
Inc.*
10.47 Secured Promissory Note dated November 30, 1998 between Gulfstream
Aerospace Corporation and The CIT Group/Equipment Financing,
Inc.*
10.48 Secured Promissory Note dated November 30, 1998 between Gulfstream
Aerospace Corporation and The CIT Group/Equipment Financing,
Inc.*
10.49 Form of Security Agreement, dated as of November 30, 1998 by and
between Gulfstream Aerospace Corporation, as Borrower and The
CIT Group/Equipment Financing, Inc., as Secured Party.*
10.50 Form of Guaranty Agreement, dated November 30, 1998, given in
connection with the Security Agreement and Promissory Note,
between Gulfstream Aerospace Corporation, as Borrower and The
CIT Group/Equipment Financing, Inc., as Secured Party.*
13.1 Annual Report to Stockholders for fiscal year ended December 31,
1998. (The 1998 Annual Report, except for those portions
thereof which are expressly incorporated by reference in this
Annual Report on Form 10-K, is being furnished for the
information of the Commission and is not to be deemed "filed"
as part of the Form 10-K.)*
21.1 Subsidiaries of the Company.*
27.1 Financial Data Schedule - Fiscal 1998.*
99.1 Cautionary Statement for Purpose of the "Safe Harbor" Provisions of The
Private Securities Litigation Reform Act of 1995.*
- --------
** Management contract or compensatory plan.
* Filed herewith.
EXHIBIT 10.42
RESOLUTION ADOPTED BY THE EXECUTIVE COMMITTEE
OF THE BOARD OF DIRECTORS OF
GULFSTREAM AEROSPACE CORPORATION
ON DECEMBER 2, 1998
RESOLVED, that the number of shares of common stock of the
Corporation, par value $.01 per share, available for issuance under the
Corporation's 1990 Stock Option Plan, as amended, be, and hereby is,
increased by 500,000 shares.
EXHIBIT 10.43
STOCK OPTION AGREEMENT (the "Agreement"), dated as of __________,
19__, between Gulfstream Aerospace Corporation, a Delaware corporation
(together with its successors the "Corporation"), and _______________ (the
"Optionee").
1. Grant of Option.
---------------
1.1 The Corporation hereby grants to the Optionee the right and
option (the "Option") to purchase all or any part of an aggregate of ______
whole shares of Common Stock, par value $.01 per share, of the Corporation
(the "Common Stock") (such number being subject to adjustment as provided
in Section 8 hereof) on the terms and conditions set forth in this
Agreement and in the Corporation's Stock Option Plan (the "Plan"), a copy
of which has previously been provided to the Optionee.
1.2 This Option is not intended to qualify as an Incentive Stock
Option within the meaning of Section 422 of the Code.
1.3 Except as otherwise defined herein, capitalized terms used in
this Agreement shall have the same definitions as set forth in the Plan.
2. Purchase Price. The price at which the Optionee shall be
entitled to purchase shares of Common Stock upon the exercise of this
Option shall be $____ per share (such price being subject to adjustment as
provided in Section 8 hereof) (the "Option Price").
3. Duration of Option. The Option shall be exercisable to the
extent and in the manner provided herein for a period of 10 years from the
date hereof; provided, however, that the Option may be earlier terminated
as provided in Section 4, Section 6, Section 7 or Section 9 hereof.
4. Exercisability of Options.
-------------------------
(a) Subject to the provisions of this Agreement and the
Plan, the Option shall be exercisable in accordance with the following
schedule:
(i) on or after __________, ____ but before __________,
____, the Option may be exercised to acquire up to one-third
of the total number of shares of Common Stock which may be
purchased pursuant to the Option as set forth in Section 1.1
hereof, less any shares previously acquired pursuant to the
Option;
(ii) on or after __________, ____ but before
__________, ____, the Option may be exercised to acquire up
to two-thirds of the total number of shares of Common Stock
which may be purchased pursuant to the Option as set forth
in Section 1.1, less any shares previously acquired pursuant
to the Option; and
(iii) on or after __________, ____ but before the
expiration of the term of the Option, the Option may be
exercised to acquire up to 100% of the total number of
shares of Common Stock which may be purchased pursuant to
the Option as set forth in Section 1.1, less any shares
previously acquired pursuant to the Option.
(b) The Corporation shall give the Optionee 10 days' written
notice (or, if not practicable, such shorter notice as may be practicable)
prior to the anticipated date of the consummation of a Terminating Event
(as hereinafter defined), and the Optionee shall be permitted to exercise
the Option for a period of 5 days (or such shorter period as the Committee
shall determine and so notify the Optionee) after the date of such notice
of the Terminating Event. In the case of a Terminating Event, the Option
may be exercised, in whole or in part, for the full amount of the shares of
Common Stock covered thereby (less the number of shares previously issued
to the Optionee upon exercise of the Option), whether or not the Option was
otherwise so exercisable on the date such notice was given. In the event
the Terminating Event is not consummated, the Option will be deemed not to
have been exercised and shall be exercisable thereafter only to the extent
it would have been exercisable if no such notice had been given. In lieu of
permitting the Optionee to exercise the Option in the event of a
Terminating Event, the Committee, in its sole discretion, may instead cause
the Corporation to redeem the unexercised portion of the Option pursuant to
Section 9 hereof.
For purposes hereof, the term "Terminating Event" shall mean the
consummation of any of the following transactions: (i) any merger or
consolidation of the Corporation with or into another corporation (other
than a merger or consolidation in which the Corporation is the surviving
corporation and which does not result in any capital reorganization or
reclassification or other change of the then outstanding shares of Common
Stock), or (ii) the liquidation or dissolution of the Corporation, or (iii)
the sale or other disposition to any person (other than a subsidiary or an
Affiliate of the Corporation) of all or substantially all of the assets of
the Corporation pursuant to a plan of liquidation or otherwise.
Subject to the provisions of Section 9 hereof, the Option shall
be canceled simultaneously with the consummation of a Terminating Event to
the extent that the Option has not theretofore been exercised.
(c) Notwithstanding the foregoing Section 4(a) of this
Agreement, in the event of a Change in Control (as defined in Exhibit A
attached hereto), the Option shall become immediately and fully
exercisable.
5. Manner of Exercise and Payment.
------------------------------
5.1 Notice of Exercise. Subject to the terms and conditions
of this Agreement and the Plan, the Option may be exercised by delivery of
written notice to the Committee, at the Corporation's principal office (or
such other address as the Corporation may from time to time notify the
Optionee in writing). Such notice shall state that the Optionee is electing
to exercise the Option and the number of shares of Common Stock in respect
of which the Option is being exercised and shall be signed by the Optionee
or by any guardian, executor, administrator or other legal representative
(each, a "Legal Representative"). The Corporation may require proof
satisfactory to it as to the right of such person to exercise the Option.
5.2 Deliveries. The notice of exercise described in Section
5.1 hereof shall be accompanied by (a) the full purchase price for the
shares in respect of which the Option is being exercised, such purchase
price to be paid by certified or bank check payable to the order of the
Corporation or cash by wire transfer to an account designated by the
Corporation. Not less than 250 shares of Common Stock may be purchased at
any one time upon the exercise of an Option, unless the number of shares of
Common Stock so purchased constitutes the total number of shares of Common
Stock then purchasable under the Option.
5.3 Issuance of Shares. Upon receipt of notice of exercise,
full payment for the shares of Common Stock in respect of which the Option
is being exercised, and subject to Section 10 of the Plan, the Corporation
shall take such action as may be necessary under applicable law to effect
the issuance to the Optionee of the number of shares of Common Stock as to
which such exercise was effective.
5.4 Stockholder Rights. The Optionee shall not be deemed to
be the holder of, or to have any of the rights of a holder with respect to,
any shares of Common Stock subject to the Option until: (a) the Option
shall have been exercised pursuant to the terms of this Agreement and the
Optionee shall have paid the full purchase price for the number of shares
in respect of which the Option was exercised and any withholding taxes due
in connection with such exercise, (b) the Corporation shall have issued the
shares to the Optionee, and (c) the Optionee's name shall have been entered
as a stockholder of record on the books of the Corporation. Upon the
occurrence of all of the foregoing events, the Optionee shall have full
voting and other ownership rights with respect to such shares.
<PAGE>
6. Certain Restrictions.
--------------------
6.1 No Sale or Transfer. The Optionee shall not sell,
transfer, assign, exchange, pledge, encumber or otherwise dispose of the
Option, in whole or in part, except in accordance with the provisions of
this Agreement.
6.2 Employment Termination. Except (i) as provided in this
Section 6.2 or (ii) as may be agreed between the Committee and the
Optionee, if the Optionee shall no longer be employed on a full-time basis
by either the Corporation or any of its subsidiaries, or ceases to serve as
a director of the Corporation or any of its subsidiaries, for any reason
whatsoever (including by reason of death, permanent disability or
adjudicated incompetency) ("Terminated" or a "Termination"), irrespective
of whether the Optionee receives, in connection with the Termination, any
severance or other payment from the Corporation or any of its subsidiaries
under any employment agreement or otherwise (such Optionee being referred
to herein as a "Terminated Optionee"), the portion of the Option that was
not exercisable immediately prior to the Optionee's Termination shall
terminate and shall be of no further force and effect from and after the
date of such Termination. Following a Termination, the Optionee may
exercise the portion of the Option which was exercisable immediately prior
to the date of the Optionee's Termination (the "Exercisable Portion of the
Option") or any portion thereof on one occasion during the 90-day period
following the date of Termination, but in no event after the expiration of
the term of the Option. To the extent the Terminated Optionee does not so
exercise the Exercisable Portion of the Option, the Exercisable Portion of
the Option shall terminate and shall be of no force and effect.
7. Prohibited Activities.
---------------------
7.1 Prohibition Against Certain Activities. The Optionee
agrees that (a) he will not at any time during his employment (other than
in the course of his employment) with the Corporation or any Affiliate
thereof, or after any Termination, directly or indirectly disclose or
furnish to any other person or use for his own or any other person's
account any confidential or proprietary knowledge or any other information
which is not a matter of public knowledge obtained during the course of his
employment with, or other performance of services for (including service as
a director of), the Corporation or any Affiliate thereof or any predecessor
of any of the foregoing, no matter from where or in what manner the
Optionee may have acquired such knowledge or information, and he shall
retain all such knowledge and information in trust for the benefit of the
Corporation, its Affiliates and the successors and assigns of any of them,
(b) if he is Terminated, he will not for three years following the
Termination directly or indirectly solicit for employment, including,
without limitation, recommending to any subsequent employer the
solicitation for employment of, any person who at the time of the
solicitation is employed by the Corporation or any Affiliate thereof, (c)
he will not at any time during his employment with, or performance of
services for (including service as a director of), the Corporation or any
Affiliate thereof or any predecessor of any of the foregoing, or after any
Termination, publish any statement or make any statement (under
circumstances reasonably likely to become public or that he might
reasonably expect to become public) critical of the Corporation or any
Affiliate of the Corporation, or in any way adversely affecting or
otherwise maligning the business or reputation of any of the foregoing, and
(d) he will not breach the provisions of Section 6.1 hereof (any activity
described in clause (a), (b), (c) or (d) of this Section 7.1 being herein
referred to as a "Prohibited Activity").
7.2 Right to Terminate Option. The Optionee understands that
the Corporation is granting to the Optionee an option to purchase shares of
Common Stock hereunder to reward the Optionee for the Optionee's future
efforts and loyalty to the Corporation and its Affiliates by giving the
Optionee the opportunity to participate in the potential future
appreciation of the Corporation. Accordingly, (a) if the Optionee engages
in any Prohibited Activity, or (b) if, at any time during the Optionee's
employment with the Corporation or any Affiliate or during the three years
following the Optionee's Termination, the Optionee engages in any
Competitive Activity (as hereinafter defined), or (c) if, at any time
(whether during the Optionee's employment or after any Termination), the
Optionee is convicted of a crime against the Corporation or any of its
Affiliates, then, in addition to any other rights and remedies available to
the Corporation, the Corporation shall be entitled, at its option, to
terminate the Option, which shall then be of no further force and effect.
The term "Competitive Activity" shall mean engaging in any of the following
activities: (i) serving as a director of any person (other than the
Corporation or any of its subsidiaries) that competes either directly or
indirectly through one or more Affiliates with any of the businesses
conducted by the Corporation or any of its Affiliates (a "Competitor"),
(ii) directly or indirectly through one or more intermediaries (X)
controlling any Competitor or (Y) owning any equity or debt interests in
any Competitor (other than equity or debt interests which are publicly
traded and do not exceed 2% of the particular class of interests
outstanding) (it being understood that, if interests in any Competitor are
owned by an investment vehicle or other entity in which the Optionee owns
an equity interest, a portion of the interests in such Competitor owned by
such entity shall be attributed to the Optionee, such portion determined by
applying the percentage of the equity interest in such entity owned by the
Optionee to the interests in such Competitor owned by such entity), (iii)
directly or indirectly soliciting, diverting, taking away, appropriating or
otherwise interfering with any of the customers or suppliers of the
Corporation or any Affiliate of the Corporation of which the Optionee owns
shares of capital stock or any other equity interest or (iv) employment by
(including serving as an officer or director of) or providing consulting
services to any Competitor. For purposes of this Section 7.2, the term
"control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of any
Competitor, whether through the ownership of equity interests, by contract
or otherwise.
8. Adjustments. In the event that the outstanding shares of
Common Stock are changed into or exchanged for a different number or kind of
shares of stock or other securities of the Corporation, whether through
merger, consolidation, reorganization, recapitalization, stock dividend,
stock split-up or other substitution of securities of the Corporation, the
Committee shall make appropriate adjustments to the number and class of
shares of stock subject to this Option and the Option Price for such shares.
The Committee's adjustment shall be final and binding for all purposes of the
Plan and this Agreement. No adjustment provided for in this Section 8 shall
require the Corporation to issue a fractional share, and the total adjustment
with respect to this Agreement shall be limited accordingly.
9. Terminating Events.
------------------
(a) Upon the effective date of any Terminating Event, any
unexercised portion of this Option shall terminate unless provision shall
be made in writing in connection with such Terminating Event for the
continuance of the Plan and such unexercised portion of the Option and for
the assumption of such unexercised portion of this Option by a Successor
Corporation or for the substitution for such unexercised portion of this
Option of new options covering shares of such Successor Corporation with
appropriate adjustments as to number and kind of shares and prices of
shares subject to such new options; provided, however, that in connection
with a Terminating Event involving the merger, consolidation or liquidation
of the Corporation, the Committee may, in its sole discretion, authorize
the redemption of the unexercised portion of the Option for a consideration
per share of Common Stock issuable upon exercise of the unexercised portion
of the Option equal to the excess of (i) the consideration payable per
share of Common Stock in connection with such Terminating Event, adjusted
as if all outstanding options and warrants had been exercised prior to the
consummation of such Terminating Event, over (ii) the Option Price. In the
event that provision for continuance of the Plan is made in writing in
connection with a Terminating Event, the unexercised portion of this Option
or the new options substituted therefor shall continue in the manner and
under the terms provided in the Plan and this Agreement and in such
writing.
(b) In the event of a redemption pursuant to this Section 9,
the Optionee shall be responsible for and shall be obligated to pay a
proportionate amount (determined as if the Optionee were a holder of the
number of shares of Common Stock which would have been issuable upon
exercise of the portion of the Option redeemed pursuant to this Section 9)
of the expenses, liabilities or obligations incurred or to be incurred by
the stockholders of the Corporation in connection with such Terminating
Event (including, without limitation, the fees and expenses of investment
bankers, legal counsel and other outside advisors and experts retained by
or on behalf of the stockholders of the Corporation in connection with the
Terminating Event, amounts payable in respect of indemnification claims,
amounts paid into escrow and amounts payable in respect of post-closing
adjustments to the purchase price).
10. No Right to Continued Employment. This Option shall not
confer upon the Optionee any right with respect to continuance of
employment by the Corporation or any Affiliate, nor shall it interfere in
any way with the right of the Corporation or any Affiliate to terminate the
Optionee's employment at any time.
11. Withholding. The Corporation shall have the right to deduct
from any amounts payable under this Agreement any taxes or other amounts
required by applicable law to be withheld.
12. Optionee Bound by Plan; Entire Agreement. The Optionee hereby
acknowledges receipt of a copy of the Plan and agrees to be bound by all
the terms and provisions thereof. This Agreement and the Plan constitute
the entire agreement, and supersede all prior agreements and
understandings, oral and written, between the parties hereto with respect
to the subject matter hereof.
13. Execution of Agreement; Modification of Agreement. This
Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original and which together shall constitute one
and the same instrument. This Agreement may be modified, amended, suspended
or terminated by the parties hereto; provided, that the Corporation may
modify, amend, suspend or terminate this Agreement without any further
action by the Optionee if such modification, amendment, suspension or
termination does not adversely affect the Optionee's rights hereunder. Any
terms, covenants, representations or conditions may be waived by the
parties hereto, but only in a writing signed by the party which is entitled
to the benefits of such waived term, covenant, representation or condition.
14. Severability. Should any provision of this Agreement be held
by a court to be unenforceable or invalid for any reason, the remaining
provisions of this Agreement shall not be affected by such holding and
shall continue in full force in accordance with their terms.
15. Acknowledgment. By signing this Agreement, the Optionee
acknowledges that he has reviewed the Plan and this Agreement and
understands his rights and obligations thereunder and hereunder. The
Optionee also acknowledges that he has been provided with such information
concerning the Corporation, the Plan and this Agreement as he and his
advisors have requested.
16. Successors in Interest. This Agreement shall inure to the
benefit of and be binding upon each successor of the Corporation. All
obligations imposed upon the Optionee and all rights granted to the
Corporation under this Agreement shall be binding upon the Optionee's
heirs, executors, administrators and successors.
17. Headings. The headings and captions contained herein are for
convenience only and shall not control or affect the meaning or
construction of any provision hereof.
18. Resolution of Disputes. Any dispute or disagreement which may
arise under, or as a result of, or which may in any way relate to, the
interpretation, construction or application of this Agreement shall be
determined by the Committee. Any determination made hereunder shall be
final and binding for all purposes.
19. Governing Law. This Agreement and the rights and obligations
of the parties hereto shall be governed by, and construed in accordance
with, the laws of the State of New York without giving effect to the
principles of conflicts of laws thereof.
GULFSTREAM AEROSPACE CORPORATION
By:
--------------------------------
Title:
-----------------------------------
Optionee
The undersigned acknowledges that the undersigned has read the
foregoing Agreement between Gulfstream Aerospace Corporation and the
undersigned's spouse and the Stock Option Plan, understands that the
undersigned's spouse has been granted an option to acquire shares of
Gulfstream Aerospace Corporation Common Stock, which option is subject to
certain restrictions reflected in such Agreement and such Plan and agrees
to be bound by the foregoing Agreement and such Plan.
----------------------------------
Optionee's Spouse
<PAGE>
Exhibit A
Definition of "Change in Control"
For purposes of this Agreement, a "Change in Control" shall mean
the occurrence of any of the following:
(a) An acquisition (other than directly from the
Corporation) of any voting securities of the Corporation (the "Voting
Securities") by any "Person" (as the term person is used for purposes of
Section 13(d) or 14(d) of the Securities Exchange Act of 1934 (the
"Exchange Act")), immediately after which such Person has "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of fifty percent (50%) or more of the then outstanding Common Stock or
the combined voting power of the Corporation's then outstanding Voting
Securities; provided, however, in determining whether a Change in Control
has occurred, Common Stock or Voting Securities which are acquired in a
"Non-Control Acquisition" (as hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control. A "Non-Control
Acquisition" shall mean an acquisition by (i) an employee benefit plan (or
a trust forming a part thereof) maintained by (A) the Corporation or (B)
any corporation or other Person of which a majority of its voting power or
its voting equity securities or equity interest is owned, directly or
indirectly, by the Corporation (for purposes of this definition, a
"Subsidiary"), (ii) the Corporation or its Subsidiaries, (iii) the FL & Co.
Companies, the direct or indirect partners of any of the FL & Co.
Companies, and any Affiliates of any of the foregoing, or (iv) any Person
in connection with a "Non-Control Transaction" (as hereinafter defined);
(b) The individuals who, as of the date the Option is
granted, are members of the Board of Directors of the Corporation (the
"Incumbent Board"), cease for any reason to constitute at least two-thirds
of the members of the Board of Directors of the Corporation; provided,
however, that if the election, or nomination for election by the
Corporation's common stockholders, of any new director was approved by a
vote of at least two-thirds of the Incumbent Board, such new director
shall, for purposes of this Plan, be considered as a member of the
Incumbent Board; provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened "Election
Contest" (as described in Rule 14a-11 promulgated under the Exchange Act)
or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board of Directors of the Corporation (a
"Proxy Contest") including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest; or
(c) The consummation of a merger, consolidation or
reorganization with or into the Corporation or in which securities of the
Corporation are issued, unless such merger, consolidation or reorganization
is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a
merger, consolidation or reorganization with or into the Corporation or in
which securities of the Corporation are issued where the individuals who
were members of the Incumbent Board immediately prior to the execution of
the agreement providing for such merger, consolidation or reorganization
constitute at least a majority of the members of the board of directors of
the Surviving Corporation, or a corporation beneficially directly or
indirectly owning a majority of the voting securities of the Surviving
Corporation.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then outstanding Common
Stock or Voting Securities as a result of the acquisition of Common Stock
or Voting Securities by the Corporation which, by reducing the number of
Common Stock or Voting Securities then outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Persons,
provided that if a Change in Control would occur (but for the operation of
this sentence) as a result of the acquisition of Common Stock or Voting
Securities by the Corporation, and after such share acquisition by the
Corporation, the Subject Person becomes the Beneficial Owner of any
additional Common Stock or Voting Securities which increases the percentage
of the then outstanding Common Stock or Voting Securities Beneficially
Owned by the Subject Person, then a Change in Control shall occur.
EXHIBIT 10.44
STOCK OPTION AGREEMENT (the "Agreement"), dated as of
____________, 199__, between Gulfstream Aerospace Corporation, a Delaware
corporation (together with its successors the "Corporation"), and
_______________ (the "Optionee").
1. Grant of Option.
---------------
1.1 The Corporation hereby grants to the Optionee the right
and option (the "Option") to purchase all or any part of an aggregate of
______ whole shares of Common Stock, par value $.01 per share, of the
Corporation (the "Common Stock") (such number being subject to adjustment
as provided in Section 8 hereof) on the terms and conditions set forth in
this Agreement and in the Corporation's Stock Option Plan (the "Plan"), a
copy of which has previously been provided to the Optionee.
1.2 This Option is not intended to qualify as an Incentive
Stock Option within the meaning of Section 422 of the Code.
1.3 Except as otherwise defined herein, capitalized terms
used in this Agreement shall have the same definitions as set forth in the
Plan.
2. Purchase Price. The price at which the Optionee shall be
entitled to purchase shares of Common Stock upon the exercise of this
Option shall be $____ per share (such price being subject to adjustment as
provided in Section 8 hereof) (the "Option Price").
3. Duration of Option. The Option shall be exercisable to the
extent and in the manner provided herein for a period of 10 years from the
date hereof; provided, however, that the Option may be earlier terminated
as provided in Section 4, Section 6, Section 7 or Section 9 hereof.
4. Exercisability of Options.
-------------------------
(a) Subject to the provisions of this Agreement and the
Plan, the Option shall be exercisable in accordance with the following
schedule:
(i) on or after _______, ____ but before __________,
_______, the Option may be exercised to acquire up to
one-third of the total number of shares of Common Stock
which may be purchased pursuant to the Option as set forth
in Section 1.1 hereof, less any shares previously acquired
pursuant to the Option;
(ii) on or after ___________, ____ but before _______,
_____, the Option may be exercised to acquire up to
two-thirds of the total number of shares of Common Stock
which may be purchased pursuant to the Option as set forth
in Section 1.1, less any shares previously acquired pursuant
to the Option; and
(iii) on or after ___________, _____ but before the
expiration of the term of the Option, the Option may be
exercised to acquire up to 100% of the total number of
shares of Common Stock which may be purchased pursuant to
the Option as set forth in Section 1.1, less any shares
previously acquired pursuant to the Option.
(b) Except in the case of a Terminating Event (as
hereinafter defined) occurring within six months following the date hereof,
the Corporation shall give the Optionee 10 days' written notice (or, if not
practicable, such shorter notice as may be practicable) prior to the
anticipated date of the consummation of a Terminating Event (as hereinafter
defined), and the Optionee shall be permitted to exercise the Option for a
period of 5 days (or such shorter period as the Committee shall determine
and so notify the Optionee) after the date of such notice of the
Terminating Event. In the case of a Terminating Event other than a
Terminating Event occurring within six months following the date hereof,
the Option may be exercised, in whole or in part, for the full amount of
the shares of Common Stock covered thereby (less the number of shares
previously issued to the Optionee upon exercise of the Option), whether or
not the Option was otherwise so exercisable on the date such notice was
given. In the event the Terminating Event is not consummated, the Option
will be deemed not to have been exercised and shall be exercisable
thereafter only to the extent it would have been exercisable if no such
notice had been given. In lieu of permitting the Optionee to exercise the
Option in the event of a Terminating Event, the Committee, in its sole
discretion, may instead cause the Corporation to redeem the unexercised
portion of the Option pursuant to Section 9 hereof.
For purposes hereof, the term "Terminating Event" shall mean the
consummation of any of the following transactions: (i) any merger or
consolidation of the Corporation with or into another corporation (other
than a merger or consolidation in which the Corporation is the surviving
corporation and which does not result in any capital reorganization or
reclassification or other change of the then outstanding shares of Common
Stock), or (ii) the liquidation or dissolution of the Corporation, or (iii)
the sale or other disposition to any person (other than a subsidiary or an
Affiliate of the Corporation) of all or substantially all of the assets of
the Corporation pursuant to a plan of liquidation or otherwise.
Subject to the provisions of Section 9 hereof, the Option shall
be canceled simultaneously with the consummation of a Terminating Event to
the extent that the Option has not theretofore been exercised.
(c) Notwithstanding the foregoing Section 4(a) of this
Agreement, in the event of a Change in Control (as defined in Exhibit A
attached hereto) that occurs more than six months following the date
hereof, the Option shall become immediately and fully exercisable.
5. Manner of Exercise and Payment.
------------------------------
5.1 Notice of Exercise. Subject to the terms and conditions
of this Agreement and the Plan, the Option may be exercised by delivery of
written notice to the Committee, at the Corporation's principal office (or
such other address as the Corporation may from time to time notify the
Optionee in writing). Such notice shall state that the Optionee is electing
to exercise the Option and the number of shares of Common Stock in respect
of which the Option is being exercised and shall be signed by the Optionee
or by any guardian, executor, administrator or other legal representative
(each, a "Legal Representative"). The Corporation may require proof
satisfactory to it as to the right of such person to exercise the Option.
5.2 Deliveries. The notice of exercise described in Section
5.1 hereof shall be accompanied by (a) the full purchase price for the
shares in respect of which the Option is being exercised, such purchase
price to be paid by certified or bank check payable to the order of the
Corporation or cash by wire transfer to an account designated by the
Corporation. Not less than 250 shares of Common Stock may be purchased at
any one time upon the exercise of an Option, unless the number of shares of
Common Stock so purchased constitutes the total number of shares of Common
Stock then purchasable under the Option.
5.3 Issuance of Shares. Upon receipt of notice of exercise,
full payment for the shares of Common Stock in respect of which the Option
is being exercised, and subject to Section 10 of the Plan, the Corporation
shall take such action as may be necessary under applicable law to effect
the issuance to the Optionee of the number of shares of Common Stock as to
which such exercise was effective.
5.4 Stockholder Rights. The Optionee shall not be deemed to
be the holder of, or to have any of the rights of a holder with respect to,
any shares of Common Stock subject to the Option until: (a) the Option
shall have been exercised pursuant to the terms of this Agreement and the
Optionee shall have paid the full purchase price for the number of shares
in respect of which the Option was exercised and any withholding taxes due
in connection with such exercise, (b) the Corporation shall have issued the
shares to the Optionee, and (c) the Optionee's name shall have been entered
as a stockholder of record on the books of the Corporation. Upon the
occurrence of all of the foregoing events, the Optionee shall have full
voting and other ownership rights with respect to such shares.
6. Certain Restrictions.
--------------------
6.1 No Sale or Transfer. The Optionee shall not sell,
transfer, assign, exchange, pledge, encumber or otherwise dispose of the
Option, in whole or in part, except in accordance with the provisions of
this Agreement.
6.2 Employment Termination. Except (i) as provided in this
Section 6.2 or (ii) as may be agreed between the Committee and the
Optionee, if the Optionee shall no longer be employed on a full-time basis
by either the Corporation or any of its subsidiaries, or ceases to serve as
a director of the Corporation or any of its subsidiaries, for any reason
whatsoever (including by reason of death, permanent disability or
adjudicated incompetency) ("Terminated" or a "Termination"), irrespective
of whether the Optionee receives, in connection with the Termination, any
severance or other payment from the Corporation or any of its subsidiaries
under any employment agreement or otherwise (such Optionee being referred
to herein as a "Terminated Optionee"), the portion of the Option that was
not exercisable immediately prior to the Optionee's Termination shall
terminate and shall be of no further force and effect from and after the
date of such Termination. Following a Termination, the Optionee may
exercise the portion of the Option which was exercisable immediately prior
to the date of the Optionee's Termination (the "Exercisable Portion of the
Option") or any portion thereof on one occasion during the 90-day period
following the date of Termination, but in no event after the expiration of
the term of the Option. To the extent the Terminated Optionee does not so
exercise the Exercisable Portion of the Option, the Exercisable Portion of
the Option shall terminate and shall be of no force and effect.
7. Prohibited Activities.
---------------------
7.1 Prohibition Against Certain Activities. The Optionee
agrees that (a) he will not at any time during his employment (other than
in the course of his employment) with the Corporation or any Affiliate
thereof, or after any Termination, directly or indirectly disclose or
furnish to any other person or use for his own or any other person's
account any confidential or proprietary knowledge or any other information
which is not a matter of public knowledge obtained during the course of his
employment with, or other performance of services for (including service as
a director of), the Corporation or any Affiliate thereof or any predecessor
of any of the foregoing, no matter from where or in what manner the
Optionee may have acquired such knowledge or information, and he shall
retain all such knowledge and information in trust for the benefit of the
Corporation, its Affiliates and the successors and assigns of any of them,
(b) if he is Terminated, he will not for three years following the
Termination directly or indirectly solicit for employment, including,
without limitation, recommending to any subsequent employer the
solicitation for employment of, any person who at the time of the
solicitation is employed by the Corporation or any Affiliate thereof, (c)
he will not at any time during his employment with, or performance of
services for (including service as a director of), the Corporation or any
Affiliate thereof or any predecessor of any of the foregoing, or after any
Termination, publish any statement or make any statement (under
circumstances reasonably likely to become public or that he might
reasonably expect to become public) critical of the Corporation or any
Affiliate of the Corporation, or in any way adversely affecting or
otherwise maligning the business or reputation of any of the foregoing, and
(d) he will not breach the provisions of Section 6.1 hereof (any activity
described in clause (a), (b), (c) or (d) of this Section 7.1 being herein
referred to as a "Prohibited Activity").
7.2 Right to Terminate Option. The Optionee understands that
the Corporation is granting to the Optionee an option to purchase shares of
Common Stock hereunder to reward the Optionee for the Optionee's future
efforts and loyalty to the Corporation and its Affiliates by giving the
Optionee the opportunity to participate in the potential future
appreciation of the Corporation. Accordingly, (a) if the Optionee engages
in any Prohibited Activity, or (b) if, at any time during the Optionee's
employment with the Corporation or any Affiliate or during the three years
following the Optionee's Termination, the Optionee engages in any
Competitive Activity (as hereinafter defined), or (c) if, at any time
(whether during the Optionee's employment or after any Termination), the
Optionee is convicted of a crime against the Corporation or any of its
Affiliates, then, in addition to any other rights and remedies available to
the Corporation, the Corporation shall be entitled, at its option, to
terminate the Option, which shall then be of no further force and effect.
The term "Competitive Activity" shall mean engaging in any of the following
activities: (i) serving as a director of any person (other than the
Corporation or any of its subsidiaries) that competes either directly or
indirectly through one or more Affiliates with any of the businesses
conducted by the Corporation or any of its Affiliates (a "Competitor"),
(ii) directly or indirectly through one or more intermediaries (X)
controlling any Competitor or (Y) owning any equity or debt interests in
any Competitor (other than equity or debt interests which are publicly
traded and do not exceed 2% of the particular class of interests
outstanding) (it being understood that, if interests in any Competitor are
owned by an investment vehicle or other entity in which the Optionee owns
an equity interest, a portion of the interests in such Competitor owned by
such entity shall be attributed to the Optionee, such portion determined by
applying the percentage of the equity interest in such entity owned by the
Optionee to the interests in such Competitor owned by such entity), (iii)
directly or indirectly soliciting, diverting, taking away, appropriating or
otherwise interfering with any of the customers or suppliers of the
Corporation or any Affiliate of the Corporation of which the Optionee owns
shares of capital stock or any other equity interest or (iv) employment by
(including serving as an officer or director of) or providing consulting
services to any Competitor. For purposes of this Section 7.2, the term
"control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of any
Competitor, whether through the ownership of equity interests, by contract
or otherwise.
8. Adjustments. In the event that the outstanding shares of
Common Stock are changed into or exchanged for a different number or kind
of shares of stock or other securities of the Corporation, whether through
merger, consolidation, reorganization, recapitalization, stock dividend,
stock split-up or other substitution of securities of the Corporation, the
Committee shall make appropriate adjustments to the number and class of
shares of stock subject to this Option and the Option Price for such
shares. The Committee's adjustment shall be final and binding for all
purposes of the Plan and this Agreement. No adjustment provided for in this
Section 8 shall require the Corporation to issue a fractional share, and
the total adjustment with respect to this Agreement shall be limited
accordingly.
9. Terminating Events.
------------------
(a) Upon the effective date of any Terminating Event, any
unexercised portion of this Option shall terminate unless provision shall
be made in writing in connection with such Terminating Event for the
continuance of the Plan and such unexercised portion of the Option and for
the assumption of such unexercised portion of this Option by a Successor
Corporation or for the substitution for such unexercised portion of this
Option of new options covering shares of such Successor Corporation with
appropriate adjustments as to number and kind of shares and prices of
shares subject to such new options; provided, however, that in connection
with a Terminating Event involving the merger, consolidation or liquidation
of the Corporation, the Committee may, in its sole discretion, authorize
the redemption of the unexercised portion of the Option for a consideration
per share of Common Stock issuable upon exercise of the unexercised portion
of the Option equal to the excess of (i) the consideration payable per
share of Common Stock in connection with such Terminating Event, adjusted
as if all outstanding options and warrants had been exercised prior to the
consummation of such Terminating Event, over (ii) the Option Price. In the
event that provision for continuance of the Plan is made in writing in
connection with a Terminating Event, the unexercised portion of this Option
or the new options substituted therefor shall continue in the manner and
under the terms provided in the Plan and this Agreement and in such
writing.
(b) In the event of a redemption pursuant to this Section 9,
the Optionee shall be responsible for and shall be obligated to pay a
proportionate amount (determined as if the Optionee were a holder of the
number of shares of Common Stock which would have been issuable upon
exercise of the portion of the Option redeemed pursuant to this Section 9)
of the expenses, liabilities or obligations incurred or to be incurred by
the stockholders of the Corporation in connection with such Terminating
Event (including, without limitation, the fees and expenses of investment
bankers, legal counsel and other outside advisors and experts retained by
or on behalf of the stockholders of the Corporation in connection with the
Terminating Event, amounts payable in respect of indemnification claims,
amounts paid into escrow and amounts payable in respect of post-closing
adjustments to the purchase price).
10. No Right to Continued Employment. This Option shall not
confer upon the Optionee any right with respect to continuance of
employment by the Corporation or any Affiliate, nor shall it interfere in
any way with the right of the Corporation or any Affiliate to terminate the
Optionee's employment at any time.
11. Withholding. The Corporation shall have the right to deduct
from any amounts payable under this Agreement any taxes or other amounts
required by applicable law to be withheld.
12. Optionee Bound by Plan; Entire Agreement. The Optionee hereby
acknowledges receipt of a copy of the Plan and agrees to be bound by all
the terms and provisions thereof. This Agreement and the Plan constitute
the entire agreement, and supersede all prior agreements and
understandings, oral and written, between the parties hereto with respect
to the subject matter hereof.
13. Execution of Agreement; Modification of Agreement. This
Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original and which together shall constitute one
and the same instrument. This Agreement may be modified, amended, suspended
or terminated by the parties hereto; provided, that the Corporation may
modify, amend, suspend or terminate this Agreement without any further
action by the Optionee if such modification, amendment, suspension or
termination does not adversely affect the Optionee's rights hereunder. Any
terms, covenants, representations or conditions may be waived by the
parties hereto, but only in a writing signed by the party which is entitled
to the benefits of such waived term, covenant, representation or condition.
14. Severability. Should any provision of this Agreement be held
by a court to be unenforceable or invalid for any reason, the remaining
provisions of this Agreement shall not be affected by such holding and
shall continue in full force in accordance with their terms.
15. Acknowledgment. By signing this Agreement, the Optionee
acknowledges that he has reviewed the Plan and this Agreement and
understands his rights and obligations thereunder and hereunder. The
Optionee also acknowledges that he has been provided with such information
concerning the Corporation, the Plan and this Agreement as he and his
advisors have requested.
16. Successors in Interest. This Agreement shall inure to the
benefit of and be binding upon each successor of the Corporation. All
obligations imposed upon the Optionee and all rights granted to the
Corporation under this Agreement shall be binding upon the Optionee's
heirs, executors, administrators and successors.
17. Headings. The headings and captions contained herein are for
convenience only and shall not control or affect the meaning or
construction of any provision hereof.
18. Resolution of Disputes. Any dispute or disagreement which may
arise under, or as a result of, or which may in any way relate to, the
interpretation, construction or application of this Agreement shall be
determined by the Committee. Any determination made hereunder shall be
final and binding for all purposes.
19. Governing Law. This Agreement and the rights and obligations
of the parties hereto shall be governed by, and construed in accordance
with, the laws of the State of New York without giving effect to the
principles of conflicts of laws thereof.
GULFSTREAM AEROSPACE CORPORATION
By:
---------------------------
Title:
---------------------------
Optionee
The undersigned acknowledges that the undersigned has read the
foregoing Agreement between Gulfstream Aerospace Corporation and the
undersigned's spouse and the Stock Option Plan, understands that the
undersigned's spouse has been granted an option to acquire shares of
Gulfstream Aerospace Corporation Common Stock, which option is subject to
certain restrictions reflected in such Agreement and such Plan and agrees
to be bound by the foregoing Agreement and such Plan.
---------------------------
Optionee's Spouse
<PAGE>
Exhibit A
Definition of "Change in Control"
For purposes of this Agreement, a "Change in Control" shall mean
the occurrence of any of the following:
(a) An acquisition (other than directly from the
Corporation) of any voting securities of the Corporation (the "Voting
Securities") by any "Person" (as the term person is used for purposes of
Section 13(d) or 14(d) of the Securities Exchange Act of 1934 (the
"Exchange Act")), immediately after which such Person has "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of fifty percent (50%) or more of the then outstanding Common Stock or
the combined voting power of the Corporation's then outstanding Voting
Securities; provided, however, in determining whether a Change in Control
has occurred, Common Stock or Voting Securities which are acquired in a
"Non-Control Acquisition" (as hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control. A "Non-Control
Acquisition" shall mean an acquisition by (i) an employee benefit plan (or
a trust forming a part thereof) maintained by (A) the Corporation or (B)
any corporation or other Person of which a majority of its voting power or
its voting equity securities or equity interest is owned, directly or
indirectly, by the Corporation (for purposes of this definition, a
"Subsidiary"), (ii) the Corporation or its Subsidiaries, (iii) the FL & Co.
Companies, the direct or indirect partners of any of the FL & Co.
Companies, and any Affiliates of any of the foregoing, or (iv) any Person
in connection with a "Non-Control Transaction" (as hereinafter defined);
(b) The individuals who, as of the date the Option is
granted, are members of the Board of Directors of the Corporation (the
"Incumbent Board"), cease for any reason to constitute at least two-thirds
of the members of the Board of Directors of the Corporation; provided,
however, that if the election, or nomination for election by the
Corporation's common stockholders, of any new director was approved by a
vote of at least two-thirds of the Incumbent Board, such new director
shall, for purposes of this Plan, be considered as a member of the
Incumbent Board; provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened "Election
Contest" (as described in Rule 14a-11 promulgated under the Exchange Act)
or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board of Directors of the Corporation (a
"Proxy Contest") including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest; or
(c) The consummation of a merger, consolidation or
reorganization with or into the Corporation or in which securities of the
Corporation are issued, unless such merger, consolidation or reorganization
is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a
merger, consolidation or reorganization with or into the Corporation or in
which securities of the Corporation are issued where the individuals who
were members of the Incumbent Board immediately prior to the execution of
the agreement providing for such merger, consolidation or reorganization
constitute at least a majority of the members of the board of directors of
the Surviving Corporation, or a corporation beneficially directly or
indirectly owning a majority of the voting securities of the Surviving
Corporation.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then outstanding Common
Stock or Voting Securities as a result of the acquisition of Common Stock
or Voting Securities by the Corporation which, by reducing the number of
Common Stock or Voting Securities then outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Persons,
provided that if a Change in Control would occur (but for the operation of
this sentence) as a result of the acquisition of Common Stock or Voting
Securities by the Corporation, and after such share acquisition by the
Corporation, the Subject Person becomes the Beneficial Owner of any
additional Common Stock or Voting Securities which increases the percentage
of the then outstanding Common Stock or Voting Securities Beneficially
Owned by the Subject Person, then a Change in Control shall occur.
EXHIBIT 10.45
FIFTH AMENDMENT
FIFTH AMENDMENT, dated as of March 1, 1999 (this "Amendment"), to
the Credit Agreement, dated as of October 16, 1996, as heretofore amended
(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
and the Required Lenders amend certain provisions of the Credit Agreement;
and
WHEREAS, the Administrative Agent and the Required Lenders are
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. Subsections 8.11(f) and (g) of
the Credit Agreement are hereby amended by deleting the existing
subsections 8.11(f) and (g) in their entirety and by substituting in lieu
thereof the following:
(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 dividends to Holdings on the
common stock of the Company, provided that the aggregate amount
thereof paid in any fiscal year of the Company pursuant to this
paragraph (f) does not exceed an amount equal to 25% of
Consolidated Net Income for such fiscal year less any Stock
Repurchase Dividends (as defined below) made under paragraph (g)
of this subsection 8.11 during such fiscal year (provided that
the resulting amount shall not be less than zero); and
(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 (in addition to dividends paid by the
Company to Holdings on the common stock of the Company to enable
Holdings to repurchase shares of its common stock pursuant to
share repurchase programs prior to March 1, 1999), at any time
and from time to time after March 1, 1999, 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 "Effective 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.
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.
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 and 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: illegible
--------------------------------
Title: Senior Vice President
BANK OF NEW YORK
By: /s/ David C. Siegel
--------------------------------
Title: Vice President
BANK OF TOKYO-MITSUBISHI TRUST
By: /s/ Brian S. Dossie
--------------------------------
Title: Assistant Vice President
CAPTIVA FINANCE LTD.
By: /s/ John H. Gullimane
--------------------------------
Title: Director
CERES FINANCE LTD.
By: /s/ John H. Gullimane
--------------------------------
Title: Director
MEDICAL LIABILITY MUTUAL INSURANCE
By: Chancellor LGT Senior Secured
Mamagement, Inc.,
as Investment Manager
By:
--------------------------------
Title:
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC.
By:
--------------------------------
Title:
By:
--------------------------------
Title:
<PAGE>
CITIBANK, N.A.
By: illegible
--------------------------------
Title: Managing Director
CREDIT LYONNAIS
By: illegible
--------------------------------
Title: Senior Vice President
SUN TRUST BANK, ATLANTA
By:/s/ Jenna H. Kelly
--------------------------------
Title: Vice President
By:/s/ Susan [illegible]
--------------------------------
Title: Banking Officer
BANKBOSTON, N.A.
By:/s/ Cheryl J. Carangelo
--------------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By:/s/ Aaron Lamb
--------------------------------
Title: Corporate Banking Officer
INDUSTRIAL BANK OF JAPAN, LTD.
By:/s/ Takuya Monjo
--------------------------------
Title: Senior Vice President
<PAGE>
KREDIETBANK
By:
--------------------------------
Title:
LTCB TRUST COMPANY
By:
--------------------------------
Title:
LEHMAN COMMERCIAL PAPER INC.
By: /s/ Michele Swanson
--------------------------------
Title: Authorized Signatory
MARINE MIDLAND BANK, N.A.
By: /s/ Christopher F. French
--------------------------------
Title: Authorized Signatory
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management,
L.P., as Investment Advisor
By:
--------------------------------
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By:
--------------------------------
Title:
<PAGE>
MITSUBISHI TRUST & BANKING
CORPORATION
By:
--------------------------------
Title:
NATIONSBANK N.A.
By: illegible
--------------------------------
Title: Senior Vice President
PNC BANK, N.A.
By:
--------------------------------
Title:
SOCIETE GENERALE
By: /s/ Ralph Saheb
--------------------------------
Title: Director
U.S. BANK NATIONAL ASSOCIATION
By:
--------------------------------
Title:
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By: /s/ Jeffrey W. Maillet
--------------------------------
Title: Senior Vice President
and Director
<PAGE>
KZH III LLC
By: /s/ Virginia Conway
--------------------------------
Title: Authorized Agent
The undersigned guarantors hereby
consent to the foregoing Amendment:
GULFSTREAM AEROSPACE CORPORATION,
a Delaware Corporation
By: /s/ Robert L. Williams
--------------------------------
Title: Vice President and 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 and Treasurer
EXHIBIT 10.46
SECURED PROMISSORY NOTE (1210)
------------------------------
$21,000,000 New York, New York
November 30, 1998
FOR VALUE RECEIVED, GULFSTREAM AEROSPACE CORPORATION, a Georgia
corporation (the "Borrower"), hereby promises to pay to THE CIT
GROUP/EQUIPMENT FINANCING, INC., a New York corporation ("CIT "), or order,
the principal amount of Twenty-One Million United States Dollars
(US$21,000,000), in one hundred seven (107) consecutive equal monthly
installments of principal, in arrears, commencing on the one year
anniversary date of this Note, in the amount set forth on Schedule I
hereto, and one (1) payment on the one hundred eighth (108th) Payment Date
in the amount set forth on Schedule I hereto, together with interest on the
amount of said principal sums remaining unpaid from time to time, payable
in arrears commencing on the date of this Note, at an interest rate per
annum equal to one and four tenths percent (1.4%) over one-month LIBOR (as
defined below), but in no event greater than the rate of interest permitted
pursuant to applicable Law (the "Interest Rate"). Interest shall be
calculated on the basis of a 360-day year for the actual number of days
elapsed. The date on which any payment shall be due hereunder shall be
referred to as a "Payment Date". Notwithstanding the foregoing, the final
payment made on this Note shall be in an amount sufficient to discharge in
full the principal, premium, if any, and all accrued and unpaid interest
on, and any other amounts due under this Note. Capitalized terms used
herein and not defined herein shall have the meaning set forth in the
Security Agreement (1210) dated as of November 30, 1998 (the "Security
Agreement") between CIT and the Borrower.
For purposes hereof, "LIBOR" shall mean the one-month London
Interbank Offered Rate of major banks for deposits of U.S. dollars
appearing on Telerate Page 3750 as of 11:00 a.m., London, England time, two
(2) Business Days prior to the beginning of the applicable interest Period
(rounded to the nearest 1/100 of 1 percent). If such rate does not appear
on the Telerate Page 3750, the rate for that Interest Period will be the
last such rate that appeared on Telerate Page 3750, provided that if such
rate did not appear on Telerate Page 3750 for a period of more than five
Business Days prior to that date of determination, then the LIBOR Rate
shall be determined from such source as CIT shall determine. "Telerate
Page" means the display page so designated on the Telerate Service of
Telerate Inc. (or such other market data vendor as may be nominated by CIT
for the purpose of displaying rates or prices for U.S. dollar deposits for
a period of one month).
For purposes hereof, "Business Day" shall mean any day other than
a Saturday, Sunday or other day on which commercial banks in New York, New
York (and, with respect to calculation of LIBOR, London, England) are
required or authorized by law to be closed. If any payment under this Note
becomes due and payable on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day, together with interest
at the Interest Rate with respect to such extension, provided, that if the
result of such extension would be to extend such payment into another
calendar month, such payment shall be made on the last Business Day of such
calendar month.
This Note shall be subject to mandatory prepayment as follows:
(i) in whole as a result of the occurrence of an Event of
Loss with respect to the Aircraft as provided in Section 3.14 of
the Security Agreement;
(ii) in whole upon the occurrence of an Event of Default as
provided in the Security Agreement; or
Upon the occurrence of any of the events set forth in clauses (i)
and (ii) above, the Borrower shall pay all unpaid principal on this Note
plus accrued interest thereon to the date of such payment.
This Note may be voluntarily prepaid in whole by the Borrower on
any Payment Date by (i) giving CIT prior written notice at least twenty
(20) Business Days prior to such Payment Date, and (ii) paying to CIT on
such Payment Date all outstanding and unpaid principal and accrued and
unpaid interest calculated on an actuarial basis, without premium or
penalty.
This Note shall bear interest, payable on demand, at the Interest
Rate plus 2% (but in no event higher than the rate permitted by applicable
Law) on overdue principal, overdue premium, if any, and (to the extent
permitted by applicable Law) overdue interest and any other amounts payable
hereunder which are overdue from the date when due until the date of
payment.
Principal and interest and other amounts due hereunder shall be
payable in immediately available funds at Bank of America, ABA Number:
121000358, for credit to: The CIT Group/Industrial Financing, Account
Number 1233-5-18855, or at such other place as CIT shall have designated to
the Borrower in writing. Each such payment shall be made on the date such
payment is due and without any presentment or surrender of this Note,
except that in the case of any final payment with respect to this Note,
this Note shall be surrendered promptly thereafter by CIT to the Borrower.
All such payments by the Borrower shall be free and clear of and without
deduction for or on account of wire and other charges.
This Note is the Note referred to in the Security Agreement and
was issued by the Borrower pursuant to the terms of such agreement.
Reference is hereby made to the Security Agreement for a description of the
properties and assets in which a lien and security interest has been
granted, a statement of the rights and obligations of the holder of, and
the nature and extent of the security for this Note, to all of which terms
and conditions in the Security Agreement the holder hereof agrees by its
acceptance of this Note. Payment of this Note may be accelerated by CIT
prior to the maturity of this Note under certain circumstances and
conditions, in the manner and with the effect provided in the Security
Agreement.
Except as provided above the Borrower may not voluntarily prepay
this Note in whole or in part. Any prepayments of this Note shall be
applied first to accrued interest and then to installments of principal in
inverse order of maturity.
<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed on the day and year set forth below.
GULFSTREAM AEROSPACE CORPORATION
By: /s/ Chris A. Davis
---------------------------------
Name:
Title: Chief Financial Officer
Date: November 30, 1998
<PAGE>
SCHEDULE I (1210)
-----------------
AMORTIZATION SCHEDULE FOR THE PROMISSORY NOTE
EXHIBIT 10.47
SECURED PROMISSORY NOTE (1099)
------------------------------
$18,000,000 New York, New York
November 30, 1998
FOR VALUE RECEIVED, GULFSTREAM AEROSPACE CORPORATION, a Georgia
corporation (the "Borrower"), hereby promises to pay to THE CIT
GROUP/EQUIPMENT FINANCING, INC., a New York corporation ("CIT "), or order,
the principal amount of Eighteen Million United States Dollars
(US$18,000,000), in one hundred seven (107) consecutive equal monthly
installments of principal, in arrears, commencing on the one year
anniversary date of this Note, in the amount set forth on Schedule I
hereto, and one (1) payment on the one hundred eighth (108th) Payment Date
in the amount set forth on Schedule I hereto, together with interest on the
amount of said principal sums remaining unpaid from time to time, payable
in arrears commencing on the date of this Note, at an interest rate per
annum equal to one and four tenths percent (1.4%) over one-month LIBOR (as
defined below), but in no event greater than the rate of interest permitted
pursuant to applicable Law (the "Interest Rate"). Interest shall be
calculated on the basis of a 360-day year for the actual number of days
elapsed. The date on which any payment shall be due hereunder shall be
referred to as a "Payment Date". Notwithstanding the foregoing, the final
payment made on this Note shall be in an amount sufficient to discharge in
full the principal, premium, if any, and all accrued and unpaid interest
on, and any other amounts due under this Note. Capitalized terms used
herein and not defined herein shall have the meaning set forth in the
Security Agreement (1099) dated as of November 30, 1998 (the "Security
Agreement") between CIT and the Borrower.
For purposes hereof, "LIBOR" shall mean the one-month London
Interbank Offered Rate of major banks for deposits of U.S. dollars
appearing on Telerate Page 3750 as of 11:00 a.m., London, England time, two
(2) Business Days prior to the beginning of the applicable interest Period
(rounded to the nearest 1/100 of 1 percent). If such rate does not appear
on the Telerate Page 3750, the rate for that Interest Period will be the
last such rate that appeared on Telerate Page 3750, provided that if such
rate did not appear on Telerate Page 3750 for a period of more than five
Business Days prior to that date of determination, then the LIBOR Rate
shall be determined from such source as CIT shall determine. "Telerate
Page" means the display page so designated on the Telerate Service of
Telerate Inc. (or such other market data vendor as may be nominated by CIT
for the purpose of displaying rates or prices for U.S. dollar deposits for
a period of one month).
For purposes hereof, "Business Day" shall mean any day other than
a Saturday, Sunday or other day on which commercial banks in New York, New
York (and, with respect to calculation of LIBOR, London, England) are
required or authorized by law to be closed. If any payment under this Note
becomes due and payable on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day, together with interest
at the Interest Rate with respect to such extension, provided, that if the
result of such extension would be to extend such payment into another
calendar month, such payment shall be made on the last Business Day of such
calendar month.
This Note shall be subject to mandatory prepayment as follows:
(i) in whole as a result of the occurrence of an Event of
Loss with respect to the Aircraft as provided in Section 3.14 of
the Security Agreement;
(ii) in whole upon the occurrence of an Event of Default as
provided in the Security Agreement; or
Upon the occurrence of any of the events set forth in clauses (i)
and (ii) above, the Borrower shall pay all unpaid principal on this Note
plus accrued interest thereon to the date of such payment.
This Note may be voluntarily prepaid in whole by the Borrower on
any Payment Date by (i) giving CIT prior written notice at least twenty
(20) Business Days prior to such Payment Date, and (ii) paying to CIT on
such Payment Date all outstanding and unpaid principal and accrued and
unpaid interest calculated on an actuarial basis, without premium or
penalty.
This Note shall bear interest, payable on demand, at the Interest
Rate plus 2% (but in no event higher than the rate permitted by applicable
Law) on overdue principal, overdue premium, if any, and (to the extent
permitted by applicable Law) overdue interest and any other amounts payable
hereunder which are overdue from the date when due until the date of
payment.
Principal and interest and other amounts due hereunder shall be
payable in immediately available funds at Bank of America, ABA Number:
121000358, for credit to: The CIT Group/Industrial Financing, Account
Number 1233-5-18855, or at such other place as CIT shall have designated to
the Borrower in writing. Each such payment shall be made on the date such
payment is due and without any presentment or surrender of this Note,
except that in the case of any final payment with respect to this Note,
this Note shall be surrendered promptly thereafter by CIT to the Borrower.
All such payments by the Borrower shall be free and clear of and without
deduction for or on account of wire and other charges.
This Note is the Note referred to in the Security Agreement and
was issued by the Borrower pursuant to the terms of such agreement.
Reference is hereby made to the Security Agreement for a description of the
properties and assets in which a lien and security interest has been
granted, a statement of the rights and obligations of the holder of, and
the nature and extent of the security for this Note, to all of which terms
and conditions in the Security Agreement the holder hereof agrees by its
acceptance of this Note. Payment of this Note may be accelerated by CIT
prior to the maturity of this Note under certain circumstances and
conditions, in the manner and with the effect provided in the Security
Agreement.
Except as provided above the Borrower may not voluntarily prepay
this Note in whole or in part. Any prepayments of this Note shall be
applied first to accrued interest and then to installments of principal in
inverse order of maturity.
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed on the day and year set forth below.
GULFSTREAM AEROSPACE CORPORATION
By: /s/ Chris A. Davis
-------------------------------
Name:
Title: Chief Financial Officer
Date: November 30, 1998
<PAGE>
SCHEDULE I (1099)
-----------------
AMORTIZATION SCHEDULE FOR THE PROMISSORY NOTE
EXHIBIT 10.48
SECURED PROMISSORY NOTE (1032)
------------------------------
$17,000,000 New York, New York
November 30, 1998
FOR VALUE RECEIVED, GULFSTREAM AEROSPACE CORPORATION, a Georgia
corporation (the "Borrower"), hereby promises to pay to THE CIT
GROUP/EQUIPMENT FINANCING, INC., a New York corporation ("CIT "), or order,
the principal amount of Seventeen Million United States Dollars
(US$17,000,000), in one hundred seven (107) consecutive equal monthly
installments of principal, in arrears, commencing on the one year
anniversary date of this Note, in the amount set forth on Schedule I
hereto, and one (1) payment on the one hundred eighth (108th) Payment Date
in the amount set forth on Schedule I hereto, together with interest on the
amount of said principal sums remaining unpaid from time to time, payable
in arrears commencing on the date of this Note, at an interest rate per
annum equal to one and four tenths percent (1.4%) over one-month LIBOR (as
defined below), but in no event greater than the rate of interest permitted
pursuant to applicable Law (the "Interest Rate"). Interest shall be
calculated on the basis of a 360-day year for the actual number of days
elapsed. The date on which any payment shall be due hereunder shall be
referred to as a "Payment Date". Notwithstanding the foregoing, the final
payment made on this Note shall be in an amount sufficient to discharge in
full the principal, premium, if any, and all accrued and unpaid interest
on, and any other amounts due under this Note. Capitalized terms used
herein and not defined herein shall have the meaning set forth in the
Security Agreement (1032) dated as of November 30, 1998 (the "Security
Agreement") between CIT and the Borrower.
For purposes hereof, "LIBOR" shall mean the one-month London
Interbank Offered Rate of major banks for deposits of U.S. dollars
appearing on Telerate Page 3750 as of 11:00 a.m., London, England time, two
(2) Business Days prior to the beginning of the applicable interest Period
(rounded to the nearest 1/100 of 1 percent). If such rate does not appear
on the Telerate Page 3750, the rate for that Interest Period will be the
last such rate that appeared on Telerate Page 3750, provided that if such
rate did not appear on Telerate Page 3750 for a period of more than five
Business Days prior to that date of determination, then the LIBOR Rate
shall be determined from such source as CIT shall determine. "Telerate
Page" means the display page so designated on the Telerate Service of
Telerate Inc. (or such other market data vendor as may be nominated by CIT
for the purpose of displaying rates or prices for U.S. dollar deposits for
a period of one month).
For purposes hereof, "Business Day" shall mean any day other than
a Saturday, Sunday or other day on which commercial banks in New York, New
York (and, with respect to calculation of LIBOR, London, England) are
required or authorized by law to be closed. If any payment under this Note
becomes due and payable on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day, together with interest
at the Interest Rate with respect to such extension, provided, that if the
result of such extension would be to extend such payment into another
calendar month, such payment shall be made on the last Business Day of such
calendar month.
This Note shall be subject to mandatory prepayment as follows:
(i) in whole as a result of the occurrence of an Event of
Loss with respect to the Aircraft as provided in Section 3.14 of
the Security Agreement;
(ii) in whole upon the occurrence of an Event of Default as
provided in the Security Agreement; or
Upon the occurrence of any of the events set forth in clauses (i)
and (ii) above, the Borrower shall pay all unpaid principal on this Note
plus accrued interest thereon to the date of such payment.
This Note may be voluntarily prepaid in whole by the Borrower on
any Payment Date by (i) giving CIT prior written notice at least twenty
(20) Business Days prior to such Payment Date, and (ii) paying to CIT on
such Payment Date all outstanding and unpaid principal and accrued and
unpaid interest calculated on an actuarial basis, without premium or
penalty.
This Note shall bear interest, payable on demand, at the Interest
Rate plus 2% (but in no event higher than the rate permitted by applicable
Law) on overdue principal, overdue premium, if any, and (to the extent
permitted by applicable Law) overdue interest and any other amounts payable
hereunder which are overdue from the date when due until the date of
payment.
Principal and interest and other amounts due hereunder shall be
payable in immediately available funds at Bank of America, ABA Number:
121000358, for credit to: The CIT Group/Industrial Financing, Account
Number 1233-5-18855, or at such other place as CIT shall have designated to
the Borrower in writing. Each such payment shall be made on the date such
payment is due and without any presentment or surrender of this Note,
except that in the case of any final payment with respect to this Note,
this Note shall be surrendered promptly thereafter by CIT to the Borrower.
All such payments by the Borrower shall be free and clear of and without
deduction for or on account of wire and other charges.
This Note is the Note referred to in the Security Agreement and
was issued by the Borrower pursuant to the terms of such agreement.
Reference is hereby made to the Security Agreement for a description of the
properties and assets in which a lien and security interest has been
granted, a statement of the rights and obligations of the holder of, and
the nature and extent of the security for this Note, to all of which terms
and conditions in the Security Agreement the holder hereof agrees by its
acceptance of this Note. Payment of this Note may be accelerated by CIT
prior to the maturity of this Note under certain circumstances and
conditions, in the manner and with the effect provided in the Security
Agreement.
Except as provided above the Borrower may not voluntarily prepay
this Note in whole or in part. Any prepayments of this Note shall be
applied first to accrued interest and then to installments of principal in
inverse order of maturity.
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed on the day and year set forth below.
GULFSTREAM AEROSPACE CORPORATION
By: /s/ Chris A. Davis
-----------------------------------
Name:
Title: Chief Financial Officer
Date: November 30, 1998
--------------------------------
<PAGE>
SCHEDULE I (1032)
-----------------
AMORTIZATION SCHEDULE FOR THE PROMISSORY NOTE
EXHIBIT 10.49
EXECUTION COPY
FORM OF SECURITY AGREEMENT USED FOR EACH OF THE SECURED PROMISSORY NOTES
FILED AS EXHIBITS 10.46, 10.47 AND 10.48. EACH SECURITY AGREEMENT COVERS
ONE GULFSTREAM IV AIRCRAFT.
FORM OF SECURITY AGREEMENT (1032)
Dated as of November 30, 1998
By and Between
GULFSTREAM AEROSPACE CORPORATION
as Borrower
and
THE CIT GROUP/EQUIPMENT FINANCING, INC.
as Secured Party
One (1) Gulfstream Aerospace G-IV Aircraft
Manufacturer's Serial Number 1032
FAA Registration Number N432QS (formerly assigned N888UE)
Two (2) Rolls Royce Tay Model MK-611-8 Engines
Manufacturer's Serial Numbers 16163 and 16164, respectively
<PAGE>
[This Schedule
Intentionally Omitted
from FAA filing copy]
SCHEDULE A (1032)
-----------------
PRINCIPAL AMOUNT OF LOAN
Seventeen Million Dollars ($17,000,000)
<PAGE>
TABLE OF CONTENTS
Page
RECITALS ..............................................................1
ARTICLE I DEFINITIONS................................................1
ARTICLE II CREATION OF SECURITY INTEREST..............................5
Section 2.01. Security Interest in the Collateral; Assignment.......5
ARTICLE III REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE
BORROWER..................................................6
Section 3.01. Existence; Authorization..............................6
Section 3.02. No Adverse Pending Actions............................6
Section 3.03. Government Authorizations.............................7
Section 3.04. Taxes.................................................7
Section 3.05. Interest in Note......................................7
Section 3.06. Collateral Documents..................................7
Section 3.07. Registration and Insignia.............................8
Section 3.08. Compliance with Laws..................................8
Section 3.09. Maintenance and Repair................................8
Section 3.10. Insurance.............................................8
Section 3.11. Inspection; Records; Information.....................11
Section 3.12. Title; Liens.........................................11
Section 3.13. Notice of Default....................................11
Section 3.14. Event of Loss........................................12
Section 3.15. Mergers and Consolidations...........................12
Section 3.16. Financial Information................................12
Section 3.17. Taxes, Duties, Fees, Claims and Charges..............13
Section 3.18. Overdue Payments.....................................13
Section 3.19. Citizenship..........................................13
Section 3.20. Possession...........................................13
Section 3.21. Indemnity............................................13
ARTICLE IV EVENTS OF DEFAULT AND REMEDIES............................13
Section 4.01. Events of Default....................................13
Section 4.02. Remedies Upon Default................................14
Section 4.03. Waiver...............................................16
Section 4.04. Application of Proceeds..............................16
Section 4.05. Termination..........................................16
Section 4.06. Remedies Cumulative..................................17
Section 4.07. Construction, Applicable Law; Jurisdiction...........17
ARTICLE V MISCELLANEOUS PROVISIONS...................................17
Section 5.01. Successors and Assigns...............................17
Section 5.02. Entire Agreement.....................................17
Section 5.03. Notices..............................................17
Section 5.04. Continuing Lien and Security Interests; Transfer.....18
Section 5.05. Counterparts and Dating..............................18
SCHEDULE A - Principal Amount of Loan
<PAGE>
SECURITY AGREEMENT (1032)
-------------------------
THIS SECURITY AGREEMENT (1032) is entered into as of November 30,
1998 (this "Agreement"), by and between GULFSTREAM AEROSPACE CORPORATION, a
Georgia corporation (the "Borrower") and THE CIT GROUP/EQUIPMENT FINANCING,
INC., a New York corporation (the "Secured Party").
RECITALS
A. The Borrower is the owner and manufacturer of a Gulfstream
Aerospace G-IV Aircraft bearing manufacturer's serial number 1032 and U.S.
registration number N432QS (formerly assigned N888UE) (the "Airframe")
together with two Rolls Royce Tay Model MK-611-8 engines bearing
manufacturer's serial numbers 16163 and 16164 (the "Engine(s)", and
together with the Airframe and all parts relating to the Engines and the
Airframe, the "Aircraft" and all available operating, repair, and
maintenance records pertaining to the Aircraft (the "Records") and together
with the Aircraft, the "Equipment")).
B. Pursuant to the loan between the Secured Party, as lender, and
the Borrower, as borrower, the Secured Party has loaned to the Borrower the
aggregate amount set forth in Schedule A attached hereto (the "Loan") in
order that the Borrower shall finance the Aircraft. Such Loan is evidenced
by a promissory note (the "Note"), which Note will be secured by (i) the
Aircraft, (ii) the Lease and (iii) other Collateral pursuant to this
Agreement.
C. Borrower, as lessor, has leased the Aircraft to EJI Sales,
Inc. (the "Lessee") pursuant to the Aircraft Lease Agreement (the "Lease"),
dated as of July 23, 1996, which Lease was recorded by the Federal Aviation
Administration on October 25, 1996 and assigned Conveyance No. P08553.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Secured Party to make the Loan and of other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement, the following terms shall have the
following definitions:
"Agreement" shall mean this Security Agreement (1032) and
concurrent or subsequent exhibits or schedules to this Security Agreement
(1032) and any extensions, supplements, amendments or modifications to this
Security Agreement (1032) and/or to any such exhibits or schedules.
"Aviation Authority" shall mean the FAA.
"Business Day" shall mean any day other than a Saturday, Sunday
or day on which commercial banking institutions in New York, New York are
authorized by law to be closed.
"Closing Date" shall mean each date upon which the Secured Party
shall make a Loan to the Borrower pursuant to the Note.
"Collateral" is defined in Section 2.01 of this Agreement.
"Event of Default" shall mean and include the occurrence of any
one or more of the events of default set forth in Section 4.01 of this
Agreement.
"Event of Loss" shall mean any of the following events with
respect to any Collateral:
(i) loss of such property or of the use thereof due to
theft, disappearance which continues for more than fifteen (15)
days, destruction, damage beyond repair or rendition of such
property permanently unfit for normal use for any reason;
(ii) any damage to such property which results in an
insurance settlement with respect to such property on the basis
of an actual, constructive or compromised total loss; or
(iii) the condemnation, confiscation or seizure of, or
requisition to title to or use of, such property by any
Governmental Authority which, in the case of a requisition for
use, continues for more than fifteen (15) days.
"FAA" shall mean and refer to the United States Federal Aviation
Administration or any successor or replacement administration or
governmental agency having the same or similar authority and
responsibilities.
"Financing Documents" shall mean this Agreement, the Note, the
Lessee Consent and the Guaranty, as originally executed and as the same may
from time to time be supplemented or amended and any other document or
instrument expressly declared to be a Financing Document.
"Governmental Authority" shall mean and include (a) the FAA; (b)
any national government, or political subdivision thereof or local
jurisdiction therein; (c) any board, commission, department, division,
organ, instrumentality, court or agency of any entity described in (b)
above, however, constituted; and (d) any association, organization, or
institution of which any entity described in (b) or (c) above is a member
or to whose jurisdiction any such entity is subject or in whose activities
any such entity is a participant but only (except for purposes of defining
Law below) to the extent that any of the preceding have jurisdiction over
the Aircraft or its operations.
"Guaranty" shall mean the Guaranty (1032), dated November ___,
1998, made by Gulfstream Delaware Corporation, a Delaware corporation, and
by Gulfstream Aerospace Corporation, a Delaware corporation, in favor of
the Secured Party.
"Guarantors" shall mean each of (i) Gulfstream Delaware
Corporation, a Delaware corporation and (ii) Gulfstream Aerospace
Corporation, a Delaware corporation.
"Indemnitee" shall mean the Secured Party and its successors,
permitted assigns, affiliates, agents, employees, servants, officers and
directors.
"Insolvency Proceeding" shall mean and include any proceeding
commenced by or against any person or entity, under any provision of the
Federal Bankruptcy Code, as amended, or under any other bankruptcy or
insolvency law, including, but not limited to, assignments for the benefit
of creditors, formal or informal moratoriums, compositions or extensions
with some or all creditors.
"Insured Value" shall mean the amount of the Loan as set forth in
Schedule A hereto.
"Interest Rate" shall have the meaning set forth in the Note.
"Judicial Officer or Assignee" shall mean and include any
trustee, receiver, controller, custodian, assignee for the benefit of
creditors or any other person or entity having powers or duties like or
similar to the powers and duties of a trustee, receiver, controller,
custodian or assignee for the benefit of creditors.
"Law" shall mean and include (a) any statute, decree,
constitution, regulation, order, judgment or other directive of any
Governmental Authority; (b) any treaty, pact, compact or other agreement to
which any Governmental Authority is a signatory or party; (c) any judicial
or administrative interpretation or application of any Law described in (a)
or (b) above; and (d) any amendment or revision of any Law described in
(a), (b) or (c) above.
"Lessee Consent" shall mean the Consent Agreement and
Acknowledgment (1032) dated as of November __, 1998 made by EJI Sales, Inc.
"Liens" shall mean any mortgage, pledge, lien, charge,
encumbrance, lease, exercise of rights, security interest or claim.
"Maintenance Program" shall mean the Borrower's FAA approved
maintenance program for the Aircraft and the Engines as the same may be
amended from time to time with FAA approval, Secured Party's approval.
"Obligations" shall mean and include any and all loans, advances,
overdrafts, debts, liabilities, obligations owing by the Borrower to the
Secured Party pursuant to any Financing Document, including without
limitation, any and all amounts due the Secured Party under the Note
(whether now in force or hereafter executed and delivered), and any other
Financing Document, any and all interest (including late payment charges)
which is not paid when due, and any and all Secured Party Expenses which
the Borrower is required to pay or reimburse pursuant to this Agreement, by
law, or otherwise, or under covenants and duties owing by the Borrower to
the Secured Party, of any kind or description, arising out of or in
connection with, or related to the transactions contemplated by the Note,
this Agreement, and any other Financing Document between the Borrower and
the Secured Party entered into in connection therewith, whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising.
"Parts" shall mean, at any time, all parts, components,
equipment, instruments, appliances, avionics, radio and radar devices,
cargo handling systems and loose equipment that are at such time
incorporated or installed in or attached to the Airframe or either Engine.
"Permitted Liens" shall mean (i) liens arising from taxes either
not yet assessed or, if assessed, not yet due or contested in good faith so
long as such proceedings do not involve any danger of sale, forfeiture or
loss of the Collateral; and (ii) materialmen's, mechanic's, workmen's,
repairmen's, employees', or other like liens arising by operation of law in
the ordinary course of business for amounts which are either not yet due or
are being contested in good faith by appropriate proceedings (and for which
adequate reserves have been made or when required in order to pursue such
proceedings, an adequate bond has been obtained) so long as such
proceedings do not involve any danger of sale, forfeiture or loss of the
Collateral.
"Person" shall mean an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association,
joint venture, Governmental Authority or other entity of whatever nature.
"Proceeds" shall have the meaning assigned to it in the Uniform
Commercial Code in effect from time to time in New York, and in any event,
shall include (i) any and all proceeds of any insurance, indemnity or,
warranty payable to the Borrower from time to time with respect to the
Aircraft or the Records; (ii) any and all payments (in any form whatsoever)
made or due and payable to the Borrower from time to time in connection
with any requisition, confiscation, condemnation, seizure or forfeiture of
the Aircraft by any governmental body, authority, bureau or agency or any
other Person (whether or not acting under color of governmental authority);
and (iii) any and all proceeds of any sale, transfer or disposition and any
and all other rents or profits or other amounts from time to time paid or
payable in connection with the Aircraft or the Records.
"Related Transactions" shall mean any and all leases or secured
financings of any aircraft between the Secured Party or any affiliate of
the Secured Party, as lessor or secured party, and the Borrower or any
affiliate of the Borrower, as lessee or obligor.
"Secured Party Expenses" shall mean and include all costs and
expenses which the Borrower is required to pay or cause to be paid under
this Agreement, and any other Financing Document, and which are paid or
advanced by the Secured Party pursuant to the provisions hereof or thereof;
all taxes and insurance premiums of every nature and kind which the
Borrower is required to pay or cause to be paid under this Agreement and
any other Financing Document, and which are paid or advanced by the Secured
Party pursuant to the provisions hereof or thereof; all filing, recording,
publication and search fees paid or incurred by the Secured Party in
connection with the transactions contemplated by this Agreement and/or any
other Financing Document; all costs and expenses paid or incurred by the
Secured Party, to correct any default or enforce any provisions of this
Agreement, the Note, or any other Financing Document, or in gaining
possession of, maintaining, handling, preserving, storing, refurbishing,
appraising, selling, preparing for sale and/or advertising to sell the
Collateral, whether or not a sale is consummated; all costs and expenses of
suit paid or incurred by the Secured Party in enforcing, or defending this
Agreement, the Note, or any other Financing Document, or any portion of any
thereof; and attorneys' fees and expenses paid or incurred by the Secured
Party in advising, structuring, drafting, amending, terminating, enforcing
(whether or not suit is brought and whether or not in connection with an
Insolvency Proceeding), defending or concerning this Agreement, the Note,
or any other Financing Document, or any portion of any thereof.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Transportation Act" shall mean 49 U.S.C. Section 40101, et.
seq., as amended, as in effect on the date of this Agreement, or any
successor or substitute legislation at the time in effect and applicable.
ARTICLE II
CREATION OF SECURITY INTEREST
-----------------------------
Section 2.01. Security Interest in the Collateral; Assignment. In
consideration of the making of the Loan by the Secured Party to the
Borrower, the Borrower does hereby sell, assign, transfer and set over to
the Secured Party and its successors and assigns, and does hereby grant to
the Secured Party and its successors and assigns, a continuing security
interest in and lien upon the following, whether now or hereafter acquired
(the "Collateral"), in order to secure prompt repayment of any and all
Obligations owed by the Borrower to the Secured Party and in order to
secure prompt performance of any and all other Obligations to be performed
by the Borrower:
(a) all of the Borrower's right, title and interest in and to the
Equipment wherever located and whether now or hereafter existing, and
whether presently owned or hereafter acquired and any and all documents,
instruments and agreements relating to Borrower's acquisition of the
Equipment and all attachments, replacements, substitutions, additions,
proceeds and all log books or title thereto; and
(b) all right, title, interest of the Borrower in, to and under
the Lease, together with all rights, powers, privileges, options and other
benefits thereunder, including, without limitation, the immediate and
continuing right to demand, receive and collect all rent thereunder,
income, revenues, issues, profits, insurance proceeds, condemnation awards
and other payments, maintenance and other reserves, escrowed funds, tenders
and security, including, without limitation, security deposits and all
other collateral (cash and non-cash) securing any payment, performance or
other obligations of the Lessee now or hereafter payable under the Lease
pursuant thereto, and the right to make all waivers and agreements, to give
and receive duplicate copies of all notices and other instruments or
communications, to take such action upon the occurrence of a default or an
event of default thereunder, including, without limitation, the
commencement, conduct and consummation of legal, administrative or other
proceedings, as shall be permitted by the Lease, or by law, and to do any
and all other things whatsoever which the Borrower or any lessor is or may
be entitled to do under the Lease.
The Secured Party's security interest in, lien upon, and rights
under, the Collateral shall attach to all of the Collateral upon the
execution and delivery of this Agreement, without further act being
required on the part of either the Secured Party or the Borrower.
ARTICLE III
REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE BORROWER
----------------------------------------------------------
The Borrower represents and warrants (with respect to Sections
3.01 through 3.06 hereof), and covenants (with respect to Sections 3.07
through 3.21 hereof) to the Secured Party as follows:
Section 3.01. Existence; Authorization. It is a corporation duly
organized, validly existing and in good standing under the laws of Georgia
and is a "citizen of the United States" within the meaning of Section
40102(a)(15) of the Transportation Act. The execution, delivery and
performance by the Borrower of this Agreement, and the other Financing
Documents to which it is a party (i) do not and will not contravene any
Financing Document, any law or any contractual restriction binding upon
Borrower and (ii) do not and will not result in or require the creation of
any lien, security interest or other encumbrance upon or with respect to
any of its properties, other than in favor of the Secured Party. The
Borrower has all requisite power and authority to conduct its business and
perform its obligations under this Agreement and the other Financing
Documents to which it is a party and it has duly authorized by all
requisite action the execution, delivery and performance of each of the
Financing Documents to which it is a party. The Borrower is not a party to
any agreement or instrument or subject to any restriction materially
adversely affecting its business, operations, property, assets or
condition, financial or otherwise or its ability to perform its obligations
under this Agreement, any of the other Financing Documents or any agreement
or instrument thereunder to which it is a party and is not in default in
the performance, observance or fulfillment of the material obligations,
covenants, or agreements contained in any agreement or instrument to which
it is a party or by which it or any of its property or assets are bound.
When executed and delivered, this Agreement and each of the Financing
Documents to which it is a party will constitute its valid, legal, binding
and enforceable obligation except as such enforceability may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium or similar
laws affecting the rights of creditors generally.
Section 3.02. No Adverse Pending Actions. There are no actions,
suits or proceedings pending, or to its knowledge, threatened against or
affecting it by any governmental department, board, agency or
instrumentality or before any arbitrator which, if adversely determined,
would have a material adverse effect on its business or assets or would
materially impair its abilities to perform its obligations under this
Agreement or any of the other Financing Documents to which it is a party.
The Borrower is not in default under any applicable order, writ, injunction
or decree of any court, governmental department, board, agency, or
instrumentality or of any arbitrator and no Event of Default, or event
which with the giving of notice or the lapse of time or both would
constitute an Event of Default, under any Financing Document has occurred
and is continuing.
Section 3.03. Government Authorizations. The Borrower has
obtained in respect of this Agreement and each of the other Financing
Documents to which it is a party and the transactions contemplated hereby
and thereby, on or prior to the date hereof all governmental permissions,
rights, licenses and permits to carry out the transactions contemplated
hereby or thereby. The Borrower has not received notice and has no
knowledge of any violation of any applicable Law, regulation, order or
requirement which would have a material adverse effect on its business or
on the transactions contemplated by the Financing Documents, and which has
not been complied with or corrected in all material respects. True and
complete copies of all such governmental permissions, rights, licenses and
permits which have been obtained have been supplied to the Secured Party by
it.
Section 3.04. Taxes. The Borrower has filed or caused to be filed
(or has obtained a valid extension of time to file) all tax returns, if
any, required by any Federal, state or local government or other taxing
authority in the United States of America or by any foreign government or
other taxing authority, which it is required to file and has paid or caused
to be paid all taxes as shown on such returns or on any assessment received
by it to the extent that such taxes have become due (or is contesting such
taxes in good faith by appropriate procedures and has established adequate
reserves for the payment thereof). It has established reserves adequate for
the payment of additional taxes for years which have not been audited by
the respective tax authorities.
Section 3.05. Interest in Note. Neither the Borrower nor anyone
acting on its behalf has directly or indirectly offered an interest in any
Note for sale to, or solicited any offer to acquire the same from, any
Person which offer or solicitation would subject the same to registration
under the Securities Act, and neither the Borrower nor anyone acting on its
behalf will take any action which would subject any interest in any Note to
registration under the Securities Act.
Section 3.06. Collateral Documents. The provisions of the
Financing Documents are effective to create in favor of the Secured Party a
legal, valid and enforceable lien on and security interest in the
Collateral, and when the filings and recordations required by the terms
hereof have been duly effected, the Financing Documents will constitute a
fully perfected security interest in the Collateral, superior in right to
all other Liens, existing or future (except such other Liens as are
permitted under this Agreement).
Section 3.07. Registration and Insignia. The Borrower shall prior
to or concurrently with the mortgaging of the Aircraft hereunder cause, the
Airframe to be duly registered, and at all times thereafter to remain duly
registered, in the name of the Borrower. The Borrower shall not remove, or
cause or permit the removal of, any plate, disc or other similar device
affixed to the Airframe or any Engine indicating the Secured Party's
security interest therein. The Borrower shall not allow the name of any
other person, association or corporation other than the Lessee to be placed
on the Airframe or any Engine as a designation that might be interpreted as
a claim of ownership or of any interest therein; provided, however, that
the Borrower may cause the Airframe to be lettered or otherwise marked in
an appropriate manner for convenience of identification of the interest of
the Borrower therein.
Section 3.08. Compliance with Laws. The Borrower shall neither
use the Collateral, nor permit the Collateral to be used, for any unlawful
purpose or contrary to any statute, law, ordinance or regulation relating
to the registration, use, operation or control of the Collateral. The
Borrower shall comply with, or cause to be complied with, at all times and
in all material respects, all statutes, laws, ordinances and regulations of
the United States (including, without limitation, the FAA), and of all
other governmental, regulatory, or judicial bodies applicable to the use,
operation, maintenance, overhauling, or condition of the Collateral;
provided, that the Borrower shall have the right to contest any of the
foregoing with the appropriate authorities so long as such contest does not
place the Collateral in danger of sale, forfeiture or loss or otherwise
adversely affect the Secured Party's security interest.
Section 3.09. Maintenance and Repair. The Borrower shall cause
the Aircraft to be serviced, repaired, overhauled, tested and maintained in
compliance with all applicable FAA regulations, (i) by personnel in
accordance with FAA requirements, (ii) in accordance with the Maintenance
Program and the operations and maintenance manuals of the manufacturers
thereof (including, without limitation, an FAA approved or manufacturer's
recommended program for the prevention and treatment of corrosion), (iii)
so as to keep the Aircraft in as good operating condition and appearance as
when first manufactured, ordinary wear and tear excepted, and (iv) so as to
keep the Aircraft in such operating condition as shall be necessary to
cause the airworthiness certificate of the Aircraft to be maintained in
good standing at all times under the applicable rules and regulations of
the Aviation Authority.
Section 3.10. Insurance. The Borrower shall at all times, at its
own cost and expense, maintain, or cause to be maintained, a policy of
insurance with respect to the Collateral, in accordance with the following
provisions:
(a) The Borrower shall maintain in effect comprehensive third
party aircraft liability insurance against bodily injury and property
damage losses arising from ground, flight and taxiing exposures, including,
but not limited to, passenger legal liability, cargo liability, contractual
liability and products liability insurance, in an amount not less than
$50,000,000 for any one accident, or series of accidents arising out of any
one event, with respect to the Aircraft. Such policy shall include war and
allied risks in accordance with standard market practice (currently "The
Extended Coverage Endorsement-AVN 52C"). Any such liability insurance
policy may be subject to a deductible in an amount not to exceed $100,000
per occurrence. All such policies shall be maintained in effect with
insurers and/or reinsurers of recognized reputation and responsibility,
reasonably satisfactory to the Secured Party. To the extent commercially
available, coverages shall not contain a Year 2000, GPS or other date
recognition exclusion.
(b) The Borrower shall maintain in effect with insurers and/or
reinsurers of recognized reputation and responsibility reasonably
satisfactory to the Secured Party: (A) all-risk ground and flight aircraft
hull insurance covering the Aircraft (including taxiing exposures) with an
agreed value loss valuation clause; (B) all-risk coverage with respect to
any Engines, parts or landing gear while removed from the Aircraft insured
on a replacement cost basis; and (C) war risk and hijacking (including
political/non-political hijacking and acts of terrorism) coverage,
including, but not limited to, coverage against confiscation,
expropriations, nationalization or seizure, including the country of
registry (if other than the United States). All such insurance shall be in
full force and effect throughout any geographical areas at any time
traversed by the Aircraft, shall be payable in Dollars in the United States
and shall be in the amount of not less than the Insured Value from time to
time in effect. Any hull insurance carried in accordance with this Section
3.10 shall not contain any provision for self-insured amounts or a
deductible, provided that such insurance may be subject to a deductible
which does not exceed $100,000 per occurrence. Each Engine, after removal,
shall be insured for not less than $2,500,000 under a ground risks policy
reasonably acceptable to the Secured Party.
(c) The Borrower will name or cause to be named each Indemnitee
as an additional insured on all policies of insurance and the Secured Party
as sole loss payee, to the extent their interests may apply, to the
Aircraft with respect to the aircraft hull insurance coverage; provided,
that in respect of partial losses to the Aircraft, so long as the insurers
have not received written notice that an Event of Default, or an event
which with time or notice or both would become an Event of Default has
occurred, the amounts that are equal to or less than $1,000,000.00 shall be
payable to the Borrower. Loss with respect to the Aircraft in excess of
$1,000,000.00 shall be payable to Secured Party in an amount not to exceed
the then outstanding Obligations with respect to the Aircraft. The Borrower
shall cause all parties who may have an interest in the proceeds of such
policies to acknowledge, in writing, that the Secured Party has a prior
interest in such proceeds. Each and every such policy under this Section
3.10 shall (i) provide that in respect of the interests of the Secured
Party and the other Indemnities in such policies, such insurance shall not
be invalidated by any action or inaction of the Borrower, the Secured Party
or any Indemnitee or any other Person and shall insure the Secured Party
and the other Indemnities regardless of any breach or violation of any
warranty, declaration or condition contained in such policies by the
Borrower or any Indemnitee or any other Person; (ii) provide that, if such
insurance is canceled for any reason whatever, or any material change is
made in policy terms or conditions, or if such insurance is allowed to
lapse for nonpayment of premium, such cancellation, change or lapse shall
not be effective as to any Indemnitee for thirty (30) days and in the case
of any war risk or allied perils coverage, seven (7) days after receipt by
them of written notice from such insurers or their authorized
representatives of such cancellation, change or lapse; (iii) provide that
such insurers shall hold harmless and waive any rights of subrogation
against each Indemnitee; (iv) be primary without right of contribution from
any other insurance that is carried by any Indemnitee; (v) waive any rights
of set-off, counterclaim or other deduction against any Indemnitee; (vi)
provide that the Secured Party shall have no obligation or liability for
premiums, commissions, assessments, representations or warranties or calls
in connection with such insurance; (vii) provide that all the provisions
thereof, except the limits of liability, shall operate in the same manner
as if there were a separate policy covering each Indemnitee; and (viii) in
respect to casualty insurance shall provide that proceeds shall be paid to
the Secured Party Lender so long as this Agreement is in effect for
distribution to the parties.
(d) On or before the Closing Date and prior to the renewal or
replacement date of any insurance policy required hereunder, the Borrower
shall provide the Secured Party with written certifications by a firm of
independent insurance brokers acceptable to the Secured Party with respect
to the types, amounts and policy numbers of insurance in effect as of the
date of execution and delivery of this Agreement and certifying that in the
opinion of such firm the insurance then carried and maintained complies
with the terms of this Section 3.10. The original certificate of insurance
shall be in a form acceptable to the Secured Party.
(e) In the event that the Borrower should, for any reason, fail
to renew or cause to be renewed any such policy or contract of insurance,
the Secured Party shall have the option to pay the premiums on any such
policy or contract of insurance, or to take out new insurance in such
amounts, types, coverage, and terms as the Secured Party may determine to
be prudent, and any sums paid therefor shall constitute Secured Party
Expenses, shall be payable by the Borrower on demand, and shall be added to
and be a part of and included in the Obligations.
(f) The Borrower shall not use or permit the Collateral to be
used in any manner or for any purpose excepted from or contrary to the
requirements of any insurance policy or policies required to be carried and
maintained hereunder and shall not do any other act or permit anything to
be done which could reasonably be expected to invalidate or limit any such
insurance policy or policies.
(g) All insurance payments received by the Secured Party and the
Borrower from insurance referred to in Section 3.10(b) and paid other than
as the result of an Event of Loss with respect to the Aircraft shall be
paid over to or retained by the Secured Party, and shall then be paid to
the Borrower upon certification that repairs satisfactory to the Secured
Party have been completed in a workmanlike manner and in compliance with
FAA regulations and the requirements of this Agreement; provided, that so
long as no Event of Default, or event which with time or notice or both
would become an Event of Default has occurred, insurance payments which are
equal or less than $100,000 shall be immediately paid to or retained by the
Borrower. The Secured Party shall advance funds received from time to time
for any agreed portion of the repair work which funds shall be applied to
the extent necessary to repair damage to the Aircraft; provided that the
Secured Party shall not be required to make any such payment if an Event of
Default or an event which with time or notice or both would become an Event
of Default has occurred and is continuing, and such amount shall be held
and either (A) paid to the Borrower if such default shall be cured and no
other default or Event of Default shall have occurred and be continuing or
(B) applied in accordance with the terms of Section 4.02 if an Event of
Default shall occur and then be continuing.
Section 3.11. Inspection; Records; Information.
--------------------------------
(a) At any reasonable time, on demand by the Secured Party, the
Borrower shall cause the Collateral (including the Records) to be made
available to the Secured Party, as the case may be (or persons designated
by the Secured Party, as the case may be) for purposes of inspection and,
with respect to the Records, copying; provided, however, that the
Borrower's operations shall not be interrupted thereby.
(b) The Borrower shall keep accurate and complete logs, manuals,
books and records relating to the Collateral, and will provide the Secured
Party with copies of such reports and information relating to the
Collateral as the Secured Party may reasonably require from time to time.
(c) The Borrower shall provide such other information regarding
the Collateral as may be reasonably requested by the Secured Party from
time to time.
Section 3.12. Title; Liens.
------------
(a) The Borrower holds good and marketable title in the Equipment
subject to this Agreement.
(b) The Borrower will not suffer or permit any security interest,
lien, charge or other encumbrance to attach to or exist relative to the
Collateral, except for Permitted Liens and the lien of this Agreement,
whether voluntarily or involuntarily, and whether by issuance of judicial
process, levy or otherwise, until all of the Obligations have been
completely discharged. The Borrower shall at its own cost and expense
promptly take such action as may be necessary to discharge duly all Liens
on the Aircraft, the Engines or any Parts thereof (i) resulting from claims
against the Borrower or (ii) created, granted or assumed by the Borrower
(other than any Lien created or permitted by the Financing Documents).
(c) The Borrower shall not directly or indirectly assign, convey
or otherwise transfer any of its right, title or interest in the Collateral
without the prior written consent of the Secured Party.
Section 3.13. Notice of Default. The Borrower will promptly give
the Secured Party notice of any Event of Default or event which, after
notice or lapse of time or both, would constitute an event of default under
any Financing Document.
Section 3.14. Event of Loss.
-------------
(a) Upon the occurrence of an Event of Loss with respect to the
Aircraft, the Borrower shall forthwith (and in any event within two (2)
Business Days after such occurrence) give the Secured Party written notice
of such Event of Loss, and the Secured Party and the Borrower shall proceed
diligently and cooperate fully with each other in the recovery of any and
all proceeds of insurance applicable thereto. Upon the earlier of the date
(a) which is 60 days after the occurrence of such an Event of Loss or (b)
on which insurance proceeds are received with respect to such Event of
Loss, the Borrower shall pay to the Secured Party an amount required to pay
in full any outstanding Obligations secured by this Agreement, including,
without limitation, interest at the Interest Rate, which shall continue to
accrue with respect to the Note until the date on which such payment is
received by the Secured Party. At such time as the Secured Party shall have
received all amounts necessary to satisfy the outstanding Obligations, the
Borrower's obligations hereunder shall terminate. The Borrower shall be
entitled to receive all insurance proceeds from policies maintained by the
Borrower applicable to the Aircraft over and above the Obligations, if any.
(b) Upon the occurrence of an Event of Loss with respect to an
Engine under circumstances in which there has not occurred an Event of Loss
with respect to the Aircraft, the Borrower shall forthwith (and in any
event within two (2) Business Days after such occurrence) give the Secured
Party written notice thereof and the Borrower shall replace such Engine as
soon as reasonably possible, by duly conveying to the Secured Party, free
and clear of all Liens, a valid security interest to another Rolls Royce
Tay Model MK-611-8 engine of the same or an improved model and suitable for
installation and use on the Airframe, which engine shall have a value and
utility at least equal to, and be in as good operating condition as, the
Engine with respect to which such Event of Loss shall have occurred (based
on but not limited to all life-limited engine components and time since
last heavy maintenance and/or time since last hot section refurbishment),
assuming such Engine was of the value and utility and in the condition and
repair as required by the terms hereof immediately prior to the occurrence
of such Event of Loss. Such replacement engine shall be deemed an "Engine"
as defined herein for all purposes hereunder. The Borrower agrees to take
such action and execute and deliver such documents, including, but not
limited to, a supplement hereto and legal opinions, as the Secured Party
may reasonably request in order that the Secured Party shall have a valid
perfected security interest in any such replacement Engine to the same
extent as any Engine replaced thereby. The Secured Party will assign to the
Borrower all casualty insurance proceeds arising from such Event of Loss to
the Engine(s).
Section 3.15. Mergers and Consolidations. At least twenty (20)
days prior to the effective date of any merger or consolidation, Borrower
shall provide written notice of the merger or consolidation and Borrower
covenants that after any merger or consolidation, the surviving company
will have a net worth equal to or greater than the net worth of the
Borrower.
Section 3.16. Financial Information. The Borrower shall furnish
such financial information as the Secured Party may reasonably request at
any time concerning the Borrower and its respective affairs.
Section 3.17. Taxes, Duties, Fees, Claims and Charges. The
Borrower shall pay or cause to be paid all taxes, assessments, license fees
and other public or private charges when levied or assessed against the
Collateral.
Section 3.18. Overdue Payments. In case any payment of principal
of or interest on the Note or any amount due under the Financing Documents
is not paid when due (notwithstanding any grace period), the Borrower
shall, to the extent permitted by applicable Law, pay interest at the
Interest Rate plus 2% on such amount from the date when due until the date
of payment.
Section 3.19. Citizenship. The Borrower agrees that if at any
time the Borrower has ceased to be a "citizen of the United States" as
defined in Section 40102(a)(15) of the Transportation Act, the Borrower
will promptly notify the Secured Party, and if such citizenship is then
necessary to maintain the eligibility of the Aircraft for United States
registration, shall promptly convey the Aircraft to a trust or other entity
acceptable to the Secured Party which is or which shall qualify as a
"citizen of the United States" as defined above, at the direction of the
Secured Party.
Section 3.20. Possession. The Borrower will not without the
Secured Party's consent, sell, rent, lend, secrete, encumber, transfer or
otherwise dispose of the Collateral.
Section 3.21. Indemnity. Borrower shall indemnify and save
Secured Party harmless from and against any and all liability, loss,
damage, expense, causes of action, suits, claims or judgments arising from
or caused directly or indirectly by (i) Borrower's failure to promptly
perform any of its obligations under the provisions of this Security
Agreement, (ii) injury to person or property resulting from or based upon
the actual or alleged use, operation, delivery or transportation of the
Aircraft or (iii) inadequacy of the Aircraft for any purpose or any
deficiency or defect therein or the use or maintenance thereof or any
repairs, servicing or adjustments thereto or any delay in providing or
failure to provide any thereof or any interruption or loss of service or
use thereof or any loss of business; and shall, at its own cost and
expense, defend any and all suits which may be brought against Secured
Party, either alone or in conjunction with others upon any such liability
or claim or claims and shall satisfy, pay and discharge any and all
judgments and fines that may be recovered against Secured Party in any such
action or actions, provided, however, that Secured Party shall give
Borrower written notice of any such claim or demand.
ARTICLE IV
EVENTS OF DEFAULT AND REMEDIES
------------------------------
Section 4.01. Events of Default. The occurrence of any one or
more of the following events shall constitute an Event of Default under
this Agreement and the Note:
(a) the Borrower shall fail to pay principal or interest under
the Note when due whether at maturity by acceleration, mandatory prepayment
or otherwise and such payment shall not have been made within five (5) days
after such due date; or
(b) the Borrower breaches any warranty or provision hereof, or of
any note or of any instrument or agreement delivered by Borrower to Secured
Party; or
(c) the Borrower shall fail to procure or maintain the insurance
coverage required pursuant to the terms of Section 3.10 of this Agreement,
or shall operate the Aircraft outside the scope of the insurance coverage
maintained with respect to the Collateral; or
(d) any representation made by the Borrower under this Agreement
or any Financing Documents, or made in writing in connection herewith or
therewith, shall have been incorrect in any material respect on the date on
which made, in the case of a representation, or shall be breached
materially, in the case of a warranty; or
(e) A petition in bankruptcy or for arrangement or reorganization
is filed by or against the Borrower or Borrower admits its inability to pay
its debts as they mature; or
(f) the Borrower shall default in the performance or observance
of any covenant, term or condition contained in any Related Transaction and
(i) shall not have caused such default to be cured within any applicable
grace period provided by the applicable agreements, and (ii) the effect of
such default is to cause (after notice or lapse of time or both), or to
permit the lessor or secured party under such Related Transaction to
terminate such transaction or exercise remedies, or
(g) all or any of the Collateral is attached, seized, subjected
to a writ or distress warrant, or is levied upon, or comes into the
possession of any Judicial Officer or Assignee except to the extent such
event constitutes an Event of Loss; or
(h) a notice of levy is filed of record with respect to any or
all of the Collateral by the United States Government or any department,
agency or instrumentality thereof; provided, however, that the Borrower
shall have ten (10) days to remove such notice from record if, in the
Secured Party's opinion, such levy is curable; or
(i) any Guarantor for Borrower defaults in any obligation or
liability to Secured Party or any Guaranty obtained in connection with this
transaction is terminated or breached.
Section 4.02. Remedies Upon Default. Upon the occurrence of an
Event of Default, the Secured Party may, at its election, and without
notice and without demand, do any one or more of the following to the
fullest extent permitted by Law, all of which are authorized by the
Borrower:
(a) Declare all of the Obligations immediately due and payable
upon which declaration such Obligations shall be accelerated and
immediately due and payable;
(b) Take possession, by its agents or otherwise, of the
Collateral wherever found, with or without notice of process of law, and
hold, store and/or use, operate, manage and control the Collateral, and
collect and receive all Proceeds, rents, revenues, issues and profits of
the Collateral and every part thereof;
(c) Grant extensions and compromise claims with respect to the
Collateral, and settle claims with respect to the Collateral for less than
face value on commercially reasonable terms, all without prior notice to
the Borrower;
(d) Retain the Collateral in full satisfaction of the Obligations
secured thereby as permitted by the Uniform Commercial Code in effect in
the applicable jurisdiction, or sell the Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for
cash or on terms, in such manner and such places as is commercially
reasonable.
(e) All costs and expenses incurred by the Secured Party in
connection with the enforcement and/or exercise of any of its rights or
remedies herein shall be immediately payable by the Borrower, upon demand,
and shall constitute Secured Party Expenses hereunder, whether or not suit
is commenced;
(f) With or without taking possession of the Collateral, take
legal proceedings for:
(i) The specific performance of any covenant or
agreement contained herein, or the execution of any right or
power herein granted;
(ii) Foreclosure hereunder;
(iii) The sale, under the judgment or decree of any
court of competent jurisdiction, of all or any part of the
Collateral;
(iv) The appointment of a receiver or receivers of all
or part of the Collateral pending any foreclosure hereunder or
the sale of all of the Collateral, by any court of competent
jurisdiction or under executory or other legal process;
(v) The recovery of the unpaid balance of the
Obligations; or
(vi) The enforcement of any other appropriate remedy,
whether under this Agreement or available at law or in equity, or
otherwise.
(g) Exercise any and all other rights and remedies of a secured
party under the Uniform Commercial Code in the applicable jurisdictions.
(h) Upon the occurrence at any time of an Event of Default and
during its continuance under this Agreement, the Secured Party shall have
the right to declare, by notice to the Borrower the outstanding principal
of the Note and all other amounts otherwise due and owing to the Secured
Party under this Agreement or any of the other Financing Documents to be
immediately due and payable, whereupon the same, together with interest
thereon and all additional amounts as may be necessary to compensate the
Secured Party for any loss (including any loss or expense incurred in
liquidation or employing fixed deposits acquired from third parties to
maintain the Note as scheduled) and any expense (including the expense of
any sale, the expense of any taking of property, attorneys' fees, court
costs and other expenses or advances made or incurred by the Secured Party
in the protection of rights or the pursuance of remedies under this
Agreement or any of the Financing Documents) accrued to the date of
declaration shall become and be immediately due and payable, without
presentment, demand, protest or notice of any kind, all of which are hereby
waived, and the Borrower agrees that upon such declaration they will
immediately pay the same to the Secured Party.
(i) The Secured Party may, to the extent permitted by applicable
Law, bring suit at law, in equity, and/or other appropriate proceedings,
whether for the specific performance or observance or otherwise of any
terms or conditions contained in this Agreement or any other Financing
Documents, or for an injunction against the violation of any power granted
hereby or thereby, or by law to recover judgment for any and all amounts
due under the Note, this Agreement or any of the Financing Documents.
After payment in full of all amounts owed under this Security
Agreement and the Financing Documents, any excess amounts received by
Secured Party will be returned to Borrower or deposited on behalf of
Borrower in a court of competent jurisdiction.
Section 4.03. Waiver. The Borrower waives, to the extent
permitted by Law, any right it may have to a hearing prior to the
disposition of any of the Collateral by the Secured Party following the
occurrence of an Event of Default, or prior to the exercise of the Secured
Party's right of set-off as herein provided.
Section 4.04. Application of Proceeds. The proceeds of any
disposition of the Collateral, including any remarketing of the Collateral,
the net earnings of any lease thereof, or other agreement relating to the
use of the Collateral, and any amounts received as a result of the exercise
of any of the rights, powers and remedies of the Secured Party herein
granted, including the right to collect the proceeds of any insurance
received on account of the Collateral (the "Default Proceeds"), shall be
available for application and shall be applied as follows:
(i) First, to the repayment of all the Secured Party
Expenses.
(ii) Second, to the repayment of all other Obligations
of the Borrower to the Secured Party in such order as the Secured
Party shall elect.
(iii) Third, to the Borrower or as any court of
competent jurisdiction may otherwise direct.
Section 4.05. Termination. If all of the Obligations shall be
fully paid, performed and satisfied, including all payments and
performances, agreements and covenants due the Secured Party under the Note
and the other Financing Documents, then the security interest and lien of
the Secured Party in the Collateral shall thereupon terminate. In any such
case, the Secured Party shall, upon the request of the Borrower, execute
and deliver to the Borrower proper instruments acknowledging the
termination of the security interest.
Section 4.06. Remedies Cumulative. Each and every power and
remedy herein specifically given to the Secured Party or otherwise in this
Agreement or any of the Financing Documents shall be cumulative and shall
be in addition to any other power and remedy herein specifically given or
now or hereafter existing at law, in equity, or by statute. The Secured
Party may waive any Event of Default by written notice to that effect to
the Borrower but no such waiver shall extend to or affect any subsequent or
other Event of Default or impair any rights or remedies consequent thereon.
Section 4.07. Construction, Applicable Law; Jurisdiction. THIS
AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO
BE PERFORMED ENTIRELY WITHIN SUCH STATE WITHOUT REGARD TO CONFLICT OF LAWS
PRINCIPLES. The Borrower hereby irrevocably submits to and accepts with
regard to any such action or proceeding, for itself and in respect of its
assets, generally and unconditionally, the jurisdiction of any court of the
State of New York or any court of the United States located in New York,
New York.
ARTICLE V
MISCELLANEOUS PROVISIONS
------------------------
Section 5.01. Successors and Assigns. All of the covenants,
promises, stipulations and agreements contained herein shall bind each
party and its successors and assigns, and shall inure to the benefit of the
other party and its respective successors and permitted assigns, except
that the Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of the Secured Party. Secured
Party shall not assign any of its rights under this Agreement without the
prior written consent of the Borrower for 12 months from the date hereof.
Section 5.02. Entire Agreement. This Agreement, together with the
Schedule and the other Financing Documents referred to herein, constitute
the entire understanding between the parties with respect to the subject
matter hereof. All prior agreements, understandings, representations,
warranties and negotiations, if any, are merged into this Agreement, and
this Agreement is the entire agreement between the Borrower and the Secured
Party relating to the subject matter hereof. This Agreement cannot be
changed or terminated orally, but only by a instrument in writing signed by
the Borrower and the Secured Party.
Section 5.03. Notices. All notices provided for herein shall be
in writing and shall be deemed to have been given when delivered
personally, when telexed or telecopied, or if deposited in the United
States mail, when received addressed as follows:
if to the Borrower, at:
Gulfstream Aerospace Corporation
500 Gulfstream Road
Savannah, Georgia 31402-2206
Attention: Robert Williams, Treasurer
Telecopier: 912-965-3756
if to the Secured Party, at:
The CIT Group/Equipment Financing, Inc.
1540 Fountainhead Parkway
Tempe, Arizona 85282
Attention: Vice President, Credit
Telecopier: (602) 858-1496
with copy to:
The CIT Group/Equipment Financing, Inc.
650 CIT Drive
Livingston, New Jersey 07039
Attention: Chief Credit Officer
Telecopier: (201) 740-5005
Section 5.04. Continuing Lien and Security Interests; Transfer.
This Agreement shall create a continuing lien and security interest in the
Collateral and shall (i) remain in full force and effect until payment and
performance in full of all of the Obligations, (ii) be binding upon the
Borrower, its successors and assigns, and (iii) inure, together with the
rights and remedies of the Secured Party hereunder, to the benefit of the
Secured Party, and its respective successors, transferees and assigns.
Section 5.05. Counterparts and Dating. This Agreement may be
executed in two or more counterparts, each of which shall constitute an
original, but all of which, when taken together, shall constitute but one
instrument. Although this Agreement is dated as of the date first above
written for convenience, the actual dates of execution hereof are the dates
indicated below the signatures of the parties hereto and this Agreement
shall be effective on the latest of such dates.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Security
Agreement to be executed and delivered as of the day and year set forth
below.
GULFSTREAM AEROSPACE CORPORATION
Borrower
By: /s/ Ira Berman
--------------------------------------
Name:
Title: Senior Vice President and
General Counsel
Date: November 30, 1998
THE CIT GROUP/EQUIPMENT FINANCING, INC.
Secured Party
By: /s/ Mark Saylor
-------------------------------------
Name:
Title: Senior Vice President
Date: November 30, 1998
EXHIBIT 10.50
FORM OF GUARANTY USED FOR EACH OF THE SECURED PROMISSORY NOTES FILED AS
EXHIBITS 10.46, 10.47 AND 10.48
GUARANTY
Single Transaction
TO: THE CIT GROUP/EQUIPMENT FINANCING, INC., Secured Party
This guaranty is being given in connection with Security Agreement and
Promissory Note dated November 30, 1998, between
GULFSTREAM AEROSPACE CORPORATION, a Georgia corporation, debtor, and, THE
CIT GROUP/EQUIPMENT FINANCING, INC., secured party.
Each of us severally requests you to enter into the foregoing Security
Agreement and to induce you to do so and in consideration thereof, each of
us, as a primary obligor, jointly, severally and unconditionally guarantees
to you that debtor will fully and promptly pay and perform all its
obligations to you under the Security Agreement, whether direct or
indirect, joint or several, absolute or contingent, secured or unsecured,
matured or unmatured, irrespective of any invalidity of unenforceability of
any such obligation or the insufficiency, invalidity or unenforceability of
any security therefor, and agrees without your first having to proceed
against debtor or to liquidate any security therefor, to pay on demand all
sums due and to become due to you from debtor and all losses, costs,
attorneys' fees or expenses which may be suffered by you by reason of
debtor's default or default of any of the undersigned and agrees to be
bound by and on demand to pay any deficiency established by a sale of the
security held, with or without notice to us. This guaranty is an
unconditional guarantee of payment and performance. No guarantor shall be
released or discharged, either in whole or in part, by your failure or
delay to perfect or continue the perfection of any security interest in any
property which secures the obligations of debtor to you under the foregoing
Security Agreement, or to protect the property covered by such security
interest.
No termination shall be effective except by notice sent to you by certified
mail return receipt requested naming a termination date effective not less
than 90 days after the receipt of such notice by you; or effective as to
any of us who has not given such notice; or affect any transaction effected
prior to the effective date of termination.
Each of us waives: notice of acceptance hereof; presentment, demand,
protect and notice of nonpayment or protest as to the foregoing Security
Agreement; any and all rights of subrogation, reimbursement, indemnity,
exoneration, contribution or any other claim which any of us may now or
hereafter have against the debtor or any other person directly or
contingently liable for the obligations guaranteed hereunder, or against or
with respect to the debtor's property (including, without limitation,
property collateralizing its obligations to you), arising from the
existence or performance of this guaranty; all setoffs and counterclaims;
any and all defenses based on suretyship or any other applicable law,
including without limitation all rights and defenses arising out of (i) an
election of remedies by you even though that election of remedies may have
destroyed rights of subrogation and reimbursement against the debtor by
operation of law or otherwise, (ii) protections afforded to the debtor
pursuant to antideficiency or similar laws limiting or discharging the
debtor's obligations to you, (iii) the invalidity or unenforceability of
this guaranty, (iv) the failure to notify any of us of the disposition of
any property securing the obligations of the debtor, (v) the commercial
reasonableness of such disposition or the impairment, however caused, of
the value of such property, and (vi) any duty on your part (should such
duty exist) to disclose to any of us any matter, fact or thing related to
the business operations or condition (financial or otherwise) of debtor or
its affiliates or property, whether now or hereafter known by you.
You may at any time without our consent, without notice to us and without
affecting or impairing the obligation of any of us hereunder, do any of the
following:
(a) renew, extend, modify (including changes in interest rates), release
or discharge any obligations of debtor or co-guarantors;
(b) accept partial payments of debtor's obligations under the Security
Agreement;
(c) accept new or additional documents, instruments or agreements
relating to or in substitution of debtor's obligations under said
Security Agreement;
(d) settle, release (by operation of law or otherwise), compound,
compromise, collect or liquidate any of debtor's obligations under
the Security Agreement and the security therefor in any manner;
(e) consent to the transfer or return of the security, and take and hold
additional security or guaranties for debtor's obligations under the
Security Agreement;
(f) amend, exchange, release or waive any security or guaranty; or
(g) bid and purchase at any sale of the security and apply any proceeds
or security, and direct the order and manner of sale.
If a claim is made upon you at any time for repayment or recovery of any
amount(s) or other value received by you, from any source, in payment of or
on account of any of the obligations of debtor guaranteed hereunder and you
repay or otherwise become liable for all or any part of such claim by
reason of:
(a) any judgment, decree or order of any court or administrative
body having competent jurisdiction; or
(b) any settlement or compromise of any such claim,
we shall remain jointly and severally liable to you hereunder for the
amount so repaid or for which you are otherwise liable to the same extent
as if such amount(s) had never been received by you, notwithstanding any
termination hereof or the cancellation of any note or other agreement
evidencing any of the obligations of debtor. This guaranty shall bind our
respective heirs, administrators, representatives, successors, and assigns,
and shall inure to your successors and assigns, including, but not limited
to, any party to whom you may assign the Security Agreement, we hereby
waiving notice of any such assignment. All of your rights are cumulative
and not alternative.
This Guaranty is to be interpreted and the rights of the parties governed
by the laws of the State of New York.
By execution of this guaranty each guarantor hereunder agrees to waive all
rights to trial by jury in any action, proceeding, or counterclaim on any
matter whatsoever arising out of, in connection with, or related to this
guaranty.
Executed November 30, 1998.
-----------------
CORPORATE GUARANTORS
GULFSTREAM AEROSPACE CORPORATION, a Delaware Corporation
- ------------------------------------------------------------------
Name of Corporation
- ------------------------------------------------------------------
City State Zip code
/s/ Chris A. Davis Title EVP & CFO
- ------------------------------------------------------------------
Have signed by President, Vice President or Treasurer.
CORPORATE SEAL
/s/ Ira Berman
- ------------------------------------------------------------------
Attest Secretary
GULFSTREAM DELAWARE CORPORATION, a Delaware corporation
- ------------------------------------------------------------------
Name of Corporation
- ------------------------------------------------------------------
City State Zip Code
By /s/ Chris A. Davis Title EVP & CFO
--------------------------------------------- ----------
Have signed by President, Vice President or Treasurer
CORPORATE SEAL
/s/ Ira Berman
- ------------------------------------------------------------------
Attest Secretary
GULFSTREAM [Registered Trademark]
Breaking Records
Delivering Results
[GRAPHIC OMITTED]
[IMAGE OF GULFSTREAM V]
1998 Annual Report
<PAGE>
BREAKING RECORDS, DELIVERING RESULTS
1998 was a year of outstanding performance for Gulfstream Aerospace
Corporation. The Company achieved a record 90 new aircraft orders plus 18
options, closed the year with a backlog* comprised of 135 Gulfstream IV-SP
and Gulfstream V aircraft valued at approximately $4.3 billion, including
options, grew earnings per share nearly 80 percent to $3.00 and received
aviation's most prestigious award, the Robert J. Collier Trophy for
aeronautical excellence. Through the focused execution of our business plan
and by adeptly responding to a dynamic competitive environment, Gulfstream
solidified its leadership in business aviation and firmly positioned the
Company for future growth. Looking ahead, Gulfstream is poised to continue
to deliver exceptional shareholder value well into the future.
* Reported financial contract backlog is comprised of 106 aircraft valued
at $3.3 billion. This excludes 18 options and 11 aircraft under contract
but not yet delivered into the Middle East Shares fractional ownership
program. Reported new orders, excluding undelivered aircraft intended
for the Middle East Shares program, totaled 79.
<PAGE>
FINANCIAL HIGHLIGHTS
Year ended December 31,
==============================================================================
1998 1997 1996
==============================================================================
(Dollars in millions, except per
share amounts and units)
AIRCRAFT DELIVERIES 61 51 27
NET REVENUES $ 2,428.0 $ 1,903.5 $ 1,063.7
PRO FORMA FULLY TAXED EPS* $ 3.00 $ 1.68 $ 0.37
FINANCIAL CONTRACT BACKLOG** $ 3,301.9 $ 2,782.1 $ 3,104.0
CLOSING STOCK PRICE $ 53.25 $ 29.25 $ 24.13
* Diluted EPS, see Notes to the Consolidated Financial Statements.
** Excludes 18 options and 11 Middle East Shares aircraft valued at
approximately $1.0 billion.
[CHART OMITTED]
[BAR GRAPH]
AIRCRAFT DELIVERIES CLOSING STOCK PRICE
1996 27 1996 $24.13
1997 51 1997 $29.25
1998 61 1998 $53.25
NET REVENUES PRO FORMA FULLY TAXED EARNINGS PER SHARE
1996 $1,063.7 1996 $0.37
1997 $1,903.5 1997 $1.68
1998 $2,428.0 1998 $3.00
On the Front Cover
In 1998, the Gulfstream V continued to break aeronautical records and the
Company continued to achieve record-setting operating and financial
performance. Gulfstream has now contracted for 136 Gulfstream V aircraft,
well before the competing aircraft is in service.
TABLE OF CONTENTS
Letter to Shareholders 2
Delivering Results, Defining the Future 5
Building a Diversified Product Portfolio to Meet Market Needs 6
Technological Leadership Through Quality, Performance and Reliability 9
Delivering Value-Added Services to Customers Worldwide 12
Sound Strategies, Expert Execution 16
Board of Directors 18
Financial Review 19
<PAGE>
DEAR SHAREHOLDERS
1998 was another record year for Gulfstream. We exceeded all of our key
operating and financial goals and reported the largest number of new
aircraft orders in our history, leaving us with a year-end backlog,
including options, of 135 aircraft valued at $4.3 billion. Our successful
production expansion and strategic acquisition of K-C Aviation positions
Gulfstream for increased revenues and earnings into the new millennium. We
have never been more confident of our ability to sustain profitable growth
and create ongoing shareholder value.
As the Gulfstream V continued to break aeronautical records, we were
achieving record-setting operational and financial performance. Revenues
increased 28 percent to $2.4 billion while fully taxed earnings per share
increased nearly 80 percent to $3.00. We produced and delivered 61
production aircraft, outfitted 54 aircraft and grew our service business by
40 percent.
We used our substantial cash flow to make strategic, value-creating
investments and moved decisively to expand our product portfolio. The
acquisition of the leading independent large cabin completions and service
provider, K-C Aviation, added three facilities and a talented workforce to
support the Company's growth in interior outfitting and significantly
expand our aircraft services business. This acquisition is accretive to
1999 earnings by approximately $0.10 per share. Early in the year, the
Company also announced a $200 million stock repurchase program and
proceeded throughout the year to repurchase 5.5 million shares at an
average price of $35.81.
Demand for our products was stronger than ever as we successfully continued
to expand our markets. The Gulfstream V's exceptional performance led to 40
firm aircraft orders, plus 15 options -- exceeding the number recorded in
any year since the aircraft's introduction. Executive Jet ordered 22
Gulfstream Vs (including 12 options) for introduction into the North
American Shares program with delivery of aircraft beginning in the year
2000. In addition, this fine product continued to make significant inroads
in capturing the government and special mission market. With significant
first-to-market advantage, we have now contracted for 136 Gulfstream Vs
before the competition has delivered its first aircraft into service.
The Gulfstream IV-SP continues to be the most popular large cabin business
jet ever. We took orders for 50 aircraft, plus three options, including a
successful expansion of the Gulfstream Shares[Registered Trademark] program
into the Middle East with a 12 aircraft contract. Along with the Gulfstream
Vs, Executive Jet ordered 14 Gulfstream IV-SPs for the rapidly expanding
North American Shares program, resulting in the largest aircraft order in
the history of business aviation.
In 1998, we created another market expansion opportunity with the
introduction of Gulfstream LeaseSM through a venture with GATX Capital.
Once again, Gulfstream is first-to-market with a short-term operating lease
product for both the Gulfstream IV-SP and the Gulfstream V. The initial
program order was for six aircraft -- five Gulfstream Vs and one Gulfstream
IV-SP -- and includes options for three more of each.
The Company also made significant progress toward our goal to penetrate the
U.S. and international government special mission market with the
Gulfstream V. The United States Air Force took delivery of the first two
completed Gulfstream Vs under the VC-X program and ordered two additional
Gulfstream Vs. The U.S. Air Force Contract
<PAGE>
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[IMAGE OF GULFSTREAM OFFICERS]
GULFSTREAM'S OFFICE OF THE CHIEF EXECUTIVE INCLUDES CHRIS A. DAVIS,
THEODORE J. FORSTMANN AND W. W. BOISTURE, JR. (LEFT TO RIGHT)
includes options for up to three more Gulfstream Vs. The government of
Kuwait also ordered three Gulfstream Vs. We continue to expect to see more
opportunities in government and special mission applications for this great
aircraft.
Our two fine aircraft brought in 90 new orders, plus 18 options, in 1998
leaving Gulfstream with 135 aircraft under contract valued at $4.3 billion.
Sixty percent of these orders, including options, will deliver from 2000
through 2007. Seventy-six percent of the backlog is in North America,
predominantly with Fortune 500 companies and the Gulfstream Shares Program.
The remaining 24 percent is international and, with the exception of the
Middle East Shares Program, is spread throughout the world with no
significant portion in any single economic region.
Gulfstream continued to profitably execute its plan to increase production
to meet strong customer demand. In 1998, deliveries of new aircraft
increased 20 percent to 61 aircraft and we delivered 54 outfitted aircraft
into service. Gross margins improved to 23.6 percent versus 20.0 percent in
the prior year as we implemented strategies to improve processes and reduce
cycle time.
1998 also saw significant growth in Aircraft Services with the strategic
addition of facilities in Dallas, Texas, Appleton, Wisconsin and Westfield,
Massachusetts. Revenues for this part of our business increased 40 percent
and we now have the capability to service non-Gulfstream mid-size and large
cabin aircraft. In addition, this business also includes engine and
auxiliary power unit repair and overhaul. This provides us with future
growth opportunities, as well as the ability to provide full-service
maintenance to customers with multi-aircraft fleets.
In December 1998, we restructured our management team to better meet the
needs of Gulfstream's next phase of growth. The newly created Office of the
Chief Executive and Ted Forstmann's assumption of the role of Chief
Executive Officer reinforces our personal commitments to Gulfstream and
positions us to take full advantage of Gulfstream's still enormous growth
opportunities. Over the past five years, we have built a strong and deep
management team, which has nearly tripled the size of our business. The
realignment of the organization and the promotions of several of these key
leaders, who have the talent and drive to further expand our market in the
years ahead, supports our goal of continuing double-digit earnings growth
going forward.
As we enter 1999, the outlook remains excellent with an expected increase
in earnings per share of 25 percent. We plan to deliver 65 new aircraft and
complete the ramp-up of completions to match the level of production in the
future. The Company ended 1998 at the required production rate and level of
quality to meet this delivery schedule. We are confident that the progress
we have made on production efficiencies will continue and that we have the
right team in place to drive those same kind of efficiencies into the
completions process.
<PAGE>
Including our three new service locations, service revenues are expected to
grow at least 20 percent in 1999. The Company now commands approximately 75
percent market share in Gulfstream maintenance services and has the
opportunity to grow share in the non-Gulfstream product lines.
Profitability in this part of our business is forecasted to improve as the
new locations realize the cost advantage of volume purchases from suppliers
and the full benefit of the integration is achieved.
Looking ahead, the Company expects at least 15 percent earnings growth in
2000. Much of this earnings growth will be driven by continuing
manufacturing improvements in both completions and production, as well as
favorable prices on aircraft currently in the backlog.
We will continue to invest for future growth and creation of shareholder
value. On March 1, 1999, the Company announced an additional $200 million
share repurchase program. This new program reflects our continued strong
confidence in Gulfstream's current performance and future growth prospects.
In addition, the Company has plans to invest $30 million in capital
equipment and business systems and $15 million in research and development
in 1999 to support the revenue and earnings projections at our eight
locations and to keep our products at the forefront of technology.
1998 was an exceptional year for Gulfstream, one in which we exceeded our
goals in every area of our business and produced significant shareholder
return. We are proud of our accomplishments and our 7,700 employees who
contributed to Gulfstream's success. The outlook for Gulfstream remains
strong and we are confident of our ability to successfully execute our
plans for growth.
We are committed to continuing to set the standard for business aviation
through excellence in products, service and financial return.
/s/ Theodore J. Forstmann
THEODORE J. FORSTMANN
Chairman of the Board and Chief Executive Officer
Chairman, Office of the Chief Executive
/s/ W.W. Boisture, Jr.
W.W. BOISTURE, JR.
President and Chief Operating Officer
Member of the Office of the Chief Executive
/s/ Chris A. Davis
CHRIS A. DAVIS
Executive Vice President and
Chief Financial and Administrative Officer
Member of the Office of the Chief Executive
<PAGE>
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[IMAGE OF AIRCRAFT PRODUCTION)
In 1998, Gulfstream produced 61 aircraft, up 20 percent over 1997.
DELIVERING RESULTS, DEFINING THE FUTURE
Gulfstream again delivered more than it promised in 1998. Just as
importantly, we took steps to define our future and generate exceptional
earnings growth for 1999 and beyond. We achieved record sales and earnings,
aggressively expanded distribution channels for our products, significantly
expanded our production capacity and service market share through the
acquisition of K-C Aviation, realigned our resources to more effectively
capitalize on our strengths and expanded our portfolio of services to meet
our customers' needs and broaden our sources of revenue. Gulfstream
continues to set the standard for business aviation and is well positioned
to continue our leadership position well into the future.
<PAGE>
BUILDING A DIVERSIFIED PRODUCT PORTFOLIO TO MEET MARKET NEEDS
From Sydney to St. Louis, Gulfstream is known for setting the standard in
business aviation. We sustain our reputation for excellence by offering the
highest quality, most reliable business aircraft to the most discerning
customers -- national and multinational corporations, governments and
private individuals. More than 900 Gulfstream aircraft are in service today
- -- connecting cities and people and making commerce prosper in 50 countries
on six continents. Our growing and diverse customer base spans the spectrum
of industry -- from household names to emerging enterprises. Two-thirds of
all U.S. Fortune 500 companies operating large cabin business jets --
including all of the top ten -- and 34 governments operate Gulfstream
aircraft. In addition, more than half of all Gulfstream buyers are repeat
customers -- a distinct advantage in today's competitive market. Overall,
Gulfstream leads the large cabin category of business jets with
approximately 60 percent market share.
A number of factors fueled the strong demand for the Gulfstream IV-SP and
the ultra-long range Gulfstream V. Foremost is the fact that Gulfstream
aircraft are proven to be the world's most technologically advanced,
reliable and safe business aircraft. Customers look to our aircraft to
provide a level of safety, security and convenience unavailable on
commercial airlines. And they view our products as an indispensable
business tool that offers an opportunity to gain an advantage in a highly
competitive worldwide market. Independent surveys taken in 1997 found that,
among corporations operating business aircraft, 100 percent of senior
management, more than 60 percent of middle managers and over 40 percent of
sales professionals use these products in the normal course of business. In
fact, corporate jets are considered a significantly more productive work
environment than commercial airlines.
In 1998, we aggressively took steps to capitalize on our leadership
position, leverage the Gulfstream brand, expand access to our markets and
meet our customers' changing needs. By being first to market with product,
service and financing innovations, we now offer more customers than ever
the opportunity to experience the value of the Gulfstream brand with
transportation solutions provided by Gulfstream products.
Gulfstream Shares is the industry's most successful large cabin fractional
ownership program with 80 aircraft now under contract. In 1998, we expanded
the program to include the Gulfstream V aircraft and introduced Gulfstream
IV-SP fractional ownership into the Middle East. More than 100 new
customers have joined the Gulfstream family as part of the Shares program
since its launch in 1995.
Introduced in 1998, Gulfstream Lease is the first short-term operating
lease program available in business aviation. By requiring no capital
investment and offering lease terms ranging from two to five years at
competitive rates, Gulfstream Lease offers a flexible new approach to
aircraft operation.
Gulfstream Financial Services Corporation (GFSC) offers flexible financing
solutions tailored to individual customer needs. Through private label
relationships with financing providers, GFSC has financed over $400 million
since 1996.
To provide service for Gulfstream operators, the Company operates a network
of service centers, authorized warranty providers and parts depots in eight
countries, as well as worldwide field service representatives. To assist
customers in fulfilling their charter needs, Gulfstream introduced
Gulfstream Charter ServicesSM in 1998. Gulfstream also now offers
Gulfstream Management ServicesSM which provides comprehensive flight crew,
hangar and aircraft maintenance management for customers.
As our products, services and fleet of Gulfstream aircraft have grown, we
have made strategic investments to support this growth. We used our strong
cash flow to acquire K-C Aviation, the industry's leading independent
provider of aircraft completions services, with facilities in Appleton,
Wisconsin, Dallas, Texas and Westfield, Massachusetts. This $250 million
acquisition gives Gulfstream two critical competitive advantages. First, it
offers the opportunity to increase the number of aircraft interiors we
complete to match production levels and meet customer demand. Second, it
expands our service and maintenance capacity and positions the Company to
grow our service revenues for both Gulfstream and other mid-size and large
cabin aircraft.
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[IMAGE OF RUNWAY]
<PAGE>
[GRAPHICS OMITTED]
[IMAGES OF GULFSTREAM IV-SP AND V]
Gulfstream now offers multiple opportunities for customers to fly in the
Gulfstream IV-SP, the world's best-selling, large cabin business jet, and
the Gulfstream V, the world's first ultra-long range business aircraft.
Customers can now benefit from these fine aircraft through the Gulfstream
Shares fractional ownership program, Gulfstream Lease short-term operating
leases or direct purchase of an entire aircraft.
<PAGE>
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[IMAGE OF TEST FACILITY AND TEST FACILITY EMPLOYEE]
Gulfstream's Integrated Test Facility ensures high quality aircraft systems
integration in the manufacturing process.
<PAGE>
TECHNOLOGICAL LEADERSHIP THROUGH QUALITY, PERFORMANCE AND RELIABILITY
THE GULFSTREAM V
The Gulfstream V, the world's first ultra-long range business aircraft,
continued to exceed expectations in 1998. Orders for this revolutionary
aircraft totaled 55 in 1998, including 15 options. By year-end, we had sold
136 Gulfstream Vs, a very powerful start for a new aircraft certified by
the Federal Aviation Administration less than two years ago. Early in the
year, the Gulfstream V was recognized with American aviation's greatest
honor -- the Robert J. Collier Trophy. Also in 1998, the record flight of
the Gulfstream V from Washington, D.C. to Dubai, United Arab Emirates was
recognized among the "Ten Most Memorable Flights in 1997".
Like all preceding Gulfstream aircraft, the Gulfstream V represents the
standard of performance, reliability, safety and comfort against which
other aircraft are measured. Cruising effortlessly at speeds up to Mach
0.885 or nearly 600 miles per hour, the Gulfstream V can fly 6,500 nautical
miles at 51,000 feet -- high above weather and commercial aircraft traffic.
While renowned for its ultra-long range capabilities, the Gulfstream V is
equally well suited to short-range missions -- New York to Chicago, Paris to
Milan, Hong Kong to Bejing. With a proven ability to take off and land at
more airports than any aircraft in its class, the Gulfstream V offers its
owners unsurpassed flexibility. In every aspect, this record-setting
aircraft continues to exceed customer expectations and outperform the
competition.
The Gulfstream V also offers unparalleled versatility in interior
furnishings and equipment, as well as expanded baggage capacity. It is the
only aircraft in its class to provide 100 percent fresh air in the cabin
and maintain a constant 6,000 foot cabin pressure -- effectively minimizing
the wear and tear effects common in long distance commercial airline
travel.
The Gulfstream V's flexible operating capability, altitude, high speed, and
ultra-long range has led to its rapid acceptance as a special mission
aircraft for government and military use. To date, the United States
Government has ordered four Gulfstream V aircraft and holds options for up
to three additional aircraft.
In late 1998, two Gulfstream V aircraft entered service with the United
States Air Force (USAF) 89th Airlift Wing, also known as the Presidential
Wing. Designated VC-X or C-37A, these specially outfitted Gulfstream Vs
provide worldwide transportation for senior government officials and
dignitaries. Also in 1998, the U.S. Army's Priority Air Transport Squadron
ordered a Gulfstream V for outfitted delivery in the fourth quarter of
1999. In early 1999, the USAF ordered an additional aircraft for use by the
Commanders In Chief of the Unified Commands. Gulfstream will provide
technical and logistic support, spare parts and overhaul services to the
Department of Defense in support of these aircraft.
Outside the United States, the Gulfstream V is also recognized as an
exceptional special mission aircraft. In 1998, the Government of Kuwait
purchased three Gulfstream V aircraft to provide worldwide airlift and
unprecedented ultra-long range medical evacuation capabilities.
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[IMAGE OF AIRCRAFT FUSELAGE IN MANUFACTURING]
<PAGE>
THE GULFSTREAM IV-SP
In 1998, the Gulfstream IV-SP further solidified its leadership position in
the large cabin, long range business aircraft market segment. Fifty-three
aircraft were ordered in 1998, including three options, bringing the total
number of Gulfstream IV/IV-SP aircraft sold to 423. This remarkable
aircraft continues to outsell its nearest competitor by a two-to-one
margin.
The continued strong demand for the Gulfstream IV-SP attests to its
extraordinary ability to perform on demand, at unmatched levels of safety
and comfort. Its 4,220 nautical mile range is enough to connect Chicago and
Madrid, London and Dubai, Hong Kong and Perth, and Buenos Aires and Cape
Town. Like the Gulfstream V, the Gulfstream IV-SP flies high above
commercial air traffic at 45,000 feet and offers a 100 percent fresh air
environmental control system with a constant cabin pressure of 6,500 feet,
well below the 8,000 foot cabin pressure of commercial airliners travelling
at 35,000 feet.
Its record of performance, reliability and flexibility also makes the
Gulfstream IV-SP a preferred platform for special purpose missions ranging
from medical evacuation, scientific and weather research and military
surveillance to V.I.P. transport. Nearly 50 Gulfstream IV/IV-SP aircraft
support government and military needs in 21 countries around the world.
Looking ahead, we expect the Gulfstream IV-SP to remain the leader in large
cabin, long range business aviation. The aircraft's digital design will
readily incorporate new advances in avionics, electronics and
telecommunications while its airframe and engine combination offers
unparalleled performance.
CUSTOMIZED INTERIORS
Gulfstream aircraft appeal to a wide spectrum of customers because they
combine exceptional technical performance with flexible, high quality
interior designs. Today, Gulfstream has achieved its goal of providing
interiors for every aircraft it produces. Gulfstream aircraft can be
outfitted as a virtual office just as readily as an airborne hospital
emergency room with state-of-the-art life support equipment.
Characteristics like these provide a significant advantage for Gulfstream
customers.
To increase completions capacity consistent with the Company's accelerated
production plan, Gulfstream acquired K-C Aviation, the industry's leading
independent provider of aircraft completions and service, from the
Kimberly-Clark Corporation in August, 1998 for approximately $250 million.
This strategic acquisition gave Gulfstream additional facilities and
equipment for interior completions, as well as an experienced and talented
team of 1,200 employees. Gulfstream now completes aircraft interiors at
five locations -- Appleton, Wisconsin, Brunswick, Georgia, Dallas, Texas,
Long Beach, California and Savannah, Georgia.
To help drive cost efficiencies while continuing to provide the industry's
highest quality completions, Gulfstream is aggressively integrating the
best practices across all locations into the overall interior design and
production process.
In 1998, Gulfstream also opened a new $8.5 million, 60,000 square foot,
state-of-the-art paint facility at its Long Beach, California location.
Combined with paint facilities at Appleton, Dallas and Savannah, Gulfstream
is positioned to increase the number of aircraft completed per year and
attract large maintenance and interior refurbishment jobs.
GULFSTREAM'S TEAM OF TALENTED AND DEDICATED CRAFTSPEOPLE PRODUCE THE
INDUSTRY'S HIGHEST QUALITY CUSTOM INTERIORS.
<PAGE>
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[IMAGES OF AIRCRAFT INTERIORS AND COMPLETION EMPLOYEES]
<PAGE>
DELIVERING VALUE-ADDED SERVICES TO CUSTOMERS WORLDWIDE
Gulfstream has taken significant steps to meet the changing needs of its
customers and expand the market for its products. The result is a broad
portfolio of products and services that leverage the brand and
strategically position the Company to be the first choice provider of
transportation solutions for customers worldwide.
SUCCESSFULLY EXPANDING PRODUCT OFFERINGS
Gulfstream has expanded the market for the Gulfstream IV-SP and Gulfstream
V aircraft by creating new distribution channels. Innovative programs such
as Gulfstream Shares and Gulfstream Lease offer customers an opportunity to
gain the advantage of a Gulfstream without the investment required for full
aircraft purchase.
Gulfstream Shares, a program offering fractional ownership interests in
Gulfstream aircraft, is a key contributor to Gulfstream's growth.
Introduced in 1995 in conjunction with Executive Jet (EJ), Gulfstream
Shares offers the opportunity to own one-eighth, one-quarter and one-half
shares in Gulfstream aircraft. To date, more than 100 owners -- including
many first-time aircraft operators -- have joined the Gulfstream family
through this program. Nearly half of Gulfstream Shares customers did not
previously own an aircraft and over 85 percent have never owned a
Gulfstream. Eighteen Gulfstream IV-SPs are currently in service in the
Shares program.
The Gulfstream Shares program grew substantially in 1998. In October, EJ
placed the largest order in business aviation's history for 14 Gulfstream
IV-SP and 10 Gulfstream V aircraft plus options for 12 additional
Gulfstream Vs. Valued at approximately $1.3 billion including a maintenance
services arrangement, this agreement expanded the Gulfstream IV-SP program
and added the ultra-long range Gulfstream V in North America. Now customers
that require the extended range and high-performance capabilities of the
Gulfstream V for only a portion of their transportation needs can
cost-effectively acquire a share of this asset.
At the end of 1998, 68 aircraft valued at $2 billion, including the
options, were under contract with EJ for the Gulfstream Shares program in
North America. Deliveries of these aircraft extend through 2007.
1998 marked further success for the Gulfstream Shares concept as we
introduced a fractional ownership program into the Middle East with the
sale of 12 Gulfstream IV-SP aircraft valued at $335 million to a group of
Middle East investors. The first aircraft will go into operational service
late in the second quarter of 1999. Gulfstream will provide technical,
sales and marketing support while the operation of the fleet will be
managed by EJ. We continue to see future expansion opportunities for the
Gulfstream Shares program in other regions around the world.
In September 1998, we introduced Gulfstream Lease, the industry's first
short-term operating lease program. Created in conjunction with GATX
Capital, a diversified international financial services corporation,
Gulfstream Lease provides greater flexibility and ease of entry to
customers by eliminating the up-front capital investment and offering lease
terms from two to five years at competitive rates. Emerging growth
companies, enterprises with short-term projects such as manufacturing
expansion or the integration of an acquisition, companies with off-balance
sheet financing requirements or companies awaiting delivery of a new
Gulfstream aircraft may find this a valuable alternative to aircraft
ownership.
The newly formed Gulfstream GATX Leasing Company is owned 85 percent by
GATX Capital and 15 percent by Gulfstream. Gulfstream will provide sales,
marketing and aircraft maintenance services and GATX will provide account
management services for the program.
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[IMAGE OF AIRCRAFT]
<PAGE>
[GRAPHIC OMITTED]
[IMAGE OF AIRCRAFT, HANGAR AND MEETING]
In 1998, Gulfstream successfully expanded the Gulfstream Shares program to
include the Gulfstream V aircraft and the Middle East region.
<PAGE>
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[IMAGE OF AIRCRAFT ENGINE AND MECHANIC]
Gulfstream now offers service for Gulfstream aircraft at six North American
locations. The Company also services Hawker, Falcon and Challenger aircraft
at three locations: Appleton, Wisconsin, Dallas, Texas and Westfield,
Massachusetts.
<PAGE>
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[IMAGE OF PEOPLE]
To launch Gulfstream Lease, the venture signed contracts valued at more
than $400 million for five Gulfstream V, one Gulfstream IV-SP and options
for three Gulfstream V and three Gulfstream IV-SP aircraft. The first
aircraft will be delivered into service at the end of 1999.
24 HOURS-A-DAY CONVENIENCE FOR OUR CUSTOMERS
The purchase of a Gulfstream aircraft is the first step in building a
long-term relationship with our customer. The Company has service centers
in Appleton, Wisconsin, Brunswick, Georgia, Dallas, Texas, Long Beach,
California, Savannah, Georgia and Westfield, Massachusetts, as well as a
network of worldwide Gulfstream-authorized service warranty centers and
parts depots available to service aircraft maintenance needs. By focusing
on the customer and improving turn times, we have increased our market
share in service successfully over the past three years. Today, we service
three out of every four Gulfstream aircraft in operation. Revenues for
Gulfstream's Aircraft Services business increased 40 percent in 1998 to
$281.8 million, including the impact of the acquisition of the Appleton,
Dallas and Westfield facilities.
As the worldwide Gulfstream fleet continues to increase, Aircraft Services
provides important growth opportunities for the Company. The acquisition of
the Appleton, Dallas and Westfield facilities supports the expansion of
this strategic business and allows Gulfstream to offer convenient
coast-to-coast service in the United States. Gulfstream also will now
service Hawker, Falcon and Challenger business jets at the new locations,
an advantage for customers whose aircraft fleets include a variety of
aircraft models. The acquisition also strongly establishes the Gulfstream
name in the engine and auxiliary power unit service market. Over the longer
term, Gulfstream expects to use its expanded capacity to provide paint and
refurbishment services to mid-size and large cabin aircraft operators, an
important differentiating feature in attracting large maintenance
contracts.
To help customers manage maintenance costs, Gulfstream offers a
comprehensive, nose-to-tail maintenance program with guaranteed hourly
costs. Gulfstream ServiceCareSM covers virtually every part, component,
assembly and system on the aircraft for a ten-year period.
In 1998, Gulfstream introduced Gulfstream Charter Services to assist our
customers in chartering Gulfstream aircraft. Gulfstream Charter Services
monitors availability of Gulfstream aircraft for charter, ensuring that the
charter aircraft adhere to strict standards, are operated by a qualified
crew and reflect, as much as possible, personal preferences in comfort and
in-flight service.
Gulfstream Management Services simplifies aircraft ownership by offering
flight operations and maintenance services for Gulfstream customers.
Offered through an alliance with Chrysler Pentastar Aviation, a world
leader in aviation service and support, Gulfstream Management Services
provides crew, hangar facilities, dispatch scheduling and maintenance
management. It is the ideal solution for customers who want the benefits of
owning a Gulfstream without the accompanying complexities of fleet
management. It is also expected to appeal to customers leasing an aircraft
on a short-term basis through Gulfstream Lease.
<PAGE>
SOUND STRATEGIES, EXPERT EXECUTION
Five years ago, Gulfstream established a vision to "Set the Standard for
Business Aviation through Excellence in Products, Services and Financial
Return." Our strategy was clear -- to bring the Gulfstream V to market well
ahead of the competition, to capitalize on the success of the Gulfstream
IV-SP and to offer new products and services to meet our customers'
changing needs.
We have successfully executed our strategy and significantly grown
revenues and earnings while expanding our sources of revenue to provide
for future growth. By focusing on our core competencies, maintaining
technical leadership in our products and driving process improvements
across all business areas, we realized a nearly 80 percent increase in
earnings in 1998 to $3.00 per share and expect to grow earnings an
additional 25 percent in 1999 to $3.75 per share.
Gulfstream increased production from 27 aircraft in 1996 to 61 aircraft in
1998 and we expect to deliver 65 new aircraft in 1999. This production
increase was accomplished with a capital investment of approximately $35
million. In addition to our revenue growth, the increase in earnings has
been realized through cost productivity on Gulfstream IV-SP and Gulfstream
V coproduction. In 1998, the manufacturing hours to build the Gulfstream
IV-SP and the Gulfstream V were reduced by 14 percent and 27 percent,
respectively. We will continue to focus on driving cost efficiencies and
quality through process improvements developed by cross-functional teams
working together to meet our goals. We expect to see margin expansion going
forward as we apply this same approach to our completions and service
businesses.
We plan to invest $15 million annually in research and development over the
next several years to ensure that our products remain at the forefront of
technological advancement. These investments will be primarily focused on
the integration of useful technology into the Gulfstream IV-SP and the
Gulfstream V while seeking ways to continuously improve the reliability and
the cost of operations for these outstanding products.
We are also focused on sustaining a culture based on teamwork and
entrepreneurial spirit. We will continue to lead our employees in an
environment supported by these values:
o We take personal and professional pride in the integrity, quality
and safety of products and services we sell and provide to our
customers.
o We expect to treat each other and our customers with the greatest
respect.
o We work diligently, supportively and safely as "One Team."
o We are committed to achieving excellent business performance for
our shareowners.
o We are committed to sustaining an action-oriented environment of
continuous improvement, risk taking and personal integrity.
As we look forward, Gulfstream is well positioned for continued growth with
a broader set of product offerings -- the Gulfstream IV-SP, the Gulfstream
V, Gulfstream Shares, Gulfstream Lease, Gulfstream Worldwide Service,
Gulfstream Financial Services, Gulfstream Pre-Owned Aircraft, Gulfstream
Charter Services and Gulfstream Management Services -- which will provide
transportation solutions to customers worldwide. We have never been more
confident in our ability to sustain profitable growth and create ongoing
shareholder value.
OVER THE PAST FIVE YEARS, GULFSTREAM HAS BUILT A STRONG MANAGEMENT TEAM
WHICH HAS NEARLY TRIPLED THE SIZE OF THE BUSINESS AND HAS THE TALENT AND
DRIVE TO EXPAND OUR MARKETS IN THE YEARS AHEAD.
<PAGE>
[GRAPHIC OMITTED]
[IMAGE OF GULFSTREAM LEADERSHIP TEAM]
GULFSTREAM NOW OFFERS A BROAD RANGE OF TRANSPORTATION
PRODUCTS AND SERVICES
GULFSTREAM LEASE GULFSTREAM SHARES
GULFSTREAM WORLDWIDE [GRAPHIC OMITTED] GULFSTREAM PRE-OWNED
SERVICE [IMAGES OF GULFSTREAM V AIRCRAFT
& GULFSTREAM IV-SP]
GULFSTREAM CHARTER SERVICES
GULFSTREAM FINANCIAL GULFSTREAM MANAGEMENT
SERVICES SERVICES
GULFSTREAM CHARTER SERVICES
<PAGE>
BOARD OF DIRECTORS
[GRAPHIC OMITTED]
[IMAGE OF R. ANDERSON]
Robert Anderson
Chairman Emeritus
Rockwell International Corporation
[GRAPHIC OMITTED]
[IMAGE OF C. L. BEERS]
Charlotte L. Beers
Chairman
J. Walter Thompson
[GRAPHIC OMITTED]
[IMAGE OF T. D. BELL, JR.]
Thomas D. Bell, Jr.
Chairman & Chief Executive Officer
Young & Rubicam Advertising
[GRAPHIC OMITTED]
[IMAGE OF W. W. BOISTURE, JR.]
W. W. Boisture, Jr.
President & Chief Operating Officer
Gulfstream Aerospace Corporation
[GRAPHIC OMITTED]
[IMAGE OF C. A. DAVIS]
Chris A. Davis
Executive Vice President &
Chief Financial & Administrative Officer
Gulfstream Aerospace Corporation
[GRAPHIC OMITTED]
[IMAGE OF L. FORESTER]
Lynn Forester
Co-Chief Executive Officer
FirstMark Communications
International L.L.C.
[GRAPHIC OMITTED]
[IMAGE OF N. C. FORSTMANN]
Nicholas C. Forstmann
Founding General Partner
Forstmann Little & Co.
[GRAPHIC OMITTED]
[IMAGE OF T. J. FORSTMANN]
Theodore J. Forstmann
Chairman & Chief Executive Officer
Gulfstream Aerospace Corporation
Founding General Partner
Forstmann Little & Co.
[GRAPHIC OMITTED]
[IMAGE OF S. J. HORBACH]
Sandra J. Horbach
General Partner
Forstmann Little & Co.
[GRAPHIC OMITTED]
[IMAGE OF J. T. JOHNSON]
James T. Johnson
Former President & Chief Operating Officer
Gulfstream Aerospace Corporation
[GRAPHIC OMITTED]
[IMAGE OF H. A. KISSINGER]
Henry A. Kissinger
Chairman
Kissinger Associates, Inc.
Former U.S. Secretary of State
[GRAPHIC OMITTED]
[IMAGE OF D. LEWIS]
Drew Lewis
Former Chairman & Chief Executive Officer
Union Pacific Corporation
[GRAPHIC OMITTED]
[IMAGE OF M. H. MCCORMACK]
Mark H. McCormack
Chairman, President & Chief Executive Officer
International Management Group
[GRAPHIC OMITTED]
[IMAGE OF B. T. MOSS]
Bryan T. Moss
Vice Chairman
Gulfstream Aerospace Corporation
[GRAPHIC OMITTED]
[IMAGE OF M. S. OVITZ]
Michael S. Ovitz
CKE Investments
Artists Management Group
[GRAPHIC OMITTED]
[IMAGE OF A. E. PAULSON]
Allen E. Paulson
Chairman Emeritus
Gulfstream Aerospace Corporation
[GRAPHIC OMITTED]
[IMAGE OF R. S. PENSKE]
Roger S. Penske
Chairman
Penske Corporation
[GRAPHIC OMITTED]
[IMAGE OF C. L. POWELL]
Colin L. Powell
Chairman, America's Promise --
The Alliance for Youth
Former Chairman, U.S. Joint Chiefs of Staff
[GRAPHIC OMITTED]
[IMAGE OF G. R. ROCHE]
Gerard R. Roche
Chairman
Heidrick & Struggles, Inc.
[GRAPHIC OMITTED]
[IMAGE OF D. H. RUMSFELD]
Donald H. Rumsfeld
Chairman
Gilead Sciences, Inc.
Former U.S. Secretary of Defense
[GRAPHIC OMITTED]
[IMAGE OF G. P. SHULTZ]
George P. Shultz
Former U.S. Secretary of State
[GRAPHIC OMITTED]
[IMAGE OF R. S. STRAUSS]
Robert S. Strauss
Founder & Partner
Akin, Gump, Strauss, Hauer & Feld
Former U.S. Ambassador to Russia
<PAGE>
FINANCIAL TABLE OF CONTENTS
==============================================================================
Management's Discussion & Analysis 20
Consolidated Statements of Income 26
Consolidated Balance Sheets 27
Consolidated Statements of Stockholders' Equity 28
Consolidated Statements of Cash Flows 29
Notes to Consolidated Financial Statements 30
Independent Auditors' Report 39
Report of Management's Responsibility 39
Quarterly Financial Results 40
Quarterly Common Stock Price Range 40
Selected Financial Data 41
Corporate Information 41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
BUSINESS
Gulfstream is recognized worldwide as a leading designer, developer,
manufacturer and marketer of intercontinental business aircraft. The
Company operates principally in three segments: New Aircraft, Aircraft
Services and Pre-Owned Aircraft. Within New Aircraft, the Company's current
product offerings are the Gulfstream IV-SP, the Gulfstream V, Gulfstream
Shares (fractional ownership interest in Gulfstream IV-SPs and Gulfstream
Vs), and Gulfstream Lease. Also, the Company's financial services
subsidiary, Gulfstream Financial Services Corporation, through private
label relationships with third-party aircraft financing providers, offers
customized products to finance the worldwide sale of Gulfstream aircraft.
Within its Aircraft Services segment, the Company offers aftermarket
maintenance services, spare parts, and engine and auxiliary power unit
service and overhaul for both Gulfstream and other business aircraft. The
Company's Pre-Owned Aircraft segment markets and sells pre-owned Gulfstream
aircraft and other business aircraft, acquired in trade, to a worldwide
market.
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto beginning on page 26,
which are included herein.
ACQUISITION OF K-C AVIATION
On August 19, 1998, the Company completed the acquisition of K-C Aviation,
Inc. for approximately $250 million, including acquisition costs. The
acquisition is a key part of Gulfstream's growth strategy and has allowed
the Company to obtain a skilled workforce, as well as add capacity to
accelerate its aircraft completions business, diversify and grow its
aircraft maintenance and parts business, and strongly establish the
Gulfstream name in the aircraft engine service market.
K-C Aviation was a leading provider of business aviation services and the
largest independent completion center for business aircraft in North
America. In addition to custom aircraft interiors, K-C Aviation was the
second largest independent aircraft engine service center in the United
States and also offers maintenance services, spare parts, auxiliary power
unit service, avionics retrofit, non-destructive testing and component
overhaul.
The purchase of K-C Aviation was funded primarily from existing cash
balances, and due to the timing of the closing of the transaction, also
from the revolving credit facility. The acquisition has been accounted for
as a purchase, and the purchase price exceeded the fair value of net assets
acquired by approximately $178 million. The discussion and analysis that
follows reflects the combined results from the date of the acquisition.
RESULTS OF OPERATIONS
The following sets forth certain statistical data concerning the Company's
deliveries, orders and financial contract backlog for new aircraft.
1998 1997 1996
============================================================
Units delivered
during period:
Gulfstream IV-SP 32 22 24
Gulfstream V 29 29 3
============================================================
Total green deliveries 61 51 27
Units ordered during period:
Gulfstream IV-SP 39 39 44
Gulfstream V 40 7 21
============================================================
Total orders 79 46 65
Units in backlog at end
of period:
Gulfstream IV-SP (1) 50 43 27
Gulfstream V (2) 56 45 67
============================================================
Total backlog
(in units) (3) 106 88 94
Estimated backlog
(in billions) (3) $ 3.3 $ 2.8 $ 3.1
- ----------------------
(1) Net of one cancellation in 1997, which relates to an order placed in
that year.
(2) Net of one cancellation in 1996, which relates to an order placed in a
prior year.
(3) Backlog and orders exclude 11 Middle East Shares contracts. See
discussion of Financial Contract Backlog on page 24.
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, aircraft
deliveries remain relatively smooth throughout a year. However, aircraft
deliveries 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.
<PAGE>
TOTAL COMPANY REVENUES AND GROSS MARGIN
In 1998, total Company revenues increased by $524.5 million to $2,428.0
million from $1,903.5 million in 1997. In 1997, total Company revenues
increased $839.8 million from $1,063.7 million in 1996. The increase in
revenues is principally attributable to the increase in new aircraft
deliveries to 61 in 1998 from 51 in 1997 and 27 in 1996. The Company's 1998
results of operations include revenues of K-C Aviation from the date of
acquisition, totaling $84.9 million, a portion of which resulted from the
delivery of eight non-Gulfstream completions. Cost of sales of the acquired
business includes a non-cash acquisition-related charge of $7.2 million for
the fair value step-up related to the sale of inventories. Excluding
pre-owned aircraft, which generally are sold at or near break-even levels,
and the non-cash inventory step-up, the Company's gross margin percentage
for 1998 was 23.6% compared to 20.0% for 1997 and 24.8% in 1996.
NET REVENUES
[GRAPHIC OMITTED]
[BAR GRAPH]
1996 $1,063.7
1997 $1,903.5
1998 $2,428.0
The following table displays net revenues and segment gross margin for the
Gulfstream Aerospace Corporation reportable segments for each of the three
years in the period ended December 31, 1998, which correspond to the
segment information presented in Note 15 to the consolidated financial
statements.
NET REVENUES 1998 1997 1996
===============================================================
(Dollars in millions)
New Aircraft $ 1,909.0 $ 1,492.0 $ 740.5
Aircraft Services 281.8 201.1 169.9
Pre-Owned Aircraft 237.2 210.4 153.3
--------------------------------------
Total Net Revenues $ 2,428.0 $ 1,903.5 $ 1,063.7
======================================
SEGMENT GROSS MARGIN 1998 1997 1996
===============================================================
(Dollars in millions)
New Aircraft $ 464.3 $ 297.5 $ 193.9
Aircraft Services 53.7 45.0 36.5
Pre-Owned Aircraft 11.4 8.2 (1.7)
--------------------------------------
Segment Gross Margin $ 529.4 $ 350.7 $ 228.7
======================================
NEW AIRCRAFT
New Aircraft segment revenues have continued to grow over the last three
years, reaching $1,909.0 million in 1998, after increasing to $1,492.0
million in 1997 from $740.5 in 1996. This represents a 27.9% increase in
1998 over 1997 and a twofold increase in 1997 compared with 1996. The
overall growth in New Aircraft revenues is primarily due to the increasing
level of production to meet expanded product demand. See also "Financial
Contract Backlog". In 1998, the New Aircraft segment delivered a total of
61 green aircraft, including both Gulfstream IV-SPs and Gulfstream Vs,
compared to 51 in 1997 and 27 in 1996. The increase in 1998 over 1997 is
driven by delivery of 10 additional Gulfstream IV-SP aircraft. The increase
in 1997 over 1996 is driven by delivery of 26 additional Gulfstream V
aircraft, which commenced delivery in December 1996.
The gross margins for New Aircraft were $464.3 million, $297.5 million, and
$193.9 million for 1998, 1997 and 1996, respectively. Gross margin
percentage increased to 24.3% in 1998 from 19.9% in 1997 but declined from
26.2% in 1996. The increase in gross margin percentage in 1998 is primarily
attributable to reductions in new aircraft production costs. The decline in
gross margin percentage in 1997 is primarily attributable to the
introduction of the Gulfstream V aircraft into production and the higher
costs experienced in 1997 associated with the early stages of Gulfstream V
production and completions.
AIRCRAFT SERVICES
Revenues for Aircraft Services increased 40.1% to $281.8 million in 1998
from $201.1 million in 1997. In 1997 Aircraft Services revenues increased
18.4% over 1996. Contributing to the revenue increase in 1998 was $57.4
million of revenues resulting from the acquisition of K-C Aviation. The
continuing growth in Aircraft Services revenue from 1996 to 1998 is
directly related to the Company's success in significantly increasing
market share.
Gross margin percentages for Aircraft Services were 19.1% in 1998, a
decrease from 22.4% in 1997, after increasing from 21.5% in 1996. The
decrease in gross margins in 1998 from 1997 resulted principally from lower
levels of gross margins realized on revenues from the acquired K-C Aviation
business. The increase in 1997 compared with 1996 is primarily attributable
to improved operating performance.
PRE-OWNED AIRCRAFT
Pre-Owned Aircraft revenues were $237.2 million in 1998, $210.4 million in
1997 and $153.3 million in 1996. These increases represent 12.7% growth in
1998 over 1997 compared to a 37.2% increase from 1996 to 1997. This
increase in revenue year over year is a function of the volume of units
delivered and the mix of aircraft sold (i.e., Gulfstream IIs, IIIs, and
IVs, etc.).
Gross margins for the Pre-Owned Aircraft segment can vary from year to year
depending on the mix of aircraft sold and current market conditions.
Generally, gross margins on pre-owned aircraft sales have been at or near
break-even, with 1998 gross margins reflecting favorable market conditions.
<PAGE>
Selling and Administrative Expense
% of Net Revenues
[GRAPHICS OMITTED]
[BAR GRAPH]
1996 9.3%
1997 5.1%
1998 5.0%
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense
increased by $23.8 million, or 24.4%, to $121.3 million in 1998 from $97.5
million in 1997. Selling and administrative expense decreased $2.0 million
in 1997 from $99.5 million in 1996. As a percentage of net revenues,
selling and administrative expenses decreased slightly to 5.0% in 1998 from
5.1% in 1997 and 9.3% in 1996. Expenses were higher in 1998 due principally
to increased levels of sales and marketing expenses and administrative
costs associated with the acquisition of K-C Aviation. 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.
STOCK OPTION COMPENSATION EXPENSE. Non-cash compensation charges related to
stock options were $6.9 million in 1998, $1.6 million in 1997 and $7.2
million in 1996. The 1998 expense includes $5.8 million related to
modification of certain prior grants in connection with the retirement of
a senior executive during the fourth quarter.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was
$10.0 million in 1998, relatively unchanged from the $10.8 million incurred
in 1997, and significantly below the $58.1 million incurred in 1996.
Research and development expense decreased during 1998 and 1997 from 1996
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 suppliers participating in the development
of the Gulfstream V. Research and development expenditures in 1999 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 were $9.3
million for 1998, $7.3 million in 1997 and $9.4 million in 1996. The
increase in 1998 was a result of additional goodwill amortization directly
attributable to the acquisition of K-C Aviation. The decrease in 1997 from
1996 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. Amortization will increase in 1999 as a result
of a full year of amortization attributable to the acquisition.
INTEREST INCOME AND EXPENSE. Interest income decreased by $4.2 million to
$7.3 million in 1998 from $11.5 million in 1997. Interest income decreased
$3.1 million in 1997 from $14.6 million in 1996. The decrease in both
periods was a result of lower average cash balances the Company had
invested compared to the previous year. For 1998, this was principally as a
result of cash used for the Company's 1998 share repurchase program and the
acquisition of K-C Aviation. Interest expense consists almost entirely of
interest paid on long-term borrowings under the Company's bank credit
facilities. Interest expense decreased to $28.0 million for 1998 from $31.2
million in 1997. Interest expense increased $13.3 million from $17.9
million in 1996. This decrease in 1998 was due to a decrease in average
borrowings, as well as lower average borrowing costs of 7.3% in 1998 versus
7.7% in 1997. The increase in 1997 from 1996 was due principally to an
increase in average borrowings. See "Liquidity and Capital Resources".
INCOME TAXES. The Company recorded income tax expense of $126.7 million for
1998, based on an annual effective tax rate of 36.0% as compared to an
income tax benefit of $33.9 million in 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 financial contract 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's net operating loss
carryforward for regular federal income tax purposes at December 31, 1997
was approximately $65.0 million, which was fully utilized during 1998.
EARNINGS PER SHARE. The Company reported diluted earnings per share of
$3.00 for 1998 compared to diluted earnings per share of $3.12 for 1997 and
diluted earnings per share of $0.60 in 1996. On a pro forma basis, assuming
an effective tax rate of 37.5%, the Company's diluted earnings per share
would have been $1.68 and $0.37 for 1997 and 1996, respectively.
Pro Forma (Fully Taxed)
Earnings per Share
[GRAPHICS OMITTED]
[BAR GRAPH]
1996 $0.37
1997 $1.68
1998 $3.00
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise principally from working capital
requirements, capital expenditures, principal and interest payments on
long-term debt (including the revolving credit facility), and the Company's
share repurchase program described below. During 1998, the Company also
acquired K-C Aviation. During 1998 and 1997, the Company relied on its
available cash balances and, in 1998, its revolving credit facility to fund
these needs.
The Company had cash and cash equivalents totaling $38.1 million at
December 31, 1998, down from $306.5 million at December 31, 1997. This
decrease is attributable to the acquisition of K-C Aviation during the
third quarter of 1998 and the Company's share repurchase program.
In January 1998, the Company established a program to repurchase up to $200
million of its common stock. As of December 31, 1998, approximately 5.5
million shares, at an average price of $35.81 per share, had been
repurchased under this plan for an aggregate amount of approximately $198.5
million.
On March 1, 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.
Net cash generated by operating activities was $194.7 million, $120.4
million and $243.4 million in 1998, 1997, and 1996, respectively. The
increase in 1998 from 1997 was primarily due to the increase in income
before income taxes. The reduction in 1997 from 1996 was primarily due to
the decrease in customer progress payments associated with new aircraft in
backlog.
During the third quarter of 1998, the Company, together with GATX Capital
Corporation, a diversified international financial services company, formed
Gulfstream GATX Leasing Company to provide an operating lease program to
customers in the large cabin, long range business aircraft market.
Gulfstream GATX Leasing Company is owned 85% by GATX Capital and 15% by
Gulfstream.
During the year ended December 31, 1998, additions to property and
equipment amounted to $27.0 million. Additions to property and equipment
were $26.7 million in 1997 and $16.2 million in 1996. Additions in 1998
include approximately $2.0 million of property and equipment acquired to
upgrade existing equipment at the newly acquired locations. As a result of
both continued production level increases and the acquisition of K-C
Aviation, the Company plans to spend approximately $30.0 million for
property and equipment in 1999. 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 65 aircraft by 1999, a
twofold increase over its 1996 annual production rate. At December 31,
1998, the Company was not committed to the purchase of any significant
amount of property and equipment. The Company continually monitors its
capital spending in relation to current and anticipated business needs. As
circumstances dictate, facilities are added, consolidated, or modernized.
In May 1998, certain stockholders of the Company completed the sale of 18
million shares of common stock in a secondary offering (the "Secondary").
The Company did not receive any of the proceeds from the sale of shares in
the Secondary. In connection with the Secondary, certain current and former
directors and employees of, and advisors to, the Company exercised stock
options to purchase, in the aggregate, approximately 2.9 million shares of
common stock from the Company for an aggregate exercise price of
approximately $27.4 million, after deducting issuance costs. The Company
used the proceeds from these exercises for working capital purposes.
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. While the Company utilized the revolving
credit facility during 1998, there were no amounts outstanding under the
revolving credit facility on December 31, 1998. 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, 1998, the Company was in compliance with the
covenants contained in the Credit Agreement, but was prohibited from paying
dividends. Payments under the term loan facility were $75.0 million in
1998, and scheduled repayments are $75.0 million in each of the years 1999
through 2001 and $80.0 million in 2002.
On November 30, 1998, the Company issued notes totaling $56 million secured
by three pre-owned aircraft used as core fleet in the Gulfstream Shares
Program. The notes underlying the agreement have substantially identical
terms and are repayable in consecutive monthly installments of principal
commencing December 31, 1999, with a final maturity on November 30, 2008;
aggregate principal payments for each of the following years are as
follows: 1999 -- $0.3 million; 2000 through 2007 -- $3.1 million; 2008 --
$30.6 million.
The Company's principal source of liquidity both on a short- and long-term
basis is cash flow provided from operations, including customer progress
payments and deposits on new aircraft orders. However, the Company may
borrow against the Credit Agreement or through other available borrowing
vehicles 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 and other available borrowing vehicles 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, 1998, 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, 1998, the Company has
agreed to accept pre-owned aircraft totaling $209.9 million. Management
believes that the fair market value of all such aircraft exceeds the
specified trade-in value.
The Company is party to an agreement with the Pension Benefit Guaranty
Corporation (the "PBGC") concerning funding of the Company's defined
benefit pension plans. Pursuant to this agreement, the Company contributed
$25.0 million during 1998 and has agreed to contribute a total of $25.0
million annually (to be paid quarterly in equal installments) for 1999 and
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 currently engaged in the monitoring and cleanup of certain
groundwater 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 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.
FINANCIAL CONTRACT BACKLOG
At December 31, 1998, the Company had a financial contract backlog of
approximately $3.3 billion, representing a total of 50 contracts for
Gulfstream IV-SPs, and 56 contracts for Gulfstream Vs, compared with $2.8
billion at the end of 1997, representing a total of 43 contracts for
Gulfstream IV-SPs and 45 contracts for Gulfstream Vs. Including the 11
undelivered aircraft in the Middle East Shares contract, which have been
excluded from the Company's financial contract backlog, the Company had a
total of 117 aircraft, valued at approximately $3.6 billion of potential
future revenues, under contract at December 31, 1998. This excludes 18
options valued at $0.7 billion. The increase in backlog from 1997 is driven
by the high demand for the Company's products.
During the third quarter of 1998, Gulfstream GATX Leasing Company executed
agreements to purchase five Gulfstream Vs and one Gulfstream IV-SP, valued
at approximately $210 million, with deliveries from 1999 through 2001. It
also executed options to purchase three Gulfstream Vs and three Gulfstream
IV-SPs, valued at approximately $200 million, with potential deliveries
from 2001 through 2004.
During the first 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.
The first green aircraft delivery for the Middle East Shares Program
occurred during the third quarter of 1998. The remaining 11 undelivered
aircraft are not included in the Company's financial contract backlog. In
1993, the Company established very stringent deposit requirements for
recording aircraft into its backlog. The contract for the Middle East
Shares expansion includes modestly different deposit requirements early in
the program. The Company has decided for the initial phase of the program
to record these orders into backlog when the aircraft are delivered.
As of December 31, 1998, the Company had contracted to deliver to Executive
Jet 44 Gulfstream IV-SPs and 12 Gulfstream Vs in connection with North
American Gulfstream Shares program plus options for additional 12
Gulfstream Vs. Of these, 18 Gulfstream IV-SPs are in service, with the
remaining 50 Gulfstream IV-SPs and Gulfstream Vs to be delivered through
2007.
The Company includes an order in financial contract backlog only if the
Company has entered into a purchase contract (with no contingencies) with
the customer and has received a significant (generally non-refundable)
deposit from the customer. In total, approximately 50% of the Company's
contractual backlog is scheduled for delivery beyond 1999.
Financial Contract Backlog
[GRAPHICS OMITTED]
[BAR GRAPH]
1996 $3,104.0
1997 $2,782.1
1998 $3,301.9
<PAGE>
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.
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 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.
YEAR 2000 READINESS
As part of the Company's initiatives, begun in 1996, to increase production
rates and coproduce the Gulfstream IV-SP 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 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 issue. The Company has established a formal
program office under the leadership of a senior level executive to manage
the assessment and implementation of the Plan objectives. The program is
reviewed regularly with executive management.
Gulfstream has reviewed all current production components and systems
installed in the Gulfstream IV-SP and Gulfstream V aircraft and has found
no issues. Older aircraft which are no longer under warranty have also been
reviewed and some require minor component modifications. This information
has been made available to Gulfstream operators. Gulfstream intends to
substantially complete Year 2000 compliance remediation and testing by the
first quarter 1999, with some activities continuing through the remainder
of 1999. Gulfstream has completed approximately 85% of its Year 2000
program plan for products and infrastructure. Confirmation of Year 2000
plans for all significant suppliers has also been completed. Supplier Year
2000 compliance monitoring will continue through year-end 1999 and into the
year 2000.
The Company currently estimates the total costs of these efforts incurred
during the years 1997 through 1999 to be approximately $3.5 million. In
addition, some non-compliant systems will be eliminated as the company
installs Year 2000 compliant software in connection with its ongoing
integrated resource planning project. The cost of this effort has been
included in the company's capital projections discussed above under the
caption "Liquidity and Capital Resources".
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. Management
of the Company believes it has an effective program in place to address the
Year 2000 issue in a timely manner. As a component of the Year 2000
Compliance Plan, the Company is developing contingency plans to mitigate
the effects of potential problems experienced by it or its key suppliers or
governmental agencies in the timely implementation of its Year 2000
Compliance Plan. Nevertheless, since it is not possible to anticipate all
future outcomes, especially when third parties are involved, there could be
circumstances in which the Company's operations would be adversely
affected.
The statements in this section constitute a "Year 2000 Readiness
Disclosure" under the Year 2000 Information and Readiness Disclosure Act to
the extent provided therein.
OUTLOOK
Based on its strong backlog and continued product demand, Gulfstream plans
to increase production to 65 new aircraft in 1999. With this increased
production and continuing margin improvements, the Company expects 1999
diluted earnings per share of $3.75, a 25% increase over 1998. The Company
also expects diluted EPS in 2000 to increase by at least 15%.
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 STATEMENTS OF INCOME
Year ended December 31,
---------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
(In thousands, except per share amounts)
Net revenues $ 2,427,958 $ 1,903,494 $ 1,063,713
Cost and expenses
Cost of sales 1,907,749 1,557,520 839,254
Selling and administrative 121,294 97,499 99,452
Stock option compensation expense 6,908 1,640 7,186
Research and development 10,030 10,792 58,118
Amortization of intangibles and
deferred charges 9,285 7,347 9,434
---------------------------------------
Total costs and expenses 2,055,266 1,674,798 1,013,444
---------------------------------------
Income from operations 372,692 228,696 50,269
Interest income 7,280 11,532 14,605
Interest expense (27,959) (31,159) (17,909)
---------------------------------------
Income before income taxes 352,013 209,069 46,965
Income tax expense (benefit) 126,725 (33,942) ---
---------------------------------------
Net income $ 225,288 $ 243,011 $ 46,965
=======================================
Earnings per share:
Basic $ 3.08 $ 3.28 $ .64
Diluted $ 3.00 $ 3.12 $ .60
=======================================
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------------
1998 1997
- -------------------------------------------------------------------------------
(In thousands, except for share amounts)
ASSETS
Cash and cash equivalents $ 38,149 $ 306,451
Accounts receivable (less allowance for
doubtful accounts: $2,525 and $1,144) 263,959 177,228
Inventories 729,874 629,876
Deferred income taxes 17,132 33,795
Prepaids and other assets 6,494 11,318
-------------------------
Total current assets 1,055,608 1,158,668
Property and equipment, net 166,777 134,611
Tooling, net of accumulated
amortization: $15,220 and $7,680 36,415 43,471
Goodwill, net of accumulated
amortization: $11,268 and $8,433 213,906 38,957
Other intangible assets, net 45,414 50,485
Deferred income taxes 22,011 32,950
Other assets and deferred charges 74,003 14,525
-------------------------
Total Assets $1,614,134 $1,473,667
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $ 75,262 $ 75,000
Accounts payable 182,040 147,618
Accrued liabilities 170,681 93,798
Customer deposits 488,218 546,441
-------------------------
Total current liabilities 916,201 862,857
Long-term debt 285,738 305,000
Accrued postretirement benefit cost 115,154 115,405
Customer deposits -- long-term 94,445 88,075
Other long-term liabilities 6,916 9,573
Stockholders' equity
Common stock, $.01 par value;
300,000,000 shares authorized;
shares issued: 89,818,774 and 86,522,089 898 865
Additional paid-in capital 444,301 370,258
Accumulated deficit (672) (225,960)
Accumulated other comprehensive income (2,441) (762)
Unamortized stock plan expense (52) (1,155)
Less: Treasury stock: 17,244,581 and
11,978,439 shares (246,354) (50,489)
-------------------------
Total stockholders' equity 195,680 92,757
-------------------------
Total Liabilities and Stockholders' Equity $1,614,134 $1,473,667
=========================
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
Other Unamortized Total
Additional Compre- Stock Stock-
Preferred Common Paid-In Accumulated hensive Plan Treasury holders'
Stock Stock Capital Deficit Income Expense Stock Equity
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AS OF JANUARY 1, 1996 $468,938 $523 $210,631 $(410,613) $(1,450) $--- $(50,489) $217,540
Net income for fiscal 1996 46,965 46,965
Minimum pension liability adjustment (14) (14)
---------
Total comprehensive income 46,951
---------
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
--------------------------------------------------------------------------------------
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
Minimum pension liability adjustment 702 702
---------
Total comprehensive income 243,713
---------
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
--------------------------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 1997 --- 865 370,258 (225,960) (762) (1,155) (50,489) 92,757
Net income for fiscal 1998 225,288 225,288
Minimum pension liability
adjustment, net of tax of $1,464 (1,679) (1,679)
---------
Total comprehensive income 223,609
---------
Modification of common stock options 5,805 5,805
Amortization of stock plan expense 1,103 1,103
Exercise of common stock options
with the offering, net of expenses 26 25,331 2,044 27,401
Tax benefit of exercised
common stock options 39,551 39,551
Exercise of common stock options 7 3,356 558 3,921
Purchase of treasury stock (198,467) (198,467)
--------------------------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 1998 $ --- $898 $444,301 $ (672) $(2,441) $ (52) $(246,354) $195,680
======================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
---------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 225,288 $ 243,011 $ 46,965
Adjustments to reconcile net income
to net cash provided by operating
activities:
Acquisition related non-cash items 7,195 --- ---
Depreciation and amortization 34,851 33,022 26,910
Postretirement benefit cost 7,438 6,700 6,684
Non-cash stock option
compensation expense 6,908 1,640 7,186
Provision for loss (recovery)
on pre-owned aircraft --- (1,600) 1,000
Deferred income taxes 62,803 (37,867) ---
Other, net (243) 1,428 417
Change in assets and liabilities,
net of acquired assets
and liabilities:
Accounts receivable (47,210) (39,978) (55,029)
Inventories (55,370) 26,961 (263,112)
Prepaids, other assets and
deferred charges (53,498) (5,080) (5,578)
Accounts payable and
accrued liabilities 96,439 763 102,551
Customer deposits (72,940) (109,443) 432,365
Other long-term liabilities (16,957) 864 (56,956)
----------------------------------
Net Cash Provided by Operating Activities 194,704 120,421 243,403
==================================
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for business acquired (248,887) --- ---
Investment in unconsolidated affiliate (1,260) --- ---
Expenditures for property and equipment (26,955) (26,692) (16,167)
Expenditures for tooling (594) (2,984) (2,085)
Proceeds from sales of assets 835 1 28
----------------------------------
Net Cash Used in Investing Activities (276,861) (29,675) (18,224)
==================================
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock --- --- 99,603
Proceeds from exercise of common
stock options 31,322 2,533 14,170
Repurchase of preferred stock --- --- (468,938)
Dividends paid on preferred stock --- --- (105,323)
Proceeds from issuance of
long-term debt 56,000 --- 400,000
Principal payments on long-term debt (75,000) (20,000) (146,331)
Payment of financing costs --- --- (8,500)
Purchase of treasury stock (198,467) --- ---
----------------------------------
Net Cash Used in Financing Activities (186,145) (17,467) (215,319)
----------------------------------
CASH AND CASH EQUIVALENTS
Net increase (decrease) during the year (268,302) 73,279 9,860
Cash and cash equivalents, beginning of year 306,451 233,172 223,312
----------------------------------
Cash and Cash Equivalents, End of Year $ 38,149 $ 306,451 $ 233,172
==================================
See Notes to Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 both Gulfstream and non-Gulfstream aircraft; engine and auxiliary
power unit service and overhaul; 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 CONSOLIDATION AND USE OF ESTIMATES
The consolidated financial statements include the accounts of the Company
and majority-owned subsidiaries, all of which are wholly owned. Material
intercompany balances and transactions have been eliminated in
consolidation. 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. 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 recorded at cost and depreciated by the
straight-line method over their estimated useful lives ranging from 15 to
40 years for buildings and improvements and four to 20 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, including goodwill arising from the 1998 acquisition of K-C
Aviation, is being amortized using the straight-line method 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.
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 14.0% and
32.0%, respectively, of accounts receivable outstanding at December 31,
1998 and 1997 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 risks 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.
<PAGE>
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.
NOTE 2 BUSINESS ACQUISITION
On August 19, 1998, the Company completed the acquisition of K-C Aviation,
Inc. for approximately $250 million, including acquisition costs. K-C
Aviation was a leading provider of business aviation services and the
largest independent completion center for business aircraft in North
America. In addition to custom aircraft interiors, K-C Aviation was the
second largest independent aircraft engine service center in the United
States and offered maintenance services, spare parts, auxiliary power unit
service, avionics retrofit, non-destructive testing and component overhaul.
The purchase of K-C Aviation was funded primarily from existing cash
balances, and due to the timing of the closing of the transaction, also
from the revolving credit facility.
The acquisition has been accounted for as a purchase, and accordingly, the
operating results of K-C Aviation have been included in the Company's
consolidated financial statements since the date of acquisition. The
purchase price exceeded the fair value of net assets acquired by
approximately $178 million. In connection with the acquisition, the Company
assumed $51.2 million in liabilities.
The following unaudited pro forma summary presents the combined results of
operations of the Company and K-C Aviation, as if the acquisition had
occurred at the beginning of fiscal 1998 and 1997. The pro forma amounts
give effect to certain adjustments, including the amortization of goodwill
and inventory step-up, reduced interest income from cash utilized to
complete the acquisition and the related income tax effects.
The pro forma consolidated results are not indicative of results that would
have occurred had the acquisition been in effect for the periods presented,
nor are they indicative of the results that are expected in the future.
Year ended December 31, 1998 1997
- ---------------------------------------------------------------------------
(In millions, except per share amounts)
Pro forma net revenues $ 2,551.2 $ 2,090.6
Pro forma income before income taxes 346.2 198.5
Pro forma net income 221.6 236.4
Pro forma earnings per share:
Basic $ 3.03 $ 3.19
Diluted 2.95 3.03
NOTE 3 INVENTORIES
Inventories consisted of the following at:
December 31, 1998 1997
- ---------------------------------------------------------------------------
(In thousands)
Work in process $ 359,212 $ 330,155
Raw materials 190,890 134,973
Vendor progress payments 85,605 60,606
Pre-owned aircraft 94,167 104,142
------------------------
$ 729,874 $ 629,876
========================
NOTE 4 PROPERTY AND EQUIPMENT
The major categories of property and equipment consisted of the following
at:
December 31, 1998 1997
- ---------------------------------------------------------------------------
(In thousands)
Land $ 4,409 $ 4,109
Buildings and improvements 126,580 101,836
Machinery and equipment 150,797 130,491
Construction in progress 8,385 9,074
------------------------
Total 290,171 245,510
Less accumulated depreciation (123,394) (110,899)
------------------------
$ 166,777 $ 134,611
========================
NOTE 5 OTHER INTANGIBLE ASSETS
Other intangible assets are comprised of the following at:
December 31, 1998 1997
- ---------------------------------------------------------------------------
(In thousands)
Aftermarket - Service Center $ 15,000 $ 15,000
Aftermarket - Product Support 75,000 75,000
------------------------
Total 90,000 90,000
Less accumulated amortization (44,586) (39,515)
------------------------
$ 45,414 $ 50,485
========================
<PAGE>
NOTE 6 INCOME TAXES
The components of income tax expense (benefit) consisted of the following:
Year ended December 31, 1998 1997
- ---------------------------------------------------------------------------
(In thousands)
Current $ 63,922 $ 3,925
Deferred 62,803 26,934
Decrease in valuation allowance --- (64,801)
------------------------
Income tax expense (benefit) $ 126,725 $ (33,942)
========================
Although the Company recorded net income during 1996, 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 $4.4
million, $4.8 million and $0.3 million for 1998, 1997 and 1996,
respectively. The Company's provision for income taxes differed from the
amount computed by applying the U.S. federal income tax rate as follows:
Year ended December 31, 1998 1997
- ---------------------------------------------------------------------------
(In thousands)
Statutory federal tax rate $ 123,205 $ 73,174
Foreign Sales Corporation tax benefit (5,614) (1,888)
State income tax provision 9,056 1,605
Decrease in valuation allowance --- (64,801)
Net operating loss carryforwards --- (43,613)
Other provision adjustments 78 1,581
------------------------
Income tax expense (benefit) $ 126,725 $ (33,942)
========================
The tax effects of significant components of the Company's deferred tax
assets and liabilities are as follows:
December 31, 1998 1997
- ---------------------------------------------------------------------------
(In thousands)
DEFERRED TAX ASSETS RELATED TO:
Postretirement benefits $ 43,183 $ 43,386
Tax credit carryforwards 16,049 7,037
Warranty reserves 12,569 9,199
Net operating loss carryforwards --- 24,500
Intangible assets --- 7,031
Other 7,567 9,114
------------------------
79,368 100,267
========================
DEFERRED TAX LIABILITIES RELATED TO:
Property and equipment,
principally due to basis difference (14,826) (17,392)
Inventory (11,295) (9,147)
Pension and other employee benefits (7,648) (6,236)
Intangible assets (2,053) ---
Other (4,403) (747)
------------------------
(40,225) (33,522)
------------------------
Net deferred tax assets $ 39,143 $ 66,745
========================
At December 31, 1998, the Company had available tax credit carryforwards
for regular federal income tax purposes of approximately $6.3 million which
will expire beginning in 2009.
During the third quarter ended September 30, 1997, as a result of numerous
factors, including, but not limited to the Company's earnings trends and
the size of its financial contract backlog, the Company determined that its
net deferred tax asset is more likely than not to be realized, and released
its deferred tax valuation allowance, totaling $94.2 million. Of this
amount, $29.4 million related to the exercise of stock options 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 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 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 7 ACCRUED LIABILITIES
Accrued liabilities are comprised of the following at:
December 31, 1998 1997
- ---------------------------------------------------------------------------
(In thousands)
Income taxes $ 51,615 $ ---
Employee compensation and benefits 36,954 33,245
Accrued warranty 32,017 23,844
Uncompleted work on delivered aircraft 20,798 11,098
Other 29,297 25,611
------------------------
$ 170,681 $ 93,798
========================
NOTE 8 LONG-TERM DEBT
Long-term debt consisted of the following at:
December 31, 1998 1997
- ---------------------------------------------------------------------------
(In thousands)
Notes payable $ 56,000 $ ---
Term loans 305,000 380,000
------------------------
361,000 380,000
Less current portion (75,262) (75,000)
------------------------
$ 285,738 $ 305,000
========================
On November 30, 1998, the Company issued notes totaling $56 million secured
by three pre-owned aircraft used as core fleet in the Gulfstream Shares
Program. The notes underlying the agreement have substantially
<PAGE>
identical terms and are repayable in consecutive monthly installments of
principal commencing December 31, 1999 with a final maturity on November
30, 2008; aggregate principal payments for each of the following years are
as follows: 1999 -- $0.3 million; 2000 through 2007 -- $3.1 million; 2008
- -- $30.6 million. Interest is payable monthly from November 30, 1998, and
is based on LIBOR plus 1.4%.
On October 16, 1996, the Company entered into a 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 will be available to the
Company for borrowings. Concurrent 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.
The term loan is repayable in consecutive quarterly installments with a
final maturity on September 30, 2002, in aggregate amounts for each of the
following years as follows: 1999 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 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. At December 31, 1998, the credit agreement prohibited the
payment of dividends. 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, 1998, 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 $213.6 million and $203.6
million at December 31, 1998 and 1997, respectively. At December 31, 1998
and December 31, 1997, the Company had outstanding letters of credit
totaling $56.9 million and $46.4 million, respectively.
The effective interest rate on the Company's long-term debt at December 31,
1998 and 1997 was 6.2 % and 6.9%, respectively. The Company paid interest
of $29.2 million, $32.3 million, and $12.9 million during the years 1998,
1997 and 1996, respectively.
NOTE 9 LEASES
The Company has various operating leases for both real and personal
property including Company aircraft. Rental expense for 1998, 1997 and 1996
was $15.5 million, $10.9 million and $13.4 million, respectively. Future
minimum lease payments for all noncancelable operating leases having a
remaining term in excess of one year at December 31, 1998, aggregated
approximately $40.0 million, and payments during the next five years are:
1999, $13.0 million; 2000, $9.6 million; 2001, $7.0 million; 2002, $2.1
million; 2003, $1.4 million. The Company also receives sublease rental
income under an operating lease which ends November 1999; the approximate
future minimum sublease rental income is $2.3 million.
NOTE 10 EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company maintains four defined benefit pension 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, $25.0 million, and $34.4 million in
1998, 1997 and 1996, respectively. Effective August 19, 1998 and as part of
the acquisition described in Note 2, the Company adopted a new pension
plan, covering all employees of the acquired company and all non-vested
employees of the Company except for those covered under a collective
bargaining agreement.
OTHER BENEFIT PLANS
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. In December 1998, a Voluntary
Employees' Beneficiary Association Trust was established and funded with
$14.3 million of Company funds for the purpose of paying retiree claims.
The Company will periodically obtain reimbursement from the Trust for
retiree claims.
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.
<PAGE>
The following table is based on an actuarial valuation date as of September
30, and amounts recognized in the Company's consolidated financial
statements as of December 31. The following provides a reconciliation of
benefit obligations, plan assets and funded status of the plans:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------------- ------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 255,074 $ 213,080 $ 96,788 $ 87,231
Service cost 17,599 12,466 5,616 4,283
Interest cost 18,842 16,743 7,277 6,820
Amendments --- --- (2,742) (879)
Actuarial (gain) loss 41,451 20,470 (34) 1,983
Benefits paid (7,995) (7,685) (3,900) (2,650)
----------------------------------------------------
Benefit obligation at end of year $ 324,971 $ 255,074 $ 103,005 $ 96,788
----------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 239,001 $ 163,598 $ --- $ ---
Actual return on plan assets 9,164 49,892 --- ---
Company contributions 25,000 33,196 3,900 2,650
Benefits paid (7,995) (7,685) (3,900) (2,650)
----------------------------------------------------
Fair value of plan assets at end of year $ 265,170 $ 239,001 $ --- $ ---
----------------------------------------------------
Funded status of the plans $ (59,801) $ (16,073) $ (103,005) $ (96,788)
Unrecognized actuarial (gain) loss 48,718 (3,900) (15,472) (15,839)
Unrecognized prior service cost (benefit) 5,393 5,860 (16,079) (7,599)
Contributions paid in fourth quarter 6,250 6,250 15,168 809
----------------------------------------------------
Prepaid (accrued) benefit cost $ 560 $ (7,863) $ (119,388) $ (119,417)
====================================================
AMOUNTS RECOGNIZED IN THE CONSOLIDATED
BALANCE SHEETS CONSIST OF:
Prepaid benefit cost $ 190 $ 2,543 $ --- $ ---
Accrued benefit liability (5,125) (10,316) (120,341) (120,343)
Intangible asset 2,334 --- 209 164
Accumulated other comprehensive income 3,161 --- 744 762
----------------------------------------------------
Net amount recognized $ 560 $ (7,863) $ (119,388) $ (119,417)
====================================================
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plan with accumulated benefit
obligations in excess of plan assets were $20.9 million, $20.9 million, and
$19.8 million, respectively, as of December 31, 1998, and $17.0 million,
$17.0 million, and $17.8 million, respectively, as of December 31, 1997.
Accumulated other comprehensive income represents minimum pension liability
adjustments.
Net periodic pension and other benefit costs include the following
components:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------------------------------- --------------------------------------
Year ended December 31, 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 17,599 $ 12,466 $ 11,258 $ 5,616 $ 4,283 $ 4,162
Interest cost 18,842 16,743 14,966 7,277 6,820 6,581
Expected return on plan assets (20,442) (16,385) (12,950) --- --- ---
Amortization of prior service cost 467 467 313 (873) (489) (430)
Recognized actuarial (gain) loss 111 --- --- (400) (648) (377)
--------------------------------------------------------------------------------
Net periodic benefit cost $ 16,577 $ 13,291 $ 13,587 $ 11,620 $ 9,966 $ 9,936
================================================================================
WEIGHTED AVERAGE ASSUMPTIONS:
Discount rate 6.75% 7.50% 8.00% 6.75% 7.50% 8.00%
Expected return on plan assets 9.50% 9.50% 9.50% --- --- ---
Rate of compensation increase 4.75% 4.75% 4.75% --- --- ---
</TABLE>
<PAGE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change
in assumed health care cost trend rates would have the following effects:
1-Percentage- 1-Percentage-
Point Increase Point Decrease
- ---------------------------------------------------------------------------
(In thousands)
Effect on total of service and
interest cost components $ 2,071 $ (1,685)
Effect on the postretirement
benefit obligation 14,417 (11,989)
For measurement purposes, a 7.5% annual rate of increase in the per capita
cost of medicare ineligible employees' covered health care benefits was
assumed for 1998. The rate was assumed to decrease annually by 0.75% to
5.0% and remain at that level thereafter. For medicare eligible employees,
a 5.25% annual rate of increase in the per capita cost of health care
benefits was assumed for 1998. The rate was assumed to decrease annually by
0.75% to 4.5% and remain at that level thereafter.
INVESTMENT AND OTHER PLANS
The Company sponsors two voluntary 401(k) investment plans which cover all
eligible employees and are designed to enhance existing retirement plans.
The Company matches either 37.5% or 50.0% of the employee's contribution up
to a maximum of four percent of the employee's eligible compensation. Total
expense for the plans were $3.1 million, $2.6 million and $2.2 million for
1998, 1997 and 1996, respectively.
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 1998, 1997 and 1996, provisions of approximately $6.3 million,
$5.8 million and $5.5 million, respectively, were charged against income
related to the plan. Payouts are based entirely on achievement of financial
and business objectives.
NOTE 11 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.
In May 1998, the Company completed a secondary offering (the "Secondary")
in which 18 million shares of stock were sold by certain stockholders. The
Company did not receive any of the proceeds from the sale of shares in the
Secondary. In connection with the Secondary, certain current and former
directors and employees of, and advisors to, the Company exercised stock
options to purchase, in the aggregate, approximately 2.9 million shares of
common stock from the Company for an aggregate exercise price of
approximately $27.4 million, after deducting issuance costs. The Company
used the proceeds from these exercises for working capital purposes.
TREASURY STOCK
During January 1998, the Company announced a program to repurchase up to
$200 million of its common stock. As of December 31, 1998, the Company had
repurchased approximately 5.5 million shares, at an average price of $35.81
per share, for an aggregate amount of approximately $198.5 million. The
repurchase program was funded from the Company's available cash.
STOCK OPTIONS
Under the Amended and Restated 1990 Stock Option Plan approved by its
stockholders effective March 28, 1997, as further amended, 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 10 years from date of grant.
<PAGE>
The Company recorded compensation expense of $6.9 million, $1.6 million and
$7.2 million in 1998, 1997 and 1996, respectively, related to stock option
grants and modification of certain existing grants in connection with the
retirement of a senior executive. At December 31, 1998, approximately 5.3
million shares of common stock were reserved for issuance under the Stock
Option Plan and non-plan options.
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, 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, by adopting 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:
Year ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------
(In thousands, except per share amounts)
Net income --
As reported $ 225,288 $ 243,011 $ 46,965
Pro forma 218,708 240,769 46,480
Basic earnings per share--
As reported $ 3.08 $ 3.28 $ .64
Pro forma 2.99 3.25 .63
Diluted earnings per share--
As reported $ 3.00 $ 3.12 $ .60
Pro forma 2.91 3.09 .59
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 1998, 1997 and 1996, respectively: expected
volatility of 46.13%, 32.01% and 36.02%, respectively; risk-free interest
rate of 4.75%, 5.96% and 6.27%, respectively; expected lives of three years
for all years; and no dividend yield.
A summary of the status of the Company's stock option plans as of December
31, 1998, 1997 and 1996, and changes during the years ending on those dates
is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Average Weighted Average
Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 6,494,978 $ 9.40 5,729,279 $ 3.91 8,691,573 $ 3.88
Granted 2,334,674 47.53 1,566,000 26.72 1,020,000 4.10
Exercised (3,572,160) 9.02 (631,877) 4.01 (3,949,346) 3.88
Forfeited (318,195) 26.57 (168,424) 3.90 (32,948) 4.10
-----------------------------------------------------------------------------------------------
Outstanding at end of year 4,939,297 $ 26.59 6,494,978 $ 9.40 5,729,279 $ 3.91
===============================================================================================
Options exercisable at year-end 2,794,729 $ 13.22 4,112,728 $ 3.86 3,817,582 $ 3.80
Weighted average fair value of
options granted during the year $ 17.07 $ 6.97 $ 10.13
</TABLE>
Information with respect to stock options outstanding and exercisable at
December 31, 1998, is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------------------------------------
Weighted Average
Range of Number Remaining Weighted Average Number Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.11-$ 4.10 2,129,342 5.2 $ 3.99 2,024,004 $ 3.98
$ 21.50-$ 29.75 534,731 8.7 26.70 263,675 26.94
$ 36.88-$ 42.06 152,174 9.6 39.21 - -
$ 43.00-$ 50.06 2,123,050 9.8 48.33 507,050 43.00
--------------------------------------------------------------------------------------
4,939,297 7.7 $ 26.59 2,794,729 $ 13.22
======================================================================================
</TABLE>
<PAGE>
NOTE 12 RELATED PARTY TRANSACTIONS
At December 31, 1998 and 1997, certain partnerships formed by Forstmann
Little & Co. ("Forstmann Little") owned approximately 22.8% and 42.1%,
respectively, of the Company's common stock.
During 1998, the Company sold to a director of the Company a Gulfstream V
previously utilized by the Company as a flight test aircraft, for a
purchase price equal to the estimated fair market value of the aircraft. In
1997, the Company purchased a pre-owned aircraft for $21.0 million from the
same director.
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 $2.0 million, $2.1 million and $0.7
million in 1998, 1997 and 1996, respectively. Management believes all these
transactions with related parties are on terms similar to those of other
customers and suppliers.
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 buyout option under the lease and purchased the
aircraft from the lessor, an international financial institution. The
Chairman paid $0.8 million in both 1998 and 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 13 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
groundwater 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, 1998, in connection with orders for 21 Gulfstream V
aircraft in the financial contract 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, 1998, the Company has agreed to accept pre-owned aircraft
totaling $209.9 million. Management believes that the fair market value of
all such aircraft exceeds the specified trade-in value.
NOTE 14 EARNINGS PER SHARE
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.
EPS information for 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 11) as if such transactions had occurred at the beginning
of the period. Diluted EPS further includes the effects of options granted
in 1996 as if such options had been outstanding for the entire period.
<PAGE>
The following table sets forth the reconciliation of per share data:
Year ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
(In thousands, except per share amounts)
NET INCOME $ 225,288 $ 243,011 $ 46,965
==================================
BASIC EPS
Average shares issued
and outstanding
(after giving effect to
the Recapitalization) 73,089 74,095 67,530
Exercise of certain stock
options with the Offering 2,962
Shares issued pursuant
to the Offering 3,419
----------------------------------
Weighted average common
shares outstanding 73,089 74,095 73,911
DILUTED EPS
Incremental shares from
stock options 1,947 3,800 4,624
----------------------------------
Weighted average common
and common equivalent
shares outstanding 75,036 77,895 78,535
==================================
EARNINGS PER SHARE:
Basic $ 3.08 $ 3.28 $ .64
Diluted $ 3.00 $ 3.12 $ .60
==================================
NOTE 15 BUSINESS SEGMENTS AND RELATED INFORMATION
The Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, during 1998. SFAS No. 131 established
standards for reporting information about operating segments in annual
financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services,
and geographic areas.
The Company operates in three reportable segments: New Aircraft, Aircraft
Services and Pre-Owned Aircraft. New Aircraft is comprised of the design,
development, production (including customized interiors and optional
avionics) and sale of large business aircraft to customers on a worldwide
basis. Aircraft Services provides aftermarket maintenance services, spare
parts, engine and auxiliary power unit service and overhaul for both
Gulfstream and other business aircraft. The Company's Pre-Owned Aircraft
segment consists of the sale of pre-owned Gulfstream aircraft and other
business aircraft acquired as trade-ins against the sale of new aircraft to
a worldwide market. The accounting policies used to develop segment
information correspond to those described in the summary of significant
accounting policies in Note 1. Intersegment sales and transfers are not
significant. The Company has no significant assets domiciled outside of the
United States and assets are not allocated to reportable segments. The
information for 1997 and 1996 has been restated from the prior year's
presentation in order to conform to the 1998 presentation.
Gulfstream evaluates each segment's performance based on gross profit
margins (net revenues less cost of sales) excluding inventory step-up
charges. Summarized financial information concerning the Company's
reportable segments is shown in the following table. Unallocated expenses
represent expenses not directly related to the reportable segments.
Net Revenues
--------------------------------------
Year ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------
(In millions)
New Aircraft $ 1,909.0 $ 1,492.0 $ 740.5
Aircraft Services 281.8 201.1 169.9
Pre-owned aircraft 237.2 210.4 153.3
---------------------------------------
Total Net Revenues $ 2,428.0 $ 1,903.5 $ 1,063.7
=======================================
Segment Gross Margin
---------------------------------------
Year ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------
(In millions)
New Aircraft $ 464.3 $ 297.5 $ 193.9
Aircraft Services 53.7 45.0 36.5
Pre-owned Aircraft 11.4 8.2 (1.7)
---------------------------------------
Segment gross margin 529.4 350.7 228.7
Unallocated expenses (156.7) (122.0) (178.4)
--------------------------------------
Income from operations 372.7 228.7 50.3
Interest income 7.3 11.5 14.6
Interest expense (28.0) (31.1) (17.9)
--------------------------------------
Income before income taxes $ 352.0 $ 209.1 $ 47.0
======================================
The following table presents revenues by geographic area of the location of
the Company's customers:
Year ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
(In millions)
North America
United States $ 1,833.0 $ 1,403.1 $ 799.4
Canada and Mexico 96.4 67.3 5.2
---------------------------------------
Total North America 1,929.4 1,470.4 784.6
Asia/Pacific 243.5 162.9 85.1
Africa/Middle East 104.9 3.8 71.5
Europe 83.4 185.2 24.6
Latin America/Other 66.8 81.2 97.9
---------------------------------------
Total $ 2,428.0 $ 1,903.5 $ 1,063.7
=======================================
During 1996, revenues from one customer included in the New Aircraft and
Aircraft Services reportable segments represented approximately 11.7% of
the Company's total revenues.
NOTE 16 SUBSEQUENT EVENT
On March 1, 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.
<PAGE>
INDEPENDENT AUDITORS' REPORT
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, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1998.
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, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 1, 1999
(March 1, 1999 as to Note 16)
REPORT OF MANAGEMENT'S RESPONSIBILITY
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 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 internal control systems and
quality of our financial accounting and reporting.
The Company's independent auditors, Deloitte & Touche LLP, are recommended
by the Audit Committee of the Board of Directors, selected by the Board of
Directors and ratified by our Company's stockholders. Deloitte & Touche LLP
is engaged to perform an audit of the consolidated financial statements of
Gulfstream Aerospace Corporation and subsidiaries. This audit provides an
objective outside review of management's responsibility to report operating
results and financial condition. They audit and perform tests, as
appropriate, of the data included in the financial statements.
/s/ Chris A. Davis
Chris A. Davis
Executive Vice President and
Chief Financial and Administrative Officer
February 1, 1999
<PAGE>
QUARTERLY FINANCIAL RESULTS (UNAUDITED)
The following tables set forth the unaudited consolidated statements of
operating data for each quarter of 1998 and 1997. The operating results for
any quarter are not indicative of results for any future period.
<TABLE>
<CAPTION>
1998 First Second Third Fourth
- ---------------------------------------------------------------------------------------------------------
(In thousands, except deliveries and per share amounts)
<S> <C> <C> <C> <C>
Net revenues $503,407 $557,042 $626,177 $741,332
Gross profit 99,338 125,817 138,816 156,238
Income from operations (1) 69,246 91,607 103,676 108,163
Net income 40,481 55,577 64,721 64,509
Earnings per share:
Basic $ .56 $ .75 $ .88 $ .89
Diluted $ .54 $ .73 $ .86 $ .87
Aircraft deliveries (in units):
Gulfstream IV-SP (green) 6 8 9 9
Gulfstream V (green) 7 7 7 8
Completion -- Gulfstream 7 9 11 19
Completion -- Non-Gulfstream - - 5 3
Pre-owned aircraft 3 4 2 3
-----------------------------------------------
1997 First Second Third Fourth
- ---------------------------------------------------------------------------------------------------------
(In thousands, except deliveries and per share amounts)
<S> <C> <C> <C> <C>
Net revenues $375,626 $522,906 $464,036 $540,926
Gross profit 70,474 76,010 91,053 108,437
Income from operations (1) 47,037 45,445 60,668 75,546
Net income 40,030 39,504 119,088(2) 44,389(2)
Earnings per share:
Basic $ .54 $ .53 $ 1.61 $ .60
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
-----------------------------------------------
<FN>
(1) Non-cash compensation expense of $0.3 million, $0.5 million, $0.1
million, and $6.0 million was recorded in each of the 1998 quarters,
and $0.5 million, $0.5 million, $0.3 million, and $0.3 million was
recorded in each of the 1997 quarters, respectively, related to the
issuance of options to purchase common stock. See Note 11 to the
consolidated financial statements.
(2) As described under the caption Income Taxes on page 22, 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 share -- diluted is presented for
all periods assuming an estimated effective tax rate of 37.5%.
</FN>
</TABLE>
QUARTERLY COMMON STOCK PRICE RANGE
1998 First Second Third Fourth
- --------------------------------------------------------------------------------
High $44.44 $46.94 $51.50 $57.44
Low 28.75 41.25 31.13 29.00
-----------------------------------------
1997 First Second Third Fourth
- --------------------------------------------------------------------------------
High $24.13 $32.75 $31.13 $32.06
Low 21.25 21.75 26.00 26.50
-----------------------------------------
Gulfstream Aerospace Corporation's common stock is traded principally on
the New York Stock Exchange under the symbol GAC. At March 1, 1999, there
were approximately 245 holders of record. The Company has never paid cash
dividends on its common stock and does not anticipate paying any cash
dividends in the near future.
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
Fiscal Year 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues $2,427,958 $1,903,494 $1,063,713 $1,041,514 $901,638
Income from operations 372,692 228,696 50,269 42,090 43,883
Net income 225,288 243,011 46,965 28,894 23,564
Earnings per share:
Basic (1) 3.08 3.28 .64 .39 N/A
Diluted (1) 3.00 3.12 .60 .37 N/A
------------------------------------------------------------
Pro forma (fully taxed)
Earnings per share--diluted (2) 3.00 1.68 0.37 0.23 N/A
BALANCE SHEET DATA
Working capital $ 139,407 $ 295,811 $ 138,091 $ 356,976 $301,913
Total assets 1,614,134 1,473,667 1,313,215 981,253 745,761
Total debt 361,000 380,000 400,000 146,331 178,145
Total stockholders' equity (deficit)(3) 195,680 92,757 (188,811) 217,540 188,950
------------------------------------------------------------
<FN>
(1) 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 11 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.
(2) Pro forma (fully taxed) earnings per share -- diluted is presented for
all periods prior to 1998 assuming an effective tax rate of 37.5%.
(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 23.
</FN>
</TABLE>
CORPORATE INFORMATION
CORPORATE OFFICES
Gulfstream Aerospace Corporation
500 Gulfstream Road
Savannah, Georgia 31408
912 965-3000
MAILING ADDRESS
P.O. Box 2206
Savannah, Georgia 31402-2206
WEBSITE
www.gulfstreamaircraft.com
STOCK LISTINGS
New York Stock Exchange
Symbol "GAC"
ANNUAL MEETING
May 19, 1999 at 9:30 a.m.
St. Regis Hotel
Two East 55th Street
Iridium Room-Lower Level
New York, New York 10022
TRANSFER AGENT & REGISTRAR
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, New Jersey 07660
800 526-0801
www.chasemellon.com
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
191 Peachtree Street
Atlanta, Georgia 30303
FINANCIAL INFORMATION
Copies of Gulfstream's annual report and Form 10-K submitted to the
Securities and Exchange Commision may be obtained by visiting the Company's
website or by written request to:
Gulfstream Investor Relations
P.O. Box 2206, Mail Stop A-01
Savannah, Georgia 31402-2206
<PAGE>
Gulfstream(R)
P.O. Box 2206 Savannah, Georgia 31402-2206
912 965-3000 www.gulfstreamaircraft.com
EXHIBIT 21.1
<TABLE>
<CAPTION>
SUBSIDIARIES OF GULFSTREAM AEROSPACE CORPORATION
<S> <C> <C>
Subsidiary Name Doing Business As Jurisdiction of Incorporation
--------------- ----------------- -----------------------------
Gulfstream Aerospace Corporation California
Gulfstream Delaware Corporation Delaware
Gulfstream International Corporation Delaware
Gulfstream Aircraft Incorporated Georgia
Gulfstream Financial Services Corporation Georgia
Gulfstream Aerospace Corporation Georgia
Gulfstream Aerospace Corporation Gulfstream Aerospace Technologies Oklahoma
Gulfstream Aerospace Corporation of Texas Texas
Gulfstream Aerospace (Middle East) Ltd. Cyprus
Interiores Aereos S.A. De C.V. Mexico
Gulfstream Aerospace Services Corporation Gulfstream Aerospace Corporation Delaware
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Dec-31-1998
<CASH> 38
<SECURITIES> 0
<RECEIVABLES> 264<F1>
<ALLOWANCES> 3<F1>
<INVENTORY> 730
<CURRENT-ASSETS> 1,056
<PP&E> 169<F2>
<DEPRECIATION> 123<F2>
<TOTAL-ASSETS> 1,614
<CURRENT-LIABILITIES> 916
<BONDS> 286
0
0
<COMMON> 1
<OTHER-SE> 195
<TOTAL-LIABILITY-AND-EQUITY> 1,614
<SALES> 2,428
<TOTAL-REVENUES> 2,454
<CGS> 1,908
<TOTAL-COSTS> 2,055
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21
<INCOME-PRETAX> 352
<INCOME-TAX> 127
<INCOME-CONTINUING> 225
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 225
<EPS-PRIMARY> 3.08
<EPS-DILUTED> 3.00
<FN>
Amounts inapplicable or not disclosed as a separate line on the Statement
of Financial Position or Results of Operations are reported as 0 herein.
<F1> Notes and accounts receivable - trade are reported net of allowances
for doubtful accounts in the Consolidated Balance Sheet.
<F2> Property, plant and equipment are reported net of accumulated
depreciation in the Consolidated Balance Sheet.
</FN>
</TABLE>
EXHIBIT 99.1
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES REFORM ACT OF 1995
-------------------------------------------------------
Gulfstream Aerospace Corporation (the "Company" or "Gulfstream")
cautions readers that the important factors set forth below, as well as
factors discussed in other documents filed by the Company with the
Securities and Exchange Commission (the "SEC"), among others, could cause
the Company's actual results to differ materially from statements contained
in this report, future filings by the Company with the SEC, the Company's
press releases and oral statements made by or on behalf of the Company.
The words "estimate", "project", "anticipate", "expect", "intend",
"believe", "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 1999 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 plans to
deliver approximately 65 green aircraft in fiscal 1999. 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 five 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 number of deliveries in any period could have a
material adverse effect on the results of operations 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 inventory step-up
resulting from the K-C Aviation acquisition and pre-owned aircraft, which
are typically sold at break-even levels) to continue to improve. Risks
associated with 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 margin improvements. 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, 1998, the Company had a financial contract backlog of
approximately $3.3 billion. 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 an aircraft is delayed more than three 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 75% of the Company's
backlog consists of North American customers and 43% 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.
YEAR 2000 READINESS
As part of the Company's initiatives, begun in 1996, to increase
production rates and co-produce the Gulfstream IV-SP 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 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 issue.
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. Management
of the Company believes it has an effective program in place to address the
Year 2000 issue in a timely manner. As a component of the Year 2000
Compliance Plan, the Company is developing contingency plans to mitigate
the effects of potential problems experienced by it or its key suppliers or
governmental agencies in the timely implementation of its Year 2000
Compliance Plan. Nevertheless, since it is not possible to anticipate all
future outcomes, especially when third parties are involved, there could be
circumstances in which the Company's operations would be adversely
affected.
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 and ultra-long range business aircraft is
highly competitive. The Gulfstream IV-SP competes in the large cabin
business aircraft market segment, principally with Dassault Aviation S.A.'s
Falcon 900EX and 900B. The Gulfstream V competes in the ultra-long range
business aircraft market segment, primarily with Bombardier Inc.'s Global
Express and, to a lesser extent, corporate versions of the Boeing 737 and
Airbus A319. The Company's competitors may have access to greater resources
(including, in certain cases, governmental subsidies) than are available to
the Company.
The Company's ability to compete successfully in the large and
ultra-long range business 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.
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.
