-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VyS447oOGX/14hfbqR10v4afUuJuNs0LRGgQb6rMlNVBtcmOaJKLQf0o+bI6tLvt scvBpksmMlJbB1zZokCe8g== 0000895345-97-000424.txt : 19971114 0000895345-97-000424.hdr.sgml : 19971114 ACCESSION NUMBER: 0000895345-97-000424 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GULFSTREAM AEROSPACE CORP CENTRAL INDEX KEY: 0000715355 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT [3721] IRS NUMBER: 133554834 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08461 FILM NUMBER: 97713795 BUSINESS ADDRESS: STREET 1: P O BOX 2206 STREET 2: 500 GULFSTREAM RD - TRAVIS FIELD CITY: SAVANNAH STATE: GA ZIP: 31402-2206 BUSINESS PHONE: 9129643000 MAIL ADDRESS: STREET 1: 500 GULFSTREAM RD STREET 2: TRAVIS FIELD CITY: SAVANNAH STATE: GA ZIP: 31402-2206 10-Q 1 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 ---------------------- COMMISSION FILE NO. 1-8461 ---------------------- GULFSTREAM AEROSPACE CORPORATION P. O. Box 2206 500 Gulfstream Road Savannah, Georgia 31402-2206 Telephone: (912) 965-3000 State of incorporation: Delaware IRS identification number: 13-3554834 ------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ______ As of November 3, 1997, there were 74,135,680 shares of Gulfstream Aerospace Corporation Common Stock outstanding. =============================================================================== GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION PAGE NO. -------- ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Balance Sheets September 30, 1997 and December 31, 1996................3 Consolidated Statements of Income Three and nine months ended September 30, 1997 and 1996................................................4 Consolidated Statement of Stockholders' Equity Nine months ended September 30, 1997....................5 Consolidated Statements of Cash Flows Nine months ended September 30, 1997 and 1996...........6 Notes to Consolidated Financial Statements.............7-9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................10-13 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS........................................14 ITEM 2. CHANGES IN SECURITIES....................................14 ITEM 3. DEFAULTS UPON SENIOR SECURITIES..........................14 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............................................14 ITEM 5. OTHER INFORMATION........................................14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.........................14 SIGNATURE................................................15 GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited) SEPTEMBER DECEMBER 30, 31, 1997 1996 ------------ ----------- ASSETS Cash and cash equivalents $ 242,141 $233,172 Accounts receivable (less allowance for doubtful accounts: $1,136 and $3,243) 129,349 137,342 Inventories 654,186 655,237 Deferred income taxes 54,250 - Prepaids and other assets 6,876 7,915 ------------ ----------- Total current assets 1,086,802 1,033,666 Property and equipment, net 122,454 126,503 Tooling 45,020 47,677 Goodwill, net of accumulated amortization: $8,130 39,259 35,799 and $7,322 Other intangible assets, net 51,753 55,556 Deferred income taxes 35,050 - Other assets and deferred charges 16,827 14,014 ------------ ----------- Total Assets $1,397,165 $1,313,215 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of long-term debt $ 62,917 $ 20,000 Accounts payable 140,093 129,410 Accrued liabilities 96,618 111,243 Customer deposits -- current portion 498,030 634,922 ------------ ----------- Total current liabilities 797,658 895,575 Long-term debt 323,750 380,000 Accrued postretirement benefit cost 113,845 108,705 Customer deposits -- long-term 111,176 109,037 Other long-term liabilities 9,324 8,709 Commitments and contingencies Stockholders' equity Common stock; $.01 par value; 300,000,000 shares authorized; 86,114,119 shares issued in 1997 and 85,890,212 shares issued in 1996 861 859 Additional paid-in capital 363,971 333,686 Accumulated deficit (270,349) (468,971) Minimum pension liability (1,464) (1,464) Unamortized stock plan expense (1,118) (2,432) Less: Treasury stock: 11,978,439 shares in 1997 (50,489) (50,489) and 1996 ------------ ----------- Total stockholders' equity 41,412 (188,811) ------------ ----------- Total Liabilities and Stockholders' Equity $1,397,165 $1,313,215 ============ =========== See notes to consolidated financial statements GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------- --------------------- 1997 1996 1997 1996 --------- --------- ---------- --------- Net revenues $464,036 $283,834 $1,362,568 $742,506 Cost and expenses Cost of sales 372,983 222,495 1,125,031 577,336 Selling and administrative 23,920 24,819 69,517 70,009 Stock option compensation expense 329 1,463 1,314 6,663 Research and development 4,305 16,356 8,079 51,102 Amortization of intangibles and deferred charges 1,831 1,882 5,477 5,645 -------- -------- ---------- -------- Total costs and expenses $403,368 $267,015 $1,209,418 $710,755 -------- -------- ---------- -------- Income from operations 60,668 16,819 153,150 31,751 Interest income 2,839 3,613 8,201 11,206 Interest expense (7,495) (3,185) (23,305) (10,351) --------- --------- ---------- --------- Income before income taxes 56,012 17,247 138,046 32,606 Income tax benefit (63,076) - (60,576) - --------- --------- ---------- --------- Net Income $119,088 $ 17,247 $ 198,622 $ 32,606 ========= ========= ========== ========= Earnings Per Share: Net income per share $ 1.54 $ .22 $ 2.54 $ .42 ========= ========= ========== ========= Weighted average common and common equivalent shares outstanding 77,105 78,535 78,127 78,535 ========= ========= ========== =========
See notes to consolidated financial statements GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (In thousands) (Unaudited)
Additional Minimum Unamortized Total Common Paid-In Accumulated Pension Stock Plan Treasury Stockholders' Stock Capital Deficit Liability Expense Stock Equity ------------------------------------------------------------------------ Balance as of December 31, 1996 $859 $333,686 $(468,971) $(1,464) $(2,432) $(50,489) $(188,811) Net income 198,622 198,622 Amortization of stock 1,314 1,314 plan expense Exercise of common 2 886 888 stock options Tax benefit of common 29,399 29,399 stock options ------------------------------------------------------------------------ Balance as of September $861 $363,971 $(270,349) $(1,464) $(1,118) $(50,489) $41,412 30, 1997 ========================================================================
See notes to consolidated financial statements GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1997 1996 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $198,622 $ 32,606 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 24,342 18,273 Postretirement benefit cost 5,140 5,051 Provision for loss on pre-owned aircraft (1,100) 1,000 Non-cash stock option compensation expense 1,314 6,663 Deferred income tax benefit (64,801) Other, net 712 322 Change in assets and liabilities: Accounts receivable 7,986 (66,048) Inventories 2,151 (205,997) Prepaids, other assets, and deferred charges (2,640) (2,784) Accounts payable and accrued liabilities (3,942) 17,794 Customer deposits (134,753) 410,314 Other long-term liabilities 615 (2,641) --------- --------- Net Cash Provided by Operating Activities 33,646 214,553 CASH FLOWS FROM INVESTING ACTIVITIES Expenditures for property and equipment (9,619) (9,518) Dispositions of property and equipment 24 Expenditures for tooling (2,613) (1,593) --------- --------- Net Cash Used in Investing Activities (12,232) (11,087) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from exercise of common stock options 888 78 Principal payments on long-term debt (13,333) (39,799) Repurchase of preferred stock (18,938) Dividends paid on preferred stock (104,010) --------- --------- Net Cash Used in Financing Activities (12,445) (162,669) Increase in cash and cash equivalents 8,969 40,797 Cash and cash equivalents, beginning of period 233,172 223,312 ========= ========= Cash and cash equivalents, end of period $242,141 $ 264,109 ========= ========= See notes to consolidated financial statements GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared by the Company pursuant to the rules of the Securities and Exchange Commission ("SEC") and, in the opinion of the Company, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of financial position, results of operations and cash flows. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to SEC rules. The operating results for the three and nine months ended September 30, 1997 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 1996 included in the Company's 1996 Annual Report to Stockholders. NOTE 2. NET INCOME PER SHARE Net income per share is based on net income divided by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares consist of the Company's stock issuable upon exercise of common stock options determined using the treasury stock method. For the 1996 periods, net income per share is calculated based on historical net income and assuming the Company's initial public offering and related transactions that occurred during October 1996 and the issuance of stock options in 1996 had occurred as of the beginning of the respective reporting period. NOTE 3. INVENTORIES Inventories consisted of the following at: September December 30, 31, 1997 1996 ------------ ------------ (In thousands) Work in process $334,760 $355,198 Raw materials 140,270 108,041 Pre-owned aircraft 116,122 87,680 Vendor progress payments 63,034 104,318 ------------ ------------ $654,186 $655,237 ============ ============ NOTE 4. COMMITMENTS AND CONTINGENCIES In the normal course of business, lawsuits, claims and proceedings have been or may be instituted or asserted against the Company relating to various matters, including products liability. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to the Company, management has made provision for all known probable losses related to lawsuits and claims and believes that the disposition of all matters which are pending or asserted will not have a material adverse effect on the financial statements of the Company. The Company is involved in a tax audit by the Internal Revenue Service covering the years ended December 31, 1991 and 1990. The revenue agent's report includes several proposed adjustments involving the deductibility of certain compensation expense, items relating to the initial capitalization of the Company, the allocation of the original purchase price for the acquisition by the Company of the Gulfstream business, including the treatment of advance payments with respect to and the cost of aircraft that were in backlog at the time of the acquisition, and the amortization of amounts allocated to intangible assets. The Company believes that the ultimate resolution of these issues will not have a material adverse effect on its financial statements because the financial statements already reflect what the Company currently believes is the expected loss of benefit arising from the resolution of these issues. The Company is currently engaged in the monitoring and cleanup of certain ground water at its Savannah facility under the oversight of the Georgia Department of Natural Resources. Expenses incurred for cleanup have not been significant. The Company received in 1992, at its Long Beach facility, two inquiries from the U.S. Environmental Protection Agency and, in 1991, at its Oklahoma facility, a soil contamination inquiry. The Company believes other aspects of the Savannah facility, as well as other Gulfstream properties, are being carefully monitored and are in substantial compliance with current federal, state and local environmental regulations. The Company believes the liabilities, if any, that will result from the above environmental matters will not have a material adverse effect on its financial statements. NOTE 5. INCOME TAXES The Company recorded a net income tax benefit of $63.1 million and $60.6 million for the quarter and nine month period ended September 30, 1997, respectively. No provision for income taxes for the quarter and nine month period ended September 30, 1996 was recorded, principally as a result of utilization of net operating loss carryforwards. The Company, in estimating the realizability of its net deferred tax assets, considers both positive and negative evidence and gives greater weight to evidence that is objectively verifiable. As a result of numerous factors, including, but not limited to recent earnings trends, the Company currently believes its net deferred tax asset is more likely than not to be realized, and released in the quarter ended September 30, 1997 its deferred tax valuation allowance, totalling approximately $94 million, of which $29 million of such benefits related to the exercise of stock options and was credited to additional paid-in capital and the remainder, $65 million was recorded as a one-time, non-cash tax benefit. The Company had available at September 30, 1997 net operating loss carryforwards for regular federal income tax purposes of approximately $115.0 million which will begin expiring in 2006. NOTE 6. NEW ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share, which will be effective for the Company's 1997 annual financial statements. SFAS No. 128 simplifies the standards for computing earnings per share (EPS) information and makes the computation comparable to international EPS standards. SFAS No. 128 replaces the presentation of "primary" (and when required "fully diluted") EPS with a presentation of "basic" and "diluted" EPS. Pro forma amounts under the provisions of SFAS No. 128 are set forth below: Three months ended Nine months ended September 30, September 30, --------------------- ------------------- 1997 1996 1997 1996 --------- --------- --------- -------- Basic EPS $1.61 $0.23 $2.68 $0.44 Diluted EPS $1.54 $0.22 $2.54 $0.42 In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which are both effective no later than for the Company's 1998 fiscal year. These two new statements may affect the Company's financial statement disclosures. The Company is evaluating how and when to implement these new disclosure statements. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Notes to Consolidated Financial Statements beginning on page 7 and with Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and the audited Consolidated Financial Statements and Notes to Consolidated Financial Statements appearing in the Company's 1996 Annual Report to Stockholders. COMPARISON OF RESULTS OF OPERATIONS FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 Net Revenues. Net revenues increased by $180.2 million, or 63%, to $464.0 million in the third quarter of 1997 from $283.8 million in the third quarter of 1996. The significant increase resulted primarily from the delivery of 14 new aircraft, six Gulfstream IV-SPs and eight Gulfstream Vs, as compared with nine aircraft, all Gulfstream IV-SPs, in the third quarter of 1996. During the nine months ended September 30, 1997, total net revenues increased by $620.1 million, or 84%, to $1,362.6 million from $742.5 million for the nine months ended September 30, 1996. For the nine months ended September 30, 1997, Gulfstream delivered 37 new aircraft, 16 Gulfstream IV-SPs and 21 Gulfstream Vs, up from 20 Gulfstream IV-SPs and no Gulfstream Vs in the same period of 1996. Also contributing to the increase were revenues of $158.4 million from the sale of 12 pre-owned aircraft for the nine months as compared to revenues of $100.3 million from the sale of 10 aircraft in the corresponding period in 1996. Cost of Sales. Total cost of sales increased $150.5 million to $373.0 million in the third quarter of 1997 from $222.5 million in the third quarter of 1996, and increased $547.7 million to $1,125.0 million for the nine months ended September 30, 1997 from $577.3 million for the nine months ended September 30, 1996. These increases were a result of the higher number of new aircraft and pre-owned aircraft deliveries discussed above. Excluding pre-owned aircraft, which generally are sold at break-even levels, the gross profit percentage for the third quarter of 1997 was 19.3% compared to 24.7% for the third quarter of 1996, and for the nine months ended September 30, 1997, the gross profit percentage was 19.1% compared to 26.0% for the comparable period in 1996. The decline in gross profit percentage is primarily attributable to the introduction of the Gulfstream V aircraft into production and the higher costs associated with the early stages of the Gulfstream V production program. The Company expects the margin percentage of revenue on the Gulfstream V to approach that of the Gulfstream IV-SP over the next 12-18 months. Selling and Administrative Expense. Selling and administrative expense of $23.9 million in the third quarter of 1997 was relatively unchanged compared to $24.8 million for the third quarter of 1996. For the nine months ended September 30, 1997, selling and administrative expense was $69.5 million as compared to $70.0 million for the nine months ended September 30, 1996. As a percentage of net revenues, selling and administrative expense decreased to 5.2% during the third quarter of 1997 compared to 8.7% in the third quarter of 1996, and decreased to 5.1% during the nine months ended September 30, 1997 versus 9.4% in the comparable period of 1996, both as a result of higher revenues in 1997. Stock Option Compensation Expense. The issuance of options to purchase common stock of the Company resulted in a non-cash compensation charge of $0.3 million and $1.3 million during the third quarter of 1997 and the nine months ended September 30, 1997, respectively, compared to $1.5 million and $6.7 million for the comparable periods in 1996. Research and Development Expense. Research and development expense decreased by $12.1 million to $4.3 million for the third quarter of 1997 from $16.4 million for the third quarter of 1996, principally as a result of the substantial completion of the Gulfstream V development program. For the nine month period ended September 30, 1997, research and development expense decreased by $43.0 million to $8.1 million from $51.1 million for the corresponding period in 1996. Research and development expense for the nine months ended September 30, 1997 is net of a $10.0 million credit for launch assistance funds received from a vendor participating in the development of the Gulfstream V. Interest Income and Expense. Interest income decreased by $0.8 million to $2.8 million in the third quarter of 1997 and decreased by $3.0 million to $8.2 million in the nine months ended September 30, 1997 from the comparable 1996 periods. In each case, the decrease was a result of lower average cash balances invested during the 1997 periods. Interest expense increased by $4.3 million to $7.5 million for the third quarter of 1997 and by $13.0 million to $23.3 million for the nine months ended September 30, 1997, respectively, over the comparable periods in 1996. This increase was principally due to the increase in average long-term borrowings resulting from the Company's new credit facilities. Provision (Benefit) for Income Taxes. The Company recorded a net income tax benefit of $63.1 million and $60.6 million for the quarter and nine month period ended September 30, 1997, respectively. No provision for income taxes for the quarter and nine month period ended September 30, 1996 was recorded, principally as a result of utilization of net operating loss carryforwards. The Company, in estimating the realizability of its net deferred tax assets, considers both positive and negative evidence and gives greater weight to evidence that is objectively verifiable. As a result of numerous factors, including, but not limited to recent earnings trends, the Company currently believes its net deferred tax asset is more likely than not to be realized, and released in the quarter ended September 30, 1997 its deferred tax valuation allowance, totalling approximately $94 million, of which $29 million of such benefits related to the exercise of stock options and was credited to additional paid-in capital and the remainder, $65 million was recorded as a one-time non-cash tax benefit. The Company had available at September 30, 1997 net operating loss carryforwards for regular federal income tax purposes of approximately $115.0 million which will begin expiring in 2006. Earnings Per Share. The Company reported earnings per share of $1.54 for the third quarter 1997 (or $0.70 per share, excluding the one time tax benefit discussed above) up from the third quarter 1996 of $0.22. For the nine months ended September 30, 1997, earnings per share increased to $2.54 (or $1.71 per share, excluding the one time tax benefit discussed above) from $0.42 for the corresponding period in 1996. On a pro forma basis, assuming an effective tax rate of 37.5%, the Company's earnings per share would have been $0.45 and $0.14 for the quarters ended September 30, 1997 and 1996, respectively and $1.10 and $0.26 for the nine months ended September 30, 1997 and 1996, respectively. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity needs arise from working capital requirements, capital expenditures, and principal and interest payments on long-term debt. During the nine months ended September 30, 1997, the Company relied on its available cash balances to fund these needs. The Company had cash and cash equivalents totaling $242.1 million at September 30, 1997 and available but undrawn borrowings of $200.0 million under a revolving credit facility. Net cash generated by operating activities during the nine months ended September 30, 1997 and 1996, was $33.6 million and $214.6 million, respectively. The reduction in 1997 is primarily attributable to the timing of progress payments on aircraft in backlog for the comparable periods. Capital expenditures for property and equipment and tooling were $12.2 million and $11.1 million, respectively, during the nine months ended September 30, 1997. As a result of continued strong demand for its products, and the Company's objective to make deliveries sooner to its new aircraft customers, Gulfstream announced, during the fourth quarter of 1996, plans to increase its annual production rate to approximately 60 aircraft by 1999, a twofold increase over its 1996 annual production rate. As a result, in 1997 and 1998, the Company's capital expenditures are expected to increase over the two year period by approximately $35 million above previously planned annual levels of approximately $15 million to meet the requirements of the increased production capacity. The Company continually monitors its capital spending in relation to current and anticipated business needs. As circumstances dictate, facilities are added, consolidated, or modernized. At September 30, 1997, borrowings under the Company's credit facilities were $386.7 million. The Company made scheduled payments on its long-term debt of $13.3 million during the nine months ended September 30, 1997, and scheduled repayments remaining are $6.7 million in 1997, $75.0 million in each of the years 1998 through 2001, and $80.0 million in 2002. The Credit Agreement contains customary affirmative and negative covenants including restrictions on the ability of the Company and its subsidiaries to pay cash dividends, as well as financial covenants under which the Company must operate. At September 30, 1997 the Company was in compliance with the covenants of its existing credit agreement. In connection with orders for 25 Gulfstream V aircraft in the backlog, the Company has offered customers trade-in options (which may or may not be exercised) under which the Company will accept trade-in aircraft, primarily Gulfstream IVs and Gulfstream IV-SPs, at a guaranteed minimum trade-in price. In light of the current market for pre-owned Gulfstream aircraft, management believes that the fair market value of such aircraft exceeds the specified trade-in values. As such, Gulfstream does not believe the existence of such commitments will have a material adverse effect on its results of operations, cash flow or financial position. On October 10, 1996, the Company reached an agreement in principle with the Pension Benefit Guaranty Corporation (the "PBGC") concerning funding of the Company's defined benefit pension plans. Pursuant to this agreement, the Company contributed an additional $20 million in 1996, and $18.8 million during the nine months ended September 30, 1997. Further, the Company has agreed to contribute $6.2 million for the remainder of 1997 and a total of $25 million annually from 1998 through 2000 to its pension plans, which payments are expected to result in such plans being fully funded. The payments to be made under this agreement were already part of the Company's overall financial planning, and therefore, are not expected to have a material effect on the Company's financial statements. The Company's principal source of liquidity, both on a short-term and long-term basis, is cash flow provided by operations, including customer progress payments and deposits on new aircraft orders. Occasionally, however, the Company may borrow against the credit agreement to supplement cash flow from operations. The Company believes that based upon its analysis of its consolidated financial position, its cash flow during the past 12 months and the expected results of operations in the future, operating cash flow and available borrowings under the credit agreement will be adequate to fund operations, capital expenditures and debt service for at least the next 12 months. The Company intends to repay its remaining indebtedness primarily with cash flow from operations. There can be no assurance, however, that future industry specific developments or general economic trends will not adversely affect the Company's operations or its ability to meet its cash requirements. CONTRACTUAL BACKLOG At September 30, 1997, Gulfstream had a firm contract backlog of approximately $2.8 billion of revenues, representing a total of 89 aircraft. The Company includes an order in backlog only if the Company has entered into a purchase contract (with no contingencies) with the customer and has received a significant (generally non-refundable) deposit from the customer. The Company continually monitors the condition of its backlog and believes, based on the nature of its customers and its historical experience, that there will not be a significant number of cancellations. However, to the extent that there is a lengthy period of time between a customer's aircraft order and its delivery date, there may be increased uncertainty as to changes in business and economic conditions which may affect customer cancellations. PART II. OTHER INFORMATION ITEM LEGAL PROCEEDINGS 1. Not Applicable. ITEM CHANGES IN SECURITIES 2. Not Applicable. ITEM DEFAULTS UPON SENIOR SECURITIES 3. Not Applicable. ITEM SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 4. Not Applicable. ITEM OTHER INFORMATION 5. Certain statements contained in this Form 10-Q contain "forward-looking" information that involves risk and uncertainty, including, but not limited to, statements regarding planned future deliveries and expenditures. Actual future results and trends may differ materially depending on a variety of factors. For discussion of these factors, see Exhibit 99, Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995. ITEM EXHIBITS AND REPORTS ON FORM 8-K 6. (a) Exhibits The following exhibits are filed as part of this report: Exhibit 11.1 Computation of Earnings per Common Share. Exhibit 27.1 Financial Data Schedule. Exhibit 99.1 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995. (b) Report on Form No reports on Form 8-K were filed during the 8-K quarter ended September 30, 1997. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: November 11, 1997 GULFSTREAM AEROSPACE CORPORATION /s/ Chris A. Davis ---------------------------------- Chris A. Davis Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) EXHIBIT INDEX EXHIBITS Exhibit 11.1 Computation of Earnings per Common Share. Exhibit 27.1 Financial Data Schedule. Exhibit 99.1 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995. EX-11 2 EXHIBIT 11.1 GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE (In thousands, except per share data) (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- --------------------- 1997 1996 1997 1996 --------- ---------- --------- ---------- Net income applicable to common shares $119,088 $17,247 $198,622 $32,606 ========= ========== ========= ========== Shares: Average shares issued and outstanding (after giving effect to the Recapitalization) 74,119 65,403 74,036 65,403 Exercise of certain stock options with the - 3,949 - 3,949 Offering Incremental shares applicable to stock options, excluding the tax benefit, outstanding after the exercise of certain 4,637 4,624 4,641 4,624 stock options with the Offering Incremental shares applicable to the tax (1,651) - (550) - benefit of stock options Shares issued pursuant to the Offering - 4,559 - 4,559 --------- ---------- --------- ---------- Weighted average common and common equivalent shares outstanding 77,105 78,535 78,127 78,535 ========= ========== ========= ========== Net income per common and common equivalent share $ 1.54 $ .22 $ 2.54 $ .42 ========= ========== ========= ========== Note: Shares and stock options issued prior to October 16, 1996, the date of the Offering (see Note 10 to the consolidated financial statements included in the 1996 Annual Report to Stockholders), are treated as outstanding for all reported periods.
EX-27 3 FDS -- WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE. EXHIBIT 27.1 Financial Data Schedule For Period Ended September 30, 1997 GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES (Unaudited) (In millions, except per share data) THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
5 9-MOS DEC-31-1997 SEP-30-1997 242 0 129 1 654 1,087 122 107 1,397 798 323 0 0 1 40 1,397 1,363 1,369 1,125 1,209 0 0 15 138 (61) 199 0 0 0 199 2.54 2.54 Amounts inapplicable or not disclosed as a separate line on the Statement of Financial Position or Results of Operations are reported as 0 herein. Notes and accounts receivable - trade are reported net of allowances for doubtful accounts in the Consolidated Balance Sheet. Property, plant and equipment are reported net of accumulated depreciation in the Consolidated Balance Sheet.
EX-99.1 4 EXHIBIT 99.1 CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES REFORM ACT OF 1995 Gulfstream Aerospace Corporation (the "Company" or "Gulfstream") cautions readers that the important factors set forth below, as well as factors discussed in other documents filed by the Company with the Securities and Exchange Commission (the "SEC"), among others, could cause the Company's actual results to differ materially from statements contained in this report, future filings by the Company with the SEC, the Company's press releases and oral statements made by or on behalf of the Company. The words "estimate", "project", "anticipate", "expect", "intend", "believe", and similar expressions are intended to identify forward looking statements. AIRCRAFT PRODUCTION While the Company generally receives non-refundable deposits in connection with each order, an order may be cancelled (and the deposit returned) under certain conditions if the delivery of a Gulfstream V aircraft is delayed more than six months after a customer's scheduled delivery date. An extended delay in the production process could cause an increase in the number of cancellations of orders, which could have an adverse effect on the Company's results of operations. In contrast to its historical practice of discontinuing prior models, the Company will continue to manufacture and sell Gulfstream IV-SPs at the same time that it manufactures and sells Gulfstream Vs. The Company expects to increase its aircraft production rate in 1997 as compared to its aircraft production rate in 1996. In addition, the Company has announced its plan to increase its annual production rate to approximately 60 aircraft by 1999, a two-fold increase over its 1996 annual production rate. No assurance can be given as to the extent to which the Company can successfully increase its rate of production. THE BUSINESS JET AIRCRAFT MARKET The Company's principal business is the design, development, manufacture and marketing of large and ultra-long range business jet aircraft. Because of the high unit selling price of its aircraft products and the availability of commercial airlines and charters as alternative means of business travel, a downturn in general economic conditions could result in a reduction in the orders received by the Company for its new and pre-owned aircraft. The Company would not be able to rely on sales of other products to offset a reduction in sales of its aircraft. If a potential purchaser is experiencing a business downturn or is otherwise seeking to limit its capital expenditures, the high unit selling price of a new Gulfstream aircraft could result in such potential purchaser deferring its purchase or changing its operating requirements and electing to purchase a competitor's lower priced aircraft. Since the Company relies on the sales of a relatively small number of high unit selling price new aircraft to provide approximately 60% to 70% of its revenues, small decreases in the number of aircraft delivered in any year could have a material adverse effect on the results of operation for that year. The Company believes that its reputation and the exemplary safety record of its aircraft are important selling points for new and pre-owned Gulfstream aircraft. However, if one or a number of catastrophic events were to occur with the Gulfstream fleet, Gulfstream's reputation and sales of Gulfstream aircraft could be adversely affected. In many cases, the Company has agreed to accept, at the customer's option, the customer's pre-owned aircraft as a trade-in in connection with the purchase of a Gulfstream V. Based on the current market for pre-owned aircraft, the Company expects to continue to be able to resell such pre-owned aircraft, and does not expect to suffer a loss with respect to the possible trade-in of such aircraft. However, an increased level of pre-owned aircraft or changes in the market for pre-owned aircraft may increase the Company's inventory costs and may result in the Company receiving lower prices for its pre-owned aircraft. The market for large cabin business jet aircraft is highly competitive. The Gulfstream IV-SP competes in the large cabin business jet aircraft market segment, principally with Dassault Aviation S.A. (which has announced that it will merge with Aerospatiale SA) and Bombardier Inc. ("Bombardier"). The Gulfstream V competes in the ultra-long range business jet aircraft market segment, primarily with the Global Express, which is being marketed by Canadair, a subsidiary of Bombardier, and which, according to published reports, is scheduled for certification in May 1998, 18 months after the initial delivery of the Gulfstream V. The Boeing Company, in partnership with General Electric Co., is marketing a version of the Boeing 737 into the ultra-long range business jet aircraft market segment. Boeing has indicated that it expects this aircraft to be available for delivery in the fourth quarter of 1998. In June 1997, Airbus Industrie announced it would market a version of the Airbus A319 into this market segment as well. Airbus has indicated it expects the aircraft to be available in early 1999. The Company's competitors may have access to greater resources (including, in certain cases, governmental subsidies) than are available to the Company. The Company's ability to compete successfully in the large business jet and ultra-long range business jet aircraft markets over the long term requires continued technological and performance enhancements to Gulfstream aircraft. No assurance can be given that the Company's competitors will not be able to produce aircraft capable of performance comparable or superior to Gulfstream aircraft in the future. PURCHASED MATERIALS AND EQUIPMENT Approximately 70% of the production costs of both the Gulfstream IV-SP and the Gulfstream V consist of materials and equipment purchased from other manufacturers. While the Company's production activities have never been materially affected by its inability to obtain components, and while the Company maintains business interruption insurance in the event that such a disruption should occur, the failure of the Company's suppliers to meet the Company's performance specifications, quality standards, pricing terms or delivery schedules could have a material adverse impact on the profitability of the Company's new aircraft sales or the ability of the Company to timely deliver new aircraft to customers. POSSIBLE FLUCTUATIONS IN QUARTERLY AND ANNUAL RESULTS The Company records revenue from the sale of a new "green" aircraft (i.e., before exterior painting and installation of customer selected interiors and optional avionics) when that aircraft is delivered to the customer. As a result, a delay or an acceleration in the delivery of new aircraft may affect the Company's revenues for a particular quarter or year and may make quarter-to-quarter or year-to-year comparisons difficult. In addition, the Company's production schedule may be affected by many factors, including timing of deliveries by suppliers. PENDING TAX AUDIT The Company is involved in a tax audit by the Internal Revenue Service covering the years ended December 31, 1991 and 1990. The revenue agent's report includes several proposed adjustments involving the deductibility of certain compensation expense, items relating to the initial capitalization of the Company as well as the allocation of the original purchase price for the acquisition by the Company of the Gulfstream business, including the treatment of advance payments with respect to and the cost of aircraft that were in backlog at the time of the acquisition and the amortization of amounts allocated to intangible assets. The Company believes that the ultimate resolution of these issues will not have a material adverse effect on its financial statements because the financial statements already reflect what the Company currently believes is the expected loss of benefit arising from the resolution of these issues. However, because the revenue agent's report is proposing adjustments in amounts materially in excess of what the Company has reflected in its financial statements and because it may take several years to resolve the disputed matters, the ultimate extent of the Company's expected loss of benefit and liability with respect to these matters cannot be predicted with certainty and no assurance can be given that the Company's financial position or results of operations will not be adversely affected. LEVERAGE AND DEBT SERVICE The degree to which the Company is leveraged at a particular time could have important consequences to the Company, including the following: (i) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, product development, acquisitions, general corporate purposes or other purposes may be impaired; (ii) a portion of the Company's and its subsidiaries' cash flow from operations must be dedicated to the payment of the principal of and interest on its indebtedness; (iii) the Company's credit agreement contains certain restrictive financial and operating covenants, including, among others, requirements that the Company satisfy certain financial ratios; (iv) a significant portion of Gulfstream's borrowings will be at floating rates of interest, causing Gulfstream to be vulnerable to increases in interest rates; (v) the Company's degree of leverage may make it more vulnerable in a downturn in general economic conditions; and (vi) the Company's financial position may limit its flexibility in responding to changing business and economic conditions. -----END PRIVACY-ENHANCED MESSAGE-----