EXHIBIT 99.1
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES REFORM ACT OF 1995
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Gulfstream Aerospace Corporation (the "Company" or "Gulfstream")
cautions readers that the important factors set forth below, as well as
factors discussed in other documents filed by the Company with the
Securities and Exchange Commission (the "SEC"), among others, could cause
the Company's actual results to differ materially from statements contained
in this report, future filings by the Company with the SEC, the Company's
press releases and oral statements made by or on behalf of the Company.
The words "estimate", "project", "anticipate", "expect", "intend",
"believe", "target" and similar expressions are intended to identify
forward looking statements. In addition, these factors relate specifically
to the Company's statements regarding earnings per share for 1998 and
subsequent years and the assumptions underlying those statements, including
assumptions regarding green aircraft deliveries, completions, margin
improvements, new aircraft sales and backlog stability.
Aircraft Production and Completion
The Company records revenue from the sale of a new "green" aircraft
(i.e., before exterior painting and installation of customer selected
interiors and optional avionics) when the green aircraft is delivered to
the customer. The Company records revenues from completion services when
the outfitted aircraft is delivered to the customer. The Company is
currently targeting 58 green aircraft deliveries in 1998 and 64 green
aircraft deliveries in 1999. Completions are projected to nearly double in
1998. Risks associated with green deliveries and completions include the
following:
Purchased Materials and Equipment. Approximately 70% of the
production costs of both the Gulfstream IV-SP and the Gulfstream V
consist of materials and equipment purchased from other manufacturers.
While the Company's production activities have never been materially
affected by its inability to obtain components, and while the Company
maintains business interruption insurance in the event that a
disruption should occur, the failure of the Company's suppliers to
meet the Company's performance specifications, quality standards or
delivery schedules could have a material adverse impact on the
Company's delivery schedule.
Workforce. The Company's ability to meet its production and
completion schedules depends on the Company meeting its needs for
skilled labor. Although the Company's ability to hire required skilled
labor has not to date adversely affected its ability to meet its
production and completion schedules, there can be no assurance that
this favorable condition will continue. In 1996, the Company entered
into a 5-year contract with a union representing certain of its
employees at its Oklahoma Facility. Although employee relations are
generally good, a work stoppage or other labor action could materially
and adversely affect the Company's production schedule.
Facilities. Green aircraft are assembled at one facility.
Detailed parts and subassemblies are manufactured at two additional
facilities. Completions are performed at three facilities. Although
the Company maintains property and business interruption insurance,
any severe property damage or other casualty loss at one of these
facilities could materially and adversely affect the Company's
delivery schedule.
Gulfstream V Efficiency. The Company expects to become more
efficient at producing and completing Gulfstream V aircraft as it
gains more experience in this aircraft program. If the Company is
unable to achieve anticipated efficiencies, its delivery schedule
could be adversely impacted.
Period-to-Period Fluctuations. Since the Company relies on the
sales of a relatively small number of high unit selling price new
aircraft to provide the substantial portion of its revenues, even a
small decrease in the number of deliveries in any period could have a
material adverse effect on the results of operation for that period.
As a result, a delay or an acceleration in the delivery of new
aircraft may affect the Company's revenues for a particular quarter or
year and may make quarter-to-quarter or year-to-year comparisons
difficult.
Margin Improvements
The Company expects gross margins (excluding pre-owned aircraft, which
are typically sold at break-even levels) to improve from 20% in 1997 to the
mid-20s by the end of 1998. Risks associated with projected margin
improvement include the following:
Gulfstream V Learning Curve. The Company expects production and
completion costs to fall as the Company gains more experience in
producing and completing Gulfstream V aircraft. Delays in anticipated
cost reductions would adversely affect projected margin improvements.
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 June 30, 1998, the Company had a backlog of $2.9 billion. The
Company is currently selling outfitted Gulfstream IV-SPs for delivery in
the first half of 2000 and outfitted Gulfstream Vs for delivery in the
second half of 2000. Although the Company's revenues are, therefore,
essentially under contract for the foreseeable future, the following
factors could adversely affect the stability of the backlog:
New Orders. The Company's principal business is the design,
development, manufacture and marketing of large and ultra-long range
business jet aircraft. Because of the high unit selling price of its
aircraft products and the availability of commercial airlines and
charters as alternative means of business travel, a downturn in
general economic conditions could result in a reduction in the orders
received by the Company for its new and pre-owned aircraft. The
Company would not be able to rely on sales of other products to offset
a reduction in sales of its aircraft. If a potential purchaser is
experiencing a business downturn or is otherwise seeking to limit its
capital expenditures, the high unit selling price of a new Gulfstream
aircraft could result in the potential purchaser deferring its
purchase or changing its operating requirements and electing to
purchase a competitor's lower priced aircraft. In addition, if a
significant number of customers resell their purchase contracts, the
Company's new order intake could be adversely affected. If the
Company's new order intake rate varies, the Company could be required
to adjust its production rate.
Production Delays. While the Company generally receives
non-refundable deposits in connection with each order, an order may be
canceled (and the deposit returned) under certain conditions if the
delivery of a Gulfstream V aircraft is delayed more than six months
after a customer's scheduled delivery date. An extended delay in the
production or completion process could cause an increase in the number
of cancellations of orders, which could have an adverse effect on the
Company's results of operations.
Business and Economic Conditions. Although 80% of the Company's
backlog consists of North American customers and 65% of North American
customers are Fortune 500 companies, adverse business and economic
conditions could cause customers to be unable or unwilling to
consummate the purchase of an aircraft and could, therefore, increase
the number of cancellations experienced by the Company.
Year 2000 Compliance
As part of the Company's initiatives, begun in 1996, to increase
production rates and co-produce the Gulfstream IV and Gulfstream V, the
Company has, and continues to, upgrade and replace business systems and
facility infrastructure. These initiatives help to reduce the potential
impact of the Year 2000 date issue on the Company's operations. In
addition, the Company has implemented a Year 2000 Compliance Plan designed
to ensure that all other hardware, software, systems, and products with
microprocessors relevant to the Company's business are not adversely
affected by the Year 2000 date issue. The Company is also reviewing
compliance by suppliers and vendors and the impact of the Year 2000 issue
on in-service customer aircraft. The Company does not believe that the
implementation of this Year 2000 Compliance Plan will have a material
effect on the Company's business operations, financial condition, liquidity
or capital resources. However, there can be no assurance, with regard to
compliance by customers and suppliers, that all aspects of their Year 2000
compliance plans will be successfully completed in a timely manner.
Safety Record
The Company believes that its reputation and the exemplary safety
record of its aircraft are important selling points for new and pre-owned
Gulfstream aircraft. However, if one or a number of catastrophic events
were to occur with the Gulfstream fleet, Gulfstream's reputation and sales
of Gulfstream aircraft could be adversely affected.
Pre-Owned Aircraft Market
In many cases, the Company has agreed to accept, at the customer's
option, the customer's pre-owned aircraft as a trade-in in connection with
the purchase of a Gulfstream IV-SP or Gulfstream V. Based on the current
market for pre-owned aircraft, the Company expects to continue to be able
to resell pre-owned aircraft taken in trade, and does not expect to suffer
a loss with respect to these trade-ins and resales. However, an increased
level of pre-owned aircraft or changes in the market for pre-owned aircraft
may increase the Company's inventory costs and may result in the Company
receiving lower prices for its pre-owned aircraft.
Competition
The market for large cabin business jet aircraft is highly
competitive. The Gulfstream IV-SP competes in the large cabin business jet
aircraft market segment, principally with Dassault Aviation S.A. and
Bombardier Inc. ("Bombardier"). The Gulfstream V competes in the ultra-long
range business jet aircraft market segment, primarily with the Global
Express, which is being marketed by Canadair, a subsidiary of Bombardier,
and which will not be certified until more than 18 months after the initial
delivery of the Gulfstream V. The Boeing Company, in partnership with
General Electric Co., is marketing a version of the Boeing 737 into the
ultra-long range business jet aircraft market segment. Boeing has indicated
that it expects this aircraft to be available for delivery in the fourth
quarter of 1998. In June 1997, Airbus Industrie announced it would market a
version of the Airbus A319 into this market segment as well. Airbus has
indicated that it expects the aircraft to be available in early 1999. The
Company's competitors may have access to greater resources (including, in
certain cases, governmental subsidies) than are available to the Company.
The Company's ability to compete successfully in the large business
jet and ultra-long range business jet aircraft markets over the long term
requires continued technological and performance enhancements to Gulfstream
aircraft. No assurance can be given that the Company's competitors will not
be able to produce aircraft capable of performance comparable or superior
to Gulfstream aircraft in the future.
Increased price-based competition by the Company's competitors could
pressure the Company to also reduce its prices. Price reductions could have
a significant impact on the Company's margins. In addition, if a
significant number of customers were to cancel orders for the Company's
aircraft in order to purchase a competitive product, there could be a
material adverse effect on the Company's backlog.
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.