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 in
excess of 60 green aircraft deliveries in 1999. Completions are projected
to double in 1998. Risks associated with green deliveries and completions
include the following:
Purchased Materials and Equipment. Approximately 70% of the
production costs of both the Gulfstream IV-SP and the Gulfstream V
consist of materials and equipment purchased from other manufacturers.
While the Company's production activities have never been materially
affected by its inability to obtain components, and while the Company
maintains business interruption insurance in the event that a
disruption should occur, the failure of the Company's suppliers to
meet the Company's performance specifications, quality standards or
delivery schedules could have a material adverse impact on the
Company's delivery schedule.
Workforce. The Company's ability to meet its production and
completion schedules depends on the Company meeting its needs for
skilled labor. Although the Company's ability to hire required skilled
labor has not to date adversely affected its ability to meet its
production and completion schedules, there can be no assurance that
this favorable condition will continue. In 1996, the Company entered
into a 5-year contract with a union representing certain of its
employees at its Oklahoma Facility. Although employee relations are
generally good, a work stoppage or other labor action could materially
and adversely affect the Company's production schedule.
Facilities. Green aircraft are assembled at one facility.
Detailed parts and subassemblies are manufactured at two additional
facilities. Completions are performed at three facilities. Although
the Company maintains property and business interruption insurance,
any severe property damage or other casualty loss at one of these
facilities could materially and adversely affect the Company's
delivery schedule.
Gulfstream V Efficiency. The Company expects to become more
efficient at producing and completing Gulfstream V aircraft as it
gains more experience in this aircraft program. If the Company is
unable to achieve anticipated efficiencies, its delivery schedule
could be adversely impacted.
Period-to-Period Fluctuations. Since the Company relies on the
sales of a relatively small number of high unit selling price new
aircraft to provide the substantial portion of its revenues, even a
small decrease in the number of deliveries in any period could have a
material adverse effect on the results of operation for that period.
As a result, a delay or an acceleration in the delivery of new
aircraft may affect the Company's revenues for a particular quarter or
year and may make quarter-to-quarter or year-to-year comparisons
difficult.
MARGIN IMPROVEMENTS
The Company expects gross margins (excluding pre-owned aircraft,
which are typically sold at break-even levels) to improve from 20% in 1997
to the mid-20s by the end of 1998. Risks associated with projected margin
improvement include the following:
Gulfstream V Learning Curve. The Company expects production and
completion costs to fall as the Company gains more experience in
producing and completing Gulfstream V aircraft. Delays in anticipated
cost reductions would adversely affect projected margin improvements.
Additional costs associated with the learning curve on Gulfstream V
completions are expected to delay margin improvements somewhat in the
first half of 1998. If subsequent improvement is not achieved as
quickly or to the extent anticipated, the Company may be unable to
achieve its margin targets.
Cost of Materials. Approximately 70% of the production costs of
both the Gulfstream IV-SP and the Gulfstream V consist of materials
and equipment purchased from other manufacturers. Although the Company
has in place revenue share and long-term supply arrangements that help
protect it against materials price increases, if the Company
experiences price pressure on materials, margins could be adversely
affected.
STABILITY OF BACKLOG
At December 31, 1997, the Company had a backlog of $2.8 billion.
The Company is currently selling outfitted Gulfstream IV-SPs for delivery
in the fourth quarter of 1999 and outfitted Gulfstream Vs for delivery in
the first half of 2000. Although the Company's revenues are, therefore,
essentially under contract for the foreseeable future, the following
factors could adversely affect the stability of the backlog:
New Orders. The Company's principal business is the design,
development, manufacture and marketing of large and ultra-long range
business jet aircraft. Because of the high unit selling price of its
aircraft products and the availability of commercial airlines and
charters as alternative means of business travel, a downturn in
general economic conditions could result in a reduction in the orders
received by the Company for its new and pre-owned aircraft. The
Company would not be able to rely on sales of other products to offset
a reduction in sales of its aircraft. If a potential purchaser is
experiencing a business downturn or is otherwise seeking to limit its
capital expenditures, the high unit selling price of a new Gulfstream
aircraft could result in the potential purchaser deferring its
purchase or changing its operating requirements and electing to
purchase a competitor's lower priced aircraft. In addition, if a
significant number of customers resell their purchase contracts, the
Company's new order intake could be adversely affected. If the
Company's new order intake rate varies, the Company could be required
to adjust its production rate.
Production Delays. While the Company generally receives
non-refundable deposits in connection with each order, an order may be
canceled (and the deposit returned) under certain conditions if the
delivery of a Gulfstream V aircraft is delayed more than six months
after a customer's scheduled delivery date. An extended delay in the
production or completion process could cause an increase in the number
of cancellations of orders, which could have an adverse effect on the
Company's results of operations.
Business and Economic Conditions. Although 80% of the Company's
backlog consists of North American customers and 65% of North American
customers are Fortune 500 companies, adverse business and economic
conditions could cause customers to be unable or unwilling to
consummate the purchase of an aircraft and could, therefore, increase
the number of cancellations experienced by the Company.
SAFETY RECORD
The Company believes that its reputation and the exemplary safety
record of its aircraft are important selling points for new and pre-owned
Gulfstream aircraft. However, if one or a number of catastrophic events
were to occur with the Gulfstream fleet, Gulfstream's reputation and sales
of Gulfstream aircraft could be adversely affected.
PRE-OWNED AIRCRAFT MARKET
In many cases, the Company has agreed to accept, at the
customer's option, the customer's pre-owned aircraft as a trade-in in
connection with the purchase of a Gulfstream IV-SP or Gulfstream V. Based
on the current market for pre-owned aircraft, the Company expects to
continue to be able to resell pre-owned aircraft taken in trade, and does
not expect to suffer a loss with respect to these trade-ins and resales.
However, an increased level of pre-owned aircraft or changes in the market
for pre-owned aircraft may increase the Company's inventory costs and may
result in the Company receiving lower prices for its pre-owned aircraft.
COMPETITION
The market for large cabin business jet aircraft is highly
competitive. The Gulfstream IV-SP competes in the large cabin business jet
aircraft market segment, principally with Dassault Aviation S.A. and
Bombardier Inc. ("Bombardier"). The Gulfstream V competes in the ultra-long
range business jet aircraft market segment, primarily with the Global
Express, which is being marketed by Canadair, a subsidiary of Bombardier,
and which, according to published reports, is scheduled for certification
in May 1998, 18 months after the initial delivery of the Gulfstream V. The
Boeing Company, in partnership with General Electric Co., is marketing a
version of the Boeing 737 into the ultra-long range business jet aircraft
market segment. Boeing has indicated that it expects this aircraft to be
available for delivery in the fourth quarter of 1998. In June 1997, Airbus
Industrie announced it would market a version of the Airbus A319 into this
market segment as well. Airbus has indicated that it expects the aircraft
to be available in early 1999. The Company's competitors may have access to
greater resources (including, in certain cases, governmental subsidies)
than are available to the Company.
The Company's ability to compete successfully in the large
business jet and ultra-long range business jet aircraft markets over the
long term requires continued technological and performance enhancements to
Gulfstream aircraft. No assurance can be given that the Company's
competitors will not be able to produce aircraft capable of performance
comparable or superior to Gulfstream aircraft in the future.
Increased price-based competition by the Company's competitors
could pressure the Company to also reduce its prices. Price reductions
could have a significant impact on the Company's margins. In addition, if a
significant number of customers were to cancel orders for the Company's
aircraft in order to purchase a competitive product, there could be a
material adverse effect on the Company's backlog.
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 report
and the notice of proposed adjustments include several proposed adjustments
involving the deductibility of certain compensation expense, items relating
to the initial capitalization of the Company, the allocation of the
original purchase price for the acquisition by the Company of the
Gulfstream business, including the treatment of advance payments with
respect to and the cost of aircraft that were in backlog at the time of the
acquisition, and the amortization of amounts allocated to intangible
assets. The Company believes that the ultimate resolution of these issues
will not have a material adverse effect on its financial statements because
the financial statements already reflect what the Company currently
believes is the expected loss of benefit arising from the resolution of
these issues. 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.