[GRAPHIC OMITTED]
EMBRAER ANNOUNCES SECOND QUARTER 2005
RESULTS IN US GAAP
The Company's operating and financial information is presented,
except where otherwise stated, on a consolidated basis in United States
dollars (US$) in accordance with US GAAP. The financial data presented
in this document for the quarters ended June 30, 2005, March 31, 2005
and June 30, 2004 are derived from our unaudited financial statements.
In order to better understand the Company's operating performance, we
are also presenting at the end of this release certain information in
accordance with the Brazilian Corporate Law ("Brazilian GAAP").
Sao Jose dos Campos, August 12, 2005 - Embraer (BOVESPA: EMBR3, EMBR4) (NYSE:
ERJ), the world's leading manufacturer of commercial jets up to 110 seats,
recorded in the second quarter of 2005 net sales of US$812.4 million and net
income of US$83.0 million, equivalent to diluted earnings per ADS of
US$0.4733. At the end of the quarter, our firm order backlog increased by US$1
billion totaling US$10.9 billion, which we believe is a strong indicator of
our commitment towards long-term growth and customer diversification.
Net revenues decreased by 12% to US$812.4 million compared to the same period
last year as a result of a lower number of aircraft delivered during 2Q05.
Looking at the first half of the year, net revenues increased by 1.6% compared
to the first half of 2004, despite a lower number of deliveries, indicating an
improvement in our product mix in the first semester of 2005. As previously
announced by the Company, 60% of the 2005 deliveries are scheduled for the
second half of the year, following the certification of the EMBRAER 175, which
was completed in July, and the EMBRAER 190, expected in August.
The Company recorded a gross margin of 31.4%, representing a 1.2% decrease
over the same period last year, mainly because of the appreciation of the
Brazilian currency. As approximately 15% of our costs of sales and services is
denominated in Brazilian reais, the 18.7% year over year appreciation of the
Brazilian real against the U.S. dollar had a negative impact in our gross
margin.
Despite the appreciation of the Brazilian currency, our 2Q05 bottom line
results were positive as net income and net margin reached US$83.0 million and
10.2%, respectively, an increase over the US$80.2 million and 8.7% recorded in
2Q04.
Nevertheless, our working capital needs increased in the second quarter of
2005 due to the beginning of serial production of the EMBRAER 175 and EMBRAER
190 aircraft scheduled to be delivered during the second half of the year.
Because of higher inventory and high accounts receivable levels, Embraer
recorded a net debt* position of US$228.6 million at the end of the second
quarter of 2005. As the number of deliveries increases and customer financing
structures are finalized, we expect to reduce our inventory and accounts
receivable levels by the end of the year, which should positively impact our
cash position.
We continue to invest in the customer services segment, as we believe that
customer satisfaction is the backbone of our business success. The recent
acquisition of a maintenance, repair and overhaul (MRO) facility in Portugal,
and the expansion of our MRO facilities in Nashville, Tennessee, support our
strategy of revenue diversification while maintaining the high dispatchability
rates of our aircraft. Embraer is also strengthening its presence in the
business jet segment with the launch of new jets in the Very Light and Light
categories.
*See page 5 for further details
Page 1
2nd Quarter 2005 Highlights
o A total of 30 jets were delivered during 2Q05: 25 jets to the Airline
Market, three Legacy aircraft to the Business Jet Market and two
government authority transportation aircraft (one Legacy and one ERJ
145) to the Defense Market.
o During the second quarter, a total of 58 new firm orders for the
EMBRAER 170/190 family were placed by several companies, including
TAME Lineas Aereas de Ecuador, Saudi Arabian Airlines, LOT Polish
Airlines, Copa Airlines, Flybe and GECAS. This brings the total number
of firm orders for the first six months of the year to six ERJ 145
aircraft and 72 EMBRAER 170/190 family jets.
o Embraer announced in May that it is expanding its product portfolio
with jets for the Very Light and Light categories. In June, Embraer
announced that it had started taking orders for these new jets
directly through its sales offices.
o In June, Embraer announced that the International Finance Corporation
(IFC), the private sector arm of the World Bank Group, is structuring
a loan to Embraer of US$180 million with final maturity of eight to
twelve years.
o Embraer announced at the Paris Air Show in June the delivery of the
first UK-registered Embraer Legacy Executive jet. The aircraft was
delivered through Harrods Aviation, an authorized Legacy sales
representative for the U.K. and Ireland.
Income Statement Highlights
A comparative table of the main items of Embraer's consolidated income statement
is presented below for the three months ended June 30, 2004 and 2005 (2Q04 and
2Q05) and for the three months ended March 31, 2005 (1Q05).
Income Statement Unaudited 1Q05 2Q04 2Q05
In US$ millions, except % and earnings per ADS
Net Sales 763.3 924.3 812.4
Gross Profit 268.0 301.4 255.3
Gross Margin 35.1% 32.6% 31.4%
Selling, general administrative and other expenses (101.1) (132.8) (119.9)
Research and development (30.4) (30.4) (26.1)
Employee profit sharing (12.0) (15.7) (10.4)
Income from operations 124.5 122.5 98.9
Operating margin 16.3% 13.3% 12.2%
Net financial income (expenses) (7.1) 4.3 (1.1)
Foreign exchange gain (loss), net 2.9 (16.7) (1.0)
Other non-operating income (expense) net - - (1.4)
Income before income taxes 120.3 110.1 95.4
Income tax expense (22.5) (29.2) (14.0)
Minority interest (1.3) (0.7) 1.6
Net income 96.5 80.2 83.0
Net margin 12.6% 8.7% 10.2%
Earnings per ADS - basic 0.5537 0.4620 0.4758
Earnings per ADS - diluted 0.5504 0.4589 0.4733
Page 2
Net Sales and Cost of Sales & Services
During 2Q05, Embraer delivered 30 jets, 13 less than in 2Q04, which resulted in
net revenues of US$812.4 million, 12.1% lower than in the same period last year.
Aircraft delivered 1Q05 2Q04 2Q05
by sector
Airline Market 28 40 25
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ERJ 135 2 - -
ERJ 145 16 25 (*) 15
EMBRAER 170 10 15 10
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Defense Market - - 2
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EMB 145 - - 1
Legacy - - 1
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Business Jet Market 2 3 3
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Legacy/Shuttle 2 3 3
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Total 30 43 30
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(*) Three ERJ 145 deliveries were accounted for as operating leases.
In addition to aircraft delivered to the airline market, Embraer's net revenues
include sales to the defense, business and customer services market, which
combined reached 33.8% of the Company's total revenues.
The defense market segment represented 14.3% of the Company's net revenues,
totaling US$116.3 million, an increase over the US$65.8 million recorded in
2Q04. Most of this increase is attributed to the delivery of two defense
aircraft during 2Q05 - a Legacy configured for authority transportation and an
ERJ 145 delivered to Satena, a government owned transportation company in
Colombia. Net revenues for the Business Jet Market totaled US$59.7 million, a
slight increase over the US$55.5 million recorded in 2Q04. Although the number
of Legacy delivered in 2Q05 was the same as were delivered in the same period
last year, the value of each aircraft delivered was higher. The customer
services and others segment also presented an increase in revenues, reaching
US$98.6 million, compared to US$54.4 million in 2Q04 and representing 12.2% of
the Company's total revenues, primarily due to the consolidation of the results
of OGMA-Industria Aeronautica de Portugal S/A, an MRO facility in Portugal, with
total revenues of (euro)31.0 million, equivalent to US$39.7 million in 2Q05.
Net sales
by segment 1Q05 2Q04 2Q05
US$ % US$ % US$ %
Airline Market 578.2 75.8 748.6 81.0 537.8 66.2
Defense Market 78.8 10.3 65.8 7.1 116.3 14.3
Business Jet Market 33.1 4.3 55.5 6.0 59.7 7.3
Customer Services and Others 73.2 9.6 54.4 5.9 98.6 12.2
- ----------------------------------------------------------------------------------------------------------------------
Total 763.3 100.0 924.3 100.0 812.4 100.0
- ----------------------------------------------------------------------------------------------------------------------
The Company recorded a gross margin of 31.4% in 2Q05, representing a 1.2%
decrease over the same period last year, primarily because of the appreciation
of the Brazilian currency.
Operating Expenses & Income from Operations
Operating expenses totaled US$156.4 million in 2Q05 compared to US$178.9 million
reached in the same period last year. This decrease is primarily related to a
reduction in selling expenses, which directly correlates to the number of
aircraft delivered and includes customer training, product guarantees, and other
benefits offered to customers. Selling expenses for the quarter totaled US$70.8
million, compared to US$95.0 million in 2Q04. As a percentage of net sales,
selling expenses totaled 8.7% in 2Q05 and 10.3% in 2Q04.
The Company invested US$30.4 million in new products research and development
during 2Q05, mainly in the development of the EMBRAER 170/190 jet family.
Therefore, research and development net of the contribution
Page 3
from risk sharing partners was an expense of US$26.1 million in 2Q05 compared to
an expense of US$30.4 million in 2Q04.
In 2Q05, general and administrative expenses totaled US$47.4 million compared to
US$32.4 million recorded in 2Q04. As approximately 80% of the Company's
administrative expenses are denominated in reais, the 18.7% appreciation of the
currency against U.S. dollar since 2Q04 negatively impacted the Company's
administrative costs. In addition, during 2Q05, Embraer spent US$4.3 million on
the implementation of the SAP 4.7 Aerospace & Defense version. This project is
expected to allow the Company to streamline its management and processing
capabilities.
Employee profit sharing is tied to our action plan and to dividend payments to
Embraer's shareholders. The US$10.4 million accrued in 2Q05 was based on the
payment of interest on shareholders' equity distributed during the quarter.
As a result, income from operations totaled US$98.9 million in 2Q05, 19.3% lower
than the US$122.5 million recorded in the same period last year.
Net Income
As a result of higher debt levels and lower cash availability, net interest
expense reached US$1.1 million in 2Q05 compared to a net interest benefit of
US$4.3 million recorded in 2Q04.
Foreign exchange gain (loss) is measured by variations of monetary assets and
liabilities denominated in other currencies that are converted to the U.S.
dollar at the end of each period. Foreign exchange losses were 93.7% lower in
2Q05 compared to the same period last year, reaching US$1.0 million.
2Q05 income taxes totaled US$14.0 million and represented an effective tax rate
in US GAAP of 14.7%. Embraer's statutory tax rate is 34%. The difference between
statutory and effective US GAAP tax rate is attributed to the recognition of
interest on shareholders' equity of R$110.8 million (US$47.5 million) during
2Q05, which is tax-deductible in Brazil, and to the appreciation of the real
during the period.
Embraer's net income in 2Q05 was US$82.9 million (equivalent to US$0.47 per
diluted ADS) compared to US$80.2 million in 2Q04. Net income as a percentage of
net sales recorded in 2Q05 was 10.2%, higher than the 8.7% reached in 2Q04.
Balance Sheet Highlights
As of June 30, 2005, Embraer's cash, cash equivalents and short-term investments
were US$1,175.3 million. On the same date, short and long- term loans (excluding
non-recourse debt) amounted to US$1,403.9 million. Therefore, the Company had a
net debt position (total loans minus cash, cash equivalents and short-term
investments) of US$228.6 million.
The combination of higher inventories and accounts receivables resulted in a
decrease of the Company's net cash position.
Balance Sheet Data 1Q05 2Q04 2Q05
(In US$ million)
Cash and cash equivalents 667.5 1,333.8 1,048.2
Temporary cash investments 202.7 - 127.1
Trade accounts receivable 857.2 471.6 904.8
Inventories 1,569.9 1,247.3 1,736.3
Fixed assets 389.2 380.8 393.1
Suppliers 622.9 661.5 627.2
Loans 1,037.0 1,029.9 1,403.9
Shareholders' equity 1,410.8 1,266.7 1,446.8
Net cash (debt)* (166.8) 303.9 (228.6)
*Net cash = Cash and cash equivalents + Temporary cash investments - Loans
Trade Accounts Receivable
During 2Q05, trade accounts receivable increased by US$47.6 million, totaling
US$904.8 million. Of this amount, approximately US$654.4 million is related to
aircraft delivered for which financing transactions are under consideration.
Embraer through its normal course of business is constantly evaluating such
transactions.
Page 4
Inventories
With the beginning of serial production of the EMBRAER 175 and EMBRAER 190
aircraft, the first deliveries of which are scheduled for the third quarter of
2005, inventories increased from US$1,569.9 million at the end of 1Q05 to
US$1,736.3 million at June 30, 2005. OGMA's inventories totaled US$61.2
million as of June 30, 2005.
Loans
Due to higher working capital needs associated with the beginning of production
of the EMBRAER 175 and EMBRAER 190 during 2Q05, total short and long- term loans
increased by US$366.9 million to US$1,403.9 million. Of this amount, 67% is
long- term loans and US$462.2 million is short-term, compared to 77.6% long-term
and US$232.3 million short-term at the end of 1Q05.
In addition, of the total debt, US$215.5 million is effectively denominated in
reais and indexed to the CDI, at a weighted average interest rate of 12.4% per
annum.
The remaining US$1,188.4 million is denominated in other currencies, primarily
U.S. dollars, with a weighted average interest rate of 5.1% per annum.
Embraer recently finalized a US$180 million loan facility structured by the
International Finance Corporation (IFC), the private sector arm of the World
Bank Group, with final maturity of eight to twelve years, which will change the
Company's debt profile by increasing its long-term position.
The IFC is lending US$35 million from its own account, with a final maturity of
twelve years (A Loan), and US$145 million from the account of participants (B
Loan) in an IFC financing, to complete the end-stage launch program of the
EMBRAER 190 and EMBRAER 195 aircraft. The total amount of the loan was disbursed
in August 2005.
The IFC loan will provide Embraer with a new, reliable source of funding while
addressing the need for long-term financing in a capital intensive industry,
where the cycle from initial market research and R&D to full-scale production is
about ten years. This is the first time Embraer is borrowing from the IFC.
Cash, Cash Equivalents and Temporary Cash Investments
Of the total US$1,175.3 million balance in cash, cash equivalents and temporary
cash investments, US$640.5 million is denominated in US dollars and the
remaining 45.5% is comprised of investments primarily in reais. Embraer's
investment strategy is to maintain cash and cash equivalents sufficient to
minimize the currency and interest rate risks of its assets and liabilities.
This strategy also takes into account expected future R&D and capital
expenditures, substantially denominated in reais.
Capital Expenditures
Improvements and Modernization
Investments in the improvement and modernization of the Company's industrial and
engineering processes, and property, plant, and equipment totaled US$16.3
million during 2Q05. This amount includes payments of US$5.3 million, part of a
total investment of US$9.7 million related to an EMBRAER 170/190 flight
simulator, and US$2.8 million for the construction of a US$10.0 million hangar,
which will be dedicated to final inspection and delivery of aircraft of the
EMBRAER 170/190 family.
Supplementary Information according to Corporate Law (Brazilian GAAP)
Today Embraer also reported its 2Q05 earnings in accordance with the corporate
law accounting method (Brazilian GAAP), which according to Brazilian legislation
must be used as a basis for calculating distribution of dividends and interest
on shareholders' equity, income tax and social contribution. Below is presented
selected consolidated income data in accordance with Brazilian GAAP and in reais
(R$).
Net sales in 2Q05 totaled R$1,934.8 million and gross profit was R$474.8
million, with a gross margin of 24.5%. Income from operations for the period
(including employee profit sharing) totaled R$140.9 million, with an operating
margin of 7.3%. Income before taxes was R$263.2 million (13.6% of net sales).
Income tax and social contribution totaled R$97.2 million, representing an
effective tax rate of 36.9%. Net income for the period totaled R$166.7 million
(8.6% of net revenues).
Page 5
Commercial, Business, and Defense Aircraft Markets
Commercial Airline Market
During the second quarter of 2005, a total of 58 new firm orders for the EMBRAER
170/190 family were placed by several companies, including TAME Lineas Aereas de
Ecuador, Saudi Arabian Airlines, LOT Polish Airlines, Copa Airlines, Flybe and
GECAS. This brings the total number of firm orders for the first six months of
the year to six ERJ 145 aircraft and 72 EMBRAER 170/190 family jets.
In April, Embraer firmed the sale of 15 EMBRAER 170 aircraft with Saudi Arabian
Airlines. The airline became Embraer's first customer for the type in the Middle
East. The final contract has a total value of approximately US$ 400 million at
list price and the first delivery is scheduled for December 2005.
Indian startup airline Air One Feeder Airline Ltd. announced in April that it
will be the first carrier in India to operate the 50-seat ERJ 145 jet aircraft,
which will be leased from Swiss International Airlines.
LOT Polish Airlines converted in May four EMBRAER 170 options from their
original contract into four firm orders for EMBRAER 175 type. Deliveries are
scheduled to start in the second quarter of 2006. Also in May, Copa Airlines
converted two EMBRAER 190 options into firm orders, adding to the original order
of ten EMBRAER 190s announced in October 2004. Delivery of the two additional
aircraft is scheduled for October and November 2006.
Flybe, one of Europe's leading low-cost airlines, announced in June a firm order
for 14 EMBRAER 195 aircraft and an option for an additional 12. Deliveries are
expected to begin in August 2006 and continue through November 2007. The total
value of the firm contract, at list price, is US$ 470 million, with a potential
to reach US$ 870 million if all options are converted.
In June, Embraer attended the 46th Paris Air Show where it displayed the EMBRAER
195, the EMBRAER 175 and the Legacy business jet. At the air show, Embraer
announced that GE Commercial Aviation Services (GECAS), a unit of GE Commercial
Finance, had signed a contract to purchase 20 EMBRAER 190 aircraft, with
conversion rights to EMBRAER 195s. The commercial aircraft leasing company will
take delivery of the aircraft beginning in mid-2006. The value of the order
totals US$ 650 million, at aircraft list price.
Another highlight of the air show was the signature of preliminary agreements
with Indian start-up airline Paramount Airways to lease two EMBRAER 170
pre-series aircraft used during the certification process and today registered
in our inventories. Another three EMBRAER 175s are to be sold to that company
according to the agreements. Operations at Paramount Airways are set to begin
later this year.
Certification of the EMBRAER 190 continues on track as the airliner completed
5,000 flight hour cycles in its fatigue test campaign in June. Anticipated for
the third quarter, certification will pave the way for deliveries to begin to
launch-customer JetBlue in the United States. JetBlue ordered 100 EMBRAER 190s
and has options for another 100 aircraft of the same model.
At June 30, 2005, the Commercial Airline segment showed the following firm order
backlog:
Aircraft Firm Options Delivered Firm Order
Orders Backlog
ERJ 135 123 2 108 15
ERJ 140 94 20 74 20
ERJ 145 681 206 649 32
EMBRAER 170 187 131 66 121
EMBRAER 175 19 - - 19
EMBRAER 190 177 211 - 177
EMBRAER 195 29 31 - 29
Total 1,310 601 897 413
Business Jet Market
Embraer announced in May that it is expanding its product portfolio with jets
for the Very Light and Light categories. Recently created, the Very Light Jet
category is made up of aircraft that carry 6 to 8 people or up to 10,000 pounds.
The Light segment, already established, is comprised of jets that commonly
transport up to 8 or 9 people. Later in June, we started taking orders for the
new jets directly through our sales offices. Through a deposit agreement, the
customer will be able to reserve a Very Light or Light Jet and to obtain an
expected delivery date. The Very Light and Light Jets are the first step in
Embraer's plan to strengthen its position in the business aviation market. To
support the product portfolio expansion, Embraer will offer a complete set of
integrated service solutions that range from sales and training to full-scale
customer support. During the course of 2005, Embraer will disclose the names of
its two new jets.
Page 6
The first UK-registered Embraer Legacy Executive Jet was delivered in June
through Harrods Aviation, an authorized Legacy sales representative for the U.K.
and Ireland.
In April, Embraer announced Naturelink as an authorized sales representative for
the region of sub-Saharan Africa, including southern African states. This
representation covers the Legacy family of corporate jets, which comprises the
Legacy Executive, Legacy Shuttle and Legacy Shuttle HC.
Defense Market
In April, Embraer concluded the sale of three EMBRAER 170/190 family aircraft to
TAME Linea Aerea del Ecuador, the state-run Ecuadorian airline. The customer
will acquire two 76-seat EMBRAER 170 jets and one 104-seat EMBRAER 190, with
deliveries to take place in 2005 and 2006. TAME holds four options on aircraft
of the same jet family.
Embraer participated in the 5th AEROEXPO international air show in Mexico, held
April 7-9 in Mexico City and Toluca Airport. Embraer considers Mexico a key
Latin American market and promoted its Defense, Commercial and Corporate
aviation business lines during the event. After Brazil, Mexico is the second
country in the world to use Embraer's Intelligence, Surveillance and
Reconnaissance Systems (ISR) aircraft that are based on the successful ERJ 145
50-seat commercial jet. Embraer's ISR systems were developed originally for the
Brazilian government's Amazon Surveillance Program (SIVAM), and Mexico now
operates three Embraer ISR aircraft - two EMB 145 Maritime Patrol (MP) and one
EMB 145 Airborne Early Warning & Control (AEW&C) aircraft. These assets are the
backbone of Mexico's Secretaria de la Defensa Nacional's (SEDENA) Aerial
Surveillance System (SIVA- Sistema de Vigilancia Aerea), which has been fully
operational since the end of last year.
Embraer announced in April its participation in the Latin America Aero & Defense
(LAAD 2005) trade show, held April 26-29 at the Riocentro Pavilion in Rio de
Janeiro, Brazil. Visitors who attended LAAD 2005 met national and international
companies involved in the supply of equipment and services to armed forces,
special forces and security services, commercial airlines, aerospace
organizations, airport authorities and government agencies.
Embraer attended the 46th Paris Air Show at Le Bourget Airport in June to
promote achievements in Intelligence, Surveillance and Reconnaissance (ISR)
aircraft as well as the Super Tucano military trainer.
Customer Services
Embraer announced in April that its Sao Jose dos Campos-based Customer Training
Center was awarded the Regulamento Brasileiro de Homologacao Aeronautica 142
(RBHA 142) certificate from the Brazilian Department of Civil Aviation (DAC).
This certification will promote Embraer's training services, for companies and
private entities, both in Brazil and abroad. Similar to the U.S. Federal
Aviation Administration's (FAA) FAR 142 regulation, the RBHA 142 raises
Embraer's training services to international standards of certification, making
it easier and faster for certification authorities in other countries to
validate it.
In May, as a recognition for nearly 2,400 training hours completed by its
maintenance team in 2004, Embraer Aircraft Maintenance Services Inc. (EAMS),
located in Nashville, was awarded the Federal Aviation Administration (FAA)
Diamond Certificate of Excellence for maintenance training. The certificate was
presented to EAMS, a subsidiary of Embraer, at the 39th Annual Tennessee
Midsouth Aviation Maintenance Conference.
Backlog & Delivery Forecast
Out of the total 145 aircraft expected to be delivered in 2005, Embraer
delivered 60 aircraft in the first half of 2005.
Approximately 60% of the aircraft deliveries forecasted for 2005 will be
concentrated in the second half of the year, which is when the first deliveries
of the EMBRAER 175 and EMBRAER 190 are scheduled to begin.
Embraer maintains its forecast for deliveries of 145 Commercial, Corporate and
Defense aircraft (including only executive transport aircraft) in each of the
years of 2005 and 2006.
As of June 30, 2005, Embraer's firm order backlog, including the Commercial
Airline, Corporate and Defense markets totaled US$ 10.9 billion.
Page 7
Firm Order Backlog (US$ Billion)
1Q04 2Q04 3Q04 4Q04 1Q05 2Q05
---- ---- ---- ---- ---- ----
10.9 10.5 11.0 10.1 9.9 10.9
Investor Relations
Embraer's American Depositary Shares (ADS) traded on the New York Stock Exchange
(NYSE) closed at US$33.07 at the end of June 2005, representing a 5.65% increase
in value during the second quarter.
The Company's common and preferred shares traded in the domestic market on the
Bolsa de Valores de Sao Paulo (BOVESPA) closed at the end of June 2005 at
R$14.54 and R$19.20, respectively, representing a decrease of 8.67% and 7.87%,
respectively, during the second quarter. The Bovespa index in turn decreased in
value by 5.86% during the same period.
The average daily trading volume for the ADS's, common shares, and preferred
shares during the same period was US$15.7 million, R$2.5 million, and R$6.9
million, respectively.
During a meeting held June 3, 2005, the Board of Directors approved the
distribution of interest on shareholders<180> equity on July 15, 2005 in the
amount of US$47.2 million, representing US$0.27051 per ADS.
Recent Events
ACS Project Update
In August 2004, Embraer was selected as part of a team led by Lockheed Martin
Corporation to supply the U.S. Army with a next-generation battlefield
surveillance system known as Aerial Common Sensor (ACS).
At that time, the ERJ 145 platform was part of the selected solution and fully
complied with U.S. Army requirements. However, as a result of an expansion of
the systems capacity which took place during the detailed design and integration
process, the team led by Lockheed Martin is assessing alternatives to comply
with the current program needs, including the possible use of a larger aircraft.
We believe Embraer has the flexibility and technological capability to provide
the customer with an adequate solution to cope with the new scenario. Embraer
has been and is fully supporting Lockheed Martin in defining the best solution
for the ACS system. The Company expects to hear a final decision from Lockheed
Martin and the U.S. Army soon.
Air Canada deliveries
Embraer celebrated at the end of July, the delivery of the third of 15 EMBRAER
175 jets to Air Canada, the launch customer for the model, in a ceremony at
Embraer's headquarters in Sao Jose dos Campos, Brazil. Deliveries of all 15
EMBRAER 175s to Air Canada are expected to be complete by the end of the year.
Deliveries of the first two EMBRAER 175 jets to Air Canada took place earlier in
July immediately after the certification of the model by Canadian authorities.
Page 8
Conference Call Information
Embraer cordially invites you to participate in a conference call to review its
2Q05 Results, to be held August 15, 2005.
English ( US GAAP) Portuguese (BR GAAP)
9:30 am (NY Time) 8:00 am (NY Time)
10:30 am (SP Time) 9:00 am (SP Time)
Dial-in Numbers Dial-in Number
1 800 683-1525 + 55 11 2101-1490
1 973 872-3197 Code: Embraer
Code: 6330332
Replay Number Replay Number
1 973 341-3080 + 55 11 2101-1490
Code: 6330332 Code: Embraer
*The conference call will also be broadcast live over the web at www.embraer.com
For additional information please contact:
Anna Cecilia Bettencourt
(55 12) 3927 1216
acecilia@embraer.com.br
Andrea Bottcher
(55 12) 3927 3054
abottcher@embraer.com.br
Carlos Eduardo Camargo
(55 12) 3927 1106
carlos.camargo@embraer.com.br
Note to Editors
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Embraer (Empresa Brasileira de Aeronautica S.A. - NYSE: ERJ; Bovespa: EMBR3 and
EMBR4) is the world's leading manufacturer of Commercial jets up to 110 seats
with 35 years of experience in designing, developing, manufacturing, selling and
providing after sales support to aircraft for the global Airline, Defense and
Business jet markets. With headquarters in Sao Jose dos Campos, state of Sao
Paulo, the Company has offices and customer service bases in the United States,
France, Portugal, China and Singapore. Embraer is among Brazil's leading
exporting companies. As of June 30, 2005, Embraer had a total workforce of
16,878 people, and its firm order backlog totaled US$ 10.9 billion.
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This document includes forward-looking statements or statements about events or
circumstances which have not occurred. We have based these forward-looking
statements largely on our current expectations and projections about future
events and financial trends affecting our business and our future financial
performance. These forward-looking statements are subject to risks,
uncertainties and assumptions, including, among other things: general economic,
political and business conditions, both in Brazil and in our market;
expectations of trends in the industry; our investment plans; our capacity to
develop and deliver products on the previously agreed dates; and existing and
future government regulations.
The words "believes," "may," "will," "estimates," "continues," "anticipates,"
"intends," "expects" and similar words are intended to identify forward-looking
statements. We undertake no obligations to update publicly or revise any
forward-looking statements because of new information, future events or other
factors. In the light of these risks and uncertainties, the forward-looking
events and circumstances discussed in this press release might not occur. Our
actual results could differ substantially from those anticipated in our
forward-looking statements.
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Page 9
EMBRAER - EMPRESA BRASILEIRA DE AERONAUTICA S.A.
------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(in thousands of U.S. dollars)
------------------------------
A S S E T S
As of March 31, As of June 30,
2005 2005
CURRENT ASSETS
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 667,538 1,048,246
Temporary cash investments 202,725 127,106
Trade accounts receivable, net 690,235 740,422
Collateralized accounts receivable 53,105 67,757
Inventories 1,547,696 1,713,141
Deferred income taxes 103,135 117,046
Other 425,169 434,060
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 3,689,603 4,247,778
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
NONCURRENT ASSETS:
- ----------------------------------------------------------------------------------------------------------------------
Trade accounts receivable, net 166,943 164,374
Collateralized accounts receivable 792,033 805,053
Customer and commercial financing 327,401 321,455
Inventories 22,238 23,164
Property, plant and equipment, net 389,241 393,138
Investments 33,625 51,610
Deferred income taxes 256,960 294,686
Other 289,782 293,320
- ----------------------------------------------------------------------------------------------------------------------
Total noncurrent assets 2,278,223 2,346,800
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 5,967,826 6,594,578
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS EQUITY
As of March 31, As of June 30,
2005 2005
CURRENT LIABILITIES
- ----------------------------------------------------------------------------------------------------------------------
Loans and financing 232,345 462,134
Trade accounts payable 619,468 623,779
Advances from customers 386,240 440,302
Non-recourse and recourse debt 336,967 357,860
Other payables and accrued liabilities 440,162 446,706
Deferred income taxes 14,584 45,933
Contingencies 156,505 65,346
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,186,271 2,442,060
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES
- ----------------------------------------------------------------------------------------------------------------------
Loans and financing 804,674 941,784
Trade accounts payable 3,410 3,450
Advances from customers 96,260 117,311
Contribution from suppliers 134,269 135,642
Non-recourse and recourse debt 641,916 623,602
Other payables and accrued liabilities 204,331 202,227
Deferred income taxes 148,403 170,528
Contingencies 295,762 473,097
- ----------------------------------------------------------------------------------------------------------------------
Total long-term liabilities 2,329,025 2,667,641
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
MINORITY INTEREST 41,764 38,120
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY: 1,410,766 1,446,757
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 5,967,826 6,594,578
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Page 10
EMBRAER - EMPRESA BRASILEIRA DE AERONAUTICA S.A.
------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
in thousands of U.S. dollars except per share data
--------------------------------------------------
Three Months Ended Six Months Ended
June 30, 2004 June 30, 2005 June 30, 2004 June 30, 2005
Net sales 924,321 812,427 1,550,522 1,575,717
- ----------------------------------------------------------------------------------------------------------------------
Cost of sales and services (622,910) (557,133) (1,047,078) (1,052,423)
- ----------------------------------------------------------------------------------------------------------------------
Gross profit 301,411 255,294 503,444 523,294
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Operating expenses
- ----------------------------------------------------------------------------------------------------------------------
Selling expenses (95,067) (70,836) (162,244) (124,634)
Research and development (30,401) (26,119) 29,071 (56,487)
General and administrative (32,374) (47,427) (62,754) (89,582)
Employee profit sharing (15,742) (10,378) (26,159) (22,366)
Other operating expense, net (5,308) (1,680) (5,830) (6,867)
- ----------------------------------------------------------------------------------------------------------------------
Income from operations 122,519 98,854 275,528 223,358
- ----------------------------------------------------------------------------------------------------------------------
Net financial income(expense) 4,300 (1,073) (3,338) (8,177)
Foreign exchange gain (loss), net (16,698) (1,044) (18,936) 1,844
Other non-operating income (expense), net (38) (1,382) (9) (1,406)
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes 110,083 95,355 253,245 215,619
- ----------------------------------------------------------------------------------------------------------------------
Income tax expense (29,162) (14,025) (68,651) (36,478)
- ----------------------------------------------------------------------------------------------------------------------
Income before minority interest 80,921 81,330 184,594 179,141
- ----------------------------------------------------------------------------------------------------------------------
Minority interest (692) 1,613 (1,051) 307
- ----------------------------------------------------------------------------------------------------------------------
Net income 80,229 82,943 183,543 179,448
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Earnings per share
--------------------------------------------------------------------------------------------------------------------
Basic
Common 0.1050 0.1081 0.2400 0.2336
Preferred 0.1155 0.1189 0.2640 0.2570
Diluted
Common 0.1043 0.1076 0.2384 0.2324
Preferred 0.1147 0.1183 0.2623 0.2557
--------------------------------------------------------------------------------------------------------------------
Weighted average shares (thousands of shares)
--------------------------------------------------------------------------------------------------------------------
Basic
Common 242,544 242,544 242,544 242,544
Preferred 474,162 476,878 474,710 477,746
Diluted
Common 242,544 242,544 242,544 242,544
Preferred 478,825 480,445 479,372 481,313
- ----------------------------------------------------------------------------------------------------------------------
Earnings per share - ADS basic (US$) 0.4620 0.4758 1.0560 1.0280
- ----------------------------------------------------------------------------------------------------------------------
Earnings per share - ADS diluted (US$) 0.4589 0.4733 1.0490 1.0228
- ----------------------------------------------------------------------------------------------------------------------
Page 11
Three months ended on Six months ended on
June 30, June 30,
2004 2005 2004 2005
CASH FLOWS FROM OPERATING ACTIVITIES
- ----------------------------------------------------------------------------------------------------------------------
Net income 80,229 82,943 183,543 179,448
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 15,537 18,262 28,843 35,453
Allowance for doubtful accounts 1,361 724 906 1,830
Provision for inventory obsolescence 8,485 2,841 14,010 7,917
Deferred income taxes (4,453) 1,837 10,901 (1,265)
Exchange loss, net 16,698 1,044 18,936 (1,844)
Loss (gain) on disposition of assets 5 (93) 63 (140)
Accrued interest in excess of interest paid (paid in (7,683) (1,581) (13,498) 562
excess of accrued)
Minority interests 692 (1,613) 1,051 (307)
Other (288) (1,227) (1,038) 653
- ----------------------------------------------------------------------------------------------------------------------
Changes in assets and liabilities: 133,321 (165,498) 4,575 (406,226)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 243,904 (62,361) 248,292 (183,919)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES
- ----------------------------------------------------------------------------------------------------------------------
Temporary cash investments held for trading - 75,883 - 24,143
Additions to property, plant and equipment (11,406) (16,325) (21,242) (29,985)
Net cash used in investing activities (44,251) (17,022) (44,251) (17,173)
Sales of property, plant and equipment 49 131 94 214
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (55,608) 42,667 (65,399) (22,801)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
- ----------------------------------------------------------------------------------------------------------------------
Repayment of loans (218,101) (152,262) (474,274) (673,944)
Proceeds from borrowings 338,922 520,550 477,151 747,966
Proceeds from issuance of shares 1,008 3,252 1,727 5,297
Dividends and/or Interest on capital paid (36,588) (39,960) (76,936) (99,401)
Payments on capital lease obligations (1,082) (851) (2,907) (1,130)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 84,159 330,729 (75,239) (21,212)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (36,166) 69,673 (39,687) 68,890
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 236,289 380,708 67,967 (159,042)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, at beginning of period 1,097,498 667,538 1,265,820 1,207,288
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, at end of period 1,333,787 1,048,246 1,333,787 1,048,246
- ----------------------------------------------------------------------------------------------------------------------
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