-----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, SyDwOn3Ipf4IYgVdM7Ofh7cF0H4YE6CrCPDN+BleBL01gNM1WEtsB31I3cTc4ZTk L7la+zpotGu6PqeJzJy4Og== 0000947871-05-001019.txt : 20050517 0000947871-05-001019.hdr.sgml : 20050517 20050517170747 ACCESSION NUMBER: 0000947871-05-001019 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20050516 FILED AS OF DATE: 20050517 DATE AS OF CHANGE: 20050517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMBRAER BRAZILIAN AVIATION CO CENTRAL INDEX KEY: 0001117603 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT [3721] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-15102 FILM NUMBER: 05839487 BUSINESS ADDRESS: STREET 1: AVENIDA BRIGADERO FARIA LIMA 2170 STREET 2: 12227-901 SAO JOSE DOS CAMPOS SAO PAULO CITY: FEDERATIVE REPUBLIC STATE: D5 ZIP: 00000 BUSINESS PHONE: 0115512345 MAIL ADDRESS: STREET 1: BRIGADERIO FARIA LIMA 2170 PUTIM PC 294 CITY: SAO JOSE DOS CAMPOS STATE: D5 ZIP: 999999999 6-K 1 f6k_051105.txt REPORT OF FOREIGN PRIVATE ISSUER FORM 6-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16 under the Securities Exchange Act of 1934 For the month of May, 2005 Commission File Number: 1-15102 Embraer - Brazilian Aviation Company (Translation of registrant's name into English) EMBRAER - EMPRESA BRASILEIRA DE AERONAUTICA S.A. Av. Brigadeiro Faria Lima, 2170 12227-901 Sao Jose dos Campos, Sao Paulo, Brazil (Address of principal executive offices) Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F: Form 20-F X Form 40-F ----- ----- Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): _____ Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): _____ Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934: Yes No X ----- ----- If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-_____ This report on Form 6-K shall be incorporated by reference in the Registration Statement on Form F-3 (Registration No. 333-14018) as amended, filed by Embraer - - Empresa Brasileira de Aeronautica S.A. under the Securities Act of 1933, to the extent not superseded by documents or reports subsequently filed by Embraer - - Empresa Brasileira de Aeronautica S.A. under the Securities Act of 1933 or the Securities Exchange Act of 1934. SIGNATURES 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. EMBRAER - EMPRESA BRASILEIRA DE AERONAUTICA S.A. Dated: May 17, 2005 By: /s/ ANTONIO LUIZ PIZARRO MANSO ----------------------------------------- Name: Antonio Luiz Pizarro Manso Title: Executive Vice-President Corporate and Chief Financial Officer EXHIBIT INDEX 1. One copy of the Company's First Quarter 2005 US GAAP Earnings Release, dated May 16, 2005. EX-1 2 ex1_051105.txt EARNINGS RELEASE EXHIBIT 1 US GAAP BOVESPA: EMBR3, EMBR4 NYSE: ERJ www.embraer.com INVESTOR RELATIONS Anna Cecilia Bettencourt Andrea Bottcher Paulo Ferreira Tel: (55 12) 3927 1216 investor.relations@embraer.com.br [EMBRAER LOGO OMITTED] EMBRAER ANNOUNCES FIRST 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 March 31, 2005, December 31, 2004 and March 31, 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, May 16, 2005 - Embraer (BOVESPA: EMBR3, EMBR4) (NYSE: ERJ), the world's leading manufacturer of commercial jets up to 110 seats, recorded in the first quarter of 2005 net sales of US$763.3 million and net income of US$96.5 million, equivalent to diluted earnings per ADS of US$0.55. The firm order backlog as of March 31, 2005 totalled US$9.9 billion. - -------------------------------------------------------------------------------- 1st Quarter 2005 Highlights - -------------------------------------------------------------------------------- o Net sales for the first quarter of 2005 (1Q05) were US$763.3 million, 21.9% higher than the sales of US$626.2 million in 1Q04. o Net income in 1Q05 was US$96.5 million, a 6.6% decrease over 1Q04. o A total of 30 jets were delivered during 1Q05: 28 jets to the Commercial Airline Market, and two Legacys to the Business Jet Market. o On January 19, 2005, Republic Airways Holdings added 16 firm orders and 34 options for the EMBRAER 170 to its order book. Of the 16 new firm aircraft orders, two were already accounted for in Embraer's fourth-quarter 2004 order book. o On February 28, 2005, Embraer delivered its 900th jet of the ERJ 145 family to European customer Luxair. o Embraer signed in February a Memorandum Of Understanding with the Indian Defense, Research and Development Organization to support the development of the Indian Air Force's new Airborne Early Warning & Control system. o Harbin Embraer announced on March 24, 2005 the sale of five ERJ 145s to China Eastern Airlines Jiangsu Ltd. o The consortium formed by Embraer and the European Aeronautic Defense and Space Company (EADS) received approval from the government commerce authorities of Portugal, Germany and Italy in March to acquire 65% of OGMA - Industria Aeronautica de Portugal S.A., one of the largest maintenance, repair and overhaul facilities in Europe. 1 - -------------------------------------------------------------------------------- Income Statement Highlights - -------------------------------------------------------------------------------- A comparative table of the main items of Embraer's consolidated income statement is presented below for the three months ended March 31, 2004 and 2005 (1Q04 and 1Q05) and for the three months ended December 31, 2004 (4Q04).
- ---------------------------------------------------------------------------------------------------- Income Statement Unaudited 4Q04 1Q04 1Q05 In US$ millions, except % and earnings per ADS - ---------------------------------------------------------------------------------------------------- Net sales 953.5 626.2 763.3 Gross profit 358.5 202.0 268.0 Gross margin 37.6% 32.3% 35.1% Selling, general administrative and other expenses (159.6) (98.1) (101.1) Research and development (39.1) 59.5 (30.4) Employee profit sharing (18.2) (10.4) (12.0) Income from operations 141.6 153.0 124.5 Operating margin 14.9% 24.4% 16.3% Interest income, net (42.5) (7.6) (7.1) Foreign exchange gain (loss),net (7.3) (2.2) 2.9 Other non-operating income (expense) net (0.1) -- -- Income before income taxes 91.7 143.2 120.3 Income tax benefit (expense) (8.7) (39.5) (22.5) Minority interest (0.1) (0.4) (1.3) Net income 82.9 103.3 96.5 Net margin 8.7% 16.5% 12.6% Earnings per ADS -basic 0.4768 0.5952 0.5537 Earnings per ADS - diluted 0.4739 0.5908 0.5504
Net Sales and Cost of Sales & Services Due to a larger volume of aircraft deliveries, Embraer's net revenues in 1Q05 reached US$ 763.3 million, a 21.9% increase over revenues in the same period last year. Net revenue from the commercial airline segment increased 30.5%, due to higher commercial aircraft deliveries - 28 compared to 22 deliveries in the same period last year. - -------------------------------------------------------------------------------- Aircraft delivered by sector 4Q04 1Q04 1Q05 - -------------------------------------------------------------------------------- Commercial 34 22 28 - -------------------------------------------------------------------------------- ERJ 135 1 (1) -- 2 ERJ 145 23(2) 14 16 ERJ 140 -- -- -- EMBRAER 170 10 8 10 - -------------------------------------------------------------------------------- Defense -- 1 -- - -------------------------------------------------------------------------------- EMB 145 -- 1 -- Legacy -- -- -- - -------------------------------------------------------------------------------- Corporate 8 -- 2 - -------------------------------------------------------------------------------- Legacy/Shuttle 8 -- 2 - -------------------------------------------------------------------------------- Total 42 23 30 - -------------------------------------------------------------------------------- Deliveries identified by parenthesis are accounted for as operating leases. In addition, Embraer's net revenues include sales to the Defense, Business jet market and Customer Services market, which combined reached 24.2% of the Company's total revenue. Page 2 The defense segment represented 10.3% of the Company's net revenues, totaling US$ 78.8 million, a decrease over the US$ 130.7 million recorded in 1Q04. The surveillance aircraft contracts, in particular a contract with the Mexican Air Force, are in their final stages, and as a result, a smaller amount of revenue has been recognized during 1Q05 compared to 1Q04. Net revenues in this segment declined despite the revenues recognized from existing contracts, including the contract with the Indian Air Force for five Legacys, which are expected to be delivered during the second half of the year. Furthermore, one aircraft was delivered to Satena, a State-owned Colombian airline, in 1Q04.
- --------------------------------------------------------------------------------------------------------------------------- Net sales by segment 4Q04 1Q04 1Q05 - --------------------------------------------------------------------------------------------------------------------------- US$ % US$ % US$ % Commercial Airline Market 627.2 65.8 443.2 70.8 578.2 75.8 Defense Market 88.7 9.3 130.7 20.9 78.8 10.3 Business Jet Market 151.2 15.9 -- -- 33.1 4.3 Customer Services and Others 86.4 9.1 52.3 8.4 73.2 9.6 - --------------------------------------------------------------------------------------------------------------------------- Total 953.5 100.0 626.2 100.0 763.3 100.0 - ---------------------------------------------------------------------------------------------------------------------------
Cost of sales and services for 1Q05 totalled US$495.3 million, compared to US$424.2 million in 1Q04. Due to a better product mix, combined with improvements in the EMBRAER 170 learning curve, gross margin in 1Q05 reached 35.1%, higher than the 32.3% recorded in 1Q04. Operating Expenses & Income from Operations During 1Q05, operating expenses totalled US$143.5 million, compared to US$49.0 million reached in the same period last year. In 1Q04, the company recognized an operating income of US$88.7 million in payments received from the Company's risk sharing partners related to the fulfillment of certain contractual milestones in the development of the EMBRAER 170/190 family. In 1Q05, this contribution totalled US$ 5.6 million. Therefore, Embraer's income from operations in 1Q05 totalled US$124.5 million, compared to US$153.0 million recorded in 1Q04. In addition, operating margin for 1Q05 was 16.3%, compared to 24.4% recorded in 1Q04. During 1Q05, the Company invested US$36.0 million in new products research and development, mainly in the development of the EMBRAER 170/190 jet family. Therefore, research and development net of the contribution from risk sharing partners was an expense of US$30.4 million in 1Q05 compared to an income of US$59.5 million in 1Q04. Selling expenses decreased from US$67.2 million in 1Q04 to US$53.8 million in 1Q05. In 1Q04, as part of the Company's effort to support the commencement of the EMBRAER 170 model operations, Embraer recognized an expense of US$6.7 million related to customer technical assistance. In 1Q05, general and administrative expenses totalled US$42.1 million compared to US$30.4 million recorded in 1Q04. The increase in administrative expenses was mainly due to US$5.9 million spent on the implementation of the SAP 4.7 Aerospace & Defense version. This project will allow the Company to improve its process and business management capabilities. In addition, as approximately 80% of the Company's administrative expenses are denominated in reais, the 8.3% appreciation of the currency against U.S. dollar since 1Q04 negatively impacted the Company's administrative costs. Compared to 4Q04, administrative expenses remained relatively stable, decreasing slightly from US$42.3 million to US$42.1 million in 1Q05. Net Income Despite the improved operating results in 1Q05 compared to the same period last year which was significantly impacted by an income recognition of US$88.7 million related to the contribution by Company's risk sharing partners, net income in 1Q05 totalled US$ 96.5 million equivalent to US$ 0.55 per diluted ADS. As a result of lower cash availability, net interest expense was US$ 7.1 million in 1Q05. This quarter's income taxes totalled US$ 22.5 million and represented an effective tax rate in US GAAP of 18.7%. 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 US$ 39.9 million during 1Q05, which is tax-deductible in Brazil. Page 3 - -------------------------------------------------------------------------------- Balance Sheet Highlights - -------------------------------------------------------------------------------- OGMA's financial statements have been consolidated with Embraer's since March 9th 2005. The addition of OGMA has not had a material impact on our income statement for 1Q05. OGMA's effects on the consolidated balance sheet are as follows: - -------------------------------------------------------------------------------- Balance Sheet Data 1Q05 (In US$ million) Embraer(1) OGMA Total - -------------------------------------------------------------------------------- Cash and cash equivalents 814.8 11.2 826.0 Short term investments 44.2 -- 44.2 Trade accounts receivable 794.5 62.7 857.2 Inventories 1,505.7 64.2 1,569.9 Fixed assets 378.8 10.4 389.2 Suppliers 584.0 38.9 622.9 Loans 1,011.0 26.0 1,037.0 Shareholders' equity (2) 1,410.8 -- 1,410.8 Net cash (debt) (3) (152.0) (14.8) (166.8) (1) Excluding OGMA (2) OGMA's Shareholder equity in the amount of US$ 53.1 is not included in the consolidation. (3) Net Debt = Cash & Cash equivalent + Short term investments - Loans As of March 31, 2005, Embraer's cash, cash equivalents and short-term investments were US$ 870.2 million. On the same date, short and long term loans (does not include non-recourse debt) amounted to US$ 1,037.0 million. Therefore, the Company had a net debt position (total loans minus cash, cash equivalents and short-term investments) of US$ 166.8 million. The combination of higher inventories and accounts receivables resulted in a decrease of the Company's net cash position. - -------------------------------------------------------------------------------- Balance Sheet Data (In US$ million) 4Q04 1Q04 1Q05 - -------------------------------------------------------------------------------- Cash and cash equivalents 1,314.0 1,097.5 826.0 Short term investments 46.7 -- 44.2 Trade accounts receivable 685.8 464.5 857.2 Inventories 1,428.3 1,272.9 1,569.9 Fixed assets 381.3 399.1 389.2 Suppliers 559.9 539.9 622.9 Loans 1,338.7 919.8 1,037.0 Shareholders' equity 1,353.9 1,237.9 1,410.8 Net cash (debt) 22.0 177.7 (166.8) * Net cash= Cash and cash equivalents + Short term investments - Loans Trade Accounts Receivable During 1Q05, trade accounts receivable increased by US$ 171.4 million and the Company ended the quarter with US$857.2 million in trade accounts receivables. Of this total amount, approximately US$ 606.7 million is related to aircraft delivered for which sales financing arrangements are under a structuring process. During 1Q05, Embraer delivered three aircraft to US Airways which have been in our inventories since the airline filed for bankruptcy protection. Such deliveries were part of an agreement filed with the bankruptcy court allowing US Airways to maintain its equity investment in the aircraft, using its down payments previously made by US Airways to the Company. In addition, Embraer is jointly structuring a financial transaction with one of its customers using the US capital markets to fund aircraft deliveries in 2005. While this process is not concluded, these aircraft are being accounted for as accounts receivables. Page 4 OGMA accounted for US$62.7 million of Embraer's trade accounts receivables in 1Q05. Inventories With the beginning of serial production of the EMBRAER 175 and EMBRAER 190 aircraft, which have their first deliveries scheduled for the third quarter of 2005, inventories increased from US$1,428.3 million at the end of 4Q04 to US$ 1,569.9 million at March 31, 2005. OGMA accounted for US$64.2 million of Embraer's inventories in 1Q05. Short Term and Long Term Loans Despite the higher working capital needs during 1Q05, total short and long term loans decreased by US$ 301.7 million in 1Q05, totalling US$ 1,037.0 million at the end of the quarter. This decrease is mainly due to a pre-export credit financing pre-payment of US$ 310.7 million. Of the total debt, 77.6% is long-term loans and the remaining US$ 232.3 million is short term. In addition, of the total debt, US$23.6 million is effectively denominated in reais and indexed to the CDI, at a weighted average interest rate of 14.8% per annum. The remaining US$1,013.4 million is denominated in other currencies, primarily U.S. dollars, with a weighted average interest rate of 5.3% per annum. Cash, Cash Equivalents and Short-Term Investments Of the total US$ 870.2 million balance in cash, cash equivalents and short-term investments, US$211.9 million is denominated in US dollars and the remaining 75.6% 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 totalled US$13.7 million during 1Q05. - -------------------------------------------------------------------------------- Supplementary Information according to Corporate Law (Brazilian GAAP) - -------------------------------------------------------------------------------- Today Embraer also reported its 1Q05 earnings in accordance with the corporate law accounting method (Brazilian GAAP), which according to Brazilian legislation must be used as a basis for calculating distribution of dividends and interest on shareholders' equity, income tax and social contribution. Below is presented selected consolidated income data in accordance with Brazilian GAAP and in reais (R$). Net sales in 1Q05 totalled R$2,036.5 million and gross profit was R$627.7 million, with a gross margin of 30.8%. Income from operations for the period (including employee profit sharing) totalled R$328.0 million, with an operating margin of 16.1%. Income before taxes was R$312.1 million (15.3% of net sales). Income tax and social contribution totalled R$74.9 million, representing an effective tax rate of 24.0%. Net income for the period totalled R$234.8 million (11.5% of net revenues). - -------------------------------------------------------------------------------- Commercial Airline, Business Jet, and Defense Markets - -------------------------------------------------------------------------------- Commercial Airline Market During the first quarter, Embraer announced that Republic Airways Holdings has added 16 firm and 34 option EMBRAER 170s to its order book. This order considers the substitution of an existing order for eight ERJ 145s and the addition of another eight airplanes. This brings Republic's order book for EMBRAER 170s to 39 firm EMBRAER 170s and 61 options. Of the 16 new firm aircraft, two were already accounted for in Embraer's 4Q04 order book. Page 5 Republic will use the new aircraft to supply service to Delta Air Lines as a Delta Connection carrier. Republic already flies the EMBRAER 170 for United Airlines as part of its United Express service. Through its subsidiaries, Republic is one of the largest operators of Embraer aircraft with more than 110 ERJs and E-Jets. In February, an important achievement was reached with the delivery of our 900th jet of the ERJ 145 family to European customer Luxair. The handover ceremony of the carrier's second ERJ 135 jet took place at the headquarters of Embraer in Sao Jose dos Campos, state of Sao Paulo, Brazil. Luxair intends to use its two new ERJ 135s to serve London City Airport (LCY) from Luxembourg and on its network for longer routes. The ERJ 135 received LCY certification in October 2003 and today is one of the few jets allowed to operate in that particular airport. Harbin Embraer announced in March the sale of five ERJ 145s to China Eastern Airlines Jiangsu Ltd. The contract marks the second order placed by a Chinese airline with Harbin Embraer Aircraft Industry Co., Ltd. (HEAI). Deliveries for this customer are expected to start in the second half of 2005 and continue in 2006. This deal will increase the ERJ 145 fleet in China to 16 aircraft, joining five airplanes operated by Sichuan Airlines and six operated by China Southern Airlines. At March 31, 2005 , the Commercial Airline segment showed the following firm order backlog: - -------------------------------------------------------------------------------- Firm Firm Order Aircraft Orders Options Delivered Backlog - -------------------------------------------------------------------------------- ERJ 135 123 2 108 15 ERJ 140 94 20 74 20 ERJ 145 681 211 634 47 EMBRAER 170 172 137 56 116 EMBRAER 175 15 -- -- 15 EMBRAER 190 155 230 -- 155 EMBRAER 195 15 20 -- 15 - -------------------------------------------------------------------------------- Total 1,255 620 872 383 - -------------------------------------------------------------------------------- Business Jet Market In March, the Legacy corporate jet received certification from the aviation authorities in Brazil, the U.S. and Europe to raise its service ceiling to 41,000 feet (12,500 meters). This achievement reinforces the Company's commitment to meeting market expectations and adding value to its customers. The higher service ceiling allows Legacy operators to take advantage of less congested airways, for faster and more enjoyable flights. Embraer expects to deliver the first aircraft with the 41,000 feet capability to new customers in the second quarter of 2005. The service bulletin for current Legacy owners will be made available upon request and some are already scheduled for implementation. One day after the certification to raise the Legacy service ceiling, Embraer announced Boutsen Aviation as an authorized sales representative for Benelux (Belgium, The Netherlands, and Luxembourg), the Principality of Monaco and the French Cote d'Azur. This representation covers the Legacy family of corporate jets, which comprises the Legacy Executive, Legacy Shuttle and Legacy Shuttle HC. This partnership will enable Embraer to be closer to its European customers and cater to their specific needs. Defense Market Embraer signed in February a Memorandum Of Understanding with the Indian DRDO (Defense, Research and Development Organization) to support the development of the Indian Air Force's new Airborne Early Warning & Control (AEW&C) system. The new system will be based on the EMB 145 Intelligence, Surveillance and Reconnaissance (ISR) platform, one of the world's best selling ISR platforms. Embraer's commitment to contribute its previous experience in platform development and complex systems integration was a key factor in the DRDO's selection. Indian government analysts and Embraer company engineers are collecting the necessary technical data on the aircraft for the study. At the request of the Indian government, an Embraer team recently visited the Indian Defense Research and Development Organization and held in-depth discussions to support DRDO personnel in their task. The analysis is expected to result in an initial contract for three EMB 145 AEW&C aircraft and technical support during the development effort. An order for additional aircraft could materialize in the future, based on a successful first development phase. Page 6 Customer Services As the Company's fleet of aircraft grows in the U.S. and Europe, specifically the new EMBRAER 170/190 family of airliners, Embraer must also grow to continue to meet customer expectations for high quality service and maintenance of their aircraft. Embraer is expanding its maintenance operation in Nashville, United States and its presence in Europe, through the acquisition of OGMA - Industria Aeronautica de Portugal S.A., to meet the growing demand for full-service aircraft maintenance. Embraer Aircraft Maintenance Services Inc. (EAMS) will build a new 70,000 square-foot facility at Nashville International Airport (BNA) to add capacity and capability for maintenance on the fast growing fleet of Embraer aircraft in North America. As a consequence, 140 to 160 new employees are expected to be eventually added to EAMS' current workforce of 200-plus employees. In Europe, the government commerce authorities from Portugal, Germany and Italy have approved the acquisition of a 65% interest in OGMA - Industria Aeronautica de Portugal S.A. by a consortium formed by Embraer and the European Aeronautic Defense and Space Company (EADS). To acquire OGMA, Embraer and EADS created the AIRHOLDING, SGPS, S.A., with Embraer holding a 99 percent stake and EADS holding a 1 percent stake. In the future, the participation of EADS in this company could reach a maximum of 30 percent. Backlog & Delivery Forecast Out of the total 145 aircraft expected to be delivered in 2005, Embraer delivered 30 aircraft in the first quarter 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, Business and Defense aircraft (including only executive transport aircraft) in each of the years of 2005 and 2006. As of March 31, 2005, Embraer's firm order backlog, including the Commercial Airline, Business Jet and Defense markets totalled US$ 9.9 billion. Firm Backlog US$ Billion 1Q04 2Q04 3Q04 4Q04 1Q05 ---- ---- ---- ---- ---- 10.9 10.5 11.0 10.1 9.9 - -------------------------------------------------------------------------------- Investor Relations - -------------------------------------------------------------------------------- Embraer's American Depositary Shares (ADS) traded on the New York Stock Exchange (NYSE) closed at US$31.3 at the end of March 2005, representing a 6.4% decrease in value during the first quarter. The Company's common and preferred shares traded in the domestic market on the Bolsa de Valores de Sao Paulo (BOVESPA) closed at R$15.92 and R$20.84, respectively, at the end of March 2005, representing an increase of 0.76% and decrease of 6.13%, respectively, during the first quarter. The Bovespa index in turn increased in value by 1.58% during the same period. The average daily trading volume for the ADS's, common shares, and preferred shares during the same period was US$21.6 million, R$4.0 million, and R$9.8 million, respectively. Page 7 During a meeting held March 11, 2005, the Board of Directors approved the distribution of interest on shareholder's equity on April 15, 2005 in the amount of US$ 40.0 million, representing US$ 0.22925 per ADS. - -------------------------------------------------------------------------------- Recent Events - -------------------------------------------------------------------------------- Embraer Launches Very Light Jet and Light Jet On May 3, Embraer announced its intention to strengthen its position in the business aviation market with new products and services by complementing the Legacy offering 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. Embraer's entry into the Very Light and Light categories was approved by Embraer's Board of Directors in April. The investment in the new jets is expected to total US$ 235 million. This program will be funded by the partners, financial institutions and the Company's own cash generation. Based upon in-depth market assessments, Embraer has estimated demand for approximately 3,000 Very Light, Entry and Light jets over the next decade. This figure does not include the air taxi market. Embraer's Very Light Jet will carry up to eight people and be powered by Pratt & Whitney Canada's PW617F engine, with 1,615 pounds of thrust. Its range will be 1,160 nautical miles (NBAA IFR reserves with 100 nm alternate) with four people onboard and it will have a maximum operating speed of Mach 0.7. The airplane is designed for a short takeoff distance and is capable of flying at 41,000 feet. The Very Light Jet is expected to enter service in mid-2008 and is expected to be priced at $2.75 million based on 2005 economic conditions. The Light Jet will be powered by P&WC's PW535E engine, with 3,200 pounds of thrust. Comfortably accommodating up to nine people, the Light Jet's range will be 1,800 nautical miles (NBAA IFR reserves with 100 nm alternate) with six people onboard, and it will have a maximum operating speed of Mach 0.78. The airplane is also designed for a short takeoff distance and is capable of flying at 45,000 feet. The Light Jet is expected to enter service in mid-2009 and is expected to be priced at US$ 6.65 million based on 2005 economic conditions. Embraer is committed to making long-term investments in this business to offer revolutionary products and completely integrated solutions to a sophisticated customer base. The Company's goal is to build a robust business aviation unit and a global infrastructure to support it. Saudi Arabian Airlines Order On April 27, Saudi Arabian Airlines signed a contract with a firm order of 15 EMBRAER 170 aircraft, with the first delivery scheduled for December 2005. The airline is Embraer's first customer for the type in the Middle East. All aircraft will be configured in a two-class layout with a total of 66 seats, six of which will be assigned to first class. As it enters its 60th year of operation, Saudi Arabian Airlines is strongly committed to the development and expansion of services within the Kingdom and the region. The airline intends to deploy its newly acquired EMBRAER 170 within its domestic and regional markets, adding frequencies on existing routes and eventually developing mini-hubs at Hail City in the North of the country and Abha in the South. Sale of Three EMBRAER 170/190 Family Jets to TAME On April 18, Embraer announced 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 expected to take place in 2005 and 2006. TAME also holds four options on aircraft of the same jet family. - -------------------------------------------------------------------------------- Conference Call Information - -------------------------------------------------------------------------------- Embraer will hold a conference call to review its 1Q05 Results in US GAAP May 17, 2005 Page 8 English (US GAAP) Portuguese (BR GAAP) 10:00 am (NY Time) 8:00 am (NY Time) 11:00 am (SP Time) 9:00 am (SP Time) Dial-in Numbers Dial-in Number 1 800 473-6123 +55 11 2101-1490 1 973 582-2706 Code: Embraer Code: 6060657 Replay Number Replay Number 1 973 341-3080 55 11 2101-1490 Code: 6060657 Code: Embraer The conference call will also be broadcast live over the web at www.embraer.com For additional information please contact: Embraer - Empresa Brasileira de Aeronautica S/A Anna Cecilia Bettencourt (55 12) 3927 1216 acecilia@embraer.com.br Andrea Bottcher (55 12) 3927 3054 abottcher@embraer.com.br - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- Page 9 EMBRAER - EMPRESA BRASILEIRA DE AERONAUTICA S.A. ------------------------------------------------ CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (in thousands of U.S. dollars) ------------------------------ ASSETS
- ---------------------------------------------------------------------------------------------------------- As of December 31, As of March 31, 2004 2005 - ---------------------------------------------------------------------------------------------------------- CURRENT ASSETS - ---------------------------------------------------------------------------------------------------------- Cash and cash equivalents 1,314,038 826.028 Short-term investments 46,738 44,235 Trade accounts receivable, net 566,127 690,235 Collateralized accounts receivable 70,599 53,105 Inventories 1,408,608 1,547,696 Deferred income taxes 104,417 103,135 Other 364,982 425,169 - ---------------------------------------------------------------------------------------------------------- Total current assets 3,875,509 3,689,603 - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- NONCURRENT ASSETS: - ---------------------------------------------------------------------------------------------------------- Trade accounts receivable, net 119,678 166,943 Collateralized accounts receivable and residual value 777,546 792,033 Customer and commercial financing 332,761 327,401 Inventories 19,674 22,238 Property, plant and equipment, net 381,265 389,241 Investments 48,267 33,625 Deferred income taxes 262,403 256,960 Other 286,575 289,782 - ---------------------------------------------------------------------------------------------------------- Total noncurrent assets 2,228,169 2,278,223 - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- TOTAL ASSETS 6,103,678 5,967,826 - ----------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------- As of December 31, As of March 31, 2004 2005 - ---------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES - ---------------------------------------------------------------------------------------------------------- Loans 513,281 232,345 Accounts payable to suppliers 556,492 619,468 Customer advances 375,548 386,240 Non-recourse and recourse debt 351,405 336,967 Other accounts payable and accrued liabilities 414,789 440,162 Deferred income taxes 14,997 14,584 Contingencies 89,589 156,505 - ---------------------------------------------------------------------------------------------------------- Total current liabilities 2,316,101 2,186,271 - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- LONG-TERM LIABILITIES - ---------------------------------------------------------------------------------------------------------- Loans 825,448 804,674 Accounts payable to suppliers 3,450 3,410 Customer advances 103,615 96,260 Contribution from suppliers 140,037 134,269 Non-recourse and recourse debt 654,291 641,916 Other accounts payable and accrued liabilities 141,512 204,331 Deferred income taxes 157,817 148,403 Contingencies 386,096 295,762 - ---------------------------------------------------------------------------------------------------------- Total long-term liabilities 2,412,266 2,329,025 - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- MINORITY INTEREST 21,443 41,764 - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY: 1,353,868 1,410,766 - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 6,103,678 5,967,826 - ----------------------------------------------------------------------------------------------------------
Page 10 CONDENSED CONSOLIDATED STATEMENTS OF INCOME In thousands of U.S.dollars except per share data
- ----------------------------------------------------------------------------------------- Three Months Ended March 31, 2004 March 31, 2005 - ----------------------------------------------------------------------------------------- Net sales 626,201 763,290 - ----------------------------------------------------------------------------------------- Cost of sales and services (424,168) (495,290) - ----------------------------------------------------------------------------------------- Gross profit 202,033 268,000 - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- Operating expenses - ----------------------------------------------------------------------------------------- Selling expenses (67,177) (53,798) Research and development 59,472 (30,368) General and administrative (30,380) (42,155) Employee profit sharing (10,417) (11,988) Other operating expense, net (522) (5,187) Equity in income (loss) from affiliates -- -- - ----------------------------------------------------------------------------------------- Income from operations 153,009 124,504 - ----------------------------------------------------------------------------------------- Interest(expense) income, net (7,638) (7,104) Foreign exchange gain (loss) net (2,238) 2,888 Other non-operating income (expense), net 29 (24) - ----------------------------------------------------------------------------------------- Income before income taxes 143,162 120,264 - ----------------------------------------------------------------------------------------- Income tax benefit (expense) (39,489) (22,453) - ----------------------------------------------------------------------------------------- Income before minority interest 103,673 97,811 - ----------------------------------------------------------------------------------------- Minority interest (359) (1,306) - ----------------------------------------------------------------------------------------- Net income 103,314 96,505 - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- Earnings per share - ----------------------------------------------------------------------------------------- Basic Common 0.1353 0.1258 Preferred 0.1488 0.1384 Diluted Common 0.1343 0.1251 Preferred 0.1477 0.1376 - ----------------------------------------------------------------------------------------- Weighted average shares (thousands of shares) - ----------------------------------------------------------------------------------------- Basic Common 242,544 242,544 Preferred 473,788 476,721 Diluted Common 242,544 242,544 Preferred 478,981 480,840 - ----------------------------------------------------------------------------------------- Earnings per share - ADS basic (US$) 0.5952 0.5537 - ----------------------------------------------------------------------------------------- Earnings per share - ADS diluted (US$) 0.5908 0.5504 - -----------------------------------------------------------------------------------------
Page 11 EMBRAER - EMPRESA BRASILEIRA DE AERONAUTICA S.A. ------------------------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- In thousands of U.S.dollars except per share data -------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------- Three months ended on March 31, 2004 2005 - -------------------------------------------------------------------------------------------------------------------------- Operating activities - -------------------------------------------------------------------------------------------------------------------------- Net income 103,314 96,505 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 13,306 17,191 Allowance for doubtful accounts (455) 1,106 Provision for inventory obsolescence 5,525 5,076 Deferred income taxes 15,354 (3,102) Foreign exchange loss (gain), net 2,238 (2,888) Loss (gain) on disposition of assets 58 (47) Interest accrued in excess of interest paid (paid in excess of accrued) (5,815) 2,143 Minority interests 359 1,306 Other (750) 1,880 - -------------------------------------------------------------------------------------------------------------------------- Changes in assets and liabilities: (128,746) (240,728) - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 4,388 (121,558) - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Investing activities - -------------------------------------------------------------------------------------------------------------------------- Purchase of property, plant and equipment (9,836) (13,660) Proceeds from sale of property, plant and equipment 45 83 Net additions to investments -- (151) - -------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (9,791) (13,728) - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Financing activities - -------------------------------------------------------------------------------------------------------------------------- Repayment of loans (256,173) (521,682) Proceeds from borrowings 138,229 227,416 Proceeds from issuance of shares 719 2,045 Dividends and/or Interest on capital paid (40,348) (59,441) Payments on capital lease obligations (1,825) (279) - -------------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by financing activities (159,398) (351,941) - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash (3,521) (783) - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and equivalents (168,322) (488,010) - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, beginning of period 1,265,820 1,314,038 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period 1,097,498 826,028 - --------------------------------------------------------------------------------------------------------------------------
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