SAO JOSE DOS CAMPOS, Brazil, July 28, 2011 /PRNewswire/ --

HIGHLIGHTS:

• During the 2nd quarter of 2011 (2Q11) Embraer delivered 25 jets to the commercial aviation market and 23 to the executive aviation market (20 light jets and 3 large jets);
• 2Q11 Revenues reached US$ 1,358.6 million, and Gross margin grew from 20.2% in 2Q10 to 22.4% in 2Q11;
• 2Q11 EBIT (i) and EBITDA margin reached 7.8% and 11.3%, respectively, in line with the Company's guidance, for an accumulated EBIT and EBITDA margin of 8.3% and 12.8%, respectively, for the first half of 2011;
• 2Q11 Net income attributable to Embraer and Earnings per ADS-basic totaled US$ 96.4 million and US$ 0.5328, respectively, compared to US$ 57.4 million and US$ 0.3173 in 2Q10;
• Continuous improvement seen in the commercial aviation market, resulting in year to date sales of 62 new E-Jets and signed agreements for an additional 42 E-Jets, which are expected to be added to the Company's backlog over the course of the following months.

Main financial indicators:

GUIDANCE REVISION

• The Company is revising its 2011 Revenue Guidance from US$ 5.6 billion to US$ 5.8 billion;
• As a consequence, 2011 EBIT and EBIT margin Guidance are also being revised from US$ 420 million and 7.5% to US$ 465 million and 8%, respectively;
• EBITDA and EBITDA margin projections are also being revised to US$ 700 million and 12%, respectively;
• The Company is also revising its Development investment outlook from US$ 210 million to US$ 160 million.

(i)  EBIT is a non-GAAP measure and is equal to the operational profit before financial income (expenses) as presented in Embraer’s Income Statement and EBIT margin is equal to EBIT divided by Revenues.

(BM&FBOVESPA: EMBR3, NYSE: ERJ) 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 IFRS. The financial data presented in this document as of and for the quarters ended June 30, 2010 (2Q10), March 31, 2011 (1Q11) and June 30, 2011 (2Q11), are derived from the unaudited financial statements, except where otherwise stated.

REVENUES AND GROSS MARGIN

Embraer delivered a total of 25 commercial and 23 executive aircraft in 2Q11 (20 light jets and 3 large jets), for an accumulated total of 45 commercial and 31 executive aircraft delivered during the first half of 2011 (1H11) (26 light jets and 5 large jets). As a result, Revenues for 1H11 totaled US$ 2,414.3 million. Considering the above, we believe Embraer is on track to meet its 2011 projected deliveries and Revenue guidance. The mix of revenues and products of the first two quarters of 2011, in addition to the Company's ongoing efforts to improve productivity and efficiency, positively impacted operational results. In this line, Embraer's 1H11 Gross profit margin reached 23.2%.

EBIT

2Q11 EBIT and EBIT margin were US$ 105.6 million and 7.8%, respectively. For 1H11, the accumulated Operating income margin was 8.3%, which is above the Company's revised guidance of 8%. Research expenses totaled US$ 19.1 million for 2Q11, which coupled with the US$ 19.3 million Research expense from 1Q11, total US$ 38.4 million for 1H11, consistent with the Company's outlook of US$ 90 million for the year. 1H11 Selling expenses reached US$ 202.8 million compared to the US$ 177.9 million in the first half of 2010 (1H10). This increase in Selling expenses comes mainly as a result of an increase in marketing and sales activities. Administrative expenses for 2Q11 reached US$ 64.4 million and were higher when compared to the US$ 51 million for 2Q10. It is important to mention that a portion of the operating expenses are Real denominated and the 11% appreciation of the average Real to the US dollar exchange rate from 2Q10 to 2Q11 negatively impacted those expenses. Also worth noting is the Company's ability to increase productivity and efficiency, which have resulted in higher Gross margins, and allowed the Company to partially offset the increased costs coming from the appreciation of the Real and the increase in labor costs.

NET INCOME

Net income attributable to Embraer and Earnings per ADS-basic, for 2Q11, were US$ 96.4 million and US$ 0.5328, respectively. 2Q11 Net margin reached 7.1%, and was significantly higher when compared to the 4.2% achieved in 2Q10. The improvement in Net margin comes mainly from a reduction in the Company's Income tax (expense), which posted an expense of US$ 32.3 million in 2Q11 compared to an expense of US$ 66.5 million in 2Q10. Such difference comes mainly as a result of the effect of the exchange rate, which impacted the Company's taxable income and non-monetary assets, as well as the deductible expenses incurred during the period.

MONETARY BALANCE SHEET ACCOUNTS AND OTHER MEASURES

The Company's Net cash position for the period decreased by US$ 98.6 million, totaling US$ 406.3 million. Such decrease in Net cash comes mainly as a consequence of an increase in the Company's Inventories, Trade accounts receivable and PP&E which were partially offset by an increase in Trade accounts payable. Coupled with these working capital requirements, the Company also used its cash to acquire an interest stake in Orbisat and Atech.

Considering the above, Net cash generated by operating activities reached US$ 78.3 million in 2Q11 and helped offset a portion of the negative Free Cash flow (ii) for the period, which totaled US$ 37.6 million. Year to date, the Company has a negative Free cash flow of US$ 163.3 million, which is expected to be reverted during the course of the second half of the year as Inventories tend to decrease as deliveries are expected to recover, thereby meeting the delivery Guidance.

(ii) Free cash flow is a non-GAAP measure. The Company calculates Free cash flow taking into account mainly investments in PP&E, product development expenditures, which are recorded in Intangible assets, and changes in short-term investments (Financial Assets). It's important to mention that Operating cash flow does not include the cash invested in product development. It includes changes in Financial assets which do not represent changes in the Company’s net cash position since additions or reductions in Financial Assets reflects changes in the maturity profile of the Company’s short-term investments and, as consequence, does not represent increases or decreases in the Company’s Free cash flow. Additionally, Operating cash flow includes changes in court-mandated escrow deposits, which in its essence is not operational cash and shall be disregarded for Free cash flow calculation purposes. Therefore, Embraer’s free cash flow is represented by the operating cash flow adjusted by Addition to property, plant and equipment (PP&E), Addition to intangible assets, Other assets and Financial assets.

Additions to PP&E totaled US$ 92.9 million in 2Q11. Total PP&E includes values related to spare parts pool programs, aircraft under lease or available for lease and CAPEX. Of total 2Q11 PP&E, CAPEX amounted to US$ 31.7 million, which coupled with the US$ 38.8 million CAPEX from 1Q11, total US$ 70.5 million for 1H11 in line with the Company's US$ 200 million outlook for the year. The Company also added a total of US$ 97.8 million to Intangible assets through 1H11. As part of this addition to Intangible, the Company invested a total of US$ 82.6 million in product development, mainly for the Legacy 450 & 500 programs (US$ 33.1 million and US$ 49.5 for 1Q11 and 2Q11, respectively). This is consistent with the Company's revised outlook of US$ 160 million for Development investments.

During 2Q11, the Company's total debt increased to US$ 1,719.9 million, compared to US$ 1,513.8 million in 1Q11. Such increase comes as a result of an increase in both Short and Long-term loans which increased by US$ 64.9 million and US$ 141.2 million, respectively. This increase in the Company's total debt comes as a result of the need for additional working capital and cash management to support the Company's ongoing operations. Furthermore, as a consequence of such increase, the Company's total cash position also increased to US$ 107.5 million.

Considering the Company's current debt profile, the average loan maturity decreased to 5 years but is still in line with the Company's business cycle. Furthermore, the cost of Dollar denominated loans remained stable and going from 5.6% to 5.5% p.a. and the cost of Real denominated loans increased from 4.3% to 6% p.a. The Adjusted EBITDA to financial expenses (gross) ratio decreased slightly, going from 7.59 in 1Q11, to 7.14 in 2Q11. As of 2Q11, 32.3% of total debt was denominated in Reais.

Embraer's cash allocation strategy continues to be the most important tool to mitigate exchange rate risks. In other words, by balancing cash allocation in Reais and Dollar denominated assets, the Company attempts to neutralize its balance sheet exchange rate exposures. Of total cash in 2Q11, 51% was denominated in Reais. The Company's financial strategy continues to positively contribute to the results of the financial activities and at the end of 1H11 such contribution totaled US$ 34.5 million.

OPERATIONAL BALANCE SHEET ACCOUNTS

As the Company has been able to take advantage of some opportunities related to additional deliveries in commercial aviation and due to some planned 2Q11 deliveries that were postponed to the second half of 2011 (2H11), the Company expects a higher number of deliveries in the 2H11. In this line, Inventories increased by US$ 136.1 million and totaled US$ 2,696.6 million in 2Q11. Furthermore, Trade accounts receivable also increased to US$ 466.8 million, as a result of the normal cycle of the Company's operating activities. On the other hand, Trade accounts payable grew to US$ 1,036.5 million and helped to partially offset the negative impact of the increase in Inventories and Trade accounts receivable on the Company's working capital requirements. Advances from customers increased slightly and reached US$ 1,107 million.

Intangible increased US$ 102.3 million and reached US$ 832 million at the end of 2Q11. This increase is due to investments made in aircraft program development, mainly the Legacy 450 & 500, which totaled US$ 49.5 million in 2Q11. Furthermore, the acquisition of an interest stake in Orbisat and Atech also contributed to such increase in Intangible. Property, plant and equipment increased by US$ 78.1 million and reached US$ 1,336.1 million in 2Q11, as a result of the investments made in the Company's operations located in Melbourne, Florida and Evora, Portugal, as well as the addition of certain trade-in aircraft supporting new aircraft sales activities and investments in spare parts to support the Company's Pool program activities, which continue to expand as more customers join this program. As a result of the increase in PP&E, 2Q11 depreciation totaled US$ 24.7 million, out of which 45% is CAPEX related, with the remainder being associated with other PP&E items. Customer and commercial financing remained stable and totaled US$ 53.8 million in 2Q11.

SEGMENT RESULTS

2Q11 Revenues mix by segment varied when compared to 1Q11, as a result of a lower participation from the Commercial aviation and Defense and Security segments, which represented 65.3% and 14.8% of Revenues, respectively. This decrease was compensated by the higher participation from the Executive Aviation segment, which reached 18.1%. Others remained stable at 1.8%.