Press release from PR Newswire
Embraer Releases Third Quarter 2011 Results
Wednesday, November 02, 2011
Embraer Releases Third Quarter 2011 Results23:56 EDT Wednesday, November 02, 2011SAO JOSE DOS CAMPOS, Brazil, Nov. 2, 2011 /PRNewswire/ -- HIGHLIGHTS:During the 3rd quarter of 2011 (3Q11) Embraer delivered 28 jets to the commercial aviation market and 18 to the executive aviation market (17 light jets and 1 large jet);3Q11 Revenues reached US$ 1,363.6 million and Gross margin reached 21.2%, as a result of the mix in revenues and products;3Q11 EBIT(1) and EBITDA(2) margin reached 9.1% and 13.8%, respectively, above the Company's guidance, for an accumulated EBIT and EBITDA margin of 8.6% and 13.2%, respectively, for the first three quarters of 2011;Firm order backlog increased to US$ 16 billion, as a result of sales activities in 3Q11, mainly in executive aviation;3Q11 Net income attributable to Embraer Shareholders and Earning per ADS basic totaled US$ 1.9 million and US$ 0.0103, respectively, primarily as a result of Deferred income taxes generated by the appreciation of the US Dollar during the period. Therefore, 3Q11 Adjusted net income excluding deferred income taxes(3) was US$ 125.7 million; 3Q11 Net cash position totaled US$ 193.4 million, mainly as a result of increased inventories. MAIN FINANCIAL INDICATORS:in millions of U.S. dollars, except % and per share dataIFRS2Q113Q103Q11YTD11Revenues1,358.61,044.01,363.63,777.9EBIT105.666.4124.2324.1EBIT Margin %7.8%6.4%9.1%8.6%EBITDA153.1130.6188.3497.8EBITDA Margin %11.3%12.5%13.8%13.2%Adjusted Net Income (excluding Deferred income tax and social contribution)(3)120.164.7125.7337.0Net income attributable to Embraer Shareholders96.4126.11.9203.4Earnings per share - ADS basic (US$) 0.53280.69700.01031.1241Net Cash406.3617.5193.4193.4GUIDANCE OUTLOOK:The Company is projecting its 2011 Revenue Guidance to be in the range of US$ 5.6 ? US$ 5.8 billion;2011 EBIT and EBITDA Guidance remain unchanged at US$ 465 million and US$ 700 million, respectively. Consequently, EBIT and EBITDA margins shall be above the current Guidance of 8% and 12%, respectively.Embraer's (BM&FBOVESPA: EMBR3, NYSE: ERJ) operating and financial information is presented, except where otherwise stated, on a consolidated basis in United States dollars (US$) in accordance with IFRS. The financial data presented in this document as of and for the quarters ended September 30, 2010 (3Q10), June 30, 2011 (2Q11) and September 30, 2011 (3Q11), are derived from the unaudited financial statements.NET SALES AND GROSS MARGINEmbraer delivered a total of 28 jets to the commercial aviation market and 18 to the executive aviation market (17 light jets and 1 large jets), for an accumulated total of 73 commercial and 49 executive aircraft (43 light jets and 6 large jets) delivered during the first nine months of 2011 (9M11). As a result, accumulated Revenues for 9M11 totaled US$ 3,777.9 million. The Company believes it is in line to meet its revised 2011 Revenue guidance and is expecting a stronger 4Q11 if compared to previous quarters in the year. The Company's ongoing efforts to improve productivity and efficiency have allowed it to achieve higher Gross margins, in spite of a stronger local currency and increased labor costs. In this line, Embraer's 9M11 Gross profit margin reached 22.5%, compared to 20.5% for the first nine months of 2010 (9M10).EBIT3Q11 EBIT and EBIT margin were US$ 124.2 million and 9.1%, respectively. For 9M11, the accumulated Operating income margin reached 8.6%. Considering the expected mix of revenues and products of 4Q11, the Company believes it is well positioned to deliver its 2011 Operating margin guidance. Research expenses totaled US$ 20.9 million for 3Q11, for an accumulated total of US$ 59.3 million in 9M11, consistent with the Company's outlook of US$ 90 million for the year. 3Q11 Selling expenses remained stable and reached US$ 102.6 million compared to the US$ 108.8 million in 2Q11. Administrative expenses for 3Q11 reached US$ 69.4 million and were also stable when compared to the US$ 64.4 million for 2Q11. It is important to mention that a portion of the operating expenses are Real denominated and considering that the average Real to the US dollar exchange rate from 2Q11 to 3Q11 depreciated 2.5%, there was only a slight positive impact to such expenses. In 9M11, the average Real exchange rate appreciated 8.3% when compared to the same period of 2010. Furthermore, the Company continues to make investments to develop its customer support network, especially in Executive aviation, and has implemented some changes in the Defense & Security organization, as well as intensified its efforts to define the product strategy in the Commercial aviation segment, all of which impact the Company's SG&A expenses. Other operating (expense) income, net, totaled US$ 27.6 million in 3Q11, primarily driven by order cancellations which, although they have continued to decrease over the past two years, are still occurring to some degree.NET INCOMENet income attributable to Embraer and Earnings per ADS, for 3Q11, were US$ 1.9 million and US$ 0.0103, respectively. Net income was largely impacted by the appreciation of the US dollar against the Real during 3Q11, which appreciated approximately 18% over the last two weeks of the quarter, and consequently increased Embraer's non-cash taxes for the period. As mentioned in footnote 3, under IFRS Embraer is required to record taxes resulting from unrealized gains or losses due to the impact of the changes in the Real to US dollar exchange rate over non-monetary assets (primarily Inventory, Intangibles and PP&E) and such appreciation of the US dollar during 3Q11 increased the Company's deferred taxes for the quarter, which totaled US$ 123.8 million. MONETARY BALANCE SHEET ACCOUNTS AND OTHER MEASURESThe Company's Net cash position for the period decreased by US$ 212.9 million, totaling US$ 193.4 million. Such decrease in Net cash comes mainly as a consequence of an increase in the Company's Inventories and investments in PP&E which were partially offset by an increase in Advances from customers. in millions of U.S. dollarsBalance Sheet Data (1)(1)(1)3Q102Q113Q11Cash and cash equivalents1,044.41,350.91,434.1Financial assets 1,007.7775.3569.9Total cash position2,052.12,126.22,004.0Loans short-term83.8217.7479.2Loans long-term1,350.81,502.21,331.4Total loans position1,434.61,719.91,810.6Net cash*617.5406.3193.4* Net cash = Cash and cash equivalents + Financial assets short-term - Loans short-term and long-term(1) Derived from unaudited financial information.Considering the above, Net cash generated by operating activities reached US$ 161.1 million in 3Q11 and helped partially offset the 3Q11 cash requirements related to PP&E and Intangibles. During the course of 4Q11, Free cash flow(4) is expected to recover, as aircraft deliveries in 4Q11 tend to increase compared to previous quarters, driving Inventories to decrease. However Inventories may end the year at a level above where it was in the beginning of 2011.in millions of U.S. dollars IFRS 3Q104Q101Q112Q113Q11YTD11Net cash generated by operating activities 89.85126.96.36.19961.1301.8Financial assets adjustment (1)(92.1)(287.5)(47.9)26.6(140.7)(162.0)Other assets adjustment (2)22.019.8----Additions to property, plant and equipment(39.1)(65.9)(91.8)(92.9)(72.8)(257.5)Additions to intangible assets(46.5)(51.3)(48.1)(49.7)(59.5)(157.3)Free cash flow(65.9)193.2(125.7)(37.7)(111.9)(275.0)(1) Unrealized gain (losses) on Financial assets.(2) Correspond mainly to court-mandated escrow deposit and short term marketable securities.Additions to PP&E totaled US$ 72.8 million in 3Q11. Total PP&E includes values related to Pool program spare parts, aircraft under lease or available for lease and CAPEX. As the Company has consistently built up its inventory of spare parts to adjust for the growing demand of its spare parts Pool programs from its customer base, in 2012, the level of investments in Pool program spare parts is expected to be less than in 2011. The Company also added a total of US$ 157.3 million to Intangible assets in 9M11. During 3Q11, Embraer anticipated certain risk sharing partner contributions originally scheduled for 2012, resulting in income of US$ 10.8 million as the net Development expenditures for the period. The anticipation of such risk sharing partner contributions was the primary driver for the Company's revision of its 2011 product development investments outlook, announced during 2Q11. The table below outlines the detailed investments in PP&E and R&D for the first three quarters of 2011. 1Q112Q113Q11YTD 11Development (Net of contributions from suppliers)33.149.5(10.8)71.8Research19.319.120.959.3R&D52.468.610.1131.11Q112Q113Q11YTD 11CAPEX38.831.738.5109.0Additions of aircraft available for or under lease21.537.6-59.1Additions of Pool programs spare parts31.523.634.389.4PP&E91.892.972.8257.5During 3Q11, the Company's total debt increased to US$ 1,810.6 million, compared to US$ 1,719.9 million in 2Q11. This increase in the Company's total debt comes as a result of the cash management needs to support the Company's ongoing operations. In 3Q11 Short-term loans accounted for 26% of total loans, compared to 13% in 2Q11. Considering the Company's current debt profile, the average loan maturity decreased to 4.5 years. Indebtedness Maturity3Q104Q101Q112Q113Q11Short-term6%5%10%13%26%Long-term94%95%90%87%74%Loans Average Maturity (Years)188.8.131.52.04.5As a result of the growth in Short-term loans, the cost of Dollar denominated loans decreased from 5.5% to 4.9% p.a. and the cost of Real denominated loans also decreased from 6% to 5.6% p.a., from 2Q11 to 3Q11. The Adjusted EBITDA to financial expense (gross) ratio (for more detailed information please refer to page 10 of the results on Embraer's website) decreased slightly in 3Q11, compared to 2Q11, going from 7.14 to 7.08. As of 3Q11, 29.7% of total debt was denominated in Reais.Embraer's cash allocation management strategy continues to be the most important tool in mitigating exchange rate fluctuation risks. In other words, by balancing cash allocation in Reais and Dollar denominated assets, the Company attempts to neutralize its exchange rate exposures on its Balance sheet. Of total cash in 3Q11, 49% was denominated in Reais. The Company's financial strategy continues to positively contribute to the results of the financial activities and in 9M11 such contribution totaled US$ 51.4 million. Total Cash - Currency Ratio3Q104Q101Q112Q113Q11Brazilian Currency41%49%47%51%49%Other Currencies (primarily US Dollars)59%51%53%49%51%Complementing the Company's hedging strategy and taking advantage of the recent depreciation of the Real, the Company entered into some "plain vanilla" financial hedges in order to reduce its 2012 cashflow exposure. The Company's cashflow exposure comes as a result of the fact that approximately 5% of its net revenues are denominated in Reais and 25% of its total costs are also denominated in Reais. Having more Real denominated costs than revenues generates such exposure. Approximately 30% of the Company's Real exposure is protected if the US Dollar depreciates below US$ 1.75 to the Real. For exchange rates above this level, the Company will enjoy the upside up to an average exchange rate cap of US$ 2.40. OPERATIONAL BALANCE SHEET ACCOUNTSin millions of U.S. dollars(1)(1)(1)Balance Sheet Data3Q102Q113Q11Trade accounts receivable319.4466.8473.6Customer and commercial financing47.953.8120.6Inventories2,708.22,696.62,872.4Property, plant and equipment 1,123.31,336.11,323.5Intangible719.8832.0791.2Trade accounts payable848.81,036.5989.4Advances from customers1,177.31,107.01,183.6Total shareholders' equity3,063.63,257.53,214.6(1) Derived from unaudited financial information.Total Inventories increased by US$ 175.8 million, totaling US$ 2,872.4 million in 3Q11, primarily due to the greater number of aircraft deliveries expected for 4Q11 compared to previous quarters in 2011. Trade accounts payable decreased by US$ 47.1 million and totaled US$ 989.4 million in 3Q11, as a result of the normal cycle of the Company's operating activities. Advances from customers grew by US$ 76.6 million and reached US$ 1,183.6 million in 3Q11, as a result of improvements in the sales environment. Trade accounts receivable and Property plant and equipment both remained stable, totaling US$ 473.6 million and US$ 1,323.5 million, respectively, in 3Q11. Customer and commercial financing increased US$ 66.8 million, mainly driven by temporary short-term financing structures related to aircraft deliveries during 3Q11. Furthermore, Intangible decreased US$ 40.8 million, primarily as a result of risk-sharing partner contributions received during the period.SEGMENT RESULTS3Q11 Revenues mix by segment varied when compared to 2Q11, as a result of a lower participation from the Executive aviation and Defense and Security segments, which represented 11% and 13.9% of total Company Revenues, respectively. This decrease was offset by the higher participation from the Commercial aviation and Others segments, which reached 73.1% and 2% of Revenues, respectively. The mix in revenues and products of 3Q11 negatively impacted the Gross margin of the period, when compared to 2Q11.Net revenues(2)(2)(2)(2)by segment2Q113Q103Q11YTD2011US$M%US$M%US$M%US$M%Commercial Aviation887.665.3702.567.3996.473.12,635.869.8 - Commercial Aviation services88.56.577.07.489.96.6282.6Defense and Security Business200.514.8107.210.3189.213.9558.914.8 - Defense and Security Business services45.03.3184.108.40.206.5133.6Executive Aviation245.618.1217.220.8149.411.0510.713.9 - Executive Aviation services25.81.916.31.626.92.070.6Others24.91.817.11.628.62.072.51.9Total1,358.6100.01,044.0100.01,363.6100.03,777.9100.0(2) Derived from unaudited financial information.COMMERCIAL AVIATIONDuring 3Q11, the Company delivered 28 commercial jets and sold 17 new E-Jets reaching a total of 1,018 firm orders. The E-Jets program reached a significant milestone with the delivery of the 800th aircraft to China Southern Airlines. As Paulo Cesar de Souza e Silva, Embraer's President of Commercial Aviation, said: "The 800th E-Jet delivery mark was achieved about seven years after the first E-Jets entered revenue service in 2004, which eloquently proves the success of the E-Jets program in the worldwide commercial aviation market." In addition, "Follow-on orders from Kenya, Lufthansa and GECAS confirmed our customers' confidence in the E-Jets efficiency and operational flexibility."Deliveries1Q112Q113Q103Q112011Commercial Aviation2025202873 ERJ 145-21-2 EMBRAER 1701-1-1 EMBRAER 175211-3 EMBRAER 1901117112250 EMBRAER 195656617Highlights of the 3Q11 related to the Commercial aviation segment include:Sale of ten EMBRAER 190 to Kenya Airways;Sale of five EMBRAER 195 to Lufthansa;Sale of two EMBRAER 190 to GECAS;China Southern Airlines became the newest E-Jets operator and also received the commemorative 800th Delivery;First Embraer 190 delivery to Alitalia;11th Maintenance Cost Workshop, focused on the E-Jets and the ERJ 145 families; andEmbraer and GE successfully concluded bio-jet fuel tests with an EMBRAER 170, testing the performance of E-Jets and CF34-8E engines powered with sustainable HEFA (Hydro-processed Esters and Fatty Acids) biofuel.Commercial Aviation BacklogFirm OrdersOptionsTotalDeliveriesFirm BacklogERJ 145 Family890-890890-EMBRAER 170188342221826EMBRAER 17518929047913653EMBRAER 190531293824371160EMBRAER 195110361468129E-JETS Family1,0186531,671770248TOTAL1,9086532,5611,660248EXECUTIVE AVIATIONIn 3Q11 Executive Aviation delivered a total of 17 light jets and one large jet. Deliveries1Q112Q113Q103Q11YTD11Executive Aviation823241849 Light Jets620221743 Large Jets23216Although the U.S. Corporate Profits indicator, which is an important market driver, has exceeded pre-2009 recession levels, the used aircraft market (price and number of used aircraft for sale) continues to offer some barriers to the executive aviation market recovery. Furthermore, as a result of the continued challenges observed in the Executive aviation segment, the Company may not achieve its 2011 revenues projection for this segment. In spite of the current environment, the Company is net order positive as of September 30, 2011. The highlight was the signing, at the beginning of October, of an agreement for the purchase of 13 Legacy 650 jets by China's Minsheng Financial Leasing Co. as the first step to fulfill the Memorandum of Understanding (MoU) celebrated in July for up to 20 aircraft.The assembly of the Phenom 100 at Melbourne, Florida progresses on schedule with the interior installation and painting of the first Phenom 100, the wing mate of the second aircraft and the third aircraft subassemblies already on site in the plant. First flight of U.S.-assembled Phenom 100 is scheduled to occur later this year. The adjoining Embraer Customer Center (ECC) has been completed and the Occupancy Certificate has been issued. The ECC will be fully functional in December this year.The Legacy 500 executive jet program continues to evolve. Three prototypes are currently in production. The wing and fuselage of the first prototype has been mated and systems installation is underway. Landing gear has been installed and electrical power in the aircraft has been turned on. The assembly and installation of the vertical and horizontal stabilizers, cabin door, rudder and elevator assemblies are being concluded. The second prototype's wing trailing edge and other structural components and systems are being assembled and the first structural segments of the third prototype are being finished.Embraer's commitment to world class customer support is highlighted by the Company's expansion of its network of service centers. In August, Embraer announced the appointment of four new authorized service centers in Brazil and an operational expansion plan of its factory-owned service center in Brazil, including new services and certifications, a substantial increase in maintenance equipment, and larger facilities. In the same month, the announcement of a new service center in the Greater China region was made. In October it was disclosed that four new Authorized Service Centers for the Phenom jets in North America will join the Company's global network, achieving more than 55 owned and authorized service centers.DEFENSE AND SECURITYThe Defense and Security market continues to present a favorable scenario for growth, with a series of campaigns underway for various applications including training and light attack, intelligence, surveillance and reconnaissance systems, aircraft modernization, military transportation, command and control systems and services. In addition, we are also pursuing in Brazil major participation in projects such as the Integrated System for Border Monitoring (SISFRON), and Security for the upcoming major sporting events.Embraer Defense and Security and AEL Sistemas S.A., a subsidiary of Israel's Elbit Systems Ltd., formalized a partnership to create a new company, Harpia Sistemas S.A., to focus on the unmanned aerial systems (UAS) market. Embraer Defense and Security holds 51% of Harpia's capital, and AEL the remaining 49%. From its headquarters in the Federal District of Brasilia, Harpia's activities will involve marketing, development, systems integration, manufacturing, sales, and UAS after-sale support, as well as simulators and the modernization of avionics systems. The company will provide broader solutions for complex systems, increasing the market-share of Brazilian made products in the national defense and security market.As for modernization programs, in 3Q11 two more F-5 BR were delivered to the Brazilian Air Force (FAB). These two units complete 44 deliveries of a total of 46 aircraft. The more recent contract signed to modernize 11 additional F-5 fighter jets are expected to have deliveries commencing in 2013.The test campaigns of the AMX fighters are on-going. Five aircraft have already been received by Embraer for the modernization program.The A-4 aircraft modernization program is also on-going and the modernization activities of the first two prototypes will begin in 2012.India's AEW program is also developing with work being performed on all three aircraft simultaneously at Embraer's assembly line. Also during 3Q11, three more Super Tucano aircraft were delivered to an undisclosed customer, bringing total deliveries of this aircraft type to 156.The KC-390 development program is also progressing on schedule with the production of the first prototype expected to start in 2013. By the end of 3Q11, 60 purchase intentions for this aircraft had been signed. The selection of the suppliers of the KC-390 is still in progress: the Brazilian company AEL Sistemas S.A., will supply the mission computer; Cobham, with headquarters in Dorset, England, was chosen to supply the wing-mounted aerial refueling pods; SELEX Galileo, from Italy, will supply the mission radar system, and Hispano-Suiza (Safran Group), from Colombes, France, was selected to supply the Emergency Electric Power Generator System (EEPGS) for the KC-390 military airlifter and tanker jet.TOTAL BACKLOGEmbraer's firm order backlog increased US$ 200 million at the end of 3Q11 and totaled US$ 16 billion. The following chart presents the Company's backlog evolution through 3Q11.Backlog US (US$ Billion)200620072008200920103Q2011Firm Order Backlog14.818.820.916.615.616.0Backlog/Revenue (Years)2.83.03.83.23.02.8OTHER EVENTSIn response to a subpoena issued in an investigation by the U.S. Securities and Exchange Commission ("SEC") relating to possible violations of the U.S. Foreign Corrupt Practices Act , the Company retained outside counsel to conduct an internal investigation into transactions in three specific countries. That internal investigation is ongoing, and the Company is fully cooperating with the SEC and the U.S. Department of Justice ("DOJ"). The Company's outside counsel has been in regular contact with the SEC and the DOJ and has provided both agencies with documents and other information. The Company's outside counsel recently met with both agencies to brief them on the status of its investigation. The Company and its outside counsel expect to continue to have discussions with the SEC and the DOJ. The Company is unable to predict duration, scope or results of the investigation.GUIDANCE OUTLOOKDespite some improvements noted in the sales activities in the Executive aviation market, the Company continues to manage certain commercial challenges in this segment, particularly related to aircraft deliveries. As a consequence, the Company expects to deliver less aircraft in the Executive aviation segment, which shall result in an annual revenue approximately US$200 million below guidance for this segment. Furthermore, during 2Q11, considering certain additional market opportunities presented in the Commercial aviation and Defense & Security segments, coupled with a sustainable revenue stream from Executive aviation, the Company revised its annual Revenue guidance, from US$ 5.6 billion to US$ 5.8 billion. However, considering that annual revenues for the Executive aviation segment is now expected to be approximately US$ 1.0 billion, the Company is projecting its 2011 Revenue guidance to be in the range of US$ 5.6 ? US$5.8 billion. 2011 EBIT and EBITDA Guidance remain unchanged at US$ 465 million and US$ 700 million, respectively. Therefore, EBIT and EBITDA margins are expected to be above the guidance of 8% and 12%, respectively.INVESTOR RELATIONSAndre Gaia, Caio Pinez, Claudio Massuda, Juliana Villarinho, Paulo Ferreira and Luciano Froes (North America). (+55 12) 3927-4404, (+001) 954 359 3492, email@example.comCONFERENCE CALL INFORMATIONEmbraer will host a conference call to present its 3Q11 Results on November 4, 2011. The conference call will also be broadcast live over the web at http://ri.embraer.com.br IFRSTime: 12:00 (SP) / 10:00 am (NY)Telephones:+1 888 700-0802 (North America)+1 786 924-6977 (International)+55 11 4688-6341(Brazil)Code: EmbraerABOUT EMBRAEREmbraer (Embraer S.A. - NYSE: ERJ; BM&FBOVESPA: EMBR3) is the world's largest manufacturer of commercial jets up to 120 seats, and one of Brazil's leading exporters. Embraer's headquarters are located in Sao Jose dos Campos, Sao Paulo, and it has offices, industrial operations and customer service facilities in Brazil, China, France, Portugal, Singapore, and the United States. Founded in 1969, the Company designs, develops, manufactures and sells aircraft for the commercial aviation, executive aviation, and defense and security business. The Company also provides after sales support and services to customers worldwide. On September 30, 2011, Embraer had a workforce of 17,204 employees ? not counting the employees of its partially owned subsidiaries ? and its firm order backlog totaled USD 16 billion.This document may contain projections, statements and estimates regarding circumstances or events yet to take place. Those projections and estimates are based largely on current expectations, forecasts on future events and financial tendencies that affect Embraer's businesses. Those estimates are subject to risks, uncertainties and suppositions that include, among others: general economic, political and trade conditions in Brazil and in those markets where Embraer does business; expectations on industry trends; the company's investment plans; its capacity to develop and deliver products on the dates previously agreed upon, and existing and future governmental regulations. The words "believe", "may", "is able", "will be able", "intend", "continue", "anticipate", "expect" and other similar terms are supposed to identify potentialities. Embraer does not feel compelled to publish updates nor to revise any estimates due to new information, future events or any other facts. In view of the inherent risks and uncertainties, such estimates, events and circumstances may not take place. The actual results can therefore differ substantially from those previously published as Embraer expectations.(1) EBIT is equal to the operating profit before financial income (expenses) as presented in Embraer?s Income Statement and EBIT margin is equal to EBIT divided by Revenues.(2) EBITDA is a non-GAAP measure. For more detailed information please refer to page 10 of the results on Embraer's website.(3) Adjusted net income is a non-GAAP measure, calculated by adding Net income attributable to Embraer Shareholders plus Deferred income tax and social contribution for the period. Furthermore, under IFRS for Embraer?s Income Tax benefits (expenses) the Company is required to record taxes resulting from unrealized gains or losses due to the impact of the changes in the Real to US Dollar exchange rate over non-monetary assets (primarily Inventory, Intangibles and PP&E). It is important to note that taxes resulting from gains or losses over non-monetary assets are considered deferred taxes and are accounted for in the Company?s consolidated Cashflow statement, under Deferred income tax and social contribution, which totaled US$ 123.8 million in 3Q11.(4) 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 operating cash and shall be disregarded for Free cash flow calculation purposes. Therefore, Embraer's free cash flow is represented by operating cash flow adjusted by Addition to property, plant and equipment (PP&E), Addition to intangible assets, Other assets and Financial assets. For more detailed information please refer to page 10 of the results on Embraer's website.SOURCE Embraer S.A.