2007* corporate governance embraer day 2007
TRANSCRIPT
Corporate Corporate
GovernanceGovernance
October, 2007
Ordinary Shares: 740,317,965
Embraer Capital Structure
Sharholders with more than 5% participation
NYSE Other49,9%
Bovespa Other17,0%
União0,3%
BNDESPAR5,0%
Grupo Bozano8,7%
Previ13,9%
Janus Capital5,2%
Basic Principles
TRANSPARÊNCIA EQÜIDADE PRESTAÇÃO DE CONTAS
RESPONSABILIDADE CORPORATIVA
Value Added to Shareholders
Flexibility Business Perpetuation
TransparencyTransparency EquityEquity AccountabilityAccountabilityCorporate Corporate
ResponsibilityResponsibility
Governance Guideline
• 100% of free float shares in single class with 100% of Tag-Along
• Sarbanes-Oxley Certification
• Negotiation Policy
• Dividend Policy
• Board of Directors with independent members
• Fiscal Board / Audit Committee
• Facts Communication and Publishing Policy
• Periodic issuance of Results in US GAAP and BR GAAP
Board of Directors Composition
BOARD OF DIRECTORS
11 MEMBERS
1 GOVERNMENT REPRESENTATIVE
2 REPRESENTATIVES INDICATED BY THE EMPLOYEES
Executive Executive CommitteeCommittee
Audit Audit CommitteeCommittee
HumanHumanResourcesResourcesCommitteeCommittee
Fiscal Board
FISCAL BOARD
5 MEMBERS
1 ESPECIALIST MEMBER
• Audit Committee Function
• Monthly Ordinary Meetings
• Independent Auditors Assessment and Supervision
• Board Members and Administration Independency
Capital Reorganization
Jan/06
• First large Brazilian Company with pulverized control
• Shareholders vote limited on 5% of total Company’s capital
• 100% Tag-Along
• More flexibility to get Capital Market financing to new projects and growing programs
• Golden Share rights preserved
• Foreign capital vote limited to 40% on each subject
Board of Directors 100% Approval Mar/06
Shareholders Approval
Bovespa’sNovo Mercado
Jun/06
General Meeting 2007
• Announcement issued with an anticipation of 30 days
including the notice call and the instructions to vote with
the PROXY card for the foreign Shareholders with enough
time to analyze an issue and answer
• Shareholders’ participation of 75.3%
• Approval for almost all the proposal subjects
Independent Audit
CEO / CFO
Risk & Internal Control
Annual Cycle
Control Responsible
Scope
and
Planning
Risk
Identification
& Objectives
Testing
Internal
Controls
Remediation
Plan
20F
Report
Internal
Control
Document.
External
Auditors
Assessment
Controller
Audit Committee
Implementation Status SOX # 404
SOX 2007 – Auditing Standard 5
Proposed Auditing Standard (AS 5) – PCAOB release No. 2006-007
PCAOB had already approved
Date: July 2007 went approved for SEC
Main Issues:
• External Auditor do not need to evaluate “management assessment”
• Accept more third parties work (ex: SAS70)
• Review and clarify Materiality Criteria (Qualitative and Quantitative)
• Possibility in using historical information
• Multi-localization: Focalization on “Risk” instead of “Materiality”
• “Risk Assessment”
Changing Mindset
2006 – Description of Process
Materiality Levels ($$)
2007 – Control Environment
Materiality Risks(AS5)
(AS2)
Investment Grade
MOODY’S
STANDARD & POOR’S
Since Dec/05 Baa3Baa3
BBBBBB--Since Jan/06
Risk Management
Strategic Risks
Financial Statements
Risks
Economic and Financial Risks
Operational Risks
Legal Risks
RAW MATERIAL - COMMODITIES
CERTIFICATIONS
SARBANES-OXLEY
INDEPENDENT AUDIT
NATURAL HEDGE
ASSETS X LIABILITIES
INSURANCES
OPERATION CONTINUITY
BY LAW
LEGISLATION
CODE OF ETHICS
PROPERTIES
ASSETS
RESPONSABILITIES
PEOPLE
COMPLIANCE
Corporate Governance Actions
TRADINGPOLICY
DISCLOSURE POLICY
RISK MANAGEMENT
CODE OF ETHICS
& CONDUCT
DISCLOSURE COMMITTEE
TRANSPARENCY
VALUE CREATION
Dividends Policy
• The mandatory distribution of the Brazilian Corporate Law
is based on a percentage of adjusted net income, not
lower than 25%, rather than a mixed monetary amount
per share
• The Company’s consolidated net profits is around 40 to
50% of net income
Dividends
US$ Million
R$ Million
204187
152129
45%
54%
42%39%
2004 2005 2006 9M 2007
Dividends Pay-Out Ratio
585
445
327
243
52.6%54.7%
62.7%
45.6%
2004 2005 2006 9M 2007
Dividends Pay-out Ratio
Market Communication
• Issuance of Quarters Releases (BR e US GAAP)
• Conference call to announce the results
• Issuance of Quarters delivered aircraft and backlog
• Analysts meeting held each Quarter in Brazil, USA and Europe
• Embraer Day
• Analysts and investors meeting
• Road shows and banks conference participation
• Investor Relations website
Embraer’s Participation
Financial ResultsFinancial Results
New Accounting Practices
The Company has concluded that its sales activities for aircraft consists of four distinct deliverables:
• (a) The Aircraft.
• (b) Training Services – The Company provides initial training services for its customers for
the operation of purchased aircraft. This training is part of the aircraft purchase price and
can be sold separately. Therefore, the Company knows the fair value of training at the time
an aircraft is delivered.
• (c) Spare Parts Concession – The Company regularly sells spare parts to its customers
for the maintenance of their aircraft. In accordance with industry practices, the Company
provides its customers with spare parts concession for a specified period for the aircraft that
was sold. Such concession amount is included in the aircraft purchase price and
specifically negotiated with its customers. The individual price of each spare parts is
referred in its list price. Therefore, the Company knows the fair value of each spare part at
the time an aircraft is delivered.
• (d) Technical Representative Assistance – The Company provides its customers with
technical representative assistance services for operational support and include such
services in the aircraft purchase price. These services can be sold separately and,
therefore, the Company knows the fair value of such service at the time an aircraft is
delivered.
• Considering that each deliverable has a stand-alone value to the customer and its fair value
is known, the Company has concluded, that each such deliverable should have been
accounted for separately- in accordance with EITF 00-21 (“Revenue arrangements with
multiple deliverables”).
• As a result the Company deferred revenue recognition of the separate deliverables
discussed from b to c above. The Company also restated (i) the balances of its trade
accounts receivable, net, (ii) other assets (iii) other payables and accrued liabilities (iv)
unearned income. These corrections also resulted in the restatement of certain line items of
its statement of cash flows to reflect the corresponding changes in the variation of the
balances of affected operating assets and liabilities.
• The Company will recognize the deferred revenue of separate deliverables when the service or product is provided to the customer.
New Accounting Practices
• Commercial Concessions - The Company offers contractual concessions that provide its
customers with a reduction in the amount paid its aircraft. The contractual concessions granted by
us to its customers may be partially or fully recovered through an export incentive program of the
Brazilian Government. The Company previously recorded these contractual concessions as
“Selling Expenses” because the Company believed that the contractual concessions were part of
the sales efforts for its aircraft. The amount of contractual concessions recovered by us through
the export incentive program was previously recorded as financial income, because the Company
received the incentive through the issuance of Brazilian treasury bonds under the program.
However, the Brazilian Government is not one of its supplier and does not participate in the sale
process of the aircraft, and accordingly, EITF 02-16 (“Accounting by a Customer (including a
reseller) for Certain Consideration Received from vendors as revenue”) does not apply.
• In its reassessment of its accounting practices, the Company has concluded that such concessions
should have been recorded as “Sales Deduction” in accordance with EITF 01-9 “Accounting for
Consideration Given by a Vendor to a Customer” because the concessions represented a
reduction of sales price. In addition, the recovery of the concessions through the export incentive
program should be recognized as revenue associated with the sale and export of the aircraft, and,
therefore, should be recorded as Net Sales (“Revenue”). The Company reflected these
modifications in its restated financial statements for the years 2004, 2005 and 2006.
• As a consequence the Company decided to proceed a restatement of its annual report 20F-A
New Accounting Practices
Jet Deliveries Forecast
108
130141148
101
131
161160165/170
2000 2001 2002 2003 2004 2005 2006 2007E
Net Revenue by Segment
3Q06 3Q07
Defesa e Governo
4.1%
Aviação Executiva
14.7%
Outros 1.6%
Aviação Comercial
68.7%
Serviços Clientes
10.9%Outros 4.3%
Aviação Comercial
63.2%Defesa e Governo
1.5%
Aviação Executiva
21.2%
Serviços Clientes
9.8%
8771,060
832
1,110
1,428
24.5%22.7%
21.8% 21.8%
26.2%
3Q06 4Q06 1Q07 2Q07 3Q07
Net Revenues and Gross Margin - Quarter
US$ Million
R$ Million
2,190
1,7531,879
2,323
2,729
22.7%
19.8%
16.0%
19.2%
14.7%
3T06 4T06 1T07 2T07 3T07
9,984 9,046 8,2656,673
21.6%
16.4%
20.9%
29.6%
2004 2005 2006 9M 2007
Receita Líquida Margem Bruta
R$ Million
US$ Million
Net Revenues and Gross Margin
3,3703,7603,7893,352
27.7%25.3%
22.0%
30.3%
2004 2005 2006 9M 07
Net Revenue Gross Margin
US$ Million
EBIT - Quarter
R$ Million52
84
1531
230
7.9%
2.8%1.9%
6.0%
16.1%
3Q06 4Q06 1Q07 2Q07 3Q07
Income from Operations EBIT Margin
347
(7) 44
147 116
6.3%
12.7%
6.2%
2.5%
-0.3%
3T06 4T06 1T07 2T07 3T07
Lucro Operacional Margem
US$ Million
EBIT
R$ Million
544 510
343277
13.5%
16.2%
9.1% 8.2%
2004 2005 2006 9M 07
Income from Operations Margin
1,714
793622
384
5.7%
7.5%
17.2%
8.8%
2004 2005 2006 9M 2007
Lucro Operacional Margem Operacional
Net Income - Quarter
US$ Million
R$ Million
163
216
59 80
306
9.3%
3.6%3.3%
11.2%
8.7%
3T06 4T06 1T07 2T07 3T07
Lucro Líquido Margem Líquida
124
26
62
195
67
11.5%
7.0%
3.1%
6.1%
13.6%
3Q06 4Q06 1Q07 2Q07 3Q07
Net Income Net Margin
380
446390
288
8.6%
11.3%11.8%
10.40%
2004 2005 2006 9M 2007
Net Income Net Margin
Net Income
US$ Million
R$ Million
1,281
709622
444
12.8%
6.7%
7.8%7.5%
2004 2005 2006 9M 2007
Lucro líquido Margem Líquida
Balance SheetBalance Sheet
1,8822,047
2,3172,621 2,681
3Q06 4Q06 1Q07 2Q07 3Q07
US$ Million
Inventories
R$ Million
4,410 4,6835,150
5,609 5,571
3T06 4T06 1T07 2T07 3T07
US$ Million
Net Cash (Debt) Position
R$ Million
507
416
217
128
450
3Q06 4Q06 1Q07 2Q07 3Q07
1,102
877
432
228
810
3T06 4T06 1T07 2T07 3T07
Total Debt of US$ 1,803.2 Million
• Average cost in R$ = 7.9 % p/a
• Average cost in US$ = Libor + 1.63% p/a
Loans
Loans Average Maturity: 3 year and 8 months
Short Term 39%
Long Term 61%
Foreign Currency
54%
Brazilian Currency
46%
Loans Maturity
706
346
543
10966 1.803
33
Total Short-term
2008 2009 2010 2011 after2011
US$ Million
InvestmentsInvestments
Research & Development Forecast
Defense & Government R&D are funded by their contracts and are included as Cost of sales and services
US$ Million
R&D2007 2008 2007 2008 2009
Commercial Aviation 51 22 45 48 55
Executive Aviation 127 90 129 123 127
Technology Development 59 61 59 72 70
TOTAL 237 173 233 243 252
Defense & Government 32 48 21 54 102
Previous New
PP&E
US$ Million
PP&E2007 2008 2007 2008 2009
TOTAL 194 117 113 250 190
Previous New
* Total includes Productivity, Customer Support, Training Centers and Flight Simulators, Executive Aviation Service Centers and Embraer 170/190 and Phenom 100/300 Rump Up
Contributions from Risk Sharing Partners
US$ Million
-
246
20
17
42
55
1081
14
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