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1. EMBRAER - Empresa Brasileira de Aeronáutica S.A.
Management Report 2009
Dear Shareholders,
In its 40th year, Embraer faced an unparalleled international financial crisis involving serious
consequences for the worldwide air transportation market. The large number of cancellations
and postponement of orders in 2009 affected not only Embraer, but the whole global
aeronautical industry chain.
Confronted by such an adverse scenario, the Company took steps to adjust to the new
market reality with firmness, flexibility and pragmatism, with the objective of preserving its
financial health and competitive capacity. After 12 months of severe difficulties and
challenges, we reached the end of the year with our most important values intact: customer
relations, industrial and technological capacity development, financial well-being, staff
motivation, internal and external transparency, care for the shareholders' equity, in other
words, the Company's sustainability.
In addition to the inevitable reduction in the workforce, carried out with transparency,
consideration and respect for persons, the Company reduced its administrative and
commercial expenses by 21% (US $134 million*) in relation to 2008 and postponed non-
essential investments , while maintaining those related to technical development and new
products.
The company also pursued a course of strict financial management, which included
generation of operating cash of US $135 million*, extending the indebtedness term and
efficient administration of treasury operations and in balancing assets and liabilities in R$ /
US$. Another noteworthy point was the significant reduction of approximately US$ 500
million* in inventories, as a result of considerable adjustment of deliveries and conditions
negotiated with the chain of suppliers, as well as the production cycle gains resulting from the
Embraer Business Excellence Program (Programa de Excelência Empresarial Embraer –
P3E).
All these measures resulted in an increase in Embraer's net cash, which topped the
December 2008 position, amounting to US$ 503 million* at the end of the year. It should be
noted that, unlike other business segments, maintaining a conservative cash position is
essential in order for the Company to control the concentrated capital investment and the long
cycles involved in the aviation market, a fact that is clearly recognized by the market and that
has contributed to maintaining the Company’s investment rating.
*
According to United States accounting practices - US GAAP
1
2. In line with recent years, the Company achieved the projected delivery, revenue and margin
figures for 2009, reinforcing its market credibility in terms of its ability to deliver the projected
results.
For the third consecutive time, Embraer logged a new aircraft delivery record, with a total of
244 aircraft during the year, higher than the previous target of 242 and 19.6% higher than in
2008, when it delivered 204 jets. The firm order backlog had reached US$ 16.6 billion by
December 31, 2009.
In spite of the increase in the number of deliveries, net income dropped 8% in relation to the
previous year, mainly due to the product mix delivered, amounting to R$ 10,812.7 million in
2009.
Embraer achieved almost the same operating margin as in the previous year (8.5% in 2008
and 8.0% in 2009), confirming the effectiveness of the adjustments made. However, on
January 5, 2010, the US airline Mesa Air Group filed for Chapter 11. Its fleet included 36 ERJ
145 aircraft, delivered in 2000 and 2003, for which Embraer has financial guarantee
obligations associated to the respective financing structures. Accordingly, Embraer recorded
a provision, resulting in a reduction of its operating margin to 6.1%.
In 2009, Embraer fulfilled all its product development targets, in particular, certification of the
Phenom 300, on time and surpassing all the estimated performance parameters; the first
flight of the Legacy 650; development and delivery of two EMBRAER 190 aircraft for the
President of the Republic's office; and delivery of the first Super Tucanos to the Air Forces of
Chile and the Dominican Republic, and the first flight of the A-1M prototype.
Another highlight was winning the development contract for the KC-390, a product that will
enable the company to expand its technical know-how, consolidating its position in the
defense market in terms of quality and quantity in the next few years.
P3E made significant progress in 2009, with the implementation of continuous improvement
cells and execution of hundreds of Kaizen projects throughout the Company, in Brazil and
abroad, the highlight being conversion of the E-jet assembly process from docks to production
line, reducing the aircraft assembly cycle to just 12 days, an industry benchmark.
Another highly relevant result was raising the employees' satisfaction level to 70%, confirmed
in the annual organizational climate survey conducted by a specialized independent
company. In line with this result, Embraer was elected one of the best Brazilian companies to
work in by two of the most respected Brazilian publications.
The fundamental and decisive support of the Brazilian government in financing our
customers, through the Banco Nacional de Desenvolvimento Econômico e Social (BNDES)
and Banco do Brasil Export Guarantee Fund (Fundo Garantidor de Exportações - FGE), was
another important factor, since the international credit sources were virtually inactive during
the period.
2
3. Embraer’s commitment to constructing a sustainable future is founded on all its dimensions,
financial, social and environmental. One of the results of this commitment was inclusion, for
the fifth consecutive year, in the BM&FBOVESPA ISE (Business Sustainability Index)
Portfolio. We maintained the high corporate governance standard followed since 2006, when
we joined the BM&FBOVESPA “Novo Mercado” and reaffirmed our commitment to the United
Nations Global Pact.
The independence and transparency of the Ethics Committee, in the sphere of the Company's
Executive Board, and the Audit Committee, in the sphere of the Board of Directors, give wide
coverage to work relations, human rights and fighting corruption. The company has a
complaints channel managed by an independent company, to ensure objectivity and
diligence. Furthermore, the Company is upgrading its corporate risk controls, which are now
evaluated every quarter, reflecting an advance in corporate governance.
Embraer has an ongoing technical development program, which has achieved greater
efficiency in aircraft performance, reducing consumption and emissions of greenhouse gases.
We envisage a future with fewer emissions in the air transport sector and are participating in a
project to develop a new-generation renewable fuel, based on sugarcane, which could be a
sustainable long-term alternative.
We have a positive vision of the future. Our objective is to lead the market segments in which
we operate. We know that 2010 will still hold many challenges, but the Company is ready to
make the most of any opportunities that may arise, with the same flexibility and determination
with which it responded to the crisis.
We thank our employees, shareholders, customers, suppliers, financial institutions,
government and the community for supporting us throughout these years of tradition and
achievement, and invite them to join us in writing our future, which is sure to do justice to the
legacy we have received from thousands of people who have dedicated themselves to this
enterprise over the last four decades, with singular determination and competence.
The Management
São José dos Campos, March 11, 2010.
3
4. MARKETS AND PRODUCTS
Commercial Aviation Market
The jets produced by Embraer in the 30 to 60 and 61 to 120 seat ranges have become
essential to global aviation development. They contribute to increasing service quality,
helping to make the system more efficient, by adjusting offer to demand, at times of both
growth and crisis, and facilitating the introduction of new routes, making air transportation
more accessible to a greater number of people.
The 30 to 60 seat range has reached full maturity and is consolidated as an important part of
the hub feed flight system in the main US and European airports. Furthermore, there have
been more transactions involving regional 50 seat jets in the used aircraft market due to their
use in the development of regional aviation in Russia and the Commonwealth of Independent
States (CIS), Mexico, Africa and South America.
In Brazil, the ERJ 145 is back in the market, operated by Passaredo Linhas Aéreas, as an
essential part of the expansion plan for their regional routes. In the Ukraine, the Dniproavia
airline is using the aircraft to open new markets and also to substitute larger aircraft to adjust
the number of seats offered to the demand. In Mexico, the 50-seat jet is operated by
AeroMexico Connect and is increasingly important as the hub feed for that company's airport
bases. The company operates 37 aircraft -- the fourth largest fleet of ERJ 145 in the world.
The Lifetime Programme was launched to serve the growing market for used aircraft and
meet the needs of customers who require more wide-ranging services. This support package
can be customized and has been critical in ensuring successful operation of the ERJ 145 in
these markets.
The 842 commercial ERJ 145 jets delivered by Embraer are today flying in more than 30
airlines, on five continents, having surpassed the impressive milestone of 13 million cycles
and 15 million flying hours.
The E-jets, in the EMBRAER 170/190 family with a seating capacity of 61 to 120, are
increasingly regarded as a fundamental strategic way for airlines to protect their competitive
edge in times of world crisis. As in the case of the terrorist attacks in the United States on
September 11, 2001, the effects of the global financial crisis, which started in 2008 and
reached a peak in 2009, forced airlines to adapt the seats offered to a reduced demand. The
E-jets offered the necessary adaptability for companies to make the necessary capacity cut in
their networks, while simultaneously preserving their market presence.
The market is acknowledging the ability of the E-jets to operate in all business models,
whether low-cost, traditional or regional airlines. This flexibility is an immediate result of the
first-class comfort, low fuel consumption and low emissions, reduce operating costs and the
high punctuality standards offered by this family of aircraft.
4
5. The 61 to 120 seat jets will continue to assist airlines in improving efficiency, by adapting the
seats offered to passenger demand on flights operated by narrowbody aircraft with excess
capacity. Furthermore, the jets in this segment tend to be used in replacement of old fleets, in
developing new markets and in assisting the natural growth of regional airlines on routes with
greater demand, operated by smaller jets, with a view to increasing revenues and market
share.
The E-jets have acquired a solid and diversified client base, 54 airlines in 37 countries on the
five continents, surpassing the significant landmark of 3 million flying hours.
Delivery of the 600th E-jets to the Polish airline LOT Polish, only five years after the first
EMBRAER 170 started operating, was a major feat for Embraer and is a benchmark achieved
by few programs in the history of world commercial aviation.
In 2009, even with the market affected by the severe world crisis, Embraer announced the
sale of five EMBRAER 175 to Oman Air (Oman). Fuji Dream Airlines (Japan), KLM
Cityhopper (Holland) and NIKI Luftfart GmbH (Austria) also reaffirmed their confidence in
Embraer products, by converting various options into firm orders.
Eight new customers started operating with E-jets in 2009: Fuji Dream Airlines (Japan), TRIP
Linhas Aéreas (Brazil), LAM – Linhas Aéreas Moçambique (Mozambique), the European NIKI
Luftfahrt GmbH (Austria), Ausgsburg Airways and Lufthansa Cityline (Lufthansa Group–
Germany), British Airways (United Kingdom), and the first operator in Central Asia, Air Astana
(Kazakhstan).
At December 31, 2009, the E-Jets family had recorded 862 firm orders, 722 options and
delivery of 605 new jets. With the ERJ 145 and EMBRAER 170/190 families, Embraer
attained a market share of 45% in the 30 to 120 seat segment. The firm order backlog for
commercial aviation reached 265 units, as shown below:
Firm order
Aircraft Model Firm orders Options Deliveries
backlog
ERJ 145 family 890 - 882 8
ERJ 135 108 - 108 -
ERJ 140 74 - 74 -
ERJ 145 708 - 700 8
EMBRAER 170/190 family 862 722 605 257
EMBRAER 170 187 48 170 17
EMBRAER 175 140 178 125 15
EMBRAER 190 448 426 263 185
EMBRAER 195 87 70 47 40
TOTAL 1,752 722 1,487 265
5
6. Note: Deliveries and firm order backlog include aircraft sold by the defense segment to
state airlines (Satena and TAME).
There was a drop of 3.1% in world air traffic in 2009, according to the preliminary results
issued by the ICAO (International Civil Aviation Organization) confirming that the air transport
market is still in severe crisis, a gradual recovery of the global economy being anticipated in
the period 2010 to 2012. Demand is only expected to return to 2007 levels in 2011, in a
climate of greater competition and lower fares due to the change in passenger profile, and is
expected to expand on average 4.5% a year in the next 20 years, slightly lower than the rate
foreseen before the crisis.
Embraer estimates a global demand of around 6,000 jets in the 30 to 120 seating capacity
range in the next 20 years, which could generate business of some US$ 200 billion in new
aircraft sales.
Executive Aviation Market
In 2009, global deliveries of executive aviation industry jets amounted to around 850 aircraft,
a drop of 26% in relation to the record year of 2008, when 1,154 executive jets were
delivered.
Embraer estimates the overall value of this market in the period 2010 to 2019 at US$ 190
billion, involving deliveries of over 10,000 executive jets.
Since 2005, the executive aviation industry has experienced increased demand from new
markets, such as Russia, the Middle East and Asia, boosted by rapid economic development
and the ongoing devaluation of the US dollar.
From the end of 2008, the worldwide financial crisis resulted in serious and immediate
impacts on the industry and the appetite of the world’s executive aircraft markets. Factors
such as corporate and individual loss of purchasing power, the marked increase in inventories
of used aircraft and unfavorable and restrictive financing conditions marked 2009 as the year
in which the growth trend noted in the last five years was reversed.
It is anticipated that in 2010, demand for these aircraft will further decelerate as a result of a
selling freeze in the last 18 months and cancellations in the industry. The market is expected
to recover as from 2011 or 2012.
In the course of the next 10 years, it is anticipated that Latin America, Asia-Pacific, Eastern
Europe and the Middle East will continue to play an increasing role in executive jet. This will
certainly call for investments to strengthen aircraft manufacturers' presence in these markets.
In Latin America, lighter jets are better suited to the local necessities and have always been
popular. On the other hand, the demand in the Asia-Pacific region is likely to favor larger
aircraft, with international range.
6
7. Although the effects of the global crisis have restricted growth prospects in the short term, the
United States will continue to be the largest and most mature market for executive aviation, in
absolute figures. Current estimates indicate that the United States will be responsible for
around 48% of the estimated global market revenue in the next 10 years.
During 2009, Embraer continued to make steady progress in exploitation of the executive
aviation market and took direct measures to solidify even further the commitment established
with the market at the beginning of the decade.
These measures are part of the integrated solutions offered for acquisition and operation of
Embraer's executive aircraft and range from launching a new product in the Legacy family,
the Legacy 650, and certification of the Phenom 300, to expansion of the network of sales
representative, training, services and support for customers.
In October 2009, Embraer presented the new Legacy 650 jet, during a press conference at
the 62nd Convention and Annual Meeting of the United States National Business Aviation
Association (NBAA), held in Orlando, Florida. Development of the large category Legacy 650
jet was based on the successful super midsize Legacy 600 platform and will offer greater
range for up to 14 passengers. The Legacy 650 will fly up to 7,223 km (3,900 nautical miles)
without stopovers with four passengers, or 7,038 km (3,800 nautical miles) with eight
passengers, a range of 926 km (500 nautical miles) more than the Legacy 600. The large
category executive jet can fly without stopovers from London (United Kingdom) to New York
(USA); from Dubai (United Arab Emirates) to London or Singapore; from Miami (USA) to São
Paulo (Brazil); from Singapore to Sydney (Australia); or from Mumbai (India) to Central
Europe.
The super medium Legacy 600 jet is starting its eighth year of production with widespread
market acceptance, principally with customers in Europe and the Middle Eastern, where
almost 14% of the fleet (23 aircraft) is concentrated. In December 2009, there were over 180
Legacy 600 jets in fleets in 24 countries.
The Phenom 100 aircraft also received European Civil Aviation Authority (EASA) and
Australian (CASA) certification in 2009, in April and June, in addition to the certification
already granted by the Brazilian and United States certification bodies, ANAC and the FAA.
The first two Phenom 100 aircraft were delivered in December 2008 to customers in the
United States and a further 97 aircraft were delivered in 2009, 93 to the executive aviation
market and four to the defense market.
The new midlight and midsize Legacy 450 and Legacy 500 jets, with ranges of 2,300 and
3,000 nautical miles, respectively, were also a highlight of 2009, on completing the Joint
Definition Phase (JDP), which started in July 2008 and involved over 100 engineers from key
vendors, as well as around 500 Embraer employees. The aircraft category falls between the
Phenom 300 and Legacy 600 and consolidates Embraer's range of executive aviation
products as one of the widest currently available. Investments in development of the two
products are estimated at US$ 750 million. Certification of the Legacy 500 is scheduled for
7
8. 2012, followed by the Legacy 450 in 2013.
In December 2009, the Phenom 300 was certified by the Brazilian National Civil Aviation
Agency (ANAC) and the Federal Aviation Administration (FAA), which granted the Type
Certification. All the design targets were attained or surpassed. The maximum range of the
Phenom 300, originally projected at 3,334 kilometers (1,800 nautical miles), was extended to
3,650 kilometers (1,971 nautical miles) with six occupants and NBAA IFR reserves. The
runway performance is also better than the initial targets. The runway takeoff length, with the
jet at the maximum take-off weight, is now 956 meters (3,138 feet), considerably better than
the planned 1,127 meters (3,700 feet), while the runway distance with the maximum landing
weight has been upgraded to 799 meters (2,621 feet), or 100 meters (329 feet), less than the
initial target of 899 meters (2,950 feet).
The first Phenom 300 was delivered in December 2009, to Executive Flight Services, a
wholly-owned subsidiary of Executive AirShare, which received the aircraft on behalf of an
unnamed customer. Embraer started deliveries of the Phenom 300 executive jet only one
year after the first customers of the Phenom 100 received their aircraft.
Embraer’s executive aviation customer training, services and support organization is ready to
serve the Phenom 300 fleet. Three new certified Embraer service centers were appointed in
India, United Arab Emirates (UAE) and Canada in 2009. The world-wide support and
services network for Embraer executive jets currently comprises a total of six Embraer
centers and more than 30 authorized centers.
At the end of 2009, Embraer had an order backlog of US$ 5.6 billion for executive aircraft.
Defense Market
Embraer’s defense segment offers integrated solutions that combine high technological
content and operational efficiency at competitive purchase and operation costs, and its main
customer is the Brazilian Air Force - FAB. The product portfolio for this segment comprises
aircraft for various purposes: intelligence, surveillance and reconnaissance (ISR); training and
combat; and transportation of civil and military authorities. Embraer also provides support
services to defense customers, as well as aircraft upgrade services for the Brazilian armed
forces.
Embraer plays a strategic role in the Brazilian defense system (it has already supplied a little
over half of the Brazilian Air Force fleet) and is starting more aggressive expansion of its area
of dominance to other regions, in addition to the 20 countries already served by its aircraft.
A program is being developed for Embraer’s newest military transport aircraft, the KC-390, for
cargo transport and refueling missions, to meet the needs of FAB and in full compliance with
the Brazilian Government’s National Defense Strategy. The KC-390 will be capable of flying
at 850 kilometers an hour and carrying 19 tons of useful load, enabling it to transport 64
parachute troops equipped for combat or 80 conventional infantry soldiers, and will allow
Embraer to enter a new market segment.
8
9. Seven transport aircraft were delivered to the defense market in 2009, as well as ten more
upgraded F-5 (F-5M), for the FAB F-5BR Program, and 20 Super Tucanos for Brazil, the
Dominican Republic and Chile.
2009 was a very significant year for the whole defense segment product line. The Super
Tucano continued to be one of the highlights, starting to operate in another two countries (the
Dominican Republic and Chile, which received two and four aircraft, respectively, in 2009),
joining Brazil and Colombia as operators of this advance training and operational missions
aircraft. The Super Tucano gained a new (undisclosed) customer during the year, with an
order for three aircraft, bring the total of aircraft contracted to 172.
Embraer has an agreement with FAB to produce 99 Super Tucano aircraft, and in 2009, FAB
received the 100th of these aircraft produced to date. The Colombian air force ordered 25
aircraft, all already delivered and operating, while the air forces of the Dominican Republic,
Chile and Ecuador ordered eight, 12 and 24 aircraft, respectively. This recognition confirms
its versatility, together with the good performance for training, operating missions and the low
purchase, operating and maintenance costs.
In 2009, the training and operational support systems (TOSS), which may include flight
simulators, computer-based training (CBT) systems and mission planning stations (MPS) and
Mission Debriefing Station (MDS) were also developed to support new Super Tucano
customers.
With regard to Intelligence, surveillance and reconnaissance (ISR) systems, the AEW India
program is well-advanced, in relation to the contract with the Indian Defence Research and
Development Organization (DRDO) to supply three EMB 145 AEW&C aircraft. The first
delivery is scheduled for 2011. In the systems field, Embraer also formalized delivery in 2009
of the data communication protocol to be used in the data link system in the Link-BR2 for the
Brazilian Air Force.
Another highlight, in relation to transport aircraft for armed forces and government, was the
delivery of two EMBRAER 190 PR aircraft to the GTE, the Special Transport Group of the
Brazilian Air Force, specially configured to carry out missions for the President of the
Republic's office.
Another two ERJ 135 aircraft were sold to the Thai Armed Forces, which already operate two
aircraft. Both the Thai Royal Navy and the Royal Army ordered another aircraft, increasing the
number of aircraft contracted by these forces to four and showing the significant acceptance
of this successful regional jet for defense customers as well.
This year, the Pakistan Air Force received the four Phenom 100 aircraft contracted, becoming
the first military operator of this aircraft in the world.
Foremost in the modernization field are the A-1M program, in which Embraer is responsible
for upgrading 43 subsonic AMX fighter planes, and the F-5BR, which encompasses a total of
46 F-5 fighter planes, 10 of which were delivered in 2009, bringing the number in operation up
9
10. to 38. Another milestone in this field was signing the modernization contract for 12 Brazilian
Navy A-4 aircraft, announced during the last LAAD (Latin America Aerospace and Defense)
trade show in April 2009, thereby initiating the relationship with this very important Brazilian
customer.
Significant customer services and support contracts were signed with defense customers in
2009. These included the ESSG (Embraer Governmental Support Solutions), to support
EMBRAER 190 PR operations, and CLS (Contractor Logistic Support) involving the FAB EMB
312 Tucano and the Colombian Air Force’s Super Tucano.
The advances made last year by the defense segment in terms of the Company’s business
are demonstrated by the expansion of its orders portfolio, which went from US$ 1.5 billion to
US$ 3.2 billion.
TECHNOLOGICAL AND INDUSTRIAL MANAGEMENT
Pre-Competitive R&D - Development of New Technologies
Based on its business plans and monitoring the world technological scenario, Embraer
establishes a technological development plan to investigate and develop solutions for the
main challenges the Brazilian aviation industry is expected to face in the coming years in
terms of aircraft design, development, production and commercialization. This capacity-
building drive to use cutting-edge technologies will make the aircraft lighter, quieter, more
comfortable and more efficient in terms of energy consumption and emissions, as well as
cutting down design and manufacturing time and optimizing resources.
In order to expand the range of results and minimize development risks, Embraer’s pre-
competitive research and development strategy is structured as a program essentially
capable, not only of managing and executing multidisciplinary projects, but also of maintaining
and coordinating a network of development partners, encompassing various institutions
(universities, research institutions, development institutions and companies).
Embraer’s concern with legal protection of the intellectual ownership of the innovations
generated by its research and development initiatives is demonstrated by the considerable
increase in the number of patent applications filed in 2009, amounting to a total of 62
applications since 2003, 14 of which have been granted.
Embraer has achieved significant results with innovations and new technologies, which can
be seen in the aircraft already in operation and those under development. Other positive
aspects are the way in which these technologies flow over into the aviation production chain
and the incentive for the training, empowerment and employment of high level human
resources in Brazilian universities and research institutions.
The Knowledge Management process is also under implementation, promoting a structured
and procedural increase in intellectual capital. Results are already noted in - greater
streamlining of information sharing and generation and the promotion of technological
innovation, critical to increasing the technical quality of our product.
10
11. As a result of this initiative, Embraer achieved recognition with the MAKE (Most Admired
Knowledge Enterprise) Award Brazil 2009, as one of the three top Knowledge Management
companies in Brazil, qualifying the Company to enter the international stage of this award.
With a view to consolidating its position as one of the main players in global executive
aviation, Embraer is installing a capacity-building and innovation center inside aircraft, with
the objective of enabling the Company to develop and produce innovative interiors, as a
competitive differential of the product, recognized for its comfort, sophistication, style,
functionality and durability, within appropriate business timeframes and costs.
Production Development
2009 was a challenging year marked by efforts to increase operating efficiency in all parts of
the Company. Adjustments to production capacity and measures to increase productivity
were required in the industrial operations, in order to adapt to the effects of the worldwide
financial crisis.
In spite of the harsh market conditions, Embraer had delivered 244 jets by the end of the
year, a historic record. This was the result of the countless initiatives implemented by the
Company, such as the Embraer Business Excellence Program (P3E), Kaizen Weeks,
Continuous Improvement Cells, the 3P (Production Preparation Process) Method, etc.
An important milestone in 2009 was the operational start-up of the final assembly line for the
E-Jets, previously produced using a ‘dock’ system. The gains generated by the line exceeded
expectations and represent for the Company, in addition to a significant financial saving , a
change of aircraft production concept, through implementation of all the Lean Manufacturing
and production chain management tools. The reduction in the assembly cycle, of work in
progress (WIP) and the number of non-conformities are practical examples of the success of
the E-Jets production line initiative. It should be stressed that these targets were achieved by
making the most of existing assets and without impact on the aircraft deliveries plan.
The Phenom 100 assembly line, in Gavião Peixoto (GPX) reached the full production rate,
ending the year with 97 aircraft delivered. Another product was added to the executive aircraft
portfolio in 2009, with the certification and entry into operation of the Phenom 300, also
produced by the GPX assembly line. The production rate of this aircraft is scheduled to
increase in the course of 2010.
Continuing the work carried out in 2008 in the automation area, new projects were
implemented in 2009 to increase productivity and operational efficiency and upgrade quality.
The automatic fuselage drilling robot was added to the wing and empennage robots on the E-
Jets assembly line.
The expansion of production abroad followed the plans for the year, with two major projects in
progress: the final assembly, finishing and customer service site for the Phenom 100/300 in
Melbourne, USA is at an advanced stage of construction, while the site preparation
construction work for the machined products and composite material centers of excellence in
Évora, Portugal, has already been carried out and detailing of the production process and the
industrial buildings is at the final approval stage.
11
12. Highlights of new product development were the first flight of the Legacy 650, which is
currently undergoing certification tests, and the preparation for production (3P) of the new
family of executive aircraft, the Legacy 450/500 and of the KC-390 military cargo plane.
Significant advances were also achieved in supply chain management, enabling a reduction
in inventory levels, with a positive effect on the results for the period.
GLOBAL PRESENCE
France
Villepinte
Le Bourget
Portugal
USA Alverca
Nashville Évora*
Fort Lauderdale China
Melbourne* Beijing
Harbin
Singapore
Brazil Singapore
São José dos Campos
Gavião Peixoto
Botucatu
Taubaté
* Under construction Countries of Operation Factories Offices Service Centers Contracted/ Planned Authorized Network
Embraer maintains its engineering, development and manufacturing operations in Brazil, with
five industrial units, in São José dos Campos, Eugênio de Melo, Botucatu and Gavião
Peixoto, as well as a logistics center in Taubaté, all in the State of São Paulo. It is also
installing two new industrial units in the town of Évora, in Portugal, and one in Melbourne –
Florida, USA.
As support for its post-sales operations, Embraer has its own service and replacement parts
sales centers in São José dos Campos (SP), Fort Lauderdale (Florida), Mesa (Arizona) and
Nashville (Tennessee), in the USA, in Villepinte (close to the Roissy – Charles de Gaulle
airport), France and in Singapore, as well as the worldwide authorized network. Embraer also
has replacement parts distribution centers and specialized technical teams in China to
provide customer service.
Support for commercialization, marketing and advertising is provided by the São José dos
Campos, Fort Lauderdale and Villepinte offices, as well as the offices in Singapore and in
Beijing, China.
Through an association with EADS, in which it holds a 70% interest, Embraer controls 65% of
the capital of OGMA - Indústria Aeronáutica de Portugal S.A., an aviation maintenance and
production company. It also has a plant in Harbin, China, in association with the Chinese
state company, AVIC.
12
13. SALES FINANCING
From the second half of 2008, the global financial crisis affected the availability and cost of
aircraft financing. In the course of 2009, many analysts predicted a financing deficit of some
US$ 15 billion, which would certainly lead to cancellation or postponement of many deliveries
and manufacturers using their own resources to finance customers. This scenario did not
totally materialize. Airlines managed to structure financing for their deliveries and the Export
Credit Agencies provided full support to manufacturers in one of the gravest liquidity crises
ever. After the necessary adjustment of the production plan at the beginning of the year,
Embraer succeeded in structuring financing for all the commercial aircraft delivered in 2009.
Diversification of the customer base for E-Jets and their versatility in relation to the various
business models contributed towards positive perception of the asset as a risk mitigator, and
consequently, the projected book values have performed well, given the sharp depreciation
that affected the great majority of assets. The success in structuring financing for Embraer’s
customers, in recent years, is proof of the high rating of the E-Jets in the financial market. The
EMBRAER 170/190 family was mainly financed by European financial institutions and leasing
companies. The support provided by the Brazilian export financing system, comprising the
BNDES, SBCE and the Finance Ministry, accounted for 35% of the total deliveries for 2009
and may be even more significant in 2010.
European commercial banks still face serious restrictions and are unlikely to allocate more
resources than last year. The fund-raising costs for financial institutions remained high and
the banks will continue to be selective in granting credit, applying more restrictive financial
conditions, especially in respect of the amounts financed and transaction timeframes. On the
other hand, there are signs of a gradual improvement in financing through the capital market,
which will inject greater liquidity into the sector to meet the total financing needs, estimated at
US$ 62 billion for commercial aviation.
ASSET MANAGEMENT AND FINANCIAL GUARANTEES
To provide better financial support for sales and reduce certain financial risks relating to
aircraft sales, Embraer set up the subsidiaries ECC Leasing Co. Ltd. and ECC Insurance &
Financial Co. Ltd. in 2002.
ECC Leasing Co. Ltd.'s mission is to manage and commercialize the portfolio of aircraft
which, by contract, may be purchased by Embraer in trade-in or repurchase transactions. The
company also provides re-commercialization services to third parties in connection with the
sales campaigns.
After the inauguration of ECC Leasing Co Ltd., several new aircraft sales were facilitated
through receipt of used aircraft as part payment by trade-in, which also generated income
through sale or leasing transactions.
To date, ECC Leasing has managed 79 aircraft, of which 34 have been sold, 25 are under
operating lease, 11 aircraft are available for placing on the market and nine are being used for
testing by Embraer.
13
14. The leasing and sale transactions were conducted in line with market values, with a view to
preserving the value of Embraer products.
CORPORATE STRUCTURE
To support its operations, Embraer has a corporate structure designed to meet the
requirements and particularities of each of the countries in which it operates, as well as
improving, organizing and optimizing management of the group companies with a view to
integration of all the operations and customer satisfaction.
EMBRAER
EMBRAER
(Parent Company)
(Controladora)
(Controladora)
Embraer Spain Holding Co., SL
Embraer Spain Holding Co., SL
(subsidiary)
(subsidiária)
(subsidiária)
Indústria Aeronáutica
Indústria Aeronáutica Embraer Aircraft Holding, Inc.
Embraer Aircraft Holding, Inc. Embraer Aviation Europe SAS
Embraer Aviation Europe SAS --
Neiva Ltda. – Botucatu
Neiva Ltda. – Botucatu Holding (subsidiária)
Holding (subsidiary)
(subsidiária)
(subsidiary)
(subsidiária)
(subsidiária) ECC Investment Switzerland ,,
(subsidiary)
(subsidiária)
(subsidiária) ECC Investment Switzerland
AG
AG
Embraer Aviation
Embraer Aviation
ECC do Brasil Cia de
ECC do Brasil Cia de Embraer Services, Inc.
Embraer Services, Inc. International SAS
International SAS
Seguros ECC Insurance &
ECC Insurance &
Seguros Financial Company Ltd ..
(subsidiary)
(subsidiária) Financial Company Ltd
(subsidiária)
Embraer Aircraft
Embraer Aircraft Embraer Europe SARL
Embraer Europe SARL
Customer Services, Inc.
Customer Services, Inc. Embraer Finance Ltd ..
Embraer Finance Ltd
Embraer GPX Ltda.
Embraer GPX Ltda.
(subsidiary)
(subsidiária)
(subsidiária) Embraer Aircraft Embraer Europe ’s
Embraer Europe ’s
Embraer Aircraft Embraer Merco S.A.
Maintenance Service, Inc. Representative Office
Representative Office Embraer Merco S.A.
Maintenance Service, Inc.
Dubai
Dubai
ELEB Equipamentos
ELEB Equipamentos
Ltda.
Ltda. Embraer Executive Jet
Embraer Executive Jet ECC Leasing Company Ltd ..
ECC Leasing Company Ltd
(subsidiary)
(subsidiária)
(subsidiária) Service, LLC
Service, LLC Embraer Australia Pty Limited
Embraer Australia Pty Limited
(subsidiary)
(subsidiária)
(subsidiária)
Escritório de
Escritório de Embraer Executive
Representação Comercial Embraer Executive Air Holding SG PS S.A.
Air Holding SG PS S.A.
Representação Comercial Aircraft, Inc.
Aircraft, Inc.
Beijing
Beijing
Embraer Training OGMA
OGMA
Embraer
Embraer Embraer Training
Representations ,, LLC Services
Services
Representations LLC
(subsidiary)
(subsidiária)
(subsidiária) Embraer CAE Training
Embraer CAE Training
Embraer CAE Training Services (UK) Ltd ..
Services (UK) Ltd
Embraer CAE Training
Embraer Credit Limited ,,
Embraer Credit Limited Services
Services
ECL, LLC (subsidiária)
ECL, LLC(subsidiary)
(subsidiária)
Harbin Embraer Aircraft
Harbin Embraer Aircraft
Embraer Overseas Limited Industry Company Ltd ..
Industry Company Ltd
Canal Investments ,, LLC Embraer Overseas Limited
Canal Investments LLC (subsidiary)
(subsidiária) (JV Embraer – AVIC II)
(JV Embraer – AVIC II)
(subsidiária)
(subsidiary)
(subsidiária)
(subsidiária)
Embraer Asia Pacific Pte .. Embraer Portugal --SGPS
Embraer Portugal SGPS
Embraer Asia Pacific Pte S.A.
Limited
Limited S.A.
(subsidiary)
(subsidiária)
(subsidiária)
Embraer Portugal
Embraer Portugal
Estruturas Metálicas S.A.
Estruturas Metálicas S.A.
Embraer Portugal
Embraer Portugal
Estruturas em
Estruturas em
Compósitos S.A.
Compósitos S.A.
14
15. In Brazil, Embraer has branches in Gavião Peixoto, Botucatu, São Paulo, Eugênio de Melo
and the Technological Complex (both in São José dos Campos), Taubaté and Campinas.
FINANCIAL PERFORMANCE (BRAZILIAN CORPORATE LAW)
Embraer’s financial statements were prepared in accordance with Law 11,638/07.
In compliance with CPC Technical Pronouncement 02, concerning definition of the functional
currency for purposes of preparation of the financial statements as from fiscal year 2008, it
has been established that Embraer’s functional currency is the US dollar, as it is the currency
that best reflects the economic environment in which the Company operates and the way in
which the company is effectively managed. However, the Company keeps books in Brazilian
Reais in order to comply with the fiscal requirements of Brazilian legislation; in disclosure of
the Company’s financial statements, amounts in US dollars are translated into Reais for
presentation purposes. The balance sheet accounts are therefore directly influenced by the
appreciation or devaluation of the dollar (accounting base) against other currencies,
particularly the Real (base fiscal and presentation currency), with reflexes on a specific equity
account, the “Accrued translation adjustments” account. Income for the year is also affected
in respect of differed taxes, which are mainly calculated on the differences between the
accounting and tax bases of non-monetary assets.
In 2009, Embraer recorded net income of R$ 10,812.7 million, 8.0% less than the R$
11,746.8 million recorded in 2008, in spite of the increase in the number of deliveries, from
204 in 2008 to 244 in 2009. The drop in revenue was mainly due to the change in the product
mix, as the 98 Phenom delivered have a lower unit value that the other aircraft produced by
Embraer. The gross margin in 2009 was 19.2%, down on the 20.5% recorded the previous
year, since the start of serial manufacture of the new executive jets, the Phenom 100 and
Lineage 1000, called for improvements to and development of the production process, which
was achieved in the course of the year, but had an impact on the gross margin of these
products.
Embraer’s exports for the year totaled US$ 4,053.3 million, a drop of 29.3% in relation to
2008, but the Company is still the fourth largest Brazilian exporter, with a 2.65% share of the
Brazilian trade balance.
15
16. In millions of R$ 2008 2009
Net Income 11.746,8 10.812,7
Selling Cost 9.339,7 8.734,0
Gross Profit 2.407,1 2.078,7
Gross Margin 20,5% 19,2%
Operating Expense 1.294,7 1.346,8
Operating Income before Interest and Tax 1.112,4 731,9
Operating Margin 9,5% 6,8%
Depreciation and Amortization 387,2 425,5
Adjusted EBITDA (1) 1.499,6 1.157,4
Adjusted EBITDA Margin 12,8% 10,7%
Net Income 428,8 894,6
Net Margin 3,6% 8,3%
Profit per Share 0,59 1,24
Number of Shares(2) 723.665.044 723.665.044
(1) Adjusted EBITDA, in accordance with CVM Circular no.1/2005 represents the net income plus net
financial income (expense), income tax and social contribution , depreciation and amortization,
non-operating income (expense), minority interests and equity
(2) Does not include 16.8 million shares held in Treasury.
In 2009, a total of 244 jets were delivered, 122 to the commercial aviation market (115 aircraft
in the EMBRAER 170/190 family and seven in the ERJ 145 family), and 115 jets to the
executive aviation market, including 18 Legacy 600, three Lineage 1000, one Phenom 300
and 93 Phenom 100. Additionally, seven transport aircraft were delivered to the defense
market, as well as ten upgraded F-5 for FAB’s F-5BR Program and 20 Super Tucanos to
Brazil, the Dominican Republic and Chile.
Aircraft Deliveries by Segment
2008 2009
Commercial 162 122
ERJ 145 6 7
EMBRAER 170 9 22
EMBRAER 175 55 11
EMBRAER 190 78(1) 62
EMBRAER 195 14 20
Executive 36 115
Phenom 100 2 93
Phenom 300 - 1
Legacy 600 33 18
Lineage 1000 - 3
EMBRAER 175 1 -
Defense* 6 7
ERJ 135 2 1
ERJ 145 1 -
Phenom 100 - 4
Legacy 600 3 -
EMBRAER 190 - 2
TOTAL JETS 204 244
* Only includes deliveries of executive jets configured for transport of authorities
and aircraft for state airlines
* Deliveries identified by brackets were recorded as operational leasing
Net income from the commercial aviation market dropped 13.5% in relation to the R$ 7,838.5
million recorded in 2008, amounting to R$ 6,780.7 million, due to the smaller number of
deliveries in the period.
16
17. The executive aviation market generated income of R$ 1,694.1 million in 2009, 4.6% up on
R$ 1,619.1 million in 2008. The aviation services segment recorded revenue of R$ 1,166.4
million in 2009, an increase of 4.9% on the R$ 1,111.9 million in the previous year.
Net income of R$ 948.9 million was recorded for the defense market in 2009, remaining
stable in relation to R$ 953.8 in 2008.
In 2009, the commercial aviation and executive aviation segments accounted for 62% and
16%, respectively, of the total net income, compared with 67% and 14% in 2008. The aviation
services, defense and other segments represented 11%, 9% and 2% of total net income,
respectively, compared with 9%, 8% and 2% in 2008.
Other
Aviation 2% Other
Services.
6%
11%
Asia- North America
Executive
Pacific 23%
Aviation
16% Commercial 21%
Aviation
62%
Brazil
Defense
9%
11% Euroea
Latin 32%
America
7%
It should be stressed that Brazil’s participation in the Company’s net income increased from
4% in 2008 to 11% in 2009, mainly as a result of the deliveries to Azul Linhas Aéreas
Brasileiras and Trip Linhas Aéreas. The new customers for the Phenom 100 and the two
presidential aircraft also contributed. Additionally, North America’s participation dropped from
46% of net income in 2008 to 23% in 2009, due to delivery scheduling for the period and the
natural fulfillment of contracts.
Operating expense totaled R$ 1,346.8 million in 2009, a small increase of 4.0% in relation to
the R$ 1,294.7 million recorded in the previous year. This was mainly due to the costs of
adjusting the workforce at the beginning of the period and a subsequent and extraordinary
event that caused the Company to record a provision of R$ 179.3 million, when the Mesa Air
Group, an operator of 36 ERJ 145 aircraft in the United States, filed for Chapter 11, on
January 5, 2010. Although Embraer has no direct exposure in relation to Mesa, it issued
financial guarantees in favor of the financial institutions that participated in the aircraft
financing structures.
Commercial expense dropped by 17.6% in 2009, against R$ 731.2 million the previous year,
totaling R$ 602.8 million, 5.6% of the net sales revenue, compared with 6.2% in 2008. This
was a result of strict control of expenses and the lower number of aircraft delivered.
17
18. Employee profit sharing (PLR) totaled R$ 61.9 million, a drop of 35.0% on R$ 95.3 million the
previous year.
Administrative expenses amounted to R$ 376.2 million in 2009, down 11.5% on the R$ 425.3
million recorded in the previous year, mainly due to the positive results of P3E and the
adjustments made to the Company’s cost structure.
Expense of R$ 367.8 million was recorded in the “Other operating income (expense), net” in
2009, significantly higher than the expense of R$ 138.0 million in 2008, mainly due to the
event mentioned above in relation to the Mesa Air Group.
Operating income before interest and taxes totaled R$ 731.9 million in 2009, 34.2% down on
the R$ 1,112.4 million recorded the previous year, generating operating margins of 6.8% and
9.5%, respectively, due to the above-mentioned factors.
As a result, generation of operating cash, measured by EBITDA, amounted to R$ 1,157.4
million in 2009, 22.8% less than the R$ 1.499.6 million recorded the previous year. Similarly,
the EBITDA margin in 2009 was 10.7%, down on 12.8% in 2008.
During 2009, Embraer recorded net financial revenue of R$ 14.6 million, compared with net
financial expense of R$ 40.5 million in 2008, largely due to the reduction in the indebtedness
cost and improved management of financial assets and exchange risk exposure.
Embraer accordingly recorded net income of R$ 894.6 million in 2009, up 108.7% on the R$
428.7 million obtained in 2008. The Company's net margin was 8.3% in 2009, up on the 3.6%
recorded in 2008.
The significant increase in net income was mainly due to the effects of the appreciation of the
Real in relation to the dollar and the resulting positive tax effects on the variations in non-
monetary assets, particularly inventories.
Equity Indicators
The following table shows Embraer's main equity indicators, comparing the last two years:
18
19. Consolidated Highlights
2008 2009
In millions of R$
Cash and cash equivalents (*) 5,144.9 4,433.4
Accounts Receivable 1,038.0 692.2
Customer Financing 284.7 91.9
Inventories 7,101.1 4,424.1
Permanent assets (**) 3,910.7 3,038.9
Suppliers 2,520.2 1,038.0
Indebtedness – Short-Term 1,259.8 1,031.5
Indebtedness – Long-Term 3,039.9 2,552.5
Shareholders’ Equity 5,970.5 5,020.8
(*) Includes Cash and Cash Equivalents, Temporary
Investments and Marketable Securities
(**) Includes Investments, Fixed and Intangible Assets
The Company's liquidity position, in terms of Cash and Cash Equivalents (in dollars), and net
cash (cash and cash equivalents less total indebtedness), remained stable in relation to the
2008 year-end, closing 2009 with net cash of R$ 849.4 million.
Embraer therefore ended the year with total indebtedness of R$ 3,584.0 million, down 16.6%
on R$ 4,299.7 million the previous year. Of the total indebtedness, 71.2% relates to long-term
credit lines. The indebtedness comprises R$ 2,331.9 million (65.1%) in credit lines mainly
denominated in dollars, with the remaining R$ 1,252.1million (34.9%) denominated in Reais.
Embraer’s average indebtedness term is 4 years and 9 months.
The reduction in accounts receivable and customer financing reflects the good financial
management in relation to customers.
At the close of the year, Embraer’s inventory position was R$ 4,424.1 million, 37.7% down on
December 2008. This was the result of strict supplier management, increased operating
efficiency, which has reduced the production cycles, the drop in production rate in 2009 and
the appreciation of the Real against the dollar.
19
20. Consolidated Indicators 2008 2009
Debt / Shareholders’ Equity 0.7 0.7
Inventory Turnover 1.6 1.6
Asset Turnover 0.6 0.7
ROA 2.3% 4.8%
ROE 8.1% 16.3%
ROCE* 17.1% 9.9%
* calculated in USGAAP
Economic Value Added (EVA)
On account of the deferred income tax and social contribution recorded in relation to the
difference between the book value of the assets and liabilities and the tax base for fiscal
purposes and the increase in interest payable on investments, Embraer reported an
improvement in yield, in terms of economic value added (VEA).
In millions of R$ 2008 2009
Total Assets 21,499 15,946
Voluntary Financing Liabilities 11,229 7,341
Interest on Liabilities 10,270 8,605
Third Party Capital 4,300 3,584
Equity 5,970 5,021
Interest payable on investments 10,270 8,605
Net Operating Revenue 11,747 10,813
Operating Costs and Expense (10,823) (10,207)
Operating Income 924 606
Income Tax and Social Contribution (435) 299
Cost of Third Party Capital (230) (286)
Adjusted Net Income 259 619
Cost of Capital (740) (666)
Value Added (481) (47)
VA / Interest payable on investments -4.7% -0.5%
Note: Calculation of EVA excludes special purpose companies (SPCs)
Allocation of Income – Parent Company
Management will propose to the Annual General Meeting, after recording the legal reserve
and distribution of interest on capital and dividends, allocation of R$ 603.5 million of the net
income for the year to the investment reserve and working capital, in order to cover
investments in the new family of executive jets, new technology, processes and management
20
21. models, with a view to increasing its expertise and productivity.
Consolidated Statements in US GAAP
In the interests of transparency and as its shares (ADSs) are traded on the New York Stock
Exchange (NYSE), Embraer presents below a summary of the main consolidated financial
statements, in accordance with US GAAP.
CONSOLIDATE BALANCE SHEETS AS OF DECEMBER 31, IN US GAAP
(In thousands of dollars)
ASSETS 2008 (1) 2009 (2)
CURRENT ASSETS
Cash and equivalents 1.820.710 1.592.360
Temporary Investments 380.774 953.827
Accounts receivable 438.083 396.880
Sales financing 8.610 11.241
Inventories 2.829.043 2.333.868
Deferred taxes 154.285 106.593
Other 284.981 245.071
5.916.486 5.639.840
NONCURRENT ASSETS
Accounts receivable 5.857 464
Sales financing 510.403 456.363
Taxes 173.218 288.859
Other 1.217.436 1.269.429
Property, plant and equipment 751.786 771.296
Investments 68.729 25.264
2.727.429 2.811.675
TOTAL ASSETS 8.643.915 8.451.515
(1) Taken from the audited Financial Statements
(2) Taken from the unaudited Financial Statements
P LIABILITIES AND SHAREHOLDERS’ EQUITY 2008 (1) 2009 (2)
CURRENT LIABILITIES
Financing 529.342 587.652
Suppliers 1.078.104 595.822
Advances from customers 1.151.494 768.469
Other 786.389 815.755
3.545.329 2.767.698
LONG-TERM LIABILITIES
Financing 1.296.065 1.455.212
Advances from customers 449.208 398.116
Contributions from partners 44.267 67.718
Other accounts payable 1.029.807 1.334.138
2.819.347 3.255.184
Shareholders’ equity 2.209.277 2.338.302
Minority interests 69.962 90.331
TOTAL SHAREHOLDERS’ EQUITY 2.279.239 2.428.633
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 8.643.915 8.451.515
(1) Taken from the audited Financial Statements
(2) Taken from the UNaudited Financial Statements
21
22. CONSOLIDATED STATEMENTS OF INCOME IN US GAAP
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2009
(In thousands of dollars)
2008 (1) 2009 (2)
NET SALES REVENUE 6,335,239 5,466,287
Selling cost (4,991,707) (4,352,178)
GROSS REVENUE 1,343,532 1,114,109
OPERATING EXPENSE
General and administrative (232,448) (191,457)
Commerciail (393,067) (305,128)
Research and development (196,968) (143,990)
Other operating income (expense), net 16,001 (137,900)
OPERATING INCOME 537,050 335,634
Financial income (expense), net (171,404) 35,291
Gain / Loss on accrued translation adjustments, net 71,653 (94,127)
INCOME BEFORE INCOME TAX 437,299 276,798
Income tax (41,065) (14,534)
INCOME BEFORE SHAREHOLDERS' EQUITY 396,234 262,264
Shareholders' equity 29 -
NET INCOME 396,263 262,264
Minority interests (7,533) (13,746)
NET INCOME THE EMBRAER GROUP 388,730 248,518
(1) Taken from the audited Financial Statements
(2) Taken from the unaudited Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2009
(In thousands of dollars)
2008 (1) 2009 (2)
CASH FLOW - OPERATIONS
Income profit 396,262 262,264
Adjustments to reconcile the net profit to the net cash generated by operations:
Depreciation and amortization 70,488 86,670
Impostos 29,494 (9,220)
Gains / losses on accrued translation adjustments, net (71,653) 94,128
Outros (9,136) 3,269
415,455 437,111
Changes in assets and liabilities: (33,776) (302,127)
Cash generated by operation s 381,679 134,984
FLUXO DE CAIXA - ATIVIDADES DE INVESTIMENTO
Acquisition of property, plant and equipment (234,987) (103,813)
Other 346,982 (402,521)
Cash generated by (used for) investments 111,995 (506,334)
CASH FLOW - FINANCIAL TRANSACTIONS
Loan payments (1,770,464) (1,483,001)
Loans 1,886,210 1,461,804
Dividends and interest paid on capital (242,679) -
Other (187,527) (5,913)
Cash generated by (used in) financial operations (314,460) (27,110)
Effect of exchange variations on cash (92,322) 170,110
Increase in cash and cash equivalents 86,892 (228,350)
Cash and cash equivalents at the beginning of the year 22 1,733,818 1,820,710
Cash and cash equivalents at the end of the year 1,820,710 1,592,360
(1) Taken from the audited Financial Statements
23. RECONCILIATION OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2009
2008 (1) 2009 (2)
USD R$ USD R$
Shareholders' equity in BR GAAP 2.554.784 5.970.531 2.883.531 5.020.805
Intangible - product development cost (665.523) (1.555.327) (695.244) (1.210.559)
Deferred income tax and social contribution 303.714 709.780 127.668 222.296
Dividends and interest on capital not paid - -
Other 86.264 201.598 112.678 196.194
Shareholders' equity in US GAAP 2.279.239 5.326.582 2.428.633 4.228.736
(1) Taken from the audited Financial Statements
(2) Taken from the unaudited Financial Statements
RECONCILIATION OF INCOME FOR THE YEAR
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2009
2008 (1) 2009 (2)
USD R$ USD R$
Net income for the year in BR GAAP 261.422 428.750 456.953 894.592
Product development cost (58.014) (47.669) (26.182) (66.268)
Deferred income in tax and social contribution 182.117 332.344 (176.926) (369.773)
Other 3.204 7.245 (5.327) (9.727)
Net income for the year in US GAAP 388.729 720.670 248.518 448.824
(1) Taken from the audited Financial Statements
(2) Taken from the unaudited Financial Statements
CAPITAL MARKET
Embraer’s relations with the financial community and its investors are regulated by
transparent and fair disclosure of information, characterized by deep respect for legal and
ethical principles, with the objective of consolidating and maintaining its reputation for
leadership and innovation in the capital market, in accordance with the regulations of the
BM&FBOVESPA New Market, the highest level of Corporate Governance in Brazil. Its shares
have been listed on the São Paulo Stock Exchange (BM&FBOVESPA) since 1989 and on the
New York Stock Exchange (NYSE) since July 2000, through a level III ADR (American
Depositary Receipts) program.
Embraer’s capital comprises common shares, traded on the BM&FBOVESPA as EMBR3,
which registered appreciation of 7.95% in 2009 and were quoted at R$ 9.51 at the end of the
year. In turn, the BM&FBOVESPA index appreciated by 82.66 % in the same period.
The Company's ADSs (American Depositary Shares), listed on the NYSE as ERJ, were
quoted at US$ 22.11 in the last trading session of the year, appreciation of 36.40% in 2009,
against appreciation of 18.82% of the Dow Jones index.
23
24. Performance EMBR3 - BM&FBOVESPA Performance ERJ - NYSE
07/21/2000 = 100 07/21/2000 = 100
450 250
400
350 200
300
150
250
200
100
150
100 50
50
0 0
jul-00
jan-01
jul-01
jan-02
jul-02
jan-03
jul-03
jan-04
jul-04
jan-05
jul-05
jan-06
jul-06
jan-07
jul-07
jan-08
jul-08
jan-09
jul-09
jan-10
jul-00
jan-01
jul-01
jan-02
jul-02
jan-03
jul-03
jan-04
jul-04
jan-05
jul-05
jan-06
jul-06
jan-07
jul-07
jan-08
jul-08
jan-09
jul-09
jan-10
EMBR3 Bovespa ERJ Dow Jones
As of December 31, 2009, Embraer’s capital comprised 740,465,044 common shares (ON),
of which 16,800,000 shares are held in Treasury and have no political or economic value. The
Brazilian Government holds one special common share, a Golden Share, with the right to
veto on certain matters.
Of Embraer's total shares, 53.4% are allocated for trading on BM&FBOVESPA, and 46.6%
are traded as American Depositary Shares (ADS) on the New York Stock Exchange (NYSE).
723,665,044 Common Shares*
HOTCHKIS &
WILEY CAPI
5.3%
FRANKLIN
RESOURCES IN
6.6% BOVESPA
OTHERS
THORNBURG 26.4%
INVESTMENT
6.0%
BOVESPA
BNDESPAR NYSE
OPPENHEIMER 5.5% 53.4%
FUND'S
46.6%
6.9%
PREVI
14.1%
BLACKROCK NYSE OTHERS
6.0% 15.8% GRUPO BOZANO
7.4%
* Does not include 16.8 million shares held in Treasury
In 2009, a portion of the liquidity of the common shares was on the U.S. market, and a daily
average of 1, 036 thousand ADSs was traded on the NYSE, equivalent to an average daily
volume US$ 19.1 million. An average of 2,493 thousand common shares was traded on the
Brazilian stock exchange, representing a daily average of R$ 22.8 million. In 2008, the
average daily volume was 1,386 thousand common shares, equivalent to R$ 18.9 million.
24
25. Embraer’s market capitalization reached US$ 4.0 billion at the end of December 2009,
compared to the US$ 2.5 billion recorded as of December 31, 2008.
Market Value (US$ billion)
4.0
2.5
2008 2009
Shareholder Remuneration
In 2009, based on the consolidated net income of R$ 894.6 million, Embraer distributed R$
228.8 million to the shareholders, as interest on capital (JCP) and dividends, equivalent to R$
0.316279 per common share. The distribution of interest on capital to the shareholders was
approved by the Board of Directors on December 11, 2009 and will be paid into equal
installments, the first on July 20, 2010 and the second on December 20, 2010.
The proposal to distribute additional dividends that will be submitted for the approval of the
Annual General Meeting was approved by the Board of Directors on March 11, 2010, for
payment on June 17, 2010. The profit distributed in the year represented 25.6% of the
Company’s consolidated net income.
Dividends Distributed - R$ Million
68.3%
62.7%
53.4% 52.2%
25.6%
444 449
327
224 229
2005 2006 2007 2008 2009
Dividends Pay Out
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26. CORPORATE GOVERNANCE
The corporate restructuring in 2006, when the Company’s shares were merged into a single
class of common shares, with no controlling group or majority shareholder, extending voting
rights to all its shareholders, enabled Embraer to join the BM&FBOVESPA New Market, the
highest level of corporate governance in Brazil.
The corporate restructuring also strengthened Management by means of the control
instruments generated by the new governance structure, while also preserving the strategic
rights of the Federal Government, which maintained its special class golden share, with right
of veto on the following matters: change of the Company’s name or its corporate objective;
alteration and/or use of the Company’s logo; creation and/or alteration of military programs,
whether or not the Federal Republic of Brazil is involved; training third parties in technology
for military programs; interruption of the supply of maintenance and spare parts for military
aircraft; transfer of the Company’s stock control.
The Bylaws include mechanisms to protect pulverization of the share control, and also to
ensure that the majority of votes on decisions of the general meeting are exercised by
Brazilian shareholders, in accordance with the principle established when the Company was
privatized.
The main mechanisms are as follows:
• No shareholder or group of shareholders, Brazilian or foreign, may exercise more votes in
each General Meeting than the equivalent of 5% of the number of capital shares;
• The total number of votes allowed to foreign shareholders in any general meeting, whether
individually or as a group, will be restricted to 40% of the total valid votes on any subject;
• No shareholder, or group of shareholders, may hold 35% or more of Embraer’s capital
without the express authorization of the Brazilian Federal Government, as holder of the
Golden Share, and subject to holding of a Public Offer (Oferta Pública de Aquisição -
OPA);
• Disclosure of the share ownership position is mandatory whenever: (i) a shareholding
amounts to 5% of more of the Company’s capital; and (ii) the interest of any shareholder
increases by 5% or more of the Company’s capital.
The Board of Directors comprises 11 members and their deputies, seven members being
independent.
Three committees have been set up to assist the Board Of Directors in its duties and sphere
of authority:
Executive Committee: a permanent committee, comprising four members, appointed by the
Board of Directors and chosen from among its effective or deputy members, set up to assist
the Board of Directors, particularly in relation to strategic management.
Human Relations Committee: comprises four members, appointed by the Board of Directors
and chosen from among its effective or deputy members or the Company’s Executive Board,
and was set up to assist the Board of Directors on matters relating to human resources.
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