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EmbraerCapital Reorganization
Capital Reorganization
• Financing the expansion programs through the equity capital markets
• Creation of an acquisition currency for potential expansions
• The increase in liquidity and better market perception of the Company
• The improvement in corporate governance and transparency, in addition to the listing in the “Novo Mercado”,
October, 2006
Ordinary Shares: 738,699,207
Embraer Capital Structure
Sharholders with more than 5% participation
BOZANO GROUP 11.1%
PREVI (PENSION
FUND) 16.4%
SISTEL (PENSION
FUND) 7.4%
BNDESPAR 6.3%
OTHERS NYSE 41.3%
OTHERS BOVESPA
17.8%
CorporateGovernance
• Board of Directors Composition:Eight representatives elected by all Shareholders; Two representatives indicated by the Employees;One governament representative.
• Active Board of Directors & Permanent Fiscal Board acting as an Audit Commitee.
Corporate Governance
Audit Comitee – Conselho Fiscal
• Composed of five members including one financial expert
• Elected in a annual general shareholders’ meeting
• Makes financial reporting recommendations to management and the board
• Responsible for handling whistleblower complains
• Oversees the relationship between managers and external auditors
Corporate Governance
Corporate Governance ActionsTrading policyDisclosure PolicyRisk managementCode of Ethics & ConductDisclosure Comitee
AccountabilityBrazilian Gaap & US Gaap Simultaneously
Corporate Governance
Implementation Status SOX # 404
In process
Scope andPlanning
1
CompletedApril 2007
RisksIdentification& Objectives
2
InternalControlsDocum
3
TestingInternalControls
4
Remediations
Report20F31/12/06
AvaliationExternalAuditors
5
Corporate Governance
Dividends
68
204 187
112
50% 54%63%
42%
2003 2004 2005 9M06
Dividends Pay-Out Ratio
US$ Million R$ Milhões
195
585445
242
62.7%
60.0%
46.6%
33.2%
2003 2004 2005 9M06
Dividends Pay-out Ratio
Off-Balance Sheet Exposure
(53)(54)Provisions & Liabilities Recorded(418)(415)Mutually Exclusive Exposure*
2,1562,177Off Balance Sheet Exposure2,2092,127Estimated proceeds from performance
guarantees and underlying assets
906878RVGs1,7211,768Maximum Financial Guarantees
June 30
2006
2005US$ million
The maximum potential payments represent the “worst-case scenario,” and do not necessarily reflect the expected results by the Company.Estimated proceeds from performance guarantees and underlying assets represent the anticipated values of assets the Company could liquidate or receive from other parties to offset its payments under guarantees.
*The residual value guarantees can only be exercised if the financial guarantees have expired withouthaving been triggered and therefore have not been combined to calculate the maximum exposure
Source: 20 F note 34
Off Balance Sheet Exposure
Trade-in optionsProvide a customer with the right to trade-in existing aircraft upon the purchase of a new aircraft. The trade in price per aircraft is less than the original sales price of the aircraft and less than management’s estimation for the future market value of the relevant aircraft.
6 Commercial jets are subject to trade-in
Of the total 914 firm orders and 133 options signed for the ERJ 145 family since 1996, only 7 were trade-ins of EMB 120s (Brasilia).
Of the total 543 firm orders and 421 options signed for the EMBRAER 170/190 family since 1999, only 6 included trade-in options.
Off Balance Sheet Exposure
Risk Management
ECC LeasingAsset Management is responsible for all administration and technical issues related to Embraer’s portfolio of pre-owned aircraft.
ECC Leasing Company Ltd (ECC Leasing) was incorporated in Dublin (Ireland) on September 19th, 2002.
Main Responsibilities• Manage Embraer’s pre-owned aircraft assets• Vehicle for remarketing pre-owned aircraft resulting from
trade-in/up supporting new aircraft sales• Manage remarketing obligations assumed by Embraer before
lenders or leasing companies• Search for potential airlines on the market to acquire or lease the
aircraft from ECC Leasing’s portfolio• Main focus on activities that involve Embraer products• Manage activities of appraisal, acquisition, maintenance, leasing
and remarketing of pre-owned aircraft
Asset Management Remarketing Activities
5 ex-Rio Sul ERJ 145Leased to Aerolitoral ( Mexico)
2005
7 ex-Rio Sul ERJ 145Sold to FAB ( Brazil )
2005
1 ex-Rio Sul ERJ 145Sold to DPF ( Brazil )
2005
2 ex-Rio Sul ERJ 145In advanced negotiation with potential customer
7 ex-Rio Sul EMB 120Sold to FAB ( Brazil )
2005
1 EMB 120In advanced negotiation with potential customer
2 ex-LOT ERJ 145 Leased to BMI ( England )
2006
2 EMBRAER 170 Pre-SeriesLeased to Paramount ( India )
2005/2006
1 ex-LOT ERJ 145 Leased to Lagunair (Spain )
2006
Asset Management Remarketing Activities
2 ex-LOT ERJ 145Leased to Satena ( Colombia )
2006
1 EMB 120Sold to CVRD ( Brazil )
2006
Asset Management Remarketing Activities
1 EMBRAER 170 Pre-SeriesLeased to Satena ( Colombia )
2006
1 EMB 170 Pre serie Leased to Air Caraïbes
(Guadeloupe)2006
2 Legacy Sold to FAB ( Brazil )
2006
ERJ- 145.065ERJ- 145.083ERJ- 145.089ERJ- 145.090ERJ- 145.852ERJ- 145.861
ERJ- 145.495ERJ- 145.528
ERJ- 145.165ERJ- 145. 227EMB- 170.004
EMB 120.044EMB 120.052
EMB 120.041EMB 120.064
EMB 120.166EMB 120.313ERJ 145. 001
ERJ- 145.600ERJ- 145.608
ERJ- 145.016ERJ- 145.021ERJ- 145.002ERJ- 145.003
EMB-170.005EMB-170.002
EMB-170.006
ERJ- 145.155
ERJ- 145.114 ERJ- 145.137
EMB 120.323
EMB 120.356
EMB 120.357
Available mid 2007
EMB 120.359EMB- 170.017
EMB 120.355
ERJ- 145.336ERJ- 145.339
Asset Management Portfolio
In advanced negotiationwith potential customer
In advanced negotiationwith Angolan Government
Parked Aircraft - World
Source: BACK (Operator Category: Scheduled Airline, Non Scheduled, Leasing and Financial Institution)
Seat Segment
0
100
200
300
400
500
600
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
set/0
6
Num
ber o
f Airc
raft
30 - 60 61 - 90 91 - 120
Jet Aircraft (Western Built)(as of Sep 05, 2006)
Seg Manuf.Number
of ParkedAircraft
%% of Fleet
ParkedBoeing 149 53% 12%Douglas 86 30% 28%Fokker 29 10% 11%BAe 19 7% 15%Airbus 0 0% 0%Embraer 0 0% 0%Total 283 100% 15%BAe 52 51% 25%Fokker 45 45% 30%Douglas 2 2% 8%Bombardier 2 2% 1%Embraer 0 0% 0%Total 101 100% 12%Bombardier 82 71% 8%Fairchild 30 26% 32%Embraer 4 3% 0%Total 116 100% 6%
91-1
2061
-90
30-6
0
ERJ 145 LR Year over Year Residual Value Curve
New Aircraft – Uninflated Values 2005 & 2006 Values
0
2
4
6
8
10
12
14
16
18
20
year 1
year 2
year 3
year 4
year 5
year 6
year 7
year 8
year 9
year 10
year 11
year 12
year 13
year 14
year 15
year 16
US$
Mill
ion
2nd half 2005 2nd half 2006
EMBRAER 170 LRYear over Year Residual Value Curve
New Aircraft – Uninflated Values 2005 & 2006 Values
0
5
10
15
20
25
30
year 1
year 2
year 3
year 4
year 5
year 6
year 7
year 8
year 9
year 10
year 11
year 12
year 13
year 14
year 15
year 16
US$
Mill
ion
2nd half 2005 2nd half 2006
EMBRAER 190 ARYear over Year Residual Value Curve
New Aircraft – Uninflated Values 2005 & 2006 Values
0
5
10
15
20
25
30
35
year 1year 2
year 3year 4
year 5year
6year 7
year 8year
9
year 10
year 11
year 12
year 13
year 14
year 15
year 16
US$
Mill
ion
2nd half 2005 2nd half 2006
Sales Finance
Financing Sources (1995~2Q 2006)
BNDES42%
Market58%
$ 20.5
$ 7.7$ 12.8
US$ BI
1995 – 2Q2006
1,148
479669
# Aircraft
Total
BNDESMarket
Note: % Delivered Aircraft
Financing Sources Evolution
40%
84%
55%
27%17%
6%
60%
16%
45%
73%
94%83%
2001 2002 2003 2004 2005 2006 1S
ECA - BNDES Market
Note: % Delivered Aircraft
Financing Source Forecast
* Commercial Aircraft Forecast
Capital MKT5%
Banks & Leasing Co
BNDES20%
Forecasted FY 2006 to FY 2008 financing to commercial aviation:
Diversification of Financing Sources -USA
We obtained positive results in contacting banks and investors, searching new mechanisms and sources for financing our customers. Among them, we shall emphasize:
Alexander Hamilton Debis Air Finance MetLife CapitalAlliance Capital Fifty Third Bank MitsuiAmerican State Bank Finova Nation CityAmeritech Credit Corp. Fleet Bank Phillip MorrisAttransco GATX South TrustBank First Teachers InsuranceBank of America ICX Corp. The Cit GroupBell Atlantic Integra TransamericaBNY Capital Funding Jefferson Pilot Life Travellers InsuranceChrysler Capital Corp. John Hancock Wachovia BankComerica JP Morgan Chase Zions Credit Corp
Diversification of Financing Sources Rest of World
Banco Austria AustriaBarclays United KingdomBCI ItalyBell Atlantic United StatesBNP FranceCALL United KingdomCitibank New York - London - AsiaCoronation IrelandCredit Lyonnais FranceDeustch Bank GermanyDie Nationale Investeringsbank NetherlandsHamburgische Landesbank GermanyHSH Nord Bank AG GermanyIngepar FranceLandesbank Sachsen Girozentrale GermanyLloyds Bank PLC United KingdomNatexis FranceNorddeutsche Landesbank Girozentrale GermanyRoyal Bank Leasing Ltd. United KingdomStandard Chartered United KingdomTransasian Air Australia
Financing Structures (1995~2Q 2006)
Tax Lease46%
Finance Lease
5% Operating Lease5%
Cash1%
Bridge1%
Straight Financing40%
Note: % Delivered AircraftTotal: 1,148 aircraft
EETC and Secured Financing
2.73.7
5.0
8.0
10.4
3.4
1.1 0.9 0.4
0.5
1.1
0.4
0.2
2.1
0.40.2
0.3 1.5$-
$2
$4
$6
$8
$10
$12
$14
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006*
US$
Billi
on
Mainline Aircraft Secured Financing RJ Secured Financing
RJ Secured Financing: 100% CAL
Continental EETC (% Total Volume)
Dec 2003 - US$ 414 MM (27%)
Jun 2004 - US$ 174 MM (16%)
Sep 2005 - US$ 311 MM (42%)
Aug 2006 – US$ 54 MM (4%*)
Continental EETC (% Total Volume)
Dec 2003 - US$ 414 MM (27%)
Jun 2004 - US$ 174 MM (16%)
Sep 2005 - US$ 311 MM (42%)
Aug 2006 – US$ 54 MM (4%*)
Source: Citigroup* Forecast
EETC and Secured Financing
Source: Citigroup
Mainline Aircraft Secured Financing87%
RJ Secured Financing13%
% of Total Secured Aircraft Issuance 1997-2006 1st Half
Embraer Participation 33%
Financial Results
Jet Deliveries
59
96
160 161
131
101
148 141
93
1998 1999 2000 2001 2002 2003 2004 2005 9M06
Net Revenue by Segment
9M06 9M05
Defense and Government
6%
Executive Aviation 13%
Customer Services and Others 15%
Commercial Aviation 67% Defense and
Government 12%
Executive Aviation 6%
Commercial Aviation 72%
Customer Services and Others 10%
US$ million
Net Revenues and Gross Margin – US GAAP
2,723
3,8303,441
2,1442,526
2,927
28.4%
39.4% 37.7%
34.1%
30.2%
39.6%
2001 2002 2003 2004 2005 9M06
Net Revenue Gross Margin
R$ million
Net Revenues and Gross Margin – BR GAAP
6.891 7.748 6.571
10.231 9.1336.012
23,7%
35,8%
25,0%33,3%
44,6%41,6%
2001 2002 2003 2004 2005 9M06
Receita Líquida Margem Bruta
US$ Million
Income from Operations- US GAAP
651
470
265
544 505
218
22.3%
18.6%
12.3%13.2%
8.0%
15.8%
2001 2002 2003 2004 2005 9M06
Income from Operations Margin
R$ million
Income from Operations – BR GAAP
1.9282.167
1.2431.714
414787
18,9%16,8%
8,6%6,9%
28,0% 28,0%
2001 2002 2003 2004 2005 9M 06
Luc ro Operac ional Margem Operac ional
Net Income – US GAAP
US$ Million
3 2 8
2 2 3
1 3 6
3 8 04 4 6
2 6 6
9 .8 %
1 1 .6 %1 1 .1 %1 1 .2 %
8 .8 %
6 .3 %
2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 9 M0 6
Net Inc ome Net Marg in
R$ million
Net Income – BR GAAP
1.101 1.179
587
1.281
709 406
16%15%
9%
13%
8%7%
2001 2002 2003 2004 2005 9M06
lucro líquido Margem
BR GAAPDifferences between accounting and fiscal records
US GAAPAll BR GAAP and US GAAP accounting differences are consideredto calculate the deferred income tax
18.0%
25,9%9M06
19,7%20,8%29,8%26,6%30,6%BR GAAP
25.8%
2003
22.7%
2004
8.4%45.6%40.3%US GAAP
200520022001
Effective Tax Rates
Effective Tax Rate
Effective Tax Rate – 9M06US GAAP BR GAAP
US$ THOUSANDS R$ THOUSANDSIncome Before taxes 329,958 565,197
Nominal expense 34% tax rate 112,186 192,167
Permanent additions 5,742 35,675
Permanent exclusions (1,679) (18,369)
Interest on Shareholders Equity (34%) (32,041) (70,304)
Other items (24,753) 7,061
Total expenses 59,455 146,230
Effective tax rate 18.0% 25.9%
Balance Sheet
US$ MillionR$ million
US GAAP BR GAAP
Others Com m ercial Airline Market
Accounts Receivable Breakdown
302 351 346 332 368
488
100 136 140 32
3Q05 4Q05 1Q06 2Q06 3Q06
577823 754 719
1,085233 302
797
70294
3T05 4T05 1T06 2T06 3T06
US$ MillionR$ million
US GAAP BR GAAP
Aircraft Financing Support
488
100 136 14032
278 229174
164
3Q05 4Q05 1Q06 2Q06 3Q06
1,085
233 30229470
651 497 378
357
3T05 4T05 1T06 2T06 3T06
C o stu m e r a n d C o m m e rc ia l F in a n c in g
A c c o u n t s R e c e i v a b le s
C o s t u m e r a n d C o m m e r c i a lF i n a n c i n g
u
US$ Million
Inventories
R$ Million
US GAAP BR GAAP
1,601 1,5111,648 1,639
1,886
3Q05 4Q05 1Q06 2Q06 3Q06
4,0533,967
4,1153,971
4,417
3T05 4T05 1T06 2T06 3T06
US$ Million
Net Cash (Debt) Position
R$ Million
US GAAP BR GAAP
1,102
216
843
1,139657
3T05 4T05 1T06 2T06 3T06
97
360302
527 507
3Q05 4Q05 1Q06 2Q06 3Q06
Total Debt of US$ 1,599.8 Million
• Average cost in R$ = 8.5 % p/a
• Average cost in US$ =7.2 % p/a
Loans
Loans Average Maturity: 1 year and 11 months
Brazilian Currency
25%
Foreign Currency
75%
Short Term 48%Long Term
52%
Loans Maturity
US$ million
76 0
13 1
18 8
2 0 14 4
1,6 0 0
2 76
Total Short-term
2007 2008 2009 2010 2011
Emissão de Bond
Sumário dos termosSumário dos termos
Emissor: Embraer Overseas Limited
Guarantidor: Empresa Brasileira de Aeronáutica S.A.
Principal: US$ 400 milhões
Formato: 144 A/ Reg S com Registration Rights
Ratings: Baa3/BBB- (Moody/S&P)
Vencimento: 24 de Janeiro de 2017
Coupon: 6,375%
Yield: 6,466%
Spread sobre UST: 168 bps
Preço: 99,289%
Joint Bookrunners: J.P. Morgan Securities Inc. e
Citigroup
TombstoneTombstone
20 de outubro de 2006
6,375% Bonds com Vencimento em 2017
US$400.000.000
Investments
R&D – PP&E 9M06
111
6450
59
8470
158173
153 148131
143
114100
2000 2001 2002 2003 2004 2005 9M06
PP&E R&D
Research & Development Forecast
NewPrevious
32
2375912751
2007
4821Defense & Government
173188TOTAL6147Technology Development9087Executive Aviation2254Commercial Aviation
20082007US$ Million
Defense & Government R&D are funded by their contracts and are included as Cost of sales and services
PP&E
NewPrevious
19413
104
77
2007
11777TOTAL29-Customer Services36-Production Ramp Up5277Productivity
20082007US$ Million
Contributions from Risk Sharing Partners
US$ Million
-246
20 17
42
55
108114
Total
2001
2002
2003
2004
2005
2006E
2007E
2008/2010E