1. Embraer - Empresa Brasileira de Aeronutica S.A. Financial
Statements Together with Report of Independent Public Accountants
March 31, 1999 and 2000
2. Report of Independent Public Accountants To the Management
and Shareholders of Embraer - Empresa Brasileira de Aeronutica
S.A.: We have reviewed the accompanying condensed consolidated
balance sheet of Embraer - Empresa Brasileira de Aeronutica S.A. (a
Brazilian corporation) and subsidiaries as of March 31, 2000, and
the related condensed consolidated statements of income (loss),
changes in shareholders equity and changes in financial position
for the three months ended March 31, 1999 and 2000, all expressed
in constant Brazilian reais as of March 31, 2000 price-levels.
These consolidated financial statements are the responsibility of
the Companys management. We conducted our review in accordance with
standards established by the Brazilian Institute of Accountants -
IBRACON, together with the Federal Accounting Council, which are
substantially the same as standards established by the American
Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons
responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the condensed consolidated financial
statements referred to above for them to be in conformity with
generally accepted accounting principles in Brazil, and with
standards established by the Brazilian Securities Commission - CVM,
specifically applicable to the preparation of such condensed
consolidated financial statements. We have previously audited, in
accordance with generally accepted auditing standards in the United
States of America, the consolidated balance sheet of the Company as
of December 31, 1999, and the related consolidated statements of
income, shareholders equity, and changes in financial position for
the year then ended (not presented herein); and, in our report
dated March 15, 1999, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information
set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1999 is fairly stated, in all material respects,
in relation to the consolidated balance sheet from which it has
been derived. So Paulo, Brazil, May 15, 2000 (except for Note 24 as
to which the date is May 22, 2000) ARTHUR ANDERSEN S/C
3. EMBRAER - EMPRESA BRASILEIRA DE AERONUTICA S.A. CONSOLIDATED
BALANCE SHEETS AT DECEMBER 31, 1999 AND MARCH 31, 2000 (Expressed
in thousands of constant Brazilian reais as of March 31, 2000) A S
S E T S December 31, March 31, Notes 1999 2000 CURRENT ASSETS: Cash
and cash equivalents 557,748 660,619 Trade accounts receivable
250,385 240,001 Allowance for doubtful accounts (20,391) (22,534)
Recoverable taxes 30,576 29,988 Deferred income taxes (22) 97,778
97,778 Other receivables 40,672 33,881 Inventories (3) 1,415,583
1,334,139 Prepaid expenses 9,554 10,605 --------------
------------- Total current assets 2,381,905 2,384,477
-------------- ------------- NONCURRENT ASSETS: Trade accounts
receivable 344,077 440,762 Recoverable taxes 3,481 - Compulsory
loans and guarantee deposits 7,030 7,014 Other receivables 56,320
54,113 Deferred income taxes (22) 131,705 125,688 -------------
------------- Total noncurrent assets 542,613 627,577 -------------
------------- PERMANENT ASSETS: Investments (4) 6,234 6,102
Property, plant and equipment (5) 476,096 481,807 Deferred charges
(6) 376,157 350,239 ------------- ------------- Total permanent
assets 858,487 838,148 ------------- ------------- Total assets
3,783,005 3,850,202 ======== ======== The accompanying notes are an
integral part of these balance sheets. F-90
4. EMBRAER - EMPRESA BRASILEIRA DE AERONUTICA S.A. CONSOLIDATED
BALANCE SHEETS AT DECEMBER 31, 1999 AND MARCH 31, 2000 (Expressed
in thousands of constant Brazilian reais as of March 31, 2000)
LIABILITIES AND SHAREHOLDERS EQUITY December 31, March 31, Notes
1999 2000 CURRENT LIABILITIES: Loans (8) 1,011,499 885,519
Suppliers (7) 364,496 439,226 Accounts payable (10) 53,570 64,697
Customers advances (9) 401,097 442,869 Taxes and social charges
payable (11) 75,871 95,733 Accrued taxes on income 26,628 51,600
Dealers and sales agents 361 1,004 Accrued liabilities (12) 123,338
118,372 Dividends 88,315 26,645 Accrued interest on debentures (14)
1,858 2,539 -------------- -------------- Total current liabilities
2,147,033 2,128,204 -------------- -------------- LONG-TERM
LIABILITIES: Loans (8) 146,631 137,616 Accounts payable (10) 39,495
60,180 Debentures (14) 183,663 167,171 Customers advances (9)
205,011 211,432 Long-term portion of refinanced taxes (11) 55,068
54,394 Accrued liabilities (12) 38,948 38,511 --------------
-------------- Total long-term liabilities 668,816 669,304
-------------- -------------- DEFERRED INCOME 392 374
-------------- -------------- SHAREHOLDERS EQUITY: (15) Capital
651,281 664,181 Capital reserves 166 6,600 Legal reserve 30,729
30,729 Income reserves 284,588 284,588 Retained earnings - 66,222
-------------- -------------- Total shareholders equity 966,764
1,052,320 -------------- -------------- Total liabilities and
shareholders equity 3,783,005 3,850,202 ======== ======== The
accompanying notes are an integral part of these balance sheets.
F-91
5. EMBRAER - EMPRESA BRASILEIRA DE AERONUTICA S.A. CONSOLIDATED
STATEMENTS OF INCOME (LOSS) FOR THE THREE MONTHS ENDED MARCH 31,
1999 AND 2000 (Expressed in thousands of constant Brazilian reais
as of March 31, 2000) Notes 1999 2000 SALES: Gross sales - Domestic
market 43,176 21,831 Foreign market 667,500 1,038,369 Sales taxes
and deductions (3,669) (19,888) ----------- ------------- Net sales
707,007 1,040,312 COST OF SALES (382,020) (773,401) -----------
------------- Gross profit 324,987 266,911 -----------
------------- OPERATING EXPENSES: Administrative (16,772) (30,390)
Selling (48,756) (65,841) Other income (expenses), net (20) 3,221
(20,527) Equity in unconsolidated subsidiary - 123 Employee profit
sharing (18) - (5,903) ----------- ------------- Income from
operations before financial expenses 262,680 144,373 -----------
------------- FINANCIAL INCOME (EXPENSES): Interest expenses
(44,544) (44,849) Interest income (expenses) (617) 13,724 Monetary
and exchange variations, net (19) (359,797) 34,152 -----------
------------- Income (loss) from operations after financial income
(expenses) (142,278) 147,400 NONOPERATING INCOME (EXPENSE), NET
(261) 277 ----------- ------------- INCOME (LOSS) BEFORE INCOME TAX
(142,539) 147,677 INCOME TAX PROVISION (22) (10,728) (61,785)
----------- ------------- NET INCOME (LOSS) (153,267) 85,892 ======
======== INCOME (LOSS) PER SHARE OUTSTANDING AT END OF PERIOD
(0.32) 0.18 === === The accompanying notes are an integral part of
these financial statements. F-92
6. EMBRAER - EMPRESA BRASILEIRA DE AERONUTICA S.A. CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND 2000 (Expressed in thousands of constant
Brazilian reais as of March 31, 2000) Capital Legal Income Retained
Capital reserves reserve reserve earnings Total BALANCE ON DECEMBER
31, 1999 651,281 166 30,729 284,588 - 966,764 Fiscal incentive
reserve - PDTI - 906 - - - 906 Conversion of debentures into
capital stock 12,900 5,528 - - - 18,428 Net income - - - - 85,892
85,892 Interest on capital - - - - (19,670) (19,670) -----------
-------- --------- ----------- ---------- ------------- BALANCE ON
MARCH 31, 2000 664,181 6,600 30,729 284,588 66,222 1,052,320 ======
==== ===== ====== ===== ======= The accompanying notes are an
integral part of these financial statements. F-93
7. 1 of 2 EMBRAER - EMPRESA BRASILEIRA DE AERONUTICA S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 (Expressed in thousands
of constant Brazilian reais as of March 31, 2000) 1999 2000 SOURCES
OF FUNDS: Provided by operations- Net income (loss) (153,267)
85,892 Items not affecting working capital-- Depreciation 11,419
13,650 Amortization of deferred charges 24,977 33,005 Net book
value of permanent asset disposals 397 871 Interest on long-term
assets and liabilities added to principal, net 1,173 564 Net
monetary and exchange variations on long-term items 34,300 (1,103)
Translation adjustment on consolidated foreign investments (27,265)
4,243 Reserve for (reversal of) provision for losses 10,363 (155)
Reversal of deferred income (1,121) (18) Deferred income and social
contribution taxes 8 (6,017) Equity in unconsolidated subsidiary -
(123) Reserve for contingencies 187 12 ------------- -------------
Funds provided by (used in) operations (98,829) 130,821
------------- ------------- From third parties- Increase in
long-term liabilities-- Customers advances 76,967 85,308 Debentures
issued 175,103 - Loans 32 312 Suppliers and other liabilities 7
28,253 Transfer to current assets 2,229 32,001 -------------
------------- 254,338 145,874 ------------- ------------- Total
sources 155,509 276,695 ======== ======== F-94
8. 2 of 2 1999 2000 APPLICATIONS OF FUNDS: Increase in
noncurrent assets 10,943 119,164 Increase in permanent assets-
Property, plant and equipment 16,392 21,821 Deferred charges 10,346
7,378 Transfer to current liabilities 164,267 87,261 Interest on
capital - 19,670 ------------- ------------- Total applications
201,948 255,294 ------------- ------------- INCREASE (DECREASE) IN
WORKING CAPITAL (46,439) 21,401 ======== ======== WORKING CAPITAL -
END OF PERIOD: Current assets 2,016,794 2,384,477 Current
liabilities 2,077,269 2,128,204 ------------- -------------
(60,475) 256,273 WORKING CAPITAL - BEGINNING OF PERIOD (14,036)
234,872 ------------- ------------- INCREASE (DECREASE) IN WORKING
CAPITAL (46,439) 21,401 ======== ======== The accompanying notes
are an integral part of these financial statements. F-95
9. EMBRAER - EMPRESA BRASILEIRA DE AERONUTICA S.A. CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31,
1999 AND MARCH 31, 1999 AND 2000 (Expressed in thousands of
constant Brazilian reais as of March 31, 2000, unless otherwise
indicated) 1. OPERATIONS Embraer - Empresa Brasileira de Aeronutica
S.A. (the Company) is engaged in the design, development,
production and marketing of aircraft and aviation-related
structural parts, components and equipment, as well as in the
promotion and execution of technical activities related to the
production and maintenance of aviation-related parts, in the
contribution of aviation-related professional formation and the
execution of other technological, industrial and commercial
activities and services related to the aviation industry. 2. BASIS
OF PRESENTATION OF FINANCIAL STATEMENTS a. Presentation of
financial statements The financial statements were prepared in
accordance with generally accepted accounting principles in Brazil
(Brazilian GAAP) and additional regulations of the Comisso de
Valores Mobilirios, the Brazilian Securities Commission (the CVM),
and are an English language adaptation for the convenience of users
outside Brazil. Certain reclassifications and changes in
terminology have been made in relation to the Companys consolidated
financial statements previously issued, and the explanatory notes
have been modified in order to conform more closely to reporting
practices in the United States. The condensed consolidated interim
financial statements included in this report have been prepared by
the Company without audit. In the opinion of management, all
adjustments necessary for a fair presentation are reflected in the
interim financial statements. Such adjustments are of a normal and
recurring nature. The results of operations for the period ended
March 31, 2000 are not necessarily indicative of the operating
results for the full year. The interim financial statements should
be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Companys 1999 Annual
Report. Certain accounting practices applied by the Company and its
subsidiaries that conform with generally accepted accounting
principles in Brazil may not conform with generally accepted
accounting principles in other countries. F-96
10. The financial statements include the accounts of the
Company and its subsidiaries, including: Embraer Aircraft
Corporation (EAC), Embraer Aviation International (EAI), Embraer
Finance Ltd. (EFL), Green Service Inc. (GSI), Trumpeter Inc.,
Indstria Aeronutica Neiva S.A. (NEIVA), rbita Sistemas
Aeroespaciais S.A. (RBITA) and Embraer - Liebherr Equipamentos do
Brasil S.A. (Embraer - Liebherr). The reconciliation between the
amounts reported by the Company in its individual financial
statements adjusted for inflation as discussed in Note 2.b. below,
not presented herein, and the consolidated statements is as
follows: Net income (loss) for the three months ended Shareholders
equity at March 31, December 31, March 31, 1999 2000 1999 2000
Company, as adjusted (148,515) 89,917 1,004,815 1,094,396
Unrealized profit (i) (4,752) (4,025) (38,051) (42,076) ----------
--------- ------------- ------------- Consolidated (153,267) 85,892
966,764 1,052,320 ====== ===== ======= ======= (i) Unrealized
profit arises from sales by the Company to its subsidiaries, and
also among the subsidiaries, of spare parts and marketing rights,
eliminated in consolidation. b. Requirements of Brazilian
legislation The principal criteria adopted to prepare the fully
indexed consolidated financial statements for the year ended
December 31, 1999 and for the three months ended March 31, 1999 and
2000, were as follows: b.1. Inflation restatement index The
consolidated financial statements as of and for the year ended
December 31, 1999 and as of and for the three months ended March
31, 1999 and 2000 were indexed and expressed in currency of
constant purchasing power of March 31, 2000 by using the monthly
average values of the ndice Geral de Preos de Mercado (the General
Prices Index - Market or the IGP-M) of the Fundao Getlio Vargas.
Inflation rates for the year ended December 31, 1999 and the three
months ended March 31, 1999 and 2000, as measured by the IGP-M,
were as follows: Annual inflation Period rate (%) Three months
ended March 31, 1999 7.4 Year ended December 31, 1999 20.1 Three
months ended March 31, 2000 1.8 F-97
11. b.2. Deferred income tax effects of indexation adjustments
As a result of legislation mandating the discontinuation of the
indexation system for Brazilian corporate law and most fiscal
purposes, as from January 1, 1996, the indexation of assets and
liabilities for financial reporting purposes used in these
financial statements is not permitted for tax purposes.
Accordingly, a deferred tax liability arises from the excess of net
assets shown for financial reporting purposes over the tax basis of
these net assets. The charge relating to the additional deferred
tax liability of R$103,059 as of December 31, 1999 and R$100,124 as
of March 31, 2000 was offset against deferred tax assets arising
from carryforward losses (see Note 22). The reconciliation between
the shareholders equity as of December 31, 1999 and March 31, 2000
and net income for the three months ended March 31, 1999 and 2000
under Brazilian corporate law accounting and these financial
statements, which includes the effects of full indexation through
March 31, 2000, as described above, is as follows: Net income
(loss) for the three months Shareholders equity at ended March 31,
December 31, March 31, 1999 2000 1999 2000 As reported in the
corporate law: Consolidated financial statements 17,204 97,559
697,106 794,266 Monetary restatement of opening balances 2,364 -
12,198 - Monetary restatement of: Other accounts receivable (3,295)
4 57 61 Inventories (180,047) (5,498) 112,169 106,671 Prepaid
expenses 570 (300) 790 490 Customers advances (2,519) 55 (3,834)
(3,779) Shareholders equity (37,717) (12,261) - - Property, plant
and equipment 17,126 2,499 98,816 101,315 Deferred charges 27,875
(5,638) 95,331 89,693 Investments 5 3 21 24 Other accounts payable
807 1 (243) (242) Accrued liabilities - - 7 7 Adjustment of
provisions for losses on contracts 4,360 - - - Valuation allowance
reduction - 9,468 (45,654) (36,186) ---------- --------- ----------
------------- As reported in the accompanying financial statements
(153,267) 85,892 966,764 1,052,320 ====== ===== ====== =======
F-98
12. 3. INVENTORIES At December At March 31, 1999 31, 2000
Finished goods 208,734 190,421 Work-in-process 468,356 401,564 Raw
materials 623,913 614,826 Used aircraft for resale 8,252 7,935
Supplies 1,332 1,523 Inventory in transit 83,632 94,600 Advances to
suppliers 21,364 23,270 ------------- ------------- 1,415,583
1,334,139 ======== ======= Inventories, when applicable, were
reduced to their replacement cost (raw materials) and net
realizable value (work-in-process and finished goods), as follows:
Allowance for reduction to market value - Inventories of
work-in-process and finished goods were reduced to net realizable
value after deduction for costs, taxes and selling expenses,
adjusted in proportion to the stage of production. Inventories of
raw materials were reduced to market value based on the inventories
average monetarily restated cost compared with the average cost of
replacement. Allowance for obsolescence - For items without
activity for more than two years, provisions were made for possible
losses on excess and obsolete supplies and work-in-process
inventories, based on managements estimate of net realizable
values. 4. INVESTMENTS a. Balances At December At March 31, 1999
31, 2000 Associated companies: AMX International Ltd. 66 66
Expressprop Inc. (i) 5,995 5,879 ------- ------- 6,061 5,945 Other
173 157 ------- ------- 6,234 6,102 ==== ==== (i) Embraer owns 25%
of the capital stock of this company. F-99
13. b. Relevant information on consolidated subsidiaries At
March 31, 2000 Equity Shareholders Net participation equity income
(%) (deficit) (loss) Embraer Aircraft Corporation - EAC 100.00
75,520 4,236 Embraer Aviation International - EAI 100.00 8,166 289
Embraer Finance Ltd. - EFL 100.00 (885) (3,353) Indstria Aeronutica
Neiva S.A. - NEIVA 100.00 14,375 (368) Green Service Inc. - GSI
100.00 12,099 2,097 rbita Sistemas Aeroespaciais S.A. - RBITA
100.00 (470) - Trumpeter Inc. 100.00 5,649 64 Embraer - Liebherr
Equipamentos do Brasil S.A. 99.99 34,571 865 Embraer Aircraft
Corporation, located in Fort Lauderdale, Florida, USA, represents
the Company commercially in North and Central America, the
Caribbean, Australia, Asia, United Kingdom and Scandinavia,
including sales, product support, and customer training. Embraer
Aviation International, in Le Bourget, near Paris, France,
represents the Company in the European, African and Middle-East
markets by providing after-sale support. Embraer Finance Ltd.
provides support in the purchasing and sale activities of the
Company, as well as assists customers in obtaining financing from
third party. Indstria Aeronutica Neiva S.A., located in Botucatu,
So Paulo, Brazil, is involved in the production and sale of light
executive and agricultural aircraft, as well as the production and
assembly of parts for the EMB 120 Braslia, ERJ 145 and ERJ 135
aircraft. Green Service Inc. was formed during the second half of
1997; its operating facilities are located in Dallas, Texas, USA,
to provide support in the United States in the development
activities for the EMB 145 special configurations, contracted under
the SIVAM Program (Integrated Surveillance System for the Amazon
Region), to carry out remote vigilance and air patrol missions.
rbita Sistemas Aeroespaciais S.A. is currently dormant. Trumpeter
Inc. was incorporated in 1998 in Wilmington, Delaware, USA, and has
a 25% interest in Expressprop Inc., which provides support for the
sale of used EMB 120 Braslia aircraft. Embraer - Liebherr
Equipamentos do Brasil S.A. was formed on November 26, 1999; its
operating facilities are located in So Jos dos Campos, So Paulo,
Brazil, to produce and sell hydraulic and high precision mechanical
equipment to be used in the aviation industry. F-100
14. c. Transactions with unconsolidated related parties At
December At March 31, 1999 31, 2000 Brazilian Air Force: Current-
Accounts receivable 58,849 48,795 Suppliers - 9 Customers advances
40,482 30,233 Accounts payable 5,763 5,560 Bozano, Simonsen Group:
Current- Short-term investments 33,356 4,756 For the three months
ended March 31, 1999 2000 Brazilian Air Force: Income (Expenses)-
Sales 41,571 14,801 Recovery of cost (179) - Bozano, Simonsen
Group: Interest income- Temporary cash investments 90 479 The
Company has been engaged in a number of transactions with its
subsidiaries, the Brazilian Air Force and the Bozano, Simonsen
Group as described above. The Company does not engage in
transactions or arrangements with any of its affiliates on a basis
or terms less favorable to the Company than would be obtained at
the time from an unaffiliated third party in an arms-length
transaction or other arms-length arrangements. The Brazilian
government, principally through the Brazilian Air Force, has
participated in the development of the Company and plays a key role
as: A source for funded research and development through technology
development institutions such as FINEP and the BNDES (National
Economic and Social Development Bank). An export support agency
through the BNDES. The Company maintains credit facilities with the
BNDES and FINEP, of which R$132.6 million and R$27.6 million
principal, respectively, was outstanding at March 31, 2000. In
addition, as described in Note 8, the Company renegotiated
reductions in the interest rates on loans from the BNDES. In
February and March 1999, the Company sold a total of 83,330
debentures, principally to BNDESPAR (BNDES Participaes S.A.), a
wholly-owned subsidiary of the BNDES. F-101
15. 5. PROPERTY, PLANT AND EQUIPMENT Annual depreciation At
December 31, 1999 At March 31, 2000 rate (%) Cost Depreciation Net
Cost Depreciation Net Land - 21,380 - 21,380 21,380 - 21,380
Buildings and land improvements 2.08 to 10.00 327,922 127,537
200,385 334,022 129,382 204,640 Installations 3.23 to 10.00 185,033
157,507 27,526 194,252 158,647 35,605 Machinery and equipment 5.88
to 20.00 330,818 229,363 101,455 335,082 231,735 103,347 Furniture
and fixtures 10.00 to 20.00 22,783 18,748 4,035 23,158 18,815 4,343
Vehicles 9.09 to 20.00 8,523 6,331 2,192 8,739 6,414 2,325 Aircraft
11.11 to 20.00 71,179 18,799 52,380 68,483 20,561 47,922
Construction in progress - 32,842 - 32,842 15,801 - 15,801
Computers and peripherals 20.00 to 25.00 59,516 39,919 19,597
62,816 41,321 21,495 Others 20.00 19,051 4,747 14,304 30,391 5,442
24,949 ------------- ----------- ----------- -------------
----------- ---------- 1,079,047 602,951 476,096 1,094,124 612,317
481,807 ======= ====== ====== ======= ====== ====== On December 30,
1988 and April 30, 1991, the Company recorded revaluations of its
operating assets. The remaining balance of these revaluations at
December 31, 1999 and March 31, 2000 amounted to R$117,807 and
R$114,214, respectively. The corresponding revaluation reserves
were used to increase capital and, except for the portion related
to real estate, they were included in the computation of taxable
income for income tax purposes. The depreciation rates of the
revalued assets were determined based on the revised estimated
useful lives of these assets, in accordance with the appraisal
reports. Income and social contribution taxes on the revaluations
of real estate have not been reflected in the financial statements,
as permitted by CVM Instruction No. 197/93. The amount of the
future tax effect on those revaluations as of March 31, 2000 is
approximately R$30,689. F-102
17. Deferred charges include the compensation of engineers
assigned to the development of each new aircraft, support services,
certain production overhead, tooling, and direct labor and
materials to construct a prototype of the aircraft. Also included
are the costs of testing the prototype and subsequent design
changes. The amortization of deferred charges is computed based on
the estimated quantity of aircraft to be produced, for each
project, starting when benefits begin to be generated, and is
allocated to production costs. For suspended projects, or those for
which full realization is considered unlikely, the deferred charges
are written off or reduced to net realizable value. ERJ 145 This
50-seat regional jet aircraft received certification to operate in
the United States and Brazil in the last quarter of 1996, in Europe
in the second quarter of 1997 and in Australia in June 1998. This
aircraft is being operated by regional commercial airlines in
Brazil, the United States and Europe. As of March 31, 2000, the
Company had delivered 200 ERJ 145, and had 238 firm orders for this
aircraft. A modified platform of the ERJ 145 is in the development
process for use in the SIVAM Program (EMB 145 AEW&C - an
Airborne Early Warning and Control aircraft and EMB 145 RS - a
Remote Sensing aircraft). As of March 31, 2000, the Company had 12
firm orders for such aircraft. ERJ 140 On September 30, 1999,
during the annual meeting of European regional airlines, Embraer
launched a new 44-seat regional jet aircraft, the ERJ 140. Over 96%
of this aircrafts parts are also used in the ERJ 145 and ERJ 135
models. The ERJ 140 is expect to be available for the market in
2001. ERJ 135 This 37-seat regional jet was launched by the Company
in September 1997. On July 16, 1999, the Federal Aviation
Administration - FAA of the United States certified the aircraft to
operate in that country, and the certification by the Joint
Aviation Authorities - JAA to operate in Europe was in October
1999. The first unit of this aircraft was delivered to the U.S.
airline American Eagle on July 23, 1999. As of March 31, 2000, from
the 165 firm orders received for ERJ 135 aircraft, the Company had
delivered 26 units. ERJ 170 AND ERJ 190 On February 11, 1999, the
Company announced the pre-launch of a new family of 70, 98 and
108-seat regional jets, the ERJ 170, ERJ 190-100 and ERJ 190-200,
respectively. Subsequently, on May 27, 1999, the Board of Directors
approved the development of these aircraft which was officially
announced at the 43rd Aerospace Fair in Le Bourget, France. As of
March 31, 2000, the Company had 70 firm orders for these aircraft,
which are under development. F-104
18. EMB 120 Braslia This 30-seat regional turboprop aircraft
received certification to operate in the United States and Brazil
in the second semester of 1985. As of March 31, 2000, the Company
had delivered 350 units of EMB 120 Braslia. The Braslia project was
being amortized based on the expected original total number of
aircraft to be sold. With a reduction in potential sales for this
aircraft, in 1997 and 1999 management wrote-off R$121,104 and
R$45,872, respectively, of deferred charges related to this
aircraft model, leaving R$1,872 for the amortization of two
aircraft which are in production. S-92 - Sikorsky The Company is in
process of development and subsequent production of fuel tank
structures and systems and landing gear systems of the S-92
Helibus, a medium-sized twin-turbine helicopter with capacity to
carry 19 passengers in its civilian version to be produced by
United Technologies Sikorsky Corporation (USA). The research and
development costs per aircraft, as of March 31, 2000, as well as
the backlog are presented below: In thousands of reais except for
quantities in units ERJ ERJ EMB 120 145/140/135 170/190 Deferred
costs 284,341 592,651 2,200 Accumulated amortization (282,469)
(268,617) - ----------- ----------- ------- Net 1,872 324,034 2,200
====== ====== ==== Quantity of aircraft projected for the program
at March 31, 2000 352 960 650 Quantity of aircraft at March 31,
2000: Delivered 350 226 - Firm orders - 389 70 Options with
exercisable date in (not reviewed by independent public
accountants): 2000 - 79 105 2001 - 83 - 2002 - 95 - 2003 - 35 -
Thereafter - 166 - ----------- ----------- ------- Total options -
458 105 ----------- ----------- ------- Total 350 1,073 175 ======
====== ==== F-105
19. 7. SUPPLIERS At December At March 31, 1999 31, 2000 Foreign
suppliers: Risk-sharing partners (a) 118,287 154,191 Others 234,903
280,037 Local suppliers 11,306 4,998 ---------- ---------- 364,496
439,226 ====== ====== (a) These risk-sharing partners develop and
manufacture significant portions of the Companys aircraft,
including the engines, hydraulic components, avionics, wings, tail,
interior and parts of the fuselage. The Companys contracts with
risk-sharing partners are long-term in nature and include the
following principal terms: Deferral payments for components and
systems for a negotiated period of time after delivery of such
components and systems. Minimum delivery requirement for a certain
number of aircraft ranging from 250 to 400 aircraft depending on
the contract. In the event the Company fails to deliver this
minimum number of aircraft, the Company would have to reimburse
proportionally the suppliers for their tooling and development
cost. Considering the number of aircraft under firm orders and
deliveries already made, management believes this requirement will
be met. Once risk-sharing partners have been selected and the
program development and aircraft production have begun, it is
difficult to substitute these partners. In some cases, such as
engines, the aircraft are designed specifically to accommodate a
particular component, which cannot be substituted by another
manufacturer without significant delays and expense. This
dependence makes the Company susceptible to the performance,
quality and financial condition of these risk-sharing partners.
F-106
20. 8. LOANS a. Composition Annual interest At December At
March 31, Currency rate (%) 31, 1999 2000 Foreign currency: FINAMEX
- export financing U.S. dollar LIBOR + spread 281,196 193,174 (1.70
to 2.00) Materials acquisition U.S. dollar LIBOR + spread 554,885
526,343 (0.52 to 1.35) Advances on export sales contracts U.S.
dollar 6.70 to 7.90 85,947 88,140 Project development Indexed to
the LIBOR + 3.00 42,625 39,186 U.S. dollar Working capital U.S.
dollar/ 6.50 to 11.50 59,381 46,908 French francs Property and
equipment acquisition U.S. dollar 1.90 to 8.00 882 1,147
------------- ------------- 1,024,916 894,898 -------------
------------- Local currency: Project development TJLP (long-term
133,214 128,237 interest rate in Brazil) plus 3.00 to 5.50
------------- ------------- Total 1,158,130 1,023,135 Less- current
maturities 1,011,499 885,519 ------------- ------------- Long-term
portion 146,631 137,616 ======= ======= b. Long-term maturities At
December At March Year 31, 1999 31, 2000 2001 31,666 23,640 2002
31,666 31,412 2003 31,663 31,404 2004 29,411 29,165 2005 22,225
20,967 2006 - 1,028 ---------- ---------- 146,631 137,616 ======
====== F-107
21. c. Currency analysis Total debt was denominated in the
following currencies: Exchange rate at March 31, 2000 (units of one
At December At March Brazilian real) 31, 1999 31, 2000 Brazilian
reais 1.0000 133,214 128,237 U.S. dollars 1.7473 992,229 867,970
French francs 0.2551 32,687 26,928 ------------- -------------
1,158,130 1,023,135 ======= ======= The exchange rates in relation
to the Brazilian real were as follows: At December At March 31,
1999 31, 2000 U.S. dollars 1.7890 1.7473 French francs 0.2754
0.2551 Total debt denominated in Brazilian reais is subject to
monetary restatement based on the variance of Brazilian long-term
interest rate - TJLP. The annualized variation of this index was as
follows: At December At March 31, 1999 31, 2000 Brazilian long-term
interest rate - TJLP (%) 13.22 12.00 The Company and its
subsidiaries partially hedge their foreign currency liabilities. In
the opinion of management, the Companys exposure to the devaluation
of the Brazilian real against other currencies is mitigated by the
substantial amount of sales revenues which are denominated in U.S.
dollars. d. Interest and guarantees The foreign currency financing
outstanding at March 31, 2000 was subject to weighted average
annual interest of 8.12% (8.33% at December 31, 1999) plus exchange
variation; for local currency financing outstanding at March 31,
2000, the weighted average annual interest rate was 16.48% (15.87%
at December 31, 1999). F-108
22. The Company renegotiated reductions in the spreads on loans
from the BNDES from 4.5% for the FINEM line (a line of credit made
available by BNDES to Brazilian corporations) and 6.5% for the
import line to 3.0% and 5.5% per year, respectively, and on the
collateral amount, effective January 1, 1997. Because of these
decreases, the Company will pay fees to the BNDES of 0.35% on each
ERJ 145 aircraft sold, limited to 420 aircraft sold between January
1, 1997 and December 31, 2005. Collateral for part of these loans
includes the pledge of property, machinery, equipment and
inventories, in the amount of R$357,707, as well as promissory
notes. Of this amount, R$90,183 are related to a second mortgage on
real estate. 9. CUSTOMERS ADVANCES At December At March 31, 1999
31, 2000 Local currency 67,261 72,969 Foreign currency 538,847
581,332 ---------- ---------- 606,108 654,301 Less- current portion
401,097 442,869 ---------- ---------- Long-term portion 205,011
211,432 ====== ====== The foreign currency advances are subject to
exchange variation based on the U.S. dollar. Segregation between
current and long-term portions is based on contractual terms to
deliver the related aircraft. 10. ACCOUNTS PAYABLE At December At
March 31, 1999 31, 2000 Brazilian Air Force (a) 5,763 5,560
Insurance 4,398 1,574 Joint responsibilities (b) 2,636 1,974
Commercial rebates (c) 12,812 16,730 Labor contingencies 1,411
1,360 Pension fund contributions 1,003 935 Grant for investment
from suppliers (d) 38,681 58,897 Customers credits (e) 19,484
24,604 Other 6,877 13,243 --------- ---------- 93,065 124,877 Less-
current portion 53,570 64,697 --------- ---------- Long-term
portion 39,495 60,180 ===== ====== F-109
23. (a) Amounts payable to the Brazilian Air Force represent
royalties on the EMB 120 Braslia program and materials related to
the delivery of AM-X aircraft. (b) Joint responsibilities represent
trade receivables discounted with recourse which customers did not
pay when due and creditors have not yet exercised their rights of
recourse. (c) Commercial rebates refer to credits of spare parts
given to customers. (d) Grant for investment from suppliers
represents funds and materials received from suppliers in the
development of the ERJ 135 and ERJ 170/190 programs. The
liabilities are waived when certain requirements are met. (e)
Refers to amounts accrued to compensate customers for certain
financing costs. 11. TAXES AND SOCIAL CHARGES PAYABLE a.
Composition At December At March 31, 1999 31, 2000 Refinanced
taxes: INSS (social charges on payroll) 59,461 58,763 FNDE
(education tax on payroll) 5,765 5,861 ICMS (State VAT) 1,569 1,154
----------- ----------- 66,795 65,778 Current taxes 16,972 18,199
Contingent tax and social charges (i) 47,172 66,150 -----------
----------- 130,939 150,127 Less- current maturities 75,871 95,733
----------- ----------- Long-term portion 55,068 54,394 ======
====== (i) The Company is challenging in court the unconstitutional
nature and tax rate modification of some tax or social charges in
order to obtain injunctions or preliminary injunctions to cease
payments or recover past payments. As of March 31, 2000, the
Company has obtained preliminary injunctions for not paying or
recovering past payments of taxes and social charges in the total
amount of R$66,150. However, all taxes not paid as allowed by these
preliminary injunctions are accrued and monetarily restated. The
monetary restatement is being charged to financial expenses. The
outstanding balances of refinanced taxes as of March 31, 2000 are
subject to monthly interest of 1%, which is added to principal.
F-110
24. b. Maturities of long-term portion At December At March
Year 31, 1999 31, 2000 2001 4,383 3,286 2002 4,383 4,418 2003 4,383
4,418 2004 4,383 4,418 2005 4,383 4,418 2006 to 2013 33,153 33,436
--------- --------- 55,068 54,394 ===== ===== 12. ACCRUED
LIABILITIES At December At March 31, 1999 31, 2000 Contingencies
38,955 38,452 Accrued vacations 36,484 30,659 Accrued pension
benefit cost 4,026 4,317 Employee profit sharing 26,474 5,893
Product warranties 42,310 56,576 Deferred State VAT and taxes on
sales 4,645 5,082 Provision for losses on contracts 8,310 6,921
Other 1,082 8,983 ---------- ---------- 162,286 156,883 Less-
current portion 123,338 118,372 ---------- ---------- Long-term
portion 38,948 38,511 ====== ====== The Company is subject to
lawsuits in the ordinary course of business. The accrual for
contingencies is recorded based on the opinion of legal counsel,
with regard to the expected outcome of all pending lawsuits. The
accrued amounts are considered sufficient by management, based on
expected success in certain current lawsuits and settlement
negotiations. F-111
25. The composition of accrual for contingencies as of March
31, 2000 is as follows: R$ million Labor contingencies related to:
(1) Retroactive wage increase (a) 10.9 Individual labor claims with
regard to overtime and other matters (b) 14.9 1992 salary
adjustments (c) 3.1 CBA-123 program (2) 0.3 VAT tax (3) 1.1 FUNDAF
(4) 8.2 ----- 38.5 === (1) The labor lawsuits are brought by unions
on behalf of employees or by individuals, as described below: (a)
This lawsuit was filed in June 1991 on behalf of all employees
employed at the Company as of November 1990. The lawsuit seeks to
apply retroactively to November and December 1990 a wage increase
implemented by the Company in January and February 1991 pursuant to
an agreement between the Company and a labor union. The total
exposure for payment of the retroactive salaries, including
interest accrued thereon, amounted to R$18.3 million as of March
31, 2000. The Company lost this suit in 1996 and from that time the
regional labor court in Brazil began analyzing the amount to be
paid to the employees. In July 1997, the Company settled with 96%
of its current employees, paying an aggregate of R$17.2 million. As
of March 31, 2000, the Company had settled with 1,745 out of 4,244
former employees, paying an amount of R$7.5 million. The Company is
currently attempting to settle this case with the labor union
representing the employees who have not settled yet. (b) The
Company is a defendant in approximately 417 lawsuits related to
individual labor claims with respect to overtime, readmission and
additional amounts, in many of which the Company expects to receive
favorable judgments. The total exposure for payment in connection
with these individual claims amounts to R$17.7 million. During the
first quarter, the Company settled with several employees and paid
others based on adjudicated amounts in the total amount of R$0.3
million. (c) This lawsuit was also filed by the union on behalf of
certain employees employed in 1992 with respect to salary
adjustments for that year. The Company lost this suit and was
ordered to adjust salaries, in accordance with a productivity
index, and to refrain from dismissing certain striking workers for
a period of 90 days. The Company reached a settlement with
approximately 90% of its current employees pursuant to which the
Company paid approximately 30% of the amount determined in the
judgment. The total exposure for payment to current and former
employees who did not accept the settlement and for payments to
dismissed employees amounts to R$3.7 million. As of March 31, 2000,
the Company had entered into an agreement with 1,650 out of 3,064
employees, paying an amount of R$2.5 million. The Company is
currently attempting to settle this case with the labor union
representing the employees. F-112
26. (d) A lawsuit brought in October 1992 by the Workers Union
on behalf of 7,283 current and former employees is currently
pending in the Superior Labor Court, Brazils highest appellate
court for labor disputes. The plaintiffs are seeking payment of
salary differences based on existing agreements between the labor
unions and the Federao das Indstrias do Estado de So Paulo, or the
Industry Federation of the State of So Paulo, also known as FIESP.
The total exposure for payment of retroactive salaries, including
accrued interest, was R$66.1 million on March 31, 2000. At March
31, 2000, the Company had not provisioned any amounts for this
lawsuit. Management believes, based on advice of Brazilian counsel,
that this lawsuit will not result in a decision adverse to the
Company. Final judgment is not expected to occur before the second
semester of 2000. (2) This provision relates to the CBA-123
program, which was discontinued after the construction of three
prototypes, and to some other minor tax and contractual
contingencies. During 1999, the Company entered into an agreement
with suppliers to settle the contractual contingencies in the
amount of R$0.9 million, and as from January 1, 2000 no change has
occurred. (3) This provision relates to import duty and VAT tax
(IPI) owed on imported materials for two flight simulators, which
must be exported to be exempt of such taxes. Due to client default,
such materials were not exported. Fiscal authorities assessed the
Company for R$1.1 million and currently the Company is discussing
the payment terms. (4) This provision relates to a contribution
called FUNDAF (Special Fund for Development and Improvement of
Fiscalization), owed to the Internal Revenue Department on customs
clearance of imported materials. In October 1999, fiscal
authorities assessed the Company for R$8.2 million and currently
the Company is challenging the legality of such contribution. (5)
On January 9, 1997, an EMB 120 Braslia aircraft operated by Comair,
a regional U.S. carrier, crashed outside of the Detroit
Metropolitan Airport, in an accident with fatalities. The
preliminary investigations by the U.S. aviation authorities have
concluded that the Company was not responsible for the accident.
Three actions on behalf of four passengers remain pending.
Management believes that liability on the Companys part, however,
is doubtful and any potential liabilities and defense costs are
insured. In addition, the Company is involved in other legal
proceedings, all of which are in the ordinary course of business.
In the opinion of management, none of these proceedings is expected
to have a material adverse effect on the financial condition or
results of operations of the Company. 13. INTEREST ON CAPITAL The
payment of interest on capital in the amount of R$19,670 starting
April 14, 2000 was approved by the Board of Directors on March 24,
2000, subject to ratification at the Annual Shareholders Meeting in
2001. 14. DEBENTURES The Extraordinary Shareholders Meeting, on
December 11, 1998, approved the issuance of the fourth series of
debentures, coupled with 100 detachable subscription warrants per
debenture. F-113
27. Each subscription warrant entitles its holders to purchase
10 preferred shares, or, in certain circumstances, 10 common shares
at anytime after June 6, 2000 or 90 days after any public offering
of shares, whichever occurs first. If and when the subscription
warrants are converted, the issue price will be R$1.80 per share,
as adjusted by the Brazilian long-term interest rate (TJLP) since
July 1, 1998. The issue price was higher than the market price of
the shares at the date of issuance of the debentures. The fourth
issuance, which was subscribed and paid in February and March 1999,
consists of 83,330 debentures, with a par value of R$1,800.00 each,
in the total amount of R$150.0 million, to be paid in five
installments as follows: 10% on July 1, 2001, 10% on July 1, 2002,
60% on July 1, 2003, 10% on July 1, 2004 and 10% on July 1, 2005. A
Debentureholders Meeting held on February 9, 2000 approved the
exercise of 833,500 subscription warrants and changed the term for
exercising the remaining subscription warrants to the earlier of
180 days after any public stock offering or June 6, 2000. On
February 18, 2000, 8,335 debentures of this series were converted
into 8,335,000 preferred shares issued as a result of the exercise
of the related subscription warrants. The face value of the
debentures is restated based on the Brazilian long-term interest
rate (TJLP) from the issue date to the maturity date plus 2% per
year and an additional interest of 5% per year, calculated on a
daily pro rata basis on the restated face value. The Company will
not pay the premium if the conditions described below are reached:
If the subscription warrants are traded by the debentureholders
separately from the debentures. If the subscription warrants are
converted. If the market conditions allow the negotiation of shares
equal to or greater than a preestablished price. At March 31, 2000,
monetarily restated value of these outstanding debentures was
R$167,171 and accrued interest was R$2,539. The premium was not
accrued at March 31, 2000 since the shares negotiation price
(R$8.05) was above the preestablished price (R$3.02). 15.
SHAREHOLDERS EQUITY The Companys fully paid-up capital stock
monetarily restated to March 31, 2000 is represented as follows:
Classes of shares Quantity R$ Registered common shares 242,544,447
329,062 Special registered common share 1 - Preferred shares
247,008,426 335,119 ---------------- ----------- 489,552,874
664,181 ========= ====== F-114
28. a. Special registered common share - golden share A special
registered common share (golden share) is held by the Brazilian
government. As the holder of the golden share, the Brazilian
government is entitled to the same voting rights as the other
holders of common shares. In addition, the golden share carries
veto power over the following corporate actions relating to the
Company: Change of corporate purpose. Change of name. Alteration
and use of logo. Creation or alteration of defense programs
(whether the Brazilian government participates or not in such
programs). Acceptance, for defense programs, of the technological
qualifications of third parties. Interruptions in the supply of
maintenance and spare parts for defense aircraft. Change of
control. Any change to the list of corporate actions over which the
golden share carries veto power, to the structure and composition
of the Board of Directors, and to the rights attributed to the
golden share. b. Class B shares The class B shares, issued in 1995,
are redeemable at the option of shareholders between the fourth and
fifth year after issuance. As approved at the Special Shareholders
Meeting on April 30, 1999 and in order to comply with the
conditions established for the class B preferred shares, all
3,275,365 outstanding shares of this class were redeemed on May 11,
1999, without capital reduction. c. Capital subscription As
previously described, 8,335,000 preferred shares were issued on
February 18, 2000, by the exercise of 833,500 subscription
warrants, in the amount of R$18,428, of which R$5,528 were
allocated to capital reserves and the balance of R$12,900 to
capital. The Board of Directors ratified the capital increase from
R$651,281 to R$664,181. F-115
29. d. Stock options The Special Shareholders Meeting, held on
April 17, 1998, approved a stock option plan for management and
employees, including the subsidiaries, subject to restrictions
based on continuous employment with the Company for at least two
years. The Administration Committee, which was appointed at the
Board of Directors Meeting held on April 17, 1998, is responsible
for defining the rules and managing the plan. Under the terms of
the plan, 25,000,000 preferred shares are authorized to be granted.
At the end of the third and fourth years, subsequent to the grant,
the employees will have the right to exercise 30% of the option,
respectively, and the 40% remaining is exercisable at the end of
the fifth year, if still employed by the Company at each date. The
options can be exercised up to seven years from the grant date. As
of March 31, 2000, 12,650,000 preferred shares have been granted,
net of 50,000 shares, which expired, since the beneficiaries are no
longer employees of the Company. Options will be granted with an
exercise price equal to the weighted average price of the Companys
preferred shares traded on the So Paulo Stock Exchange in the 60
trading days prior to the granting date, increased or decreased by
30%, as defined by the Plan Administration Committee. Such
percentage is deemed to offset unusual fluctuations in the market
price during this 60-day period. The plan terminates five years
after the first grant. No amounts have been charged to expense for
the options. e. Legal reserve Brazilian corporations are required
to appropriate 5% of annual net income to a legal reserve until
that reserve equals 20% of paid-up share capital, or 30% of nominal
paid-up share capital plus capital reserves; thereafter,
appropriations to this reserve are not compulsory. This reserve can
be used only to increase share capital or offset accumulated
losses. f. Strategic partnership On October 25, 1999, Embraer
announced a strategic alliance with Arospatiale Matra, Dassault
Aviation, SNECMA and Thomson-CSF, French aerospace and defense
companies (the French Group) as a result of a transaction developed
by one of the controlling shareholders, Bozano, Simonsen Group,
with approval and support of the other controlling shareholders,
Previ and Sistel. As a result, these French companies acquired
48,508,890 common shares in the Company, representing 20% of the
total common shares, not linked to any shareholder agreement nor
tied to the Embraer controlling shareholder group. Consequently,
the ownership control and the Companys top decision-making process
remain exclusively in the hands of the current majority
shareholders. The French Group made a public offering for the
acquisition of 36,000,000 common shares and a private purchase of
the remaining shares was made. The conditions and terms were
published in the Gazeta Mercantil (Brazils principal business
newspaper) on October 26 and 27, 1999. F-116
30. 16. FINANCIAL INSTRUMENTS Estimated fair values of the
Companys financial assets and liabilities have been determined
using available market information and appropriate valuation
methodologies. However, considerable judgment was required in
interpreting market data to produce the estimated fair values.
Accordingly, the estimates presented below are not necessarily
indicative of the amounts that could be realized in a current
market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the
estimated fair values. As of March 31, 2000, the Company had the
following principal financial instruments: (a) Cash, Cash
Equivalents, Trade Accounts Receivable, Other Current Assets,
Accounts Payable and Accrued Expenses--The carrying value of cash,
cash equivalents, trade accounts receivable, other current assets,
accounts payable and accrued expenses approximate their fair value.
(b) Investments--Consist mainly of subsidiaries and affiliates
accounted for under the equity method or at restated cost and which
have strategic interest for the Companys operations; market value
considerations are not applicable. (c) Loans--Subject to interest
at usual market rates, as described in Note 8. Interest rates that
are currently available to the Company for issuance of debt with
similar terms and maturities were used to estimate fair value,
which do not materially differ from book value. (d) Financed
Taxes--The conditions are similar to the usual terms for financed
taxes and there are no material differences related to interest
rates applicable to loans. (e) Hedge Transactions--The derivative
financial instruments held by the Company at March 31, 2000 consist
of swaps and foreign currency forward contracts. The Company does
not trade in derivatives for speculation purposes. The swaps, which
are associated with short-term investments, are designed to
partially cover the future maturity of financed imports denominated
in U.S. dollars. As of March 31, 2000, the notional amount is
US$50.7 million with an average fixed interest rate of 10.6% per
annum representing 18.0% of total financed imports debt. The swaps
are recorded at their market value at each balance sheet date and
the unrealized gains or losses are recorded in the income
statement. The interest rate swaps, which are associated with U.S.
dollar denominated debt, are designed to partially cover the future
maturity of the U.S. dollars denominated debt indexed to LIBOR. As
of March 31, 2000, the notional amount is US$180.0 million with a
fixed interest rate of 6.1% per annum representing 45.0% of the
total debt indexed to LIBOR. The swaps are recorded at their market
value at each balance sheet date and the unrealized gains or losses
are recorded in the income statement. Foreign currency forward
contracts are entered into to hedge specific currency risk of a
purchase contract relating to 13 firm orders for the ERJ 145/135
regional jet family, which includes an option for the purchaser to
pay in Euros. As of March 31, 2000, the notional amount of foreign
currency forward contract through April 2001 denominated in foreign
currency was US$136.1 million. F-117
31. 17. SUPPLEMENTARY RETIREMENT PLAN a. Company On June 26,
1998, the Board of Directors approved the implementation of the
Embraer Supplementary Retirement Plan, with the Company initiating
its contributions on July 1, 1998. The plan is a private,
defined-contribution plan where participation is optional; it will
be administered by a Brazilian pension fund administrator
controlled by Banco do Brasil. Companys contributions to the plan
for the three months ended March 31, 1999 and 2000 were R$2,634 and
R$1,551, respectively. b. Subsidiary The Embraer Aircraft
Corporation 401(k) Retirement Plan (the 401(k) Plan) was originally
established by EAC as a profit sharing plan on January 1, 1981. On
November 1, 1993, the 401(k) Plan was amended and restated to
comply with the provisions of section 401(k) of the Internal
Revenue Code as a defined contribution, deferred compensation plan.
Employees who have attained age 21 and provid
