Annual and Transition Report (foreign Private Issuer) (20-f)

ITEM 17.

FINANCIAL STATEMENTS

ITEM 18.

FINANCIAL STATEMENTS

ITEM 19.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 20-F

¨	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

¨	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-15102

EMBRAER S.A.

(Exact name of Registrant as specified in its charter)

EMBRAER Inc.

(Translation of Registrant’s name into English)

Federative Republic of Brazil

(Jurisdiction of incorporation)

Avenida Brigadeiro Faria Lima, 2170

12227-901 São José dos Campos, São Paulo, Brazil

(Address of principal executive offices)

Eduardo Couto

Head of Investor Relations

(55) 12 3927 4404

Investor relations department, (55) 12 3927 4404, investor.relations@embraer.com.br

(Name, Telephone, E-mail and/or facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act


Title of each class:		Name of each exchange on which registered
Common shares, without par value (represented by, and traded only in the form of, American Depositary Shares (evidenced by American Depositary Receipts), with each American Depositary Share representing four common shares)		New York Stock Exchange
5.150% Notes due 2022 of Embraer S.A.		New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act

None.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act

Title of each class

6.375% Guaranteed Notes due 2017 of Embraer Overseas Ltd. Guaranteed by Embraer S.A.

6.375% Guaranteed Notes due 2020 of Embraer Overseas Ltd. Guaranteed by Embraer S.A.

Number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2014:

734,970,460 common shares, without par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes x No ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer x Accelerated Filer ¨ Non-accelerated filer ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

¨ U.S. GAAP

x International Financial Reporting Standards as issued

by the International Accounting Standards Board

Other ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 ¨ Item 18 ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

TABLE OF CONTENTS

Part I


		Page
ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS		4
ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE		4
ITEM 3.	KEY INFORMATION		4
3A.	Selected Financial Data		4
3B.	Capitalization and Indebtedness		8
3C.	Reasons for the Offer and Use of Proceeds		8
3D.	Risk Factors		8
ITEM 4.	INFORMATION ON THE COMPANY		18
4A.	Unresolved Staff Comments		18
4B.	History and Development of the Company		18
4C.	Business Overview		24
4D.	Organizational Structure		44
4E.	Property, Plant and Equipment		44
ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS		46
5A.	Operating Results		47
5B.	Liquidity and Capital Resources		63
5C.	Research and Development, Patents and Licenses, etc.		68
5D.	Trend Information		69
5E.	Off-Balance Sheet Arrangements		74
5F.	Tabular Disclosure of Contractual Obligations		77
5G.	Safe Harbor		77
ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		78
6A.	Directors and Senior Management		78
6B.	Compensation		83
6C.	Board Practices		86
6D.	Employees		88
6E.	Share Ownership		88
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		88
7A.	Major Shareholders		88
7B.	Related Party Transactions		89
7C.	Interests of Experts and Counsel		91
ITEM 8.	FINANCIAL INFORMATION		91
8A.	Consolidated Statements and Other Financial Information		91
8B.	Significant Changes		96
ITEM 9.	THE OFFER AND LISTING		97
9A.	Offer and Listing Details		97
9B.	Plan of Distribution		98
9C.	Markets		98
9D.	Selling Shareholders		101
9E.	Dilution		101
9F.	Expenses of the Issue		101
ITEM 10.	ADDITIONAL INFORMATION		101
10A.	Share Capital		101
10B.	Memorandum and Articles of Association		101
10C.	Material Contracts		114
10D.	Exchange Controls		114
10E.	Taxation		115
10F.	Dividends and Paying Agents		121
10G.	Statements by Experts		121
10H.	Documents on Display		121
10I.	Subsidiary Information		121


		Page
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		121
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES		125
12A.	Debt Securities		125
12B.	Warrants and Rights		125
12C.	Other Securities		125
12D.	American Depositary Shares		125

Part II


		Page
ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES		126
ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		127
ITEM 15.	CONTROLS AND PROCEDURES		127
ITEM 16.A	AUDIT COMMITTEE FINANCIAL EXPERT		128
ITEM 16.B	CODE OF ETHICS		128
ITEM 16.C	PRINCIPAL ACCOUNTANT FEES AND SERVICES		128
ITEM 16.D	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES		129
ITEM 16.E	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS		129
ITEM 16.F	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT		129
ITEM 16.G	CORPORATE GOVERNANCE		129
ITEM 16.H	MINE SAFETY DISCLOSURE		132

Part III

INTRODUCTION

In this annual report, “Embraer,” “we,” “us,” “our” or the “Company” refer to Embraer S.A. and its consolidated subsidiaries. All references herein to the “real,” “reais” or “R$” are to the Brazilian real, the official currency of Brazil. All references to “US$,” “dollars” or “U.S. dollars” are to United States dollars.

Presentation of Financial and Other Data

Financial Data

Our audited consolidated financial statements as of and for the years ended December 31, 2014, 2013 and 2012 are included in this annual report.

Our consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB.

After analyzing our operations and businesses with regard to the applicability of International Accounting Standards, or IAS, 21 – “The Effects of Changes in Foreign Exchange Rates,” particularly in relation to the factors involved in determining our functional currency, management concluded that our functional currency is the U.S. dollar. This conclusion was based on an analysis of the following factors, as set forth in IAS 21: (1) the currency that most influences sales prices of goods and services; (2) the currency of the country whose competitive forces and regulations most determine the sale prices of our goods and services; (3) the currency that most influences labor, materials and other costs of providing goods and services; (4) the currency in which the funds for financial operations are largely obtained; and (5) the currency in which revenue from operations is usually accumulated. Items included in the financial statements of each of our subsidiaries are measured using the currency of the primary economic environment in which such subsidiary operates. Our audited consolidated financial statements included elsewhere in this annual report are presented in U.S. dollars, which is our presentation currency.

In our 2014, 2013 and 2012 consolidated financial statements, gains or losses resulting from the remeasurement of the monetary items and from foreign currency transactions have been reported in the consolidated statement of income as a single line item.

For certain purposes, such as providing reports to our Brazilian shareholders, filing financial statements with the Comissão de Valores Mobiliários (Brazilian securities commission), or CVM, and determining dividend payments and other distributions and tax liabilities in Brazil, we have prepared, and will continue to be required to prepare, financial statements in accordance with Law No. 6,404 of December 15, 1976, as amended, or the Brazilian Corporate Law.

Because we list our common shares on the Novo Mercado segment of the BM&FBOVESPA S.A.–Bolsa de Valores, Mercadorias e Futuros de São Paulo, or São Paulo Stock Exchange, as of January 2009 we have been required to translate our quarterly and annual financial statements into English. Foreign private issuers are not subject to the quarterly reporting requirements of Exchange Act Rules 13a-13 and 15d-13. Accordingly, foreign private issuers that file annual reports on Form 20-F are only required to promptly furnish, in a Form 6-K, material information such as in a press release that is (1) distributed to stockholders or filed with a national exchange, if made public by that exchange, or (2) required by its domestic laws to be made public.

Other Data and Backlog

In this annual report:

•

some of the financial data reflects the effect of rounding;

•

aircraft ranges are indicated in nautical miles;

•

one nautical mile is equal to approximately 1.15 ordinary or “statute” miles, or approximately 1.85 kilometers;

•

aircraft speeds are indicated in nautical miles per hour, or knots, or in Mach, which is a measure of the speed of sound;

•

the term “regional jet” refers to narrow body jet aircraft with 30-60 passenger seats;

•

the term “mid-capacity jet” refers to jet aircraft with 70-130 passenger seats—all of our regional and mid-capacity jet aircraft are sold in the commercial aviation segment;

•

the term “commercial aircraft,” as it applies to Embraer, refers to our regional jets and mid-capacity jets;

•

the terms “entry-level jet” and “light jet” refer to executive jets that usually carry from four to eight passengers and up to nine passengers, respectively, that are designed for short take-off distances;

•

the term “mid-light” refers to executive jets that usually carry up to nine passengers and can cover distances ranging from 1,700 to 3,000 nautical miles;

•

the term “midsize” refers to executive jets that usually carry up to 12 passengers and can cover distances ranging from 3,000 to 3,300 nautical miles;

•

the term “large” refers to executive jets that usually carry up to 19 passengers and can cover distances ranging from 3,900 to 5,600 nautical miles;

•

the term “ultra-large jet” refers to executive jets that usually have longer ranges and over-sized cabin spaces and can carry up to 19 passengers; and

•

the term “executive jets,” as it applies to Embraer, refers to our aircraft sold to companies, including fractional ownership companies, charter companies, air-taxi companies and high net-worth individuals.

We calculate our backlog as the sum of the contract values of all firm orders (i) for aircraft that has not yet been delivered and (ii) for services and technologies contracted and not yet performed. A firm order is a firm commitment from a customer, represented by a signed contract. Options to acquire aircraft are not considered part of our backlog.

Special Note Regarding Forward-Looking Statements

This annual report includes forward-looking statements, within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, principally in Items 3 through 5 and Item 11 of this annual report. We have based these forward-looking statements largely on our current expectations and projections about future events and industry and financial trends affecting our business. These forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things:

•

general economic, political and business conditions, both in Brazil and in our other markets;

•

changes in competitive conditions and in the general level of demand for our products;

•

management’s expectations and estimates concerning our future financial performance, financing plans and programs, and the effects of competition;

•

the effects of customers canceling, modifying and/or rescheduling contractual orders;

•

the effect of changing priorities or reductions in the Brazilian federal government or international government defense budgets on our revenues;

•

continued successful development and marketing of the EMBRAER 170/190 jet family, including the development of the new EMBRAER 170/190 generation, the E2, our line of executive jets (including the Phenom 100, Phenom 300, Lineage 1000, Legacy 650, Legacy 600, Legacy 450 and Legacy 500) and our defense and security aircraft and services;

•

our level of indebtedness;

•

anticipated trends in our industry, including but not limited to the continuation of long-term trends in passenger traffic and revenue yields in the airline industry;

•

our short- and long-term outlook for the 30-130 seat commercial airline market;

•

our expenditure plans;

•

inflation and fluctuations in exchange rates;

•

the impact of volatile fuel prices and the airline industry’s response;

•

our ability to develop and deliver our products on a timely basis;

•

availability of sales financing for our existing and potential customers;

•

existing and future governmental regulation;

•

our relationship with our workforce; and

•

other risk factors, such as those set forth under “Item 3D. Key Information—Risk Factors.”

The words “believe,” “may,” “will,” “forecast,” “estimate,” “plan,” “continue,” “anticipate,” “intend,” “expect” and similar words herein are intended to identify forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements because of new information, future events or other factors. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this annual report might not occur. Our actual results and performance could differ substantially from those anticipated in our forward-looking statements. As a result of various factors such as those risks described in “Item 3D. Key Information—Risk Factors,” undue reliance should not be placed on these forward-looking statements.

Part I

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.

KEY INFORMATION

3A.

Selected Financial Data and Other Data

The following table presents our selected financial data which has been derived from our consolidated audited financial statements prepared in accordance with IFRS as issued by the IASB and other data as of and for the years ended December 31, 2014, 2013, 2012, 2011 and 2010. The selected financial data for the years ended December 31, 2014, 2013 and 2012 is derived from our consolidated financial statements, which were audited by KPMG Auditores Independentes, an independent registered public accounting firm, as stated in their report included in this annual report. The selected financial data for the years ended December 31, 2011 and 2010 was audited by PricewaterhouseCoopers Auditores Independentes, an independent registered public accounting firm. You should read this selected financial data in conjunction with our audited consolidated financial statements and related notes thereto included elsewhere in this annual report. For information on our segment results, see Note 39 to our audited consolidated financial statements for the year ended December 31, 2014.

Selected Financial Data


	Year ended December 31,
Consolidated Statements of Income Data	2014			2013			2012			2011			2010
	(in US$ millions)
Revenue		6,288.8			6,235.0			6,167.0			5,790.9			5,364.1
Cost of sales and services		(5,038.3	)		(4,818.9	)		(4,676.6	)		(4,488.1	)		(4,338.1	)

Gross profit		1,250.5			1,416.1			1,490.4			1,302.8			1,026.0
Operating income (expense)
Administrative		(207.5	)		(210.5	)		(279.2	)		(261.3	)		(197.5	)
Selling		(419.9	)		(454.4	)		(480.4	)		(418.6	)		(374.1	)
Research		(47.1	)		(74.7	)		(77.3	)		(85.3	)		(72.1	)
Other operating (expense) income, net		(32.6	)		36.9			(42.8	)		(219.7	)		9.4
Equity in losses of associates		(0.1	)		—			1.2			0.3			—

Operating profit before financial income (expense)		543.3			713.4			611.9			318.2			391.7
Financial income (expense), net		(24.5	)		(96.4	)		(6.8	)		(90.5	)		17.5
Foreign exchange gain (loss), net		(14.9	)		(14.6	)		8.7			20.1			(1.1	)

Profit before taxes on income		503.9			602.4			613.8			247.8			408.1
Income tax (expense) benefit		(156.2	)		(256.4	)		(265.2	)		(127.4	)		(62.7	)

Net income		347.7			346.0			348.6			120.4			345.4

Attributable to:
Owners of Embraer		334.7			342.0			347.8			111.6			330.2
Noncontrolling interest		13.0			4.0			0.8			8.8			15.2


	Year ended December 31,
Earnings per Share – Basic	2014		2013		2012		2011		2010
	(in US$, except for share data)
Net income attributable to owners of Embraer		334.7		342.0		347.8		111.6		330.2
Weighted average number of shares (in thousands)		733,677		729,001		725,023		723,667		723,665
Basic earnings per share – U.S. dollars		0.4562		0.4691		0.4797		0.1542		0.4563


	Year ended December 31,
Earnings per Share – Diluted	2014		2013		2012		2011		2010
	(in US$, except for share data)
Net income attributable to owners of Embraer		334.7		342.0		347.8		111.6		330.2
Weighted average number of shares (in thousands) – diluted		733,677		729,001		725,023		723,667		723,665
Dilution for the issuance of stock options (in thousands)⁽¹⁾		3.766		4.795		2.708		1.18		354
Weighted average number of shares (in thousands)		737,463		733,796		727,731		724,847		724,019
Diluted earnings per share		0.4538		0.4661		0.4780		0.1540		0.4562


	At December 31,
Consolidated Statement of Financial Position Data	2014		2013		2012		2011		2010
	(in US$ millions)
Cash and cash equivalents		1,713.0		1,683.7		1,797.0		1,347.8		1,393.1
Financial investments		710.6		939.9		578.2		753.6		733.5
Other current assets		3,387.1		3,144.2		2,983.5		3,062.5		2,856.2
Property, plant and equipment		2,025.8		1,993.3		1,738.4		1,450.4		1,201.0
Intangible assets		1,260.9		1,109.1		958.8		808.3		716.3
Other long-term assets		1,313.6		1,272.3		1,425.0		1,426.1		1,490.9

Total assets		10,411.0		10,142.5		9,480.9		8,848.7		8,391.0

Short-term loans and financing		89.7		79.3		336.3		251.8		72.6
Other current payables		2,463.2		2,813.4		2,452.4		2,586.6		2,316.1
Long-term loans and financing		2,418.4		2,115.0		1,730.2		1,406.3		1,362.2
Other long-term liabilities		1,574.9		1,502.6		1,611.7		1,486.2		1,508.6
Company shareholders’ equity		3,764.8		3,533.3		3,258.3		3,007.3		3,028.4
Noncontrolling interest		100.0		98.9		92.0		110.5		103.1

Total shareholders’ equity		3,864.8		3,632.2		3,350.3		3,117.8		3,131.5

Total liabilities and shareholders’ equity		10,411.0		10,142.5		9,480.9		8,848.7		8,391.0


	Year ended December 31,
Other Consolidated Financial Data	2014			2013			2012			2011			2010
	(in US$ millions)
Net cash generated by operating activities		482.3			564.6			693.0			480.1			873.8
Net cash used in investing activities		(671.5	)		(764.0	)		(617.3	)		(602.0	)		(288.3	)
Net cash generated by (used in) financing activities		333.3			192.5			422.3			96.4			(802.2	)
Depreciation and amortization		286.3			290.6			278.8			238.8			219.2

(1)	Refers to the effect of potentially dilutive shares.

Other Data


	At and for the year ended December 31,
Other Data:	2014		2013		2012		2011		2010
Aircraft delivered during period:
To the Commercial Aviation Market
ERJ 145		—		—		—		2		6
EMBRAER 170		1		4		1		1		9/2	⁽¹⁾
EMBRAER 175		62		24		20		10		8
EMBRAER 190		19		45		62		68		58
EMBRAER 195		10		17		23		24		17
To the Defense & Security Market
Legacy 600		—		—		—		—		1
Phenom 100		—		—		—		—		—
EMB 135		—		—		—		—		1
EMBRAER 170		—		—		—		—		—
EMBRAER 190		—		—		—		—		—
EMB 145 AEW&C/RS/MP⁽²⁾		—		—		2		—		—
EMB 312 Tucano/AL-X/ Super Tucano⁽²⁾		7		6		14		—		—
To the Executive Jets Market
Legacy 600/650		18		23		19		13		10
Legacy 500		3		—		—		—		—
EMBRAER 145/170/190 Shuttle		—		2		1		—		3
Phenom 100		19		30		29		41		100
Phenom 300		73		60		48		42		26
Lineage 1000		3		4		2		3		5
To the General Aviation Market
Light Propeller Aircraft		38		60		62		54		40

Total delivered		253		275		283		258		286

Aircraft in backlog at the end of period:
In the Commercial Aviation Market
ERJ 145		—		—		—		—		2
EMBRAER 170		5		1		10		6		10
EMBRAER 175		172		188		35		46		40
EMBRAER 190		65		73		109		162		157
EMBRAER 195		7		17		31		35		41
EMBRAER 175 – E2		100		100		—		—		—
EMBRAER 190 – E2		60		25		—		—		—
EMBRAER 195 – E2		50		25		—		—		—
In the Defense & Security Market
EMB 145 AEW&C/RS/MP		1		1		1		3		3
EMB 312 Tucano/EMB 314/EP Super Tucano		8		12		18		24		16
LAS		17		20
E99		5		5
KC-390		28		—		—		—		—
VU-Y		6		—		—		—		—
EMB 135		—		—		—		—		—
Legacy 600/Phenom 100		—		—		—		—		—
EMBRAER 170/ EMBRAER 190		—		—		—		—		—
In the Executive Jets Market
Legacy 450/500/600/650/Phenom 100/300/Lineage 1000/EMBRAER 170/190 Shuttle		168		208		272		421		551
In the General Aviation Market
Light Propeller Aircraft		—		—		—		—		—

Total backlog (in aircraft)		692		675		476		697		820

Total backlog (in millions)	US$	20,920.2	US$	18,205.5	US$	12,462.2	US$	15,441.2	US$	15,543.2

(1)	Figures appearing after a forward slash (/) refer to aircraft delivered under operating leases.

(2)	Recorded for under the percentage of completion method.

Exchange Rates

Brazil’s foreign exchange system allows the purchase and sale of currency and the international transfer of reais by any person or legal entity, regardless of amount, subject to certain regulatory procedures.

Since 1999, the real/U.S. dollar exchange rate has fluctuated considerably. In the past, the Central Bank has intervened occasionally to control unstable movements in foreign exchange rates. We cannot predict whether the Central Bank or the Brazilian federal government will continue to let the real float freely or will intervene in the exchange rate market through a currency band system or otherwise. The real may depreciate or appreciate against the U.S. dollar substantially in the future. See “Item 3D. Key Information—Risk Factors—Risks Relating to Brazil.”

The following table sets forth the selling exchange rate, expressed in reais per U.S. dollar, for the periods indicated:


	Exchange Rate of Reais to US$1.00
Year ended December 31,	Low		High		Average⁽¹⁾		Period-end
2010		1.6554		1.8811		1.7601		1.6662
2011		1.5345		1.9016		1.6709		1.8758
2012		1.7024		2.1121		1.9588		2.0435
2013		1.9528		2.4457		2.1741		2.3426
2014		2.1974		2.7403		2.3547		2.6562


	Exchange Rate of Reais to US$1.00
Month/period ended	Low		High		Average⁽²⁾		Period-end
October 31, 2014		2.391		2.534		2.448		2.444
November 30, 2014		2.484		2.614		2.548		2.560
December 31, 2014		2.561		2.74		2.639		2.656
January 31, 2015		2.575		2.711		2.634		2.662
February 28, 2015		2.869		2.881		2.816		2.878

Source:

Central Bank.

(1)	Represents the average of the exchange rates on the last day of each month during the relevant periods.

(2)	Represents the average of the exchange rates during the relevant periods.

We will pay any cash dividends and make any other cash distributions with respect to the common shares in reais. Accordingly, exchange rate fluctuations may affect the U.S. dollar amounts received by the holders of American Depositary Shares, or ADSs, upon the conversion into U.S. dollars by the depositary of our ADS program of such distributions for payment to holders of ADSs. Fluctuations in the exchange rate between the real and the U.S. dollar may also affect the U.S. dollar equivalent of the real price of our common shares on the São Paulo Stock Exchange.

3B.

Capitalization and Indebtedness

Not applicable.

3C.

Reasons for the Offer and Use of Proceeds

Not applicable.

3D.

Risk Factors

Risks Relating to Embraer

A downturn in the commercial and executive aviation markets may reduce our sales and revenue, and, consequently, our profitability.

We expect that a substantial portion of our sales will be derived from sales of commercial aircraft and executive jets. Historically, these markets have been cyclical due to a variety of factors that are both external and internal to the air travel industry, including general economic conditions.

Economic downturns in our industry may reduce air travel demand and corporate and personal spending, which may negatively impact our Commercial Aviation and Executive Jets segments. Downturns may also lead to a decrease in the volume of financing available to our customers for aircraft purchases, particularly in the aforementioned segments. A continued downturn in general economic conditions could result in further reductions in air travel and decreased orders for our aircraft. Our customers could also defer or cancel their purchases of our aircraft. We cannot predict the magnitude or duration of the impact that the above events would have not only on the air transport industry as a whole and on our business in particular.

We depend on key customers.

In the Commercial Aviation segment, as of December 31, 2014, 78% of our firm orders in backlog for the EMBRAER 170/190 jet family were from the airlines Skywest, American, United, Republic, JetBlue and Azul, and the leasing companies ILFC and Aldus. We believe that we will continue to depend on a select number of key customers, the loss of any one of which would reduce our sales and our market share. Fewer sales would reduce our profitability.

Progressively, the commercial airline industry is seeking to reduce costs and increase efficiency, and is experiencing a consolidation process through mergers and acquisitions and alliances through code-sharing arrangements. Although it is expected that such consolidations and alliances may result in the creation of more stable and competitive airlines, they may also have the effect of reducing the number of existing and potential customers and, possibly, the number of aircraft purchases.

Financial difficulties, restructurings and bankruptcy proceedings of customer airlines can have a materially adverse effect on our results of operations and financial position. . For more information, see “Item 5E – Off-Balance Sheet Agreements.”

In addition, delays in payment cycles by significant customers can negatively affect our cash position and working capital, as occurred for example in the last quarter of 2014.

In our Defense & Security segment, the Brazilian Federal Government is our largest customer of defense aircraft products. Revenue from sales to the Brazilian federal government accounted for more than 68.9% of segment revenue for the year ended December 31, 2014. A decrease in defense investments by the Brazilian federal government due to budgetary constraints or other factors that are out of our control could decrease our Defense & Security revenue. We cannot assure that the Brazilian federal government will continue to acquire defense products and services from us in the future at the same rate or at the same level.

We depend on key suppliers.

We do not manufacture all of the parts and components used in the production of our aircraft. More than -80% of the production costs of our aircraft consist of materials and equipment purchased from our risk-sharing partners and other major suppliers. Risk-sharing arrangements are those in which suppliers are responsible for the design, development and manufacture of major components or systems of our aircraft, such as wings, tail, fuselage, engines, hydraulic components, avionics and interior. Once risk-sharing partners have been selected and program development and aircraft production have begun, it is difficult to substitute these partners. In some cases, the aircraft are designed specifically to accommodate a particular component, such as the engine, which cannot be substituted by another manufacturer without significant delays and expense. This dependence of ours on these key suppliers makes us susceptible to the risks of performance, product quality and financial condition of these risk-sharing partners.

We cannot assure you that we will not experience significant delays in obtaining key equipment in our manufacturing process in the future. Although we work closely with, and monitor the production process of, our risk-sharing partners and major suppliers, the failure of our risk-sharing partners and other major suppliers to meet our performance specifications, quality standards or delivery schedules or to comply with regulatory requirements (including export control requirements) could affect our ability to deliver new aircraft to customers in a timely manner. In addition, a large amount of the equipment employed by the aircraft industry is subject to export control regulations and, as such, deliveries are dependent on suppliers having secured the applicable export licenses.

Our aircraft sales are subject to cancellation provisions that may reduce our revenues, profitability, backlog and cash flow.

A portion of our aircraft firm orders is subject to significant contingencies before delivery. Prior to delivery, some of our purchase contracts may be terminated, or all or a portion of a particular firm order may be canceled, for different reasons, including (i) extended delays in delivering aircraft or failure to obtain certification of the aircraft or otherwise meet performance milestones and other requirements, (ii) the failure of a customer to honor its aircraft purchases or (iii) production rate shortfalls.

Our customers may also reschedule deliveries or cancel orders, particularly during an economic downturn. In 2014, we had revenue of US$14.5 million related to contractual penalties paid by customers due to contract cancellations, compared to contractual penalty revenues of US$40.8 million in 2013 and US$41.7 million in 2012. Material cancellations, delays or decreases in the number of aircraft delivered in any year would reduce our sales and revenue, and, consequently, our profitability, cash flow and backlog.

Some of our aircraft sales may be subject to financial and residual value guarantees and trade-in options that may require us to make significant cash disbursements.

For certain aircraft sales we guarantee the financial performance of a portion of the financing for, and the residual value of, some of our aircraft that have already been delivered. Financial guarantees are provided to financing parties to support a portion of the payment obligations of purchasers of our aircraft under their financing arrangements to mitigate default-related losses. These guarantees are collateralized by the financed aircraft.

Residual value guarantees typically ensure that, at the exercise date (between 6 and 18 years after the aircraft delivery date), the relevant aircraft will have a residual market value equal to a percentage of the original sale price. Most of our residual value guarantees are subject to a limitation (a “cap”) and, therefore, on average, our residual value guarantee exposure is limited to 17% of the original sale price. In the event of an exercise by a purchaser of its residual value guarantee, we will bear the difference, if any, between the guaranteed residual value and the market value of the aircraft at the time of exercise, limited to the cap.

Assuming all customers who are supported by off-balance sheet financial guarantees defaulted on their aircraft financing arrangements, and also assuming we were required to pay the full aggregate amount of outstanding financial and residual value guarantees and were unable to remarket any of the aircraft to offset our obligations, our maximum exposure would have been US$687.7 million (or, subtracting provisions and liabilities already recorded in the amount of US$156.2 million as reflected in Note 25 to our audited consolidated financial statements, US$531.5 million) under these guarantees as of December 31, 2014. As a result, we would be obligated to make substantial payments that may not be recoverable through proceeds from aircraft sales or leases, particularly if we are not able to remarket any of the aircraft to offset our obligations or financing defaults occur with respect to a significant portion of our aircraft. The value of the underlying aircraft is more likely to decrease and third parties are more likely to default during economic downturns. For further discussion see our exposure to these guarantees in Note 36 to our audited consolidated financial statements and “Item 5E – Off Balance Sheet Agreements.”

In addition, we sometimes provide trade-in options to our customers in purchase agreements for new aircraft. These options provide customers with the right to trade in aircraft upon the purchase and acceptance of a new aircraft. In 2014, we accepted five aircraft, with a total invoiced value of US$43.9 million, for trade-in pursuant to trade-in options. In the aggregate, we are currently subject to trade-in options relating to 12 aircraft, as a result of trade-ins tied to contractual obligations with customers and to their taking delivery of certain new aircraft. In addition, other aircraft may become subject to trade-in due to new sales agreements. The trade-in price is determined based on the new aircraft sold, as well as other factors, including a market value assessment performed by independent third party appraisers. We may be required to accept trade-ins at prices that are at market price of the aircraft, which would result in financial loss for us when we receive the aircraft.

We continuously re-evaluate our risk related to financial guarantees and trade-in obligations based on a number of factors, including the estimated future market value of our aircraft based on third-party appraisals, information on similar aircraft remarketing in the secondary market and the credit rating of the customers.

In 2014, 2013 and 2012, we made provisions of US$238.0 million, US$293.5 million and US$584.4 million, respectively, related to exposure from financial guarantees and residual value guarantees.

Any unexpected decrease in the market value of the aircraft covered by trade-in rights or financial guarantees would decrease our ability to recover the amounts payable to satisfy our obligations and cause us to incur additional charges to income. If we are required to pay amounts related to such guarantees, we may not have sufficient cash or other financial resources available to do so and may need to seek financing to fund these payments. We cannot assure you that the then-prevailing market conditions would allow us to resell or lease the underlying aircraft at its anticipated fair value or in a timely manner. Consequently, honoring our financial guarantee or trade-in obligations could require us to make significant cash disbursements in a given year, which, in turn, would reduce our cash flow in that year.

Any decrease in Brazilian federal government-sponsored customer financing, or increases in government-sponsored financing that benefits our competitors, may decrease the competitiveness of our aircraft.

Traditionally, aircraft original equipment manufacturers, or OEMs, from time to time, have received support from governments through governmental export credit agencies, or ECAs, in order to offer competitive financing conditions to their customers, especially in periods of credit tightening from the traditional lending market. After the “credit crunch” in 2008, the participation of ECAs grew in importance, playing a crucial role in the aviation industry.

In the past, much of this official government support was alleged to constitute unofficial subsidies causing market distortions, which gave rise to disputes among governments at the World Trade Organization, or WTO. Since 2007, an agreement known as the Aircraft Sector Understanding, or ASU, developed by the Organization for Economic Co-operation and Development, or OECD, has provided guidelines for the predictable, consistent and transparent use of government-supported export financing for the sale or lease of aircraft, in order to establish a “level-playing field.” ECAs from signatory countries are required to offer terms and conditions no more favorable than those contained in the ASU’s base financial agreement when financing sales of aircraft that compete with those produced by the OEMs of their respective countries. The effect of the agreement is to encourage aircraft purchasers to focus on the price and quality of aircraft products offered by OEMs rather than on the financial packages offered by their respective governments.

The Brazilian ECA, Banco Nacional de Desenvolvimento Econômico e Social (Brazilian Social and Economic Development Bank), or BNDES, together with the Brazilian National Treasury Export Guarantee Fund, offer financing and export credit insurance to our customers under terms and conditions required by the ASU. Any reduction or restriction to the Brazilian export financing program, and any increase in our customers’ financing costs for participation in this program, above those provided in the ASU’s base financial agreement, may cause the cost-competitiveness of our aircraft to decline. Other external factors may also impact our competitiveness in the market, including, but not limited to, aircraft OEMs from countries which are not signatories to the ASU agreement offering attractive financing packages, or any new government subsidies supporting any of our major competitors.

From 2004 through 2014, approximately 22% of our Commercial Aviation deliveries was subject to official export credits support by the BNDES and the Export Guarantee Fund (Fundo de Garantia à Exportação), or FGE, a special fund linked to the Ministry of Finance and managed by the BNDES to foster exports. In 2013 and 2014, approximately 43% and 47%, respectively, of our Commercial Aviation deliveries were supported by the Brazilian ECA Program. We cannot ensure that the Brazilian federal government, for policy reasons or otherwise, will not reduce or discontinue this type of funding for the financing of our aircraft or that other sources of funding will be available to our customers. The loss or significant reduction of funds available to our customers, without an adequate substitute, could lead to a reduction in sales of our aircraft.

We may face a number of challenges resulting from the development of new products and the possible pursuit of strategic growth opportunities.

Our products require a high level of research, development and production expenditures. Our main ongoing project is the development of the E-Jets E2 family, comprising three new airplanes, the E175-E2, E190-E2, and E195-E2. We estimate our total investment in this project will be US$1.7 billion through 2020. Our investment in the Legacy 450/500 executive jets is estimated at US$750.0 million and is expected to be invested through 2015, in property, plant and equipment and development for the Legacy 450/500 programs, which we launched in April 2008. The first Legacy 500 executive jet was delivered in October 2014, and the Legacy 450 is expected to enter into service in 2015. We cannot assure you that our products will be accepted by our customers and the market, and if any of our new products does not meet customer expectations or market demand, our business would be materially and adversely affected. In addition, as we continue to develop new products, we may need to reallocate existing resources and coordinate with new suppliers and risk-sharing partners. Finally, cost overruns and delays in the development and delivery of new products would materially and adversely affect us.

We have in the past and may pursue strategic growth opportunities, including joint ventures, acquisitions or other transactions, to expand our business or enhance our products and technology. We may face a number of challenges, including difficulties in identifying appropriate candidates, assimilating their operations and personnel and maintaining internal standards and controls, as well as the diversion of our management’s focus from our ongoing business. We cannot assure you that we will be able to meet these challenges or that our business will not face disruptions.

We may suffer from a lack of qualified personnel.

From time to time, there is significant competition within the aviation industry for skilled personnel in general and engineers in particular. To the extent such competition reoccurs, we may be unable to recruit and retain the necessary number of highly skilled engineers and other personnel we require. Failure to coordinate our resources in a timely manner or to attract and retain skilled personnel could slow down our development efforts and cause delays in production and deliveries of our aircraft, which would negatively affect us.

We may be required to refund cash contributions in connection with the production or development of our aircraft if certain milestones for our aircraft are not reached.

We have arrangements with our risk-sharing partners, pursuant to which they have contributed to us, in cash over the years, a total of US$873.5 million since the beginning of the development of the EMBRAER 170/190, Phenom 100/300 Legacy 450/500 jet families and the E2 jet family through December 31, 2014. Cash contributions would have to be refunded by us to the risk-sharing partners to the extent we had failed to fulfill certain agreed-upon milestones. The full amount of these cash contributions were nonrefundable during 2014, as we had met all the required milestones.

Although, currently, no cash contributions from our risk-sharing partners are refundable, we may enter into similar arrangements, and if we are unable to meet certain milestones agreed upon with our risk-sharing partners, we may be required to refund cash contributions for which we have not established provisions.

We face significant international competition, which may adversely affect us.

The worldwide commercial aircraft manufacturing industry is highly competitive. Along with Boeing, Airbus and Bombardier, all large international companies, we are one of the leading manufacturers of commercial aircraft in the world. Certain of these competitors may have greater financial, marketing and other resources than we have. Although we have attained a significant share of the market for our commercial aircraft products, we cannot assure you that we will be able to maintain our current market share. Our ability to maintain our market share and remain competitive in the commercial aircraft manufacturing market over the long term requires continued enhancement of our products’ technology and performance. In addition, tariff and other entry barriers may hinder our growth in certain markets. Our primary competitor in the regional and mid-capacity jet markets is Bombardier Inc., a Canadian company, which has significant technological capabilities and financial and marketing resources. Additionally, Chinese, Russian and Japanese companies are also developing mid-capacity jets and already have firm orders in backlog.

As a relatively new entrant to the business jet market, we face significant competition from companies with longer operating histories and established reputations in this industry. Some of our competitors in the business jet market have a longer track record and a more established customer base and, as a result, may reach the market with their products before we do and may frustrate our efforts to gain greater market share. In addition, the level of pre-owned aircraft for sale continues to pressure new aircraft demand in this segment and may impact the value of the used aircraft we own in our portfolio. We cannot assure you that we will continue to increase our market share in the business jet market segment, or that we will not experience a reduction in our current market share in this segment.

Intellectual property violations may negatively affect us.

We rely upon patent, copyright, trademark and trade secret laws, and agreements with our employees, customers, suppliers and other parties, to establish and maintain our intellectual property rights in technology and products used in our operations. Despite these efforts to protect our intellectual property rights, any of our direct or indirect intellectual property rights could be challenged, invalidated or circumvented. In addition, although we believe that we lawfully comply with the intellectual property rights granted to others, we may be accused of infringement on occasion and could have claims asserted against it in the future. These claims could harm our reputation, lead to fines and penalties and prevent us from offering certain products or services. Any claims or litigation in this area, whether we ultimately win or lose, could be time-consuming and costly, hurt our reputation or require us to enter into licensing arrangements. We may not be able to enter into these licensing arrangements on acceptable terms. If a claim of infringement were successful against us, an injunction might be ordered against us, causing further damages.

We are subject to environmental, health and safety risks.

Our products, as well as our manufacturing and service activities, are subject to environmental laws and regulations in each of the jurisdictions in which we operate, governing, among other things: product performance or content; energy use and greenhouse gas emission; air; water and noise pollution; the use, storage, transportation, labeling and disposal or release of hazardous substances, human health risks arising from the exposure to hazardous or toxic materials; and the remediation of soil and groundwater contamination on or under our properties (whether or not caused by us), or on or under other properties and caused by our current or past operations. Environmental regulatory requirements, or enforcements thereof, may become more stringent and we way incur additional costs to be compliant with such future requirements or enforcements.

Investigations by U.S. government authorities under the Foreign Corrupt Practices Act and related inquiries may result in substantial fines and other adverse effects.

In September 2010, we received a subpoena from the Securities and Exchange Commission, or SEC, and associated inquiries from the U.S. Department of Justice, or DOJ, concerning possible non-compliance with the U.S. Foreign Corrupt Practices Act, or FCPA, in relation to certain aircraft sales outside of Brazil. We retained outside counsel to conduct an internal investigation, have cooperated with the SEC and the DOJ, and have voluntarily expanded our investigations. The U.S. government inquiries, related inquiries and developments in other countries, and our own internal investigations are continuing. Any action in these or related inquiries, proceedings or other developments, or any agreement we enter into to settle the same, may result in substantial fines and other sanctions and adverse consequences. See “Item 8A – Consolidated Statements and other Financial Information – Legal Proceedings.”

Risks Relating to the Commercial Airline Industry

Scope clause restrictions in airline pilot contracts may limit demand for regional and mid-capacity jets in the U.S. market.

A key limiting factor in demand for regional and mid-capacity jets is the existence of scope clauses contained in airline pilot contracts. These scope clauses are union-negotiated restrictions on the number and/or size of regional and mid-capacity jets that a particular carrier may operate. Current scope clause restrictions, which are more prevalent in the United States, include restrictions on the weight of aircraft and number of 76 seat commercial aircraft in an airline’s fleet operated by regional carriers. As a result, our opportunities for near-term growth in the U.S. regional jet market in the 76 seat jet category may be limited. The continuation or further tightening of scope clauses could also lead some of our customers who have purchased options to acquire our regional and mid-capacity jets not to exercise those options. We cannot assure you that current restrictions will be lessened, or will not be expanded, including by amending these scope clauses to cover larger-sized commercial aircraft. Furthermore, although scope clauses are less prevalent outside the United States, we cannot assure you that scope clauses will not become more prevalent or restrictive, or that some other form of restriction will not take effect, in Europe or in other markets.

The supply of pilots to the airline industry may be limited.

New FAA regulations may reduce the supply of qualified pilot candidates eligible for hiring by the airline industry. A first officer in domestic operations must now hold an airline transport pilot certificate and an airplane type rating for the aircraft to be flown. An airline transport pilot certificate requires that a pilot be 23 years of age and have 1,500 hours total time as a pilot. Due to this legislation, there may be a growing scarcity of new entrant pilots who meet the new experience qualifications, impacting mainly regional carriers as they are the normal entry airlines for new pilots, and the majors are expected to hire many of their experienced pilots. Any further inability to recruit, train and retain qualified pilots may materially impact our customers’ operations.

We are subject to stringent certification and regulatory requirements, which may adversely affect us.

Our civil aviation products are subject to regulation in Brazil and in each jurisdiction where our customers are located. The aviation authority in Brazil, known as the Agência Nacional de Aviação Civil – ANAC (National Civil Aviation Agency), or Brazilian Aviation Authority, as well as authorities in other countries in which our customers are located, most notably the U.S. Federal Aviation Administration, or the FAA, and the European Aviation Safety Agency, or the EASA, must certify our civil aviation products before we can deliver them to our customers. We cannot assure you that we will be able to obtain certification of our aircraft on a timely basis or at all. In addition, complying with the requirements of regulatory authorities can be both expensive and time-consuming. If we fail to obtain a required certification from an aviation authority for any of our aircraft, that aviation authority can prohibit the use of that aircraft within its jurisdiction until certification has been obtained. Changes in government regulations and certification procedures could also delay our start of production as well as entry of a new product into a new market. Despite our continuous efforts to strictly observe and comply with all aviation certification and other regulatory requirements, we cannot predict how future laws or changes in the interpretation, administration or enforcement of such laws will affect us. We may be required to spend significantly more money to comply with these laws or to respond to these changes.

We and our customers are also subject to extensive Brazilian federal, state and local and foreign environmental protection laws and regulations concerning matters such as discharge and emission of substances into the environment, the disposal of hazardous wastes, the remediation and abatement of contaminants and other activities affecting the environment. We currently have several ongoing comprehensive programs to reduce the effects of our operations on the environment. For more information, see “Item 4E. Information on the Company—Property, Plant and Equipment.” Changes to current environmental regulations may demand that we spend additional amounts to enhance our environmental compliance programs. In addition, environmental regulations, such as those requiring the reduction of greenhouse gas emissions, are becoming one of the main drivers of airline fleet decisions, potentially causing our customers to change their purchasing plans or requiring us to make additional capital investments to adapt to new requirements.

The various products manufactured and sold by us must also comply with relevant health and safety and substances and preparations related laws and regulations in the jurisdictions in which we operate. Although we seek to ensure that our products meet the highest quality standards, increasingly stringent and complex laws and regulations, new scientific discoveries, delivery of defective products or the obligation to notify or provide regulatory authorities or others with required information (such as under the EU regulation known as “REACH,” which addresses the production and use of chemical substances) may force us to adapt, redesign, redevelop, recertify and/or eliminate products from the markets in which we operate. Seizures of non-compliant products may be required, and we may incur administrative, civil or criminal penalties. In the event of an accident or other serious incident involving a product, we may be required to conduct investigations and undertake remedial activities.

Any accidents or catastrophic events involving our aircraft could adversely affect us.

We believe that our reputation and the safety record of our aircraft are important selling points for our products. However, the safe operation of our aircraft depends to a significant degree on a number of factors largely outside our control, including our customers’ proper maintenance and repair of our aircraft and pilot skill. The occurrence of one or more accidents or catastrophic events involving one of our aircraft could adversely affect our reputation and future sales, as well as the market price of our common shares and the ADSs.

Risks Relating to Brazil

Brazilian political and economic conditions have a direct impact on our business and the trading price of our common shares and ADSs.

The Brazilian federal government has frequently intervened in the Brazilian economy and occasionally has made drastic changes in policy and regulations. The Brazilian federal government’s actions to control inflation and affect other policies and regulations have often involved, among other measures, increases in interest rates, changes in tax policies, price controls, currency devaluations, capital controls and limits on imports. Our business, financial condition, results of operations and the trading price of the common shares and the ADSs may be adversely affected by changes in policy or regulations at the federal, state or municipal level involving or affecting factors such as:

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interest rates;

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monetary policies;

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exchange controls and restrictions on remittances abroad (such as those that were imposed in 1989 and early 1990);

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currency fluctuations;

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inflation;

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liquidity of domestic capital and lending markets;

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tax policies;

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energy and water shortages and rationing; and

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other political, diplomatic, social and economic developments in or affecting Brazil.

Uncertainty over whether the Brazilian federal government will implement changes in policy or regulation affecting these or other factors in the future may contribute to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets and securities issued abroad by Brazilian companies. These and other future developments in the Brazilian economy and governmental policies may adversely affect us and our business and results of operations and may adversely affect the trading price of our common shares and ADSs.

Inflation and government efforts to combat inflation may contribute significantly to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets and, consequently, may adversely affect the market value of our common shares.

Brazil experienced extremely high rates of inflation during the decade of the 1980s and in the early part of the 1990s. Since 1994, Brazil’s inflation has been under control. More recently, Brazil’s annual rate of inflation was 5.9%, 6.5%,5.8%, 5.9% and 6.5%, from 2010 through 2014, respectively, as measured by the Índice Nacional de Preços ao Consumidor Amplo (National Consumer Price Index), or IPCA. Although inflation rates in Brazil are under control to a certain extent, there continues to be some inflationary pressure as a result of the strong expansion of the Brazilian economy in recent years. Among the effects of such inflationary pressure, labor costs have risen. More recently, the Brazilian government has taken certain fiscal actions in order to keep inflation under control. Contracts in our Commercial Aviation and Executive Jets segment are adjusted for U.S. inflation, and contracts in our Defense & Security segment are adjusted for Brazilian inflation, among other factors.

Future Brazilian federal government actions, including interest rate decreases, intervention in the foreign exchange market and actions to adjust or fix value of the real may trigger increases in inflation. If Brazil experiences high inflation again, our operating expenses and borrowing costs may increase, our operating and net margins may decrease and, if investor confidence decreases, the price of our common shares and ADSs may fall.

Exchange rate instability may adversely affect us.

The real has historically and in the recent past been very volatile when compared to other currencies, principally the U.S. dollar. It was valued at R$1.63 per US$1.00 in August 2008. Following the onset of the crisis in the global financial markets, the real depreciated 43.6% against the U.S. dollar and reached R$2.34 per US$1.00 at the end of 2008. In 2010, the real appreciated against the U.S. dollar, reaching R$1.666 per US$1.00 at the end of 2010. In 2011, the real depreciated against the U.S. dollar, reaching R$1.875 per US$1.00 at the end of 2011. In 2012 and 2013, the real depreciated against the U.S. dollar, reaching R$2.34 per US$1.00 as of December 31, 2013 and R$2.66 per US$1.00 on December 31, 2014. There can be no assurance that the real would not depreciate or appreciate further against the U.S. dollar, notwithstanding Brazilian government’s efforts to keep the exchange rate at current levels. See Item 3A—Exchange Rates and Item 11—Foreign Exchange Risk.

Historically, depreciations in the real relative to the U.S. dollar have also created additional inflationary pressures in Brazil by generally increasing the price of imported products and requiring recessionary government policies to curb aggregate demand. On the other hand, appreciation of the real against the U.S. dollar may lead to a deterioration of the current account and the balance of payments, as well as dampen export-driven growth. Depreciations generally curtail access to foreign financial markets and may prompt government intervention, including recessionary governmental policies.

Although most of our revenue and debt is U.S. dollar-denominated, the relationship of the real to the value of the U.S. dollar, and the rate of depreciation of the real relative to the prevailing rate of inflation, may adversely affect us:

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Approximately 25% of our total costs are incurred and denominated in reais.

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Because taxes on income are largely determined and paid in reais based on our Brazilian tax books, the income tax expense (benefit) line item of our statements of income, which has the U.S. dollar as our functional currency, is significantly impacted by appreciation of the real relative to the U.S. dollar to the extent we must record deferred taxes resulting from exchange rate fluctuations on the reported basis of our nonmonetary assets (principally property, plant and equipment and intangible assets). Had the real devalued or appreciated by 10% against the dollar in relation to the actual exchange rate as of December 31, 2014, the deferred income tax expense would have been higher or lower by approximately US$124.5 million.

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Appreciation of the real against the U.S. dollar or other currencies increase the costs of our products when measured in U.S. dollars, and may result in a decrease in our margins.

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Depreciations of the real relative to the U.S. dollar would also reduce the U.S. dollar value of distributions and dividends on our ADSs and may also reduce the market value of our common shares and ADSs.

We may, as a result, be materially and adversely affected by exchange rate variations.

Economic developments and investor perceptions of risk in other countries, including both in developed or emerging market economies, may adversely affect the trading price of Brazilian securities, including our common shares and ADSs.

The market value of securities of Brazilian issuers is affected in varying degrees by economic and market conditions in other countries, including in developed countries, such as the United States and certain European countries, and in emerging market countries. Although economic conditions in such countries may differ significantly from economic conditions in Brazil, the reaction of investors to developments in these other countries may have an adverse effect on the market value of securities of Brazilian issuers. For example, the 2008 global economic crisis has had an impact on many economies and capital markets around the world. This crisis was evidenced by instability in the value of securities and capital markets, stock and credit market volatility, instability of most currencies, unavailability of credit, higher interest rates, a widespread reduction in demand, a general economic slowdown and other factors that could adversely affect our financial condition and diminish investors’ interest in securities of Brazilian issuers, including ours.

Risks Relating to Our Common Shares and ADSs

If holders of our ADSs exchange the ADSs for common shares, they risk losing the ability to remit foreign currency abroad and Brazilian tax advantages.

The Brazilian custodian for the common shares has obtained an electronic certificate of registration from the Central Bank permitting it to remit foreign currency abroad for payments of dividends and other distributions relating to the common shares or upon the disposition of the common shares. If holders of ADSs decide to exchange their ADSs for the underlying common shares, they will be entitled to continue to rely on the custodian’s electronic certificate of registration for five business days from the date of exchange. Thereafter, such holders of ADSs may not be able to obtain and remit foreign currency abroad upon the disposition of, or distributions relating to, the common shares unless they obtain their own electronic certificate of registration or register their investment in the common shares pursuant to Resolution No. 2,689, which entitles certain foreign investors to buy and sell securities on the São Paulo Stock Exchange. Holders who do not qualify under Resolution No. 2,689 will generally be subject to less favorable tax treatment on gains with respect to the common shares. If holders of ADSs attempt to obtain their own electronic certificate of registration, they may incur expenses or suffer delays in the application process, which could delay their ability to receive dividends or distributions relating to the common shares or delay the return of their capital in a timely manner. In addition, we cannot assure you that the custodian’s electronic certificate of registration or any certificate of foreign capital registration obtained by a holder of ADSs will not be affected by future legislative or other regulatory changes, or that additional restrictions applicable to such holder, to the disposition of the underlying common shares or to the repatriation of the proceeds from such disposition, will not be imposed in the future.

The Brazilian federal government has veto power over the change in our corporate control, and of our name, trademark or corporate purpose and over the creation or alteration of our Defense & Security programs, and its interests could conflict with the interests of the holders of our common shares and ADSs.

The Brazilian federal government holds one share of a special class of our common stock called a “golden share,” which carries veto power over our change of control, name, trademark or corporate purpose and over the creation or alteration of our Defense & Security programs (whether or not the Brazilian federal government participates in such programs). For example, in 2010, we changed our corporate name to Embraer S.A. and altered our bylaws to allow us to enter the defense and security market, which required the approval of the Brazilian federal government. The Brazilian federal government may veto transactions that may be in the interest of the holders of our common shares or ADSs. We cannot assure you that we will be able to obtain approvals from the Brazilian federal government in the future to effect important corporate changes, such as those carried out in 2010, or other important corporate changes that may be required.

Our bylaws contain provisions that could discourage our acquisition or prevent or delay transactions that you may favor.

Our bylaws contain provisions that have the effect of avoiding the concentration of our common shares in the hands of a small group of investors so as to promote the dispersed ownership of such shares. These provisions require any shareholder or group of shareholders that acquires or becomes the holder of (1) 35% or more of the total shares issued by us or (2) other rights over shares issued by us that represent more than 35% of our capital, to submit to the Brazilian federal government a request for making a public tender offer to purchase all of our shares on the terms specified in our bylaws. If the request is approved, such shareholder or group of shareholders must commence the public tender offer to purchase all of our shares within 60 days of the date of approval. If the request is refused, such shareholder or group of shareholders must sell all of such shareholder’s shares that exceed the 35% limit within 30 days, so that the holding of such shareholder or group of shareholders falls below 35% of our capital stock. These provisions may have anti-takeover effects and may discourage, delay or prevent a merger or acquisition, including transactions in which our shareholders might otherwise receive a premium for their common shares and ADSs. These provisions can only be altered or overridden with the approval of our Board of Directors and our shareholders in a shareholders’ meeting convened for this purpose and, with the consent of the Brazilian federal government, as holder of the golden share.

Our bylaws contain provisions that limit the voting rights of certain shareholders, including non-Brazilian shareholders.

Our bylaws contain provisions that limit the rights of a shareholder or group of shareholders, including brokers acting on behalf of one or more holders of ADSs, to exercise voting rights in respect of more than 5% of the outstanding shares of our capital stock at any general meeting of shareholders. See “Item 10B. Additional Information—Memorandum and Articles of Association—Description of Capital Stock—Voting Rights of Shares—Limitations on the Voting Rights of Certain Holders of Common Shares.”

Our bylaws also contain provisions that limit the right of non-Brazilian shareholders to exercise voting rights in respect of more than two-thirds of the voting rights that may be exercised by Brazilian shareholders present at any general meeting of shareholders. This limitation will effectively prevent our takeover by non-Brazilian shareholders and limit the ability of non-Brazilian shareholders to effect control over us. See “Item 10B. Additional Information—Memorandum and Articles of Association—Description of Capital Stock—Voting Rights of Shares—Limitations on the Voting Rights of Non-Brazilian Shareholders.”

The absence of a single, controlling shareholder or group of controlling shareholders may render us susceptible to shareholder disputes or other unanticipated developments.

The absence of a single, controlling shareholder or group of controlling shareholders may create difficulties for our shareholders to approve certain transactions, because, among other things, the minimum quorum required by law for the approval of certain matters may not be reached. We and our shareholders may not be afforded the same protections provided by the Brazilian Corporate Law against abusive measures taken by other shareholders and, as a result, may not be compensated for any losses incurred. Any sudden and unexpected changes in our management team, changes in our corporate policies or strategic direction, takeover attempts or any disputes among shareholders regarding their respective rights may adversely affect our business and results of operations.

Holders of ADSs may not be able to exercise their voting rights.

Holders of ADSs may only exercise their voting rights with respect to the underlying common shares in accordance with the provisions of the deposit agreement governing our ADSs. Under the deposit agreement, ADS holders must vote the common shares underlying their ADSs by giving voting instructions to the depositary. Upon receipt of the voting instructions from the ADS holder, the depositary will vote the underlying common shares in accordance with these instructions. Otherwise, ADS holders will not be able to exercise their right to vote unless they surrender the ADS for cancellation in exchange for the common shares. Pursuant to our bylaws, the first call for a shareholders’ meeting must be published at least 30 days in advance of the meeting, the second call must be published at least 15 days in advance of the meeting, and the third call, if necessary, must be published at least 8 days in advance of the meeting. When a shareholders’ meeting is convened, holders of ADSs may not receive sufficient advance notice to surrender the ADSs in exchange for the underlying common shares to allow them to vote with respect to any specific matter. In addition, the depositary has no obligation to notify ADS holders of an upcoming vote or distribute voting cards and related materials to ADS holders, unless we specifically instruct the depositary to do so. If we ask the depositary to seek voting instructions from ADS holders, the depositary will notify ADS holders of the upcoming vote and will arrange to deliver proxy cards to such holders. We cannot ensure that ADS holders will receive proxy cards in time to allow them to instruct the depositary to vote the shares underlying their ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for an untimely solicitation of voting instructions. As a result, holders of ADSs may not be able to fully exercise their voting rights.

The relative illiquidity and volatility of the Brazilian securities markets may substantially limit the ability of holders of our common shares or the ADSs to sell the common shares underlying ADSs at the price and time they desire.

Investing in securities, such as the common shares or the ADSs, of issuers from emerging market countries, including Brazil, involves a higher degree of risk than investing in securities of issuers from more developed countries.

The Brazilian securities markets are substantially smaller, less liquid, more concentrated and more volatile than major securities markets in the United States and other jurisdictions, and are not as highly regulated or supervised as some other markets. The relatively small market capitalization and illiquidity of the Brazilian equity markets may substantially limit the ability of holders of our common shares or ADSs to sell the common shares or the ADSs at the price and time desired. See “Item 9C. The Offer and Listing—Markets—Trading on the São Paulo Stock Exchange.”

Holders of our ADSs might be unable to exercise preemptive rights with respect to the common shares.

Holders of our ADSs may not be able to exercise the preemptive rights relating to the common shares underlying their ADSs unless a registration statement under the Securities Act is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares or other securities relating to these preemptive rights, and we cannot assure holders of our ADSs that we will file any such registration statement. Unless we file a registration statement or an exemption from registration applies, holders of our ADSs may receive only the net proceeds from the sale of their preemptive rights by the depositary or, if the preemptive rights cannot be sold, the rights will be allowed to lapse.

Judgments of Brazilian courts with respect to our common shares will be payable only in reais.

If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of the common shares, we will not be required to discharge our obligations in a currency other than reais. Under Brazilian exchange control limitations, an obligation in Brazil to pay amounts denominated in a currency other than reais may only be satisfied in Brazilian currency at the exchange rate, as determined by the Central Bank, in effect on the date the judgment is obtained, and such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then prevailing exchange rate may not afford non-Brazilian investors with full compensation for any claim arising out of or related to our obligations under the common shares or the ADSs.

ITEM 4.

INFORMATION ON THE COMPANY

4A.

Unresolved Staff Comments

We have no unresolved staff comments.

4B.

History and Development of the Company

Overview

Embraer S.A. is a joint stock company duly incorporated under the laws of Brazil with an indefinite term of duration. Originally formed in 1969 by the Brazilian federal government, we were privatized in 1994. In connection with our privatization, we were transformed into a publicly-held corporation, and we are subject to the provisions of the Brazilian Corporate Law. Our principal executive offices are located at Avenida Brigadeiro Faria Lima, 2170, 12227-901 São José dos Campos, São Paulo State, Brazil. Our telephone number is 55-12-3927-4404. Our agent for service of process in the United States is National Registered Agents, Inc., with offices at 875 Avenue of the Americas, Suite 501, New York, New York 10001.

We have grown from a government-controlled company established to develop and produce aircraft for the Brazilian Air Force into a publicly-held company that produces aircraft for commercial and executive aviation and for defense and security purposes.

As part of our evolution, we have obtained, developed and enhanced our engineering and technological capabilities through our own development of products for the Brazilian Air Force and through joint product development with foreign companies on specific projects. We have applied these capabilities that we gained from our defense business to develop our Commercial Aviation business.

Our first regional aircraft was the Bandeirante, a 19-passenger twin-engine non-pressurized turboprop aircraft initially designed to service the transport needs of the Brazilian Air Force. This aircraft was certified in 1973. The Bandeirante was followed by the EMB 120 Brasília, which was certified in 1985 and is a high performance, pressurized turboprop commercial aircraft seating up to 30 passengers that was designed to serve the longer routes and higher passenger traffic of the growing regional aircraft market. Drawing upon the design of the EMB 120 Brasília and the jet technology acquired in our development of the AM-X, a jet strike bomber for the Brazilian Air Force, we developed the ERJ 145 regional jet family, our first jet product for commercial use. This family comprises three aircraft, which seat up to 37, 44 and 50 passengers. The first member of the ERJ 145 family, the ERJ 145, was certified in 1996. We have expanded our jet product line with the development of the EMBRAER 170/190 jet family, which has the capacity to seat between 70 and 118 passengers and was designed to serve the aircraft market’s trend towards larger, higher volume and longer range jets. The first member of this family, the EMBRAER 170, was certified in February 2004, and its derivatives, the EMBRAER 175 and the EMBRAER 190, were certified in December 2004 and August 2005, respectively. The certification of the EMBRAER 195 was granted in June 2006. In June 2013, Embraer launched the second generation of its E-Jets family of commercial aircraft, the E-Jets E2, comprising three new airplanes, the E175-E2, E190-E2 and E195-E2. The E190-E2 is expected to enter service in the first half of 2018. The E195-E2 is slated to enter service in 2019 and the E175-E2 in 2020. We are also marketing and selling the Legacy 450, Legacy 500 and Legacy 600, a line of executive jets in the mid-light, mid-size and super mid-size categories, and the Phenom 100, Phenom 300 and Lineage 1000, which are positioned in the entry-level, light and ultra-large categories, respectively. In addition, in 2009 we presented the new Legacy 650, a large executive jet that will be positioned in our executive jet portfolio between the Legacy 600 and the Lineage 1000. In the defense and security market, we offer a line of intelligence, surveillance and reconnaissance aircraft based on the ERJ 145 regional jet platform, services, systems and solutions, ground radar, transportation of authorities, tactical military transport and aerial refueling (KC-390), basic and advanced training and light attack aircraft (Super Tucano), unmanned aerial systems (UAS), and geostationary defense and communications satellites.

On November 19, 2010, our shareholders approved a change to our corporate name from Embraer – Empresa Brasileira de Aeronáutica S.A. to Embraer S.A., as well as the addition of capabilities and the broadening of the scope of our defense business unit to allow such business unit to manufacture and trade equipment, materials, systems, software, accessories and components for the defense, security and energy industries, as well as to perform technical activities and services related to these areas. As a result, our bylaws were amended to reflect the addition of these activities to our corporate purposes.

In 2013, we launched Embraer Systems to apply Embraer’s excellence in sophisticated technologies to new, capital-intensive and complex industries in which efficiency, reliability and security are critical. It is part of the company’s diversification strategy, which has progressed in recent years as a way to enhance growth. Highlights of Embraer Systems include (1) vast experience in developing and integrating systems, latest-generation technologies, and application of innovation, (2) experience with technological management processes on a global scale, and (3) standard of excellence inherent to the aeronautics and defense industry.

Strategic Alliances and Growth Opportunities

We intend to review strategic growth opportunities, which may include joint ventures and acquisitions, and other strategic transactions, as well as enhance our existing relationships with significant world players in the aerospace and defense and security industries, including any members of the groups or companies below.

Strategic Alliances

European Aerospace and Defense Group

On November 5, 1999, a group consisting of (1) Aerospatiale Matra, currently known as European Aeronautic, Defense and Space Company N.V., or EADS, (2) Dassault Aviation, (3) Thomson-CSF, currently referred to by its trade name Thales^TM, and (4) Société Nationale d’Étude et de Construction de Moteurs d’Aviation, or Safran, all of which we refer to collectively as the European Aerospace and Defense Group, purchased 20% of our outstanding common stock from our existing common shareholders at that time. Most of the common stock purchased by the European Aerospace and Defense Group was owned by our former controlling shareholders.

Because the members of the European Aerospace and Defense Group were, at the time, considered by our former controlling shareholders to be strategic partners of Embraer, they were granted the right, as a group, to appoint two members to our Board of Directors. However, as a result of the termination of the shareholders’ agreement among our former controlling shareholders as part of our 2006 corporate reorganization, the European Aerospace and Defense Group no longer has the right to appoint members to our Board of Directors, other than pursuant to the general right provided for in the Brazilian Corporate Law. In addition, under Brazilian law the European Aerospace and Defense Group is no longer recognized as a group for voting purposes nor considered to be a strategic shareholder of Embraer. Thales^TM sold all of its shares in October 2006, and EADS sold all of its shares in a secondary offering in February 2007.

AEL Sistemas

In April 2011, we and AEL Sistemas, a subsidiary of the Israeli company Elbit Systems Ltd., announced the execution of a strategic agreement with the purpose of evaluating joint exploration prospects for unmanned aerial systems (UAS), including the potential creation of a company to explore this segment with a majority participation of our Defense & Security business unit.

Boeing

In April 2012, we entered into a cooperation agreement with Boeing, in which we agreed to pursue several areas of cooperation, including commercial aircraft features that enhance safety and efficiency, research and technology and sustainable aviation biofuels.

In June 2012, we and Boeing announced the execution of a cooperation agreement with the purpose of joining our sales efforts on the KC-390 aircraft program. Under this agreement, Boeing and Embraer will share specific technical knowledge and evaluate markets for medium-lift military transport opportunities.

In July 2012, we and Boeing announced at the Farnborough Airshow the execution of another cooperation agreement that further enhances the collaboration between the two companies. This agreement also brings additional capabilities to Embraer’s A-29 Super Tucano through new weapons integration developments to meet future customer requirements.

In December 2012, we and Boeing announced the Runway Situation Awareness Tools project, which will provide a shared set of tools to customers of both companies and reduce runway excursions. This project strengthens the collaboration between two of the world’s largest aerospace companies.

In June 2013, we announced a partnership with Boeing to market and sell the KC-390 medium-airlift aircraft. Under the agreement, Boeing is the lead for KC-390 sales, support and training opportunities in the U.S., United Kingdom and select Middle Eastern markets. Embraer will manufacture the aircraft and collaborate on sales, support and training.

Saab

In July 2014, Embraer Defense & Security and Saab entered into a memorandum of understanding to partner in a joint program management for the F-X2 Project, pursuant to the selection of the Gripen NG as Brazil´s next generation fighter jet. Under this agreement, we will perform a leading role in the overall program performance as well as undertake an extensive share of work in the production and delivery of both the single and two-seat versions of the state-of-the-art Gripen NG aircraft for the Brazilian Air Force.

In October 2014, Embraer and Saab signed the agreement covering the fundamental concepts of operations between the companies. The entire agreement is presently anticipated to be executed on or before March 31, 2015.

Embraer Defense & Security Subsidiaries and Joint Ventures

HEAI

In December 2002, we formed HEAI, a joint venture company with Harbin Aviation Industry (Group) Co., Ltd. and Hafei Aviation Industry Co., Ltd., both subsidiaries of AVIC, to provide for assembly, sales and after-sales support of the ERJ 145 regional jet family. We own 51% of the equity of HEAI. We have granted HEAI a license for the exclusive rights to produce, sell and provide after-sales support for the ERJ 145 regional jet family in the Chinese markets, and we contributed US$12.4 million in cash, tooling and inventory to the joint venture. Our joint venture partners have contributed the land use rights in Harbin, China, and contributed US$10.8 million in cash and facilities to the joint venture. The roll-out of the first ERJ 145 manufactured by the joint venture occurred in December 2003, and the joint venture entered into its first sales contract for six aircraft with China Southern Airlines in February 2004. In October 2007, the 1,000^th jet of the ERJ 145 family was delivered by Harbin Embraer Aircraft Industry Co. Ltd.

In April 2011, we entered into a framework agreement with AVIC for the implementation of a Legacy 600/650 production line in China, using the infrastructure, financial resources and workforce of HEAI. This industrial cooperation program will focus on the production of the Legacy 600/650 family in China, which is to replace the discontinued ERJ 145 family, and aims to serve the demand of the Chinese executive aviation market. During 2014, we delivered two Legacy 650 manufactured at HEAI, the first in January and the second in June.

CAE

In October 2006, we entered into an agreement with the Canadian company CAE Inc., or CAE, to form a global training joint venture. The partnership provides comprehensive entitlement training and post-entitlement training for pilots, maintenance technicians and dispatch personnel for Phenom 100 entry-level jets and Phenom 300 light jets. This training program was first offered at CAE SimuFlite in Dallas, Texas, following the commencement of operation of the Phenom 100 in 2008, and expanded to Burgess Hill in the U.K. in 2009 and Guarulhos in 2012.

Liebherr Aerospace

In July 2008, we acquired a 40% interest owned by Liebherr Aerospace SAS, or Liebherr, in ELEB–Equipamentos Ltda., or ELEB, a 60%/40% joint venture that we formed with Liebherr in 1999, for US$20.0 million, making us the sole equity holder of ELEB. ELEB is an aerospace system and component manufacturer and its main products include landing gear systems, hydraulics and electro-mechanical sub-assemblies, such as actuators, valves, accumulators and pylons.

Bradar

In May 2011, we executed a US$25.7 million agreement to purchase a 90% stake in the capital stock of the radar business of OrbiSat da Amazônia Indústria e Aerolevantamento S.A., a Brazilian company that created a radar business in 2002 to develop state-of-the-art technology for air, sea and land remote sensing and aerial surveillance. In late 2013, the company announced the adoption of the new brand “Bradar” and the names Bradar Indústria S.A. and Bradar Aerolevantamento Ltda.

During 2014, Bradar entered into several contracts in the radar and remote sensing segment, including the supply of the M-60 radar for the Brazilian Navy, the continuity of M-200 radar development and the provision of GBAD (Ground Based Air Defense) Operation Center, both related to the Brazilian Army.

Atech

In April 2011, we announced the acquisition of 50% of the capital stock of Atech Negócios em Tecnologias S.A., or Atech, with the purpose of increasing our capacity for developing products and services in the area of Command, Control, Communications, Computer and Intelligence, air defense and air traffic control. Since 2013, Embraer Defense & Security is the only shareholder of Atech.

In 2014, Atech was contracted by the Airport Authority of India to install the Skyflow System, a database that integrates information from airlines, airports and regulatory agencies, among others, with weather data important to air traffic control.

Harpia

In September 2011, Embraer’s Defense & Security and AEL Sistemas S.A., or AEL, a subsidiary of the Israeli company Elbit Systems Ltd. created a new company, Harpia Sistemas S.A., or Harpia, to focus on the unmanned aerial systems market. In February, 2013, Embraer Defense & Security and AEL announced the acquisition by Avibras Air and Naval Division, Inc., or Avibras, of shares of Harpia to jointly develop the market for unmanned aircraft systems in Brazil. As a result, Avibras holds a 9% stake of the company, whereas AEL holds 40%. Embraer Defense & Security remains the majority shareholder with 51%. Harpia’s main scope involves marketing, development, systems integration, manufacture, sales, and after-sale support for unmanned aerial systems, as well as simulators and the modernization of avionics systems.

Visiona Tecnologia Espacial S.A.

In November 2011, Embraer and Telecomunicações Brasileiras S.A., or Telebras, announced the signing of a memorandum of understanding for the purpose of forming Visiona Tecnologia Espacial S.A., or Visiona, of which Embraer holds a 51% stake and Telebras 49%.

Through this joint venture between Embraer and Telebras, Visiona is the prime contractor for the Brazilian Strategic and Defense Communications Geostationary Satellite (SGDC), with responsibility for the system integration. This is a key step for Embraer’s entry into the satellite integration business.

Visiona’s headquarters is located in the Technological Park of the city of São José dos Campos, São Paulo, Brazil, where a Space Technology Development Center is being established, which will integrate Brazil’s most relevant aerospace educational and research organizations, and accelerate the capabilities of the Brazilian space industry.

In November 2013, Visiona was selected by Telebras to be the integrator of the SGDC system that, once delivered, will be operated by Telebras and the Brazilian Ministry of Defense.

In December 2013, Visiona signed a contract with Thales Alenia Space France and Arianespace, which have agreed to furnish a satellite and to launch it, respectively.

In December 2014, the Critical Design Review (Satellite, Payload, Antennas and the Ground Segment Systems) was performed. The maturity of the project was evaluated and approved by representatives of Telebras and the Ministry of Defense of Brazil. All contractual events up to December 2014 have been met as well as the program schedule.

Savis Tecnologia e Sistemas S.A.

In November 2012, the Brazilian Army signed a contract for the implementation of Phase I of the SISFRON program (Sistema Integrado de Monitoramento de Fronteiras) with the Tepro consortium, composed of two companies, Savis Tecnologia e Sistemas S.A. and Bradar Aerolevantamento, both of which are controlled by Embraer Defense & Security. SISFRON is the Integrated Border Surveillance System that the Brazilian Army is developing on the Western borders of Brazil.

SISFRON’s Phase I includes the surveillance and protection of approximately 650 kilometers of Brazilian borders, covering the borders between the Brazilian State of Mato Grosso do Sul and Paraguay and Bolivia. The full scope of SISFRON’s surveillance capabilities will consist of 16,886 kilometers of borders that divide 11 Brazilian states, encompassing 27% of the nation’s territory, and 10 neighboring countries.

In May 2013, the Tepro consortium concluded its selection of the primary suppliers of the electromagnetic signal sensor, tactical communications, optronics, and infrastructure systems. In June 2013, it concluded the selection of the main suppliers for all subsystems of SISFRON’s first phase.

In April 2014, the Tepro consortium concluded the establishment of the Military Operations Center in the city of Campo Grande, in the State of Mato Grosso do Sul.

In November 2014, the Brazilian Army celebrated the official inauguration of SISFRON operations. The progress of the work advances according to the schedule and the contract signed with the Brazilian army.

Two important milestones were reached in December 2014. SISFRON achieved FAT (Field Acceptance Test) approval of the first SENTIR M20 radar unit and successfully implemented the first strategic network communications.

Capital Expenditures (Property, Plant and Equipment and Development)

Commercial Aircraft and Executive Jets

In our Commercial Aviation and Executive Jets segments, we include our investments in both development and property, plant and equipment as part of our capital expenditures.

As part of our transition to IFRS, in 2010 we have started to capitalize our expenditures related to product development projects as non-current intangible assets on our statement of financial position when it is probable that the relevant projects will generate future benefits, taking into account their commercial and technological feasibility and availability of technological and financial resources and only if their cost can be reliably measured. We amortize such assets in the form of charges to cost of sales and services on our statements of income, based on the total estimated number of aircraft to be delivered for each new product development project. We also capitalize expenditures related to property, plant and equipment as non-current assets on our statement of financial position and depreciate such assets in the form of charges to cost of sales and services on our statements of income. For information on how we amortize our intangible assets and depreciate our property, plant and equipment, see “Item 5A. Operating and Financial Review and Prospects—Operating Results—Principal Operating Data and Components of Our Statement of Income—Cost of Sales and Services.” Development costs in the Commercial Aviation and Executive Jets segments are capitalized from the board approval for the relevant project until the final certification.

Most of our development expenditures are associated with the development of new products either for the Commercial Aviation or Executive Jets segments. Development expenditures totaled US$230.0 million in 2014, US$230.6 million in 2013, US$209.3 million in 2012 and US$121.3 million in 2011, net of used cash contributions from risk-sharing partners, which totaled US$185.4 million in 2014, US$51.8 million in 2013, US$1.0 million in 2012, and US$85.8 million in 2011. Development expenditures for 2014 remained stable in comparison to 2013, mainly due to consistent expenditures related to the Legacy 450 and E-Jets E2 programs. Development expenditures for 2013 remained stable in comparison to 2012, mainly due to consistent expenditures related to Executive Jets programs.

The increase in contribution from risk-sharing partners in 2014 relative to 2013 was mainly due to the development of the E2 E-Jets programs. The increase in cash contributions from risk-sharing partners in 2013 relative to 2012 is mainly due to the E-Jets E2 family, which commenced development in 2013. The significant decrease in cash contributions from risk-sharing partners in 2012 relative to 2011 is mainly due to the lack of contractual milestones that were set to take place in 2012. See “Item 5C. Operating and Financial Review and Prospects—Research.”

Our main ongoing project is the development of the E-Jets E2 family, comprising three new airplanes, the E175-E2, E190-E2, and E195-E2. We estimate our total investment in this project will be US$1.7 billion through 2020. Our investment in the Legacy 450/500 executive jets is estimated at US$750.0 million and is expected to be invested through 2015, in property, plant and equipment and development for the Legacy 450/500 programs, which were launched by us in April 2008. The first Legacy 500 executive jet was delivered in October 2014, and the Legacy 450 is expected to enter into service in 2015.

Our total disbursements in capital expenditures related to property, plant and equipment (excluding spare parts for pool programs and aircraft under lease or available for lease) were US$227.5 million in 2014, US$294.3 million in 2013 and US$207.9 million in 2012. These investments are related mainly to (1) construction of new facilities and (2) improvements and modifications to our plants and production facilities for the production of new aircraft models.

In 2015, we expect to invest approximately US$650.0 million in capital expenditures for research, product development and property, plant and equipment. Of this amount, approximately US$350.0 million will be invested in our research and product development activities, exclusive of contributions of risk-sharing partners, and US$300.0 million will be invested in property, plant and equipment. The US$300.0 million capital expenditures to be disbursed in connection with property, plant and equipment are primarily related to (1) improvements to our existing facilities, and (2) E-Jets E2 family.

We expect to invest approximately 80% of our budgeted US$650.0 million capital expenditures for 2015 in Brazil, most of which will be invested in research and development activities. The remaining 20% of our capital expenditures will be invested abroad in the maintenance and improvements of our existing facilities.

Our capital expenditures are generally financed by funds provided by operations, borrowings under our credit arrangements, cash contributions from risk-sharing partners, advance payments from customers and, to a lesser extent, capital increases to meet these needs. See “Item 5B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Overview” and “Item 5C. Operating and Financial Review and Prospects—Research.”

Defense & Security

We incur few development expenditures for defense and security programs, as those are primarily funded by the Brazilian federal government and other government customers under long-term development contracts, which are recorded as revenues and costs on a percentage of completion basis to the extent the customer pays for the development.

4C.

Business Overview

We are one of the leading manufacturers of commercial aircraft (i.e., regional and mid-capacity jets) in the world, based on 2014 revenue arising from sales of commercial aircraft, and have a global customer base. Our focus is achieving customer satisfaction with a range of products and services addressing the commercial airline, executive jet and defense and security markets. Our Commercial Aviation business, including aviation-related services, accounted for 50.3% of our revenue in 2014. We are the leading supplier of defense aircraft to the Brazilian Air Force, based on number of aircraft sold, and we have sold aircraft to armed forces in Europe, Asia, the United States and Latin America. Our Defense & Security business, including aviation related services, accounted for 23.2% of our revenue in 2014. We have developed a line of executive jets based on one of our regional jet platforms and launched new executive jets in the entry-level, light, ultra-large and mid-light/mid-size categories: the Phenom 100/300 family, the Lineage 1000 and the Legacy 450/500 family, respectively. Our Executive Jets business, including aviation related services, accounted for 25.3% of our revenue in 2014. Providing high quality customer support is a key element of our customer focus and is critical to our ability to maintain long-term customer relationships. Other related businesses accounted for 1.2% of our revenue in 2014. For the year ended December 31, 2014, we generated revenue of US$6,288.8 million, of which approximately 68.1 % was U.S. dollar-denominated. At December 31, 2014, we had a total firm order backlog of US$20.9 billion, which included 459 firm orders for commercial aircraft.

Our Strengths

We believe that our primary strengths are:

Leading Commercial Aircraft Manufacturer with a Global Customer Base. Based on the number of aircraft sold, we are a leading manufacturer of jets of up to 130 seats, with a strong global customer base. Around 90 airlines from over 60 countries are flying our commercial jet aircraft on the five continents. Our customers include some of the largest and most significant network, regional and low cost carriers in the world.

Aircraft Design; Commonality; Cost and Operating Efficiency. We conceive, develop and manufacture aircraft to provide our customers with reduced operating, maintenance and training costs due to the similarity and efficiency in design and the commonality of parts within a jet family. These similarities enable us to significantly reduce our design, development and production costs and pass these savings along to our customers in our sales price. These similarities also reduce the development time of our aircraft.

Strategic Risk-Sharing Partners. With respect to our commercial and executive aircraft, we developed strategic relationships with key risk-sharing partners. These risk-sharing partners develop and manufacture significant portions of the systems and components of our aircraft and contribute their own funds to develop these systems and components, thereby reducing our development expenses. These risk-sharing partners also fund a portion of our development expenses through direct contributions of cash or materials. We believe that these strategic relationships enable us to lower our development expenses and risks, improve our operating efficiency, enhance the quality of our products and reduce the number of our suppliers, thereby providing us with flexibility of our production process.

Funded Development of Defense Products. Historically, development expenditures related to defense aircraft have been funded in large part by certain of our customers, which in this business segment include the governments of different countries. These customers have had an important role in our engineering and industrial development. In addition, we use well-proven platforms developed for the commercial aviation segment as a solution for certain defense products. We also sell to other military forces the proven defense products developed for the air forces of certain countries.

Flexibility of Production to Meet Market Demands. We believe the flexibility of our production processes and our operating structure, including our risk-sharing partnerships, allow us to increase or decrease our production in response to market demand.

Experienced and Highly Skilled Workforce. Our employees are experienced and highly skilled. As of December 31, 2014, engineers comprised 29.6% of our workforce. Due to the high level of knowledge and skill of our employees, and our continuous training and incentive programs, we are able to efficiently pursue new programs and provide our customers with differentiated technical expertise and guidance.

Business Strategies

With a view to continue growing our business and increasing our profitability, we intend to continue to offer our customers cost-effective, high quality, and reliable aircraft and services. The key elements of our strategy are the following:

Continuing to Market Our Commercial Aircraft. We are fully committed to continuing to market our jets of up to 130 seats (ERJ 145 family and the E-Jets family). As of December 31, 2014, we had approximately 680 units of the ERJ 145 jet family and over 1,000 units of the EMBRAER 170/190 jet family active in service. We believe that market opportunities exist for the EMBRAER 170/190 jet family with regional airlines that are seeking to expand their fleet, as well as increase their penetration in higher density markets and add longer routes. We also believe that the EMBRAER 170/190 jet family will have opportunities with mainline and low-cost airlines that are right sizing their fleets to adjust capacity for low to mid-density markets. As of December 31, 2014, we were leaders in the segment of jets of up to 130 seats in terms of number of aircraft sold. Additionally, we believe that our commercial aircraft will provide us with significant opportunities to increase our competitiveness by offering a full range of jets of up to 130 seats to our customers.

Strengthening Our Position in the Executive Jet Market. We believe that the executive jet market provides us with significant growth opportunities. We expect to offer products in all executive jet categories, from the entry-level to the ultra large. We have developed the Legacy 600, a super mid-size jet, the Phenom 100, an entry-level jet, the Phenom 300, a light jet, and the Lineage 1000, an ultra large jet, and are developing the Legacy 450 in the mid-light category. In addition, in 2010 we made the first delivery of the Legacy 650, a large executive jet, and in 2014 we delivered the first Legacy 500, a mid-size jet. We have endeavored to understand and respond to market and customer needs, in an effort to continuously improve the product and customer support for our executive jets.

Continue to Pursue Market Niche Opportunities in the Defense and Security Market. We currently offer products for transportation, training, light attack, intelligence, surveillance and reconnaissance. Since our products offer multi-mission capabilities at a competitive price and are designed to be operated in any environment at low operating costs, we believe our products meet the needs of governments in countering global threats, such as terrorism, drug dealing and weapon smuggling.

Continued Focus on Customer Satisfaction and Support. We believe that our focus on customer satisfaction is fundamental to our entrepreneurial success and our business strategy. Providing high quality customer support and services is a key element of our customer focus and it is critical to our ability to maintain long-term relationships with our customers and keep our products competitive in the market. As the number of our aircraft in operation continues to grow, and our Executive Jets business expands, we have further increased our commitment to providing our customers with an appropriate level of after-sale support, including technical assistance, training, maintenance, spare parts and other related services. This is evidenced, for example, by the expansion of our customer support and services bases.

We own and operate several service centers, located in various parts of the world. In addition, our customers can rely on dozens of authorized third-party centers located around the world to comply with their maintenance needs. For further information on our support and services network, see “—Services and Support.”

Continue to Motivate Our Employees and Improve Our Production Processes and Managerial Practices. We are constantly seeking to exceed our customers’ expectations. In order to achieve this goal, we must, on a daily basis, continuously seek to implement the most efficient production processes and best managerial practices. Because the success of our products and services is ultimately a combination of the contribution of our employees and the production processes we have developed over the years, we recognize that we must continue to motivate our employees and refine our production processes. To that effect, we have implemented, and intend to further develop, corporate programs based on a “lean manufacturing” philosophy, such as the Embraer Enterprise Excellence Program, that are designed to strengthen our internal culture of excellence and improve the efficiency of our operations.

Commercial Aviation Business

We design, develop and manufacture a variety of commercial aircraft. Our Commercial Aviation business is our primary business, accounting for 50.3% of our revenue for the year ended December 31, 2014.

Products

We developed the ERJ 145 family, our 37-50-passenger twin jet-powered regional aircraft, introduced in 1996, to address the growing demand among regional airlines for medium-range, jet-powered aircraft. We are continuing to develop the EMBRAER 170/190 jet family, our 70-130 seat platform, to serve the trend in the commercial airline market toward larger, faster and longer range jets and to further diversify our strength in the jet market. We continue to monitor and analyze market trends, customer requirements and aircraft demand to guide our product development according to market needs.

ERJ 145 Regional Jet Family

The ERJ 145 is a twin jet-powered regional aircraft accommodating up to 50 passengers. This jet was developed in response to the increasing demand from the regional airline industry for an aircraft that offered more speed and comfort than a turboprop. The ERJ 145 was certified by the Brazilian Aviation Authority in November 1996, the FAA in December 1996, and the European Aviation Authority in April 1997. We began delivering the ERJ 145 in December 1996 and delivered the 1,000th unit, manufactured by Harbin Embraer Aircraft Industry Co. LTD., to the HNA Group in September 2007.

The ERJ 135 is a 37-seat regional jet based on the same design as the ERJ 145. The ERJ 135 has approximately 96% commonality of parts and components with the ERJ 145, reducing spare-parts requirements and permitting the utilization of the same ground support equipment for customers that use both aircraft. The ERJ 135 was certified by the Brazilian Aviation Authority in June 1999, by the FAA in July 1999 and by the European aviation authority in October 1999. Deliveries of the ERJ 135 began in July 1999.

We developed the ERJ 140 in response to customer requests. The ERJ 140 is a 44-seat regional jet based on the same design as the ERJ 135 and is manufactured on the same production line as the ERJ 145 and ERJ 135. The ERJ 140 has approximately 96% commonality with the ERJ 145 and ERJ 135, providing our customers with significant maintenance and operational benefits. The ERJ 140 was certified by the Brazilian Aviation Authority in June 2001 and by the FAA in July 2001. We began delivering the ERJ 140 in August 2001.

The ERJ 145 regional jet family allows for standardized pilot certification and maintenance procedures.

EMBRAER 170/190 Jet Family

The EMBRAER 170/190 jet family provides our customers four aircraft models in the mid-capacity passenger range. The EMBRAER 170 is a 70-78 seat jet and the EMBRAER 175 is a 78-88 seat jet, while the EMBRAER 190 is a 98-114 seat jet and the EMBRAER 195 is a 108-124 seat jet.

The EMBRAER 170 was certified by the Brazilian Aviation Authority, the FAA, the Joint aviation authority of Europe (the former advisory organization that made certification recommendations to non-EU national authorities), or JAA and the EASA in February 2004, and deliveries of the EMBRAER 170 began in March 2004. The EMBRAER 175 was certified by the Brazilian Aviation Authority in December 2004, by the EASA in January 2005 and by the FAA in August 2006. The EMBRAER 190 was certified by the Brazilian Aviation Authority in August 2005, by the FAA in September 2005 and by the EASA in June 2006. The EMBRAER 195 was certified by the Brazilian Aviation Authority in June 2006, by the EASA in July 2006 and by the FAA in June 2007.

We designed the EMBRAER 170/190 jet family to maximize the benefits of commonality. Aircraft in the family share approximately 86% of the same components. The high level of commonality in this jet family lowered our development expenses and shortened our development period. We believe that this commonality leads to significant savings to our customers in the form of easier training, less expensive parts and maintenance and lower operational costs. Due to differences in size and weight, the EMBRAER 170/190 jet family does not share the same wing design. This new mid-capacity jet family has engines fixed under its main wings—a design intended to enhance power, improve fuel economy and minimize turnaround times. All of the aircraft models of this family are powered by engines manufactured by General Electric and contain state-of-the-art avionics manufactured by Honeywell.

The EMBRAER 170/190 jet family’s principal features are:

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Performance. All four jets in the EMBRAER 170/190 jet family have a maximum cruising speed of Mach .82. The EMBRAER 170 and the EMBRAER 175 have maximum fully loaded ranges of 1,800 and 1,700 nautical miles, respectively, and each is available in the long-range version, with maximum fully loaded ranges of 2,100 and 2,000 nautical miles, respectively. The EMBRAER 190 and EMBRAER 195 have maximum fully loaded ranges of 1,800 and 1,500 nautical miles, respectively, and each is available in the long-range version with maximum fully loaded ranges of 2,400 and 2,200 nautical miles, respectively.

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Ground servicing. The underwing engine design and the existence of four doors, two in the front and two in the back, provide for enhanced accessibility and efficiency of ground services.

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Cabin and cargo space. We have enhanced passenger safety and comfort in the EMBRAER 170/190 jet family. The aircraft’s “double-bubble” design enables a four-abreast cabin, a wide aisle, greater interior space and headroom and a larger baggage compartment than the existing mid-capacity jets of our competitors, including those mid-capacity jets that are in the development stage.

In June 2013, Embraer launched the second generation of its E-Jets family of commercial aircraft, named the E-Jets E2, comprising three new airplanes, the E175-E2, E190-E2, and E195-E2. The E190-E2 is expected to enter service in the first half of 2018. The E195-E2 is slated to enter service in 2019 and the E175-E2 in 2020. Embraer estimates its total investments in the new E-Jets E2 models to be US$1.7 billion over the next years.

The launch of the E2 builds on our vision to offer leading-edge commercial jets with a capacity right-sized for 70 to 130 seats, seamless mainline comfort, and performance for flexible and efficient utilization by regional, low-cost, and network carriers. Our strategy is to offer all the benefits of a new design, but with the reliability of a mature platform and commonality with current generation E-Jets. We have continually invested in the E-Jets program, so that our customers can stay competitive with aircraft that have the lowest operating costs and the highest passenger appeal, today and in the future.

In a typical single-class layout, the E175-E2 was extended by one seat row, compared to the current generation E175, and will seat up to 90 passengers, while the E190-E2 is the same size as the E190, of up to 114 seats. The E195-E2, compared to the current E195, has grown by three seat rows and will accommodate up to 136 seats.

EMB 120 Brasilia

The EMB 120 Brasilia is a pressurized twin wing-mounted turboprop aircraft that accommodates up to 30 passengers. The EMB 120 Brasilia was developed in response to the commercial airline industry’s demand for a high-speed and fuel-efficient 30-seat regional aircraft. The EMB 120 Brasilia was certified by the FAA in May 1985 and by the Brazilian Aviation Authority in July 1985. Since its introduction in 1985, we have delivered 352 EMB 120 Brasilias for the regional market and six EMB 120 Brasilias for the defense and security market.

Customers

We have a diverse, global customer base, mainly in the commercial airline market in Europe, the Middle East, Africa, Asia (particularly China) and the Americas. Our major customers for commercial aircraft include some of the largest regional, low-cost and mainline airlines in the world. As of December 31, 2014, our largest customers, by aircraft in service, were Skywest, Republic, Envoy, Azul, Tianjin—HNA, Trans States, JetBlue, Aeromexico, Air Canada and HOP!—Air France.

For a discussion of significant customer relationships, see “Item 3D. Key Information—Risk Factors—Risks Relating to Embraer—We depend on key customers.”

We generally sell our commercial aircraft pursuant to contracts with our customers on a fixed-price basis, adjusted by an escalation formula that reflects, in part, inflation in the United States. Our contracts generally include an option for our customers to purchase additional aircraft at a fixed price option, subject to the same escalation formula. In addition, our contracts include a product support package to cover the entry into service of our aircraft, as well as a general warranty for such aircraft (See Item 5—Critical Accounting Estimates – Product Warranties). Other provisions for specific aircraft performance and design requirements are negotiated with our customers. Finally, some of our contracts contain cancellation provisions and trade-in options and financial and residual value guarantees. See “Item 3D. Key Information—Risk Factors—Risks Relating to Embraer—Some of our aircraft sales may be subject to financial and residual value guarantees and trade-in options that may require us to make significant cash disbursements” for a more detailed discussion of these provisions.

Sales and Marketing

Our current marketing strategy is based upon our assessments of the worldwide commercial airline market and of the needs of our customers. We actively market our aircraft to international airlines and regional affiliates of major global airlines through our regional offices in the United States, Europe and Asia. Our success depends, to a significant extent, on our ability to discern our customers’ needs, including needs for customer service and product support, and to fill those needs in a timely and efficient manner while maintaining the high quality of our products. Our market and airline analysts focus on the long-term trends of the market, competitive analysis, product-enhancement planning and airline analysis. In terms of direct marketing to our customers, we rely heavily on the media, as well as participating in air shows and other cost-effective events that enhance customer awareness and brand recognition. Besides São José dos Campos in Brazil, we have regional sales offices in Villepinte, France; Fort Lauderdale, Florida, U.S.A.; Beijing, China; and Singapore.

Production, New Orders and Options

Prior to starting production or development of a new project, we secure letters of intent for future orders of a significant number of aircraft. We typically begin taking orders and building a backlog two years before we begin producing a new aircraft model, aiming to receive a significant number of orders before we deliver the initial aircraft. Once an order is taken, we reserve a place for that order on the production line, ensuring that we will maintain production sufficient to meet demand. Once a place is reserved on the production line, we are able to give customers delivery dates for their orders.

We include an order in backlog once we have received a firm commitment, represented by a signed contract. Our backlog does not include options and letters of intent for which definitive contracts have not been executed. For the sales of our commercial aircraft, we customarily receive a deposit upon signing of the purchase agreement and progress payments in the amount of 5% of the sales price of the aircraft 18 months before scheduled delivery, 5% twelve months before scheduled delivery and another 5% six months before scheduled delivery. For the EMBRAER 170/190 jet family, we receive an additional 5% progress payment 24 months before scheduled delivery. The deposits and the progress payments are for the most part nonrefundable in the event orders are cancelled.

Our options generally provide our customers the right to purchase an aircraft at a fixed price and on a specified delivery date, subject to escalation provisions, under a purchase agreement. Once a customer decides to exercise an option, we account for it as a firm order. Occasionally, we have extended the exercise date for our options and renegotiated the delivery schedule of firm orders, as well as allowed customers to convert their firm orders or options for one aircraft into firm orders or options for another aircraft within the same commercial aircraft family.

Services and Support – Commercial Aircraft

We are working on further developing our portfolio of services for our Commercial Aviation customers, which comprises the following areas:

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Field Support, which provides conveniently accessible on-site or remote assistance for all operational and technical issues in order to maximize customer performance;

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Technical Support, which serves technical needs through analytics, engineering expertise, and real-time fleet monitoring;

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Flight Operations, which supports the efficiency and safety of airline operations through tailored solutions, consulting, supervision, and training resources;

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Aircraft Modification, which provides total execution and coordination of system upgrades for improved fleet performance and cabin modifications for enhanced onboard amenities;

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Materials, which ensures availability and economy in parts and materials management for both scheduled and unscheduled maintenance;

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Maintenance, which provides optimized maintenance solutions based on best practices for efficiency, safety, and effectiveness;

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Training, which prepares crew, maintenance technicians, and operations personnel for the highest levels of competence; and

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eSolutions, which deploys the internet as the core communication channel for 24/7 collaboration and information exchange.

We have a worldwide presence, with five regional units strategically positioned around the globe in order to provide us with greater agility in understanding the needs and desires of our customers, respecting the cultural diversity of the different regions where our customers are based. Our regional units are located as follows:

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Fort Lauderdale, Florida, U.S.A., which supports our customers in North America;

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Villepinte, France, which supports our customers in Europe, Africa, the Middle East and Central Asia;

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Singapore, which supports our customers in the Asia Pacific region;

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Beijing, China, which supports our customers in China; and

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São José dos Campos, Brazil, which supports our customers in Latin America.

All units mentioned above have the following infrastructure:

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a spare parts distribution center;

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technical and material field support teams with field engineers and customer account managers;

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warranty and repair administration offices; and

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services sales managers.

Our headquarters in São José dos Campos also offers the following services:

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Customer Care Center (CCC) providing an integrated solution of technical and spare parts support available 24 hours a day, seven days a week;

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spare parts planning and material engineering;

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technical support;

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flight operations support;

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maintenance support engineering;

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MRO Network strategy and policy;

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business development;

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technical publications development; and

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technical services, such as: maintenance training, eSolutions, engineering services, pilot services and aircraft modifications.

In addition, we also have spare parts distribution centers in Louisville, Kentucky and Dubai, UAE.

Beyond parts fulfillment and simple rental plans, we also provide innovative programs for material planning, logistics, and acquisitions, such as:

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Fleet-Hour Pool Program;

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Parts Consignment Program;

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Embraer Collaborative Inventory Plan (ECIP);

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Embraer Parts Exchange Program (EPEP); and

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Customer Stock Optimization.

We also own and operate MRO facilities to support commercial, executive and defense aircraft around the world, including in:

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Nashville, Tennessee, where we have an Embraer Aircraft Maintenance Services (EAMS);

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Alverca, Portugal, which we refer to as OGMA and began to operate in March 2005;

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Gavião Peixoto, in the State of São Paulo, Brazil, where we have a dedicated service center for defense customers; and

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São José dos Campos, in the State of São Paulo, Brazil.

The Embraer network of authorized service centers that support our Commercial Aviation aircraft fleet is also expanding with our recent additions of third-party repair stations. As of December 31, 2014, these centers are:

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TAP Maintenance & Engineering, in Porto Alegre, in the State of Rio Grande do Sul, Brazil;

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FlyBe Aviation Services, in Exeter, United Kingdom;

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Tianjin Airlines, in Tianjin, China;

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HOP REGIONAL Maintenance Services, in Clermont-Ferrand, France;

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Atlantic Air Industries (AAI), in Toulouse, France, with a subsidiary in Casablanca, Morocco;

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LOTAMS – LOT Aircraft Maintenance Services, in Warsaw, Poland;

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John Holland Aviation Services, in Melbourne, Australia;

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STAECO, in Ji’nan, China;

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Egyptair Maintenance & Engineering, in Cairo, Egypt; and

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LLC NORD-TECHNIK, in Arkhangelsk, Russia.

It is Embraer’s intention to continue providing our customers with high quality customer support by expanding our presence worldwide, both through our own operations and through agreements with established and reputable authorized service centers.

We constantly monitor customer satisfaction levels and keep open communication channels with them in order to understand customer needs and define the most appropriate actions for the continuous improvement of our customer support. To do so, we make use of the following tools and forums:

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a customer satisfaction assessment performed annually in order to identify our competitive position;

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a customer support satisfaction survey performed every other year in order to identify our competitive position;

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specific action plans and commitments with each customer, known as Customer Integrated Action Plans;

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teamwork and systematic identification and integrated action plans to solve problems affecting us, our suppliers and customers;

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periodic dedicated meetings at the customer’s headquarters;

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Embraer Operators’ Conferences that take place yearly in the various regions of the world where we have customer operators;

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a maintenance cost workshop that occurs yearly, where operators share best maintenance practices and discuss cost reduction initiatives;

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events organized by customers, including the Operators’ Maintenance Forum and the European Customer Community Conference;

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interactive forums for discussions in the web portal FlyEmbraer, to foster the exchange of experiences among customers and Embraer;

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participation in international fairs related to maintenance, technology, customer relationship management and others;

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Customer Advisory Board (CAB), an annual meeting with senior executives from our Customer Companies to get high level insights, visions and suggestions for our future; and

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an internal program named EECE (Embraer Excellence in Customer Experience), aiming to address changes in the Services & Support area of the Commercial Aviation division, in order to elevate the performance of the Commercial Aviation business, covering contemporary and future market needs, with the purpose of obtaining the highest levels of customer experience in the commercial aviation industry.

Competition

We generally face competition from major manufacturers in the international aircraft market. Each category of our products faces competition of a different nature and generally from different companies. Some of our competitors have greater financial, marketing and other resources than we do.

We currently face strongest competition against the following aircraft in the 70-130 seat category:

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ATR-72, a 64-seat turboprop produced by ATR;

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Q-400, a 72-seat turboprop produced by Bombardier;

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CRJ-700, CRJ-900 and CRJ-1000, 70-seat, 85-seat and 98-seat regional jets, respectively, produced by Bombardier;

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A318, a 100-plus-seat jet produced by Airbus;

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737-600, a 100-plus-seat jet produced by Boeing; and

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SSJ100, a 95-seat regional jet produced by Sukhoi.

We expect new developments in this market segment from current and new competitors, including:

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Bombardier’s CSeries jet launched in 2008, which seats 110 to 130 passengers, and is expected to enter into service by 2015;

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COMAC’s ARJ21, with the 90-seat regional jet version officially scheduled to enter into service in 2015; and

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Mitsubishi Heavy Industries’ MRJ, a 75- to 92-seat regional jet launched in March 2008, which is expected to enter into service by 2018.

Embraer is the world leader in the 70-130 seat jet category with 51% market share in terms of net orders, followed by Bombardier with 23%, Mitsubishi and COMAC with 8%, Sukhoi with 6% and the remaining 4% being held by Airbus and Boeing.

The key competitive factors in the markets in which we participate include design and technological strength, aircraft operational costs, price of aircraft, including financing costs, customer service and manufacturing efficiency. We believe that we will be able to compete favorably on the basis of our aircraft performance, efficiency, low operating costs, product development experience, global customer base, market acceptance, cabin design and aircraft price.

Executive Aviation Business

We refer to our executive aviation business segment as “Executive Jets.” We developed a line of executive jets: the Legacy 600, a super mid-size jet, followed by the Phenom 100, an entry-level jet, and the Phenom 300, a light jet. The Lineage 1000, an ultra-large jet, was added as the largest executive jet in our executive jet portfolio and, during 2008, we launched the Legacy 450 and Legacy 500, a mid-light and a mid-size jet, respectively, that we believe will establish our executive jet portfolio as one of the most comprehensive of the executive aviation industry. The Legacy 500 entered into service in October of 2014 and the Legacy 450 development program continues on track, with first delivery planned for 2015. In 2009, we presented the new Legacy 650, a large executive jet that is positioned in our executive jet portfolio between the Legacy 600 and the Lineage 1000.

We market our executive jets to companies, including fractional ownership companies, charter and air-taxi companies, and high-net-worth individuals. Our Executive Jets segment accounted for 25.3% of our revenue for the year ended December 31, 2014, resulting from the delivery of 19 Phenom 100 jets, 73 Phenom 300 jets, 18 Legacy 600/650 jets, three Legacy 500 and three Lineage 1000 jets. On December 31, 2014, our firm orders in backlog for our executive jets totaled US$1.9 billion.

The Legacy 600 shares important qualities with our regional jet platform. However, although the Legacy 600 has some of the same components of our airliners, such as the ERJ 135, the Legacy 600’s interior, fuel tank, controller and indication systems and its winglets differ from those of our airliners. The Legacy 600 entered into service in 2002 after it was certified by the Brazilian aviation authority in December 2001 and by the FAA in August 2002.

In May 2005, we launched the Phenom 100 and Phenom 300, which are executive jets in the entry-level and light jet categories, respectively. The Phenom 100 jet, which carries six to eight people, received the ANAC and FAA certification in December 2008, the same month of its entry into service. The Phenom 300 carries up to nine people and has a larger fuselage and wingspan and longer range than the Phenom 100. It received the ANAC and FAA certification and entered into service one year after the Phenom 100. By the end of 2014, the Phenom 100 fleet was composed of more than 300 aircraft distributed in 27 countries and the Phenom 300 fleet was composed of more than 250 jets distributed in 23 countries.

In May 2006, we launched the Lineage 1000, an ultra-large executive jet based on the EMBRAER 190 commercial jet platform. The Lineage 1000 is configured to accommodate up to 19 people in a total cabin volume of 4,085 cubic feet (115.7 cubic meters). The Lineage 1000 was certified by ANAC in December 2008 and by the FAA in January 2009, and entered into service in the first half of 2009. By the end of 2014, the Lineage 1000 fleet was composed of more than 20 units distributed in 23 countries.

In April 2008, we formally launched two new programs in the medium jet categories, namely the mid-light Legacy 450 jet, with a 2,500 nautical miles range and capacity for up to nine passengers, and the mid-size Legacy 500 jet, with a 3,125 nautical miles range and capacity for up to 12 passengers. The Legacy 450/500 jets are positioned in our executive jets portfolio between the Phenom 300 and the Legacy 600. An estimated US$750 million is expected to be invested overall in fixed assets, research and development for the new Legacy 500 and Legacy 450 models through 2015. The Legacy 500 received certification by ANAC in August 2014, by the FAA in October 2014, and by EASA in December 2014. The first Legacy 500 was delivered in October 2014. In total, three Legacy 500 were delivered in 2014. The development of the Legacy 450 advances, with the first aircraft expected to enter into service in 2015. We believe that these two aircraft programs will help strengthen our position in the market and establish our portfolio as one of the most comprehensive of the executive aviation industry.

In October 2009, we presented the Legacy 650 jet during a press conference at the 62nd Annual Meeting and Convention of the National Business Aviation Association in Orlando, Florida. The Legacy 650 is a large category jet based on the successful platform of the super mid-size Legacy 600, having a longer range for up to 14 passengers. The Legacy 650 received ANAC and FAA certification, respectively, in October 2010 and February 2011, with its entry into service occurring in November 2010. The fleet of Legacy 650 is composed of more than 70 jets in service in 23 countries.

Competition

The Legacy 600 and the Legacy 650 compete with aircraft produced by Dassault Aviation, Bombardier and Gulfstream. Phenom 100 and Phenom 300 competitors in the entry-level and light jet categories include Cessna and Bombardier. Boeing and Airbus are the main competitors for the Lineage 1000 ultra-large jet. In the mid-size category, the Legacy 500 competes with Cessna while the Legacy 450 will compete with aircraft produced by Bombardier and Cessna.

Continuing Internationalization

In October 2014, we announced our Legacy 500 and Legacy 450 assembly complex in Melbourne, Florida, more than doubling the size of our existing 212,000 square-foot campus at Melbourne International Airport. The new assembly complex is expected to be operational by 2016, with four new buildings: an assembly hangar, a paint facility, a completion center and flight preparation facility, and a new dedicated delivery center.

Services and Support – Executive Jets

We expect to continue enhancing customer support and services offered to the Executive Jets segment. To this end, we have added four wholly-owned service centers to our operations since 2007, in Fort Lauderdale, Florida; Mesa, Arizona; Le Bourget, France; and Bradley, Connecticut. In addition, we are revamping the authorized service center network for executive jets. At the end of 2014, we had 69 service centers to support our executive jet fleet. In 2006, we entered into an agreement with CAE to form a global training joint venture to provide comprehensive pilot and ground crew training to customers of the Phenom 100 entry-level jet and Phenom 300 light jet aircraft. We also started to offer the initial training program at CAE SimuFlite in Dallas, Texas, as the Phenom 100 started to operate in 2008, and expanded to Burgess Hill in the U.K. in 2009. In 2012, a new training center was opened in Guarulhos, Brazil, in order to support the growing fleet of Phenom jets in the region. This joint venture provides entitlement training and post-entitlement training for pilots, maintenance technicians and dispatch personnel. We also plan to continue to invest in parts inventory and logistics worldwide as our executive aircraft fleet continues to grow. In 2012, we implemented a mobile rescue support service in the United States and in Brazil, with fully equipped trucks and vans. We also implemented a spare parts distribution center in Las Vegas in order to better support the executive jet customers in the west coast of the United States.

We have further developed our customer support and services structure to enhance our customers’ satisfaction in operating our executive jets. To measure our customers’ satisfaction, we conduct a yearly customer experience survey of the Executive Jet customers to develop action plans that will allow us to provide effective responses to our clients.

In August 2014, our Executive Jets product support was ranked in first place in the business aviation industry, according to a survey by Aviation International News magazine. The magazine noted the consistent results from its 2012 survey based on positive responses of customers who recognized our work in providing excellent customer support and services.

Our three service centers in the United States received in 2014 for the fourth time the FAA Diamond award, a certificate of excellence related to maintenance technician training.

In 2014, we completed the certification of three new authorized service centers worldwide.

We have signed agreements with 17 service centers around the world for the Legacy 450/500 entry to service.

In 2013, we selected FlightSafety International as the training provider for the Legacy 450/500 and by the end of the year the first Full Flight Simulator had already been built. It was certified in November 2014 in accordance with the aircraft’s entry to service at the end of 2014.

In the area of technological innovation, in 2013 we launched the eTechPubs app for iPad, which offers all technical manual information for the Phenom 100/300 and Legacy 500 and 600/650 jets operators.

In the first quarter of 2014, we celebrated the official opening of our Executive Jets Service Center in Sorocaba, complementing our São José dos Campos facility, Brazil, with expanded operations in MRO and FBO to comply with the growth in demand for maintenance services and hangarage rental.

Our Customer Support Contact Center is dedicated to our executive jets and offers complete and timely assistance for their operational, technical and maintenance needs. This Customer Support Contact Center is based at Embraer’s headquarters, in São José dos Campos. Its priority is to minimize downtime from the customer’s first contact to the final solution, by quickly and efficiently applying appropriate resources to critical needs, thus assuring that customers have expert assistance anywhere in the world.

Defense and Security Business

In 2011, Embraer added capabilities and broadened the scope of its corporate unit dedicated to the defense and security market. The creation of the new Embraer Defense & Security unit is an important step towards consolidating Embraer as a key supplier of defense and security solutions for the Brazilian federal government, as well as other governments worldwide.

We conceive, design, develop, manufacture and support a wide range of integrated solutions for the defense and security market. Our products include training/light attack aircraft, aerial surveillance platforms, military transport aircraft, government transport aircraft and Command, Control, Communications, Computer, Intelligence, Surveillance and Reconnaissance systems, or C4ISR systems, and border surveillance and security. We offer a complete portfolio of customer services, ranging from maintenance and material solutions to complete Contractor Logistic Support programs.

As of December 31, 2014, we had sold more than 1,250 defense aircraft, including government transport aircraft, to more than 40 armed forces and operators worldwide. We are also the leading supplier of defense aircraft to the Brazilian Air Force based on the total number of aircraft in its fleet. Our defense and security business accounted for 19.2% and 23.2% of our revenue for the year ended December 31, 2013 and 2014, respectively.

Products

C4ISR Systems

Embraer has developed three cost-effective, reliable and flexible special-mission aircraft based on the ERJ 145 regional aircraft platform: the EMB 145 Airborne Early Warning and Control, or AEW&C, the EMB 145 Remote Sensing/Airborne Ground Surveillance, or RS/AGS EMB 145 Multi Intel, and the EMB 145 Maritime Patrol, or MP. A total of 18 aircraft of this category have been manufactured for the Brazilian, Mexican, Greek and Indian Air Forces.

We believe the EMB 145 AEW&C is the most advanced and affordable Airborne Early Warning and Control aircraft available in the market. It combines Embraer’s reliable and cost-effective ERJ 145 regional airplane platform with a unique, high-performance, multi-mode active phased-array AEW radar, a powerful C4I system and a comprehensive set of support systems, such as self-protection, communications and data links.

The EMB 145 Multi Intel, also known as the EMB 145 Remote Sensing/Airborne Ground Surveillance, or RS/AGS, aircraft is designed to conduct electronic and reconnaissance missions. It features state-of-the-art sensors for Image Intelligence (IMINT), Signal Intelligence (SIGINT), and Measurement and Signature Intelligence (MASINT), and is capable of providing real-time imagery and signals intelligence over ground objectives. It is equipped with extensive sensor suites ranging from high-performance synthetic aperture radar to electro-optical sensors, and includes communications and electronic exploitation systems capable of gathering complete intelligence information.

The EMB 145 MP aircraft is designed to address coastal and open sea threats. The EMB 145 MP is designed to carry out maritime patrol by using maritime and ground surveillance radar and electro-optical sensors, as well as dedicated communications and surveillance equipment. In the ASW (Anti-Submarine Warfare) configuration, the EMB 145 MP is designed to carry out anti-submarine warfare missions.

Embraer also develops and integrates state-of-the-art C4ISR (Command, Control, Communications, Computer, Intelligence, Surveillance and Reconnaissance) systems for defense customers that require accurate information on a real-time bases. The information provided by C4ISR systems seeks to give defense organizations the capability to collect, process and disseminate an uninterrupted flow of accurate and timely data that enables them to make better decisions and act faster and more effectively.

Training and Light Attack – Super Tucano

The Super Tucano is a multipurpose, military turboprop that combines effective training and operational capabilities with low acquisition and operating costs. It offers solutions for advanced training, such as in-flight virtual training. The Super Tucano has the operational capabilities required for border surveillance, close air support operations and counterinsurgency (COIN), missions. It also offers avionics comparable to those of fourth generation fighter jets, ejection seats, an onboard oxygen-generating system and outstanding external load capability.

The Super Tucano is used for advanced pilot training and for surveillance operations in the Amazon region of Brazil in connection with the Brazilian federal government’s Sistema de Vigilância da Amazônia (System for the Surveillance of the Amazon), or SIVAM.

The Super Tucano is one of the highlights of our Defense & Security business unit due to its versatility, its excellent performance for training and operational missions and its competitive pricing, together with its low operating and maintenance costs. The Super Tucano currently has 210 firm orders, out of which more than 180 aircraft have already been delivered.

In February 2013, the A-29 Super Tucano was selected by the United States Air Force, or USAF, for its Light Air Support, or LAS program, with a firm order for 20 aircraft. The aircraft are being supplied in partnership with Sierra Nevada Corporation, the prime contractor, and will be used to conduct advanced flight training, aerial reconnaissance, and light air support operations in Afghanistan.

In September 2014, Sierra Nevada Corporation and Embraer Defense & Security presented the first Super Tucano light air support aircraft built in the United States in a roll-out ceremony with the U.S. Air Force and government officials, industry and community representatives.

During 2014 three Super Tucanos were delivered to the United States Air Force.

Also in 2014 an additional four Super Tucanos were delivered to the Indonesian Air Force, for a total of 16 aircraft ordered.

Military Transport – KC-390

The KC-390 is a joint project of the Brazilian Air Force with Embraer to develop and produce a tactical military transport and aerial refueling airplane that represents a significant advance in terms of technology and innovation for the aeronautical industry. The aircraft is designed to establish new standards in its category, with lower operating cost and the flexibility to perform a variety of missions: cargo and troop transport, air delivery, aerial refueling, search and rescue, and aerial firefighting, among others.

On May 20th, 2014, Embraer and the Brazilian Air Force signed the series production contract for the delivery of 28 KC-390 aircraft and associated initial logistic support. In addition to the Brazilian Air Force order, there are currently letters of intentions from Portugal, Czech Republic, Colombia, Chile and Argentina to purchase the aircraft.

In February 2015, Embraer successfully conducted the first flight of the KC-390. Having benefited from an advanced program of simulations and extensive ground tests, the KC-390 crew performed maneuvers to evaluate flight characteristics and conducted a variety of systems tests. Initial deliveries are expected for 2016.

F-X2 Project

In July 2014, we signed a memorandum of understanding to partner with Saab in a joint program management for the F-X2 Project, pursuant to the selection of Saab’s Gripen NG as Brazil´s next generation fighter jet. Under this agreement, we will perform a leading role in overall program performance and undertake an extensive share of work in the production and delivery of both the single and two-seat versions of the state-of-the-art Gripen NG aircraft to the Brazilian Air Force.

We will coordinate all development and production activities in Brazil on behalf of Saab and, in addition to its own extensive work packages, will participate in systems development, integration, flight tests, final assembly and deliveries.

Furthermore, we and Saab will be jointly responsible for the complete development of the two-seat version of the Gripen NG, at the same time that a strategic partnership for future global promotion and marketing of both single and two-seat versions is being discussed between the two companies.

Government Transport and Special Mission Aircraft

Embraer is marketing its wide line of commercial and executive jets to defense and government customers.

In 2014, Embraer was contracted by the Brazilian Air Force to supply six Legacy 500 aircraft to perform flight test missions. We also signed a contract to supply one Legacy 600 to the Honduras government.

In addition to these governments, our base of customers operating Embraer jets for the transportation of authorities includes Ecuador, Thailand, Pakistan, Panama, Belgium, Greece, Colombia, Angola, Nigeria and India.

Modernization Programs

We offer military aircraft modernization services and we currently have five ongoing programs under contract, four with the Brazilian Armed Forces and one with the Colombian Air Force. The first program, known as F-5BR, is focused on performing structural and electronics upgrades for 46 F-5 fighter jets. As the prime contractor, we are responsible for integrating the multi-mode radar, the advanced navigation and attack systems, and the enhanced self-protection systems into the existing aircraft platform. In 2012, we delivered the two remaining modernized F-5 fighter jets under this program. In continuation of this contract, in the beginning of 2011, we signed a contract with the Brazilian Air Force to modernize an additional batch of F-5 fighter jets.

The second program with the Brazilian Air Force, known as the A-1M modernization program, focuses on modernizing the AMX. The goal of this modernization project is to keep the fleet of 43 AMX jets on active duty for another 20 years. In 2013, Embraer Defense & Security delivered the first A-1M fighter jet to the Brazilian Air Force, with two additional aircraft delivered to the customer in 2014. By the end of 2014, 23 aircraft were already in our facilities: two flight test prototypes and 21 serial production AMXs in different phases of the revitalization and modernization processes.

The third modernization program is to upgrade 12 A-4 Skyhawk (AF-1 Brazilian Navy Designation) aircraft of the Brazilian Navy with a view to incorporate new technology, including new avionics, radars, power generation and autonomous oxygen generating systems. During 2015, the first the first four modernized aircraft are planned to be delivered to the customer.

In January, 2013, Embraer Defense & Security and the Brazilian Air Force signed a contract to modernize five EMB 145 AEW&C (Airborne Early Warning and Control). The contract provides for the updating of electronic warfare systems, command and control systems, electronic countermeasures and air surveillance radar. The contract also provides for six mission planning and analysis stations that will be employed in the training and improvement of crews. By the end of 2014 we received the first aircraft for modernization activities at our Gavião Peixoto facilities.

In January, 2011, Embraer Defense & Security signed a contract to modernize 14 EMB 312 Tucano training aircraft for the Colombian Air Force (FAC). This program includes the installation of state-of-the-art digital avionics and the substitution of their wings and landing gear. In 2014, the first Tucano modernized by Embraer was delivered to FAC. Additionally, in November 2014, it became the first aircraft modernized to fly in Columbia.

Services and Support – Defense & Security

Our Defense & Security customer service portfolio involves Material Support, Training, Field Support, Technical Support and MRO–Maintenance, Repair and Overhaul.

Our Customer Support and Services department provides the support and services required by our customers for aircraft operational success, ensuring readiness and sustained mission capability. The provision of world-class support and services to our customers is essential to our business strategy and the maintenance of enduring relationships with customers.

In 2014, we strengthened our relationships with our defense & security customers by establishing the Mission Readiness Center (MRC) with 24/7 service and conducting collaborative planning with customers to improve services and to meet their operational requirements. Sales efforts resulted in new contracts to support the customers.

Competition

Our military aircraft face rigorous competition from various manufacturers from different countries in each market segment.

The Super Tucano competes in the flight training market with the PC-21 (advanced) aircraft from Switzerland, the Beechcraft T-6A/B from the U.S., and the Korea Aerospace Industries’ KT-1. In the Light Attack market, the Super Tucano competes with the Beechcraft AT-6 and the Korea Aerospace Industries’ KA-1.

In the special mission aircraft market, which includes Airborne Early Warning & Control, Remote Sensing, Airborne Ground Surveillance, Maritime Patrol, Anti-Surface Warfare and Multi-mission Aircraft, there are several platforms with a wide range of sensor combinations that compete with our products: the Boeing 737, Northrop Grumman E-2C/D Hawkeye, SAAB 2000, Alenia ATR 42 and 72, Airbus Group’s CASA CN-235 and C-295, and the Bombardier Dash 8, among others.

In the military transport segment, our main competitor is the Lockheed Martin C-130J and its variants.

Other Related Businesses

We provide structural parts and mechanical and hydraulic systems to Sikorsky Corporation for its production of helicopters. We also manufacture general aviation propeller aircraft, such as crop dusters, also known as light aircraft. Our Other Related Businesses accounted for 1.2% of our revenue for the year ended December 31, 2014.

We provide subcontracting services to Sikorsky Corporation in connection with the development and manufacture of the landing gear, fuel system and fuel tanks for the S-92 Helibus helicopter. We also act as a risk-sharing partner for Sikorsky. These contracts expire in 2015.

We build general aviation propeller aircraft. These aircraft include a six-passenger aircraft that is produced only on demand for use by corporations and by air-taxi companies. We have delivered a total of 2,326 of these aircraft, and the last delivery of this type of aircraft was in 2000.

We also developed a crop duster aircraft pursuant to specifications of the Brazilian Ministry of Agriculture. These aircraft are produced only on demand. Through December 31, 2014, we had delivered a total of 1,353 of these aircraft, including 38 in 2014.

Aircraft Operating Lease Activities

In order to provide better financial support to our commercial activities, as well as to manage and reduce financial risks related to the marketing of aircraft, we created, in September 2002, ECC Leasing.

The mission of ECC Leasing is to manage and remarket Embraer’s aircraft portfolio, which as a result of contractual obligations, may be acquired by us as trade-in transactions. We also provide re-marketing services to third parties looking to sell their Embraer manufactured aircraft.

We have successfully completed sales campaigns for new aircraft, where the acceptance of trade-in aircraft as part of payment was allowed. We have also generated additional revenues through the sale and lease of aircraft received as trade-ins. Furthermore, leasing operations involving EMBRAER 170, EMBRAER 175 and EMBRAER 190 pre-series aircraft contributed to the current results. Since its establishment in 2002, ECC Leasing and one other Embraer wholly-owned subsidiary managed a portfolio composed of 168 aircraft, of which 26 are under operating leases, 42 are available or under lease/sale negotiations, three are performing flight tests at Embraer, and 97 were sold to airlines, corporations and government entities in North America, South America, Asia and Europe.

All sale and leasing transactions were executed based on market rates, thereby helping to sustain the present and future values of our products.

The continued improvement in financial performance is directly related to ECC Leasing’s ability to re-market aircraft in its existing portfolio with similar conditions as those currently in place, as well as to sell aircraft to operators, leasing companies and/or financial institutions, at values close to market rates and without any guarantee from Embraer.

We believe the results of ECC Leasing will be largely dependent on market conditions, aircraft availability levels and the demand for regional jets in the 37 to 50 seat category.

As more pre-owned aircraft trade in the market, Embraer and ECC Leasing are working together to create the Embraer Lifetime Programme to better support our customers. The program will allow customers of our pre-owned and new aircraft to select from a wide array of services, including, among other things, training, spare parts, technical support, engine programs, technical representation, maintenance and overhaul coverage. Customers who enroll in this program will pay us periodic fees, so that we can provide them with scheduled and unscheduled maintenance, support and repair services, among other assistance. We believe this program represents an innovative approach, which offers our customers an attractive combination of pre-owned aircraft backed by Embraer’s comprehensive support package. See “Item 3D. Key Information—Risk Factors—Risks Relating to Embraer— We face significant international competition, which may adversely affect us.”

In February 2015, ECC Leasing concluded the financing of 12 aircraft that were under lease contracts totaling US$50.3 million as of December 31, 2014. The transaction is a securitization of assets in the financial market through the sale of financial flow from the lease and the transfer of the aircraft to the buyer, with an estimated loss of US$14.3 million.

Embraer Systems

Markets

The following table sets forth our revenue by line of business and geographic region of the end users of our aircraft for the periods indicated:


	Year ended December 31,
	2014		2013		2012		2011		2010
	(in US$ millions)
Commercial Aviation
North America		2,065.0		1,089.4		875.3		739.1		347.3
Latin America (except Brazil)		64.7		457.9		144.6		540.3		426.7
Asia Pacific		155.4		546.3		920.8		1,041.5		773.4
Brazil		73.9		103.5		46.0		294.9		230.0
Europe		624.7		916.4		1,510.8		1,013.8		1,374.1
Others		179.6		193.5		257.9		121.6		106.4

Total		3,163.3		3,307.0		3,755.4		3,751.2		3,257.9

Executive Jets
North America		739.3		632.2		505.9		360.8		293.6
Latin America (except Brazil)		110.7		6.3		43.3		83.9		123.5
Asia Pacific		353.3		336.6		327.4		155.0		294.7
Brazil		207.1		357.7		136.8		210.5		211.5
Europe		168.4		290.6		254.6		281.1		241.2
Others		12.7		21.1		24.0		27.5		45.0

Total		1,591.5		1,644.5		1,292.0		1,118.8		1,209.5

Defense & Security
North America		199.5		26.4		20.0		27.6		24.1
Latin America (except Brazil)		47.3		16.3		21.7		15.6		276.9
Asia Pacific		78.5		71.0		79.5		145.2		123.0
Brazil		1,004.5		848.5		648.5		446.2		221.9
Europe		100.0		166.9		178.4		175.9		129.7
Others		26.6		67.8		97.1		29.4		46.2

Total		1,456.4		1,196.9		1,045.2		839.9		821.8

Other Related Businesses
North America		53.6		59.7		47.4		55.5		52.9
Latin America (except Brazil)		—		—		0.4		—		0.3
Asia Pacific		0.1		—		—		—		2.5
Brazil		20.0		26.9		26.6		25.5		17.1
Europe		3.9		—		—		—		1.6
Others		—		—		—		—		0.5

Total		77.6		86.6		74.4		81.0		74.9

Suppliers and Components; Risk-Sharing Arrangements

We do not manufacture all of the parts and components used in the production of our aircraft. More than 80% of the production costs of our aircraft consist of materials and equipment purchased from our risk-sharing partners and other major suppliers. Risk-sharing arrangements with suppliers of key components enable us to focus on our core business: design, development, manufacture and sale of aircraft and systems for the Commercial Aviation, Executive Jets, and Defense & Security segments. Risk-sharing arrangements are those in which suppliers are responsible for the design, development and manufacture of major components or systems of our aircraft, such as wings, tail or fuselage. Our risk-sharing partners, therefore, must invest their own money in development and share the risk and success of our products with us.

In our Commercial Aviation and Executive Jets businesses, we rely on risk-sharing partners to supply vital components of our aircraft, such as the engines, hydraulic components, avionics, interior and parts of the fuselage and portions of the tail. We select suppliers on the basis of, among other factors, technical performance and quality of their products, production capacity, prior relationship and financial condition. We have had continuing relationships with most of our major suppliers since production of the Bandeirante aircraft began in 1975.

In addition, we have entered into purchase agreements with our major suppliers, which cover our requirements for five to ten years of production. These contracts contain pricing formulas that take into consideration the various factors that affect the business of our suppliers, and help us mitigate the effects of price volatility (which in some cases can be significant) of the materials, parts and components that are required for our operating activities. We are not obligated to purchase a minimum amount of materials annually under any of these supply contracts. Our ongoing supplier relationships depend on cooperation, performance and the maintenance of competitive pricing. Once we select our risk-sharing partners, and program development and aircraft production begins, it is difficult to substitute these partners. In some cases, our aircraft are designed specifically to accommodate a particular component, such as the engines, which cannot be substituted by another manufacturer without significant delay and expense. This dependence makes us susceptible to the performance, quality and financial condition of these risk-sharing partners. See “Item 3D. Key Information—Risk Factors—Risks Relating to Embraer—We depend on key suppliers.”

ERJ 145 Regional Jet Family

Risk-sharing partners. We entered into risk-sharing arrangements with the following four suppliers in connection with the development and production of the ERJ 145 regional jet family:

•

Aernnova Aerospace S.A., or Aernnova, a Spanish company owned by Iberdrola S.A., a European power utility, and Banco Bilbao Vizcaya, a large Spanish financial institution, supplies the wings, engine nacelles and main landing-gear doors;

•

Sonaca S.A.—Société Nationale de Constructions Aerospatiales, a Belgian company, supplies portions of the central and rear fuselages, the service, main and baggage doors and engine pylons;

•

ENAER—Empresa Nacional de Aeronáutica, a Chilean company, supplies the vertical fin, horizontal stabilizers and elevators; and

•

C&D Aerospace, Inc., a U.S. company, supplies the cabin and cargo compartment interiors.

Our risk-sharing partners generally receive payment for supplied components within three to five months after delivery of the components to us. The partnering relationship with these suppliers results in lower production costs and higher product quality for the ERJ 145 regional jet family. In addition, our line of executive jets benefits from the risk-sharing arrangements with Aernnova, Sonaca and ENAER.

Other major suppliers. We have also entered into other agreements with numerous European, American, Canadian and Brazilian suppliers to provide key components for a number of our products, including the ERJ 145 regional jet family. These supply arrangements cover systems and components such as engines, avionics, landing gear and flight control systems. Our major suppliers include, among other companies, Rolls-Royce Allison, Parker Hannifin Corp., or Parker, BF Goodrich Co., United Technologies Corp. – Hamilton Sundstrand Division, Honeywell, Rosemount Aerospace and Alcoa Inc.

EMBRAER 170/190 Jet Family

We are continuing to improve the EMBRAER 170/190 jet family, together with risk-sharing partners that supply key systems for the aircraft. Our supplier arrangements for the EMBRAER 170/190 jet family differ from the ERJ 145 regional jet family in that we use fewer suppliers. In the EMBRAER 170/190 jet family, each risk-sharing partner is responsible for the development and production of aircraft systems, such as the landing gear, the hydraulic system and the flight control system, rather than individual components, and fewer components are supplied by companies that are not risk-sharing partners. The assumption of responsibility for systems by our risk-sharing partners lowers our capital expenditures, which thereby decreases our development risks and increases our operating efficiency by reducing the number of suppliers per product and cutting production costs. It also shortens development and production time.

In addition, some of the risk-sharing partners for the EMBRAER 170/190 jet family have assumed a broader role in other aspects of the program by providing sales financing and residual guarantees, rather than simply supplying us with aircraft components.

The application of advanced technologies for engines, wings, and avionics distinguishes the E-Jets E2 by providing airlines with maximum efficiency gains, while maintaining commonality with current E-Jets. New aerodynamic advancements, high-aspect ratios, distinctively shaped wings, improved systems and avionics, including fourth generation full fly-by-wire flight controls, and Pratt & Whitney’s PurePowerTM Geared Turbofan high by-pass ratio engines (PW1700G on the E175-E2, PW1900G on the E190-E2 and E195-E2) are expected to result in double-digit reductions in fuel consumption, emissions, noise and maintenance costs, and increased aircraft availability. Cockpit commonality with current generation E-Jets was a key driver in the design of the E-Jets E2, in order to promote a smooth transition for pilots who will fly the E2. Honeywell’s Primus Epic™ 2 advanced integrated avionics system with large landscape displays and advanced graphics capabilities, and Honeywell’s Next Generation Flight Management System (NGFMS), already in development with current-generation E-Jets, will provide exceptional pilot situational awareness and flexibility for continuous innovation on the flight deck.

Known for its comfortable and roomy cabins, with no middle seats, the E-Jets passenger experience will be further enhanced in the E2 generation. The U.K. design firm Priestmangoode was contracted to develop the aircraft cabin jointly with Embraer. The interiors will establish a new benchmark in cabin design, improve the passenger experience, and deliver a more comfortable and improved environment, tailored to passengers’ needs, while maximizing airlines’ operational efficiency.

Other suppliers and partners for the E-Jets E2 have been announced: Liebherr (control systems for flaps and slats), Moog (fly-by-wire), Rockwell Collins (horizontal stabilizer control system), UTC Aerospace Systems (wheels, brakes, APU, electrical system), Intertechnique (engine and APU fuel feed, pressure refueling, fuel transfer, fuel tank inerting and ventilation, and fuel gauging and control), Crane Aerospace & Electronics (electronic control module for landing gear, brake control systems and proximity sensors), Triumph (fuselage segments, rudder and elevators) and Aernnova Aerospace (vertical and horizontal stabilizers).

Executive Jets

The risk-sharing partners for the Legacy 600 and the Lineage 1000 are the same as those for our ERJ 145 jet family and EMBRAER 170/190 jet family, respectively. The main risk-sharing partners for the Legacy 450/500 jet family are Honeywell and Rockwell Collins, and the main risk-sharing partners for the Legacy 650 include Rolls-Royce and Honeywell. The risk-sharing partners for the Phenom 100 and Phenom 300 jets are Pratt & Whitney Canada, the supplier of the engines, Garmin, the supplier of the avionic systems, and Eaton Corporation, the supplier of hydraulic systems.

Aircraft Financing Arrangements

We generally do not provide long-term financing directly to our customers. Instead, we assist our customers in obtaining financing arrangements from different sources, including ECAs, leasing companies, commercial banks and capital markets. In addition, we have been working together with customers and banks to develop new sources of funds, especially from nontraditional financing sources.

Airlines may sometimes require short-term bridge financing prior to arranging long-term debt financing because long-term funding may not be available for them at the time of delivery. On a case-by-case basis, we have provided interim financing, at market rates, to customers who already have their financing arrangement structured or who are in the process of negotiating such arrangements.

We expect that ECAs will continue to play an important role in aircraft financing, helping fulfill the financing needs of the commercial aviation industry as a whole. The Brazilian ECA Program provides Embraer’s customers with direct financing and export credit insurance (or a combination of both) on financial terms and conditions in compliance with the Aircraft Sector Understanding of the OECD. In 2014, approximately 47% of our Commercial Aviation deliveries were supported by the Brazilian ECA Program. Brazilian export credits support accounted for 22% of the total deliveries for the EJets program since its launch in 2004.

See “Item 3D. Key Information—Risk Factors—Risks Relating to Embraer—A downturn in commercial aviation may reduce our sales and revenue, and, consequently, our profitability, in any given year” and “Item 3D. Key Information—Risk Factors—Risks Relating to Embraer—The Brazilian federal government may reduce funds available to our customers under government-sponsored financing programs.”

Government Regulation and Aircraft Certification

We are subject to regulation by regulatory aviation agencies, both in Brazil and abroad. These agencies principally regulate the type design of aircraft, their manufacturing and operation. Besides certification in Brazil, we must obtain certification in each jurisdiction in which our aircraft operate commercially. The certifying authority in Brazil is the Agência Nacional de Aviação Civil (National Civil Aviation Agency), or Brazilian Aviation Authority, a special organization with the status of a regulatory agency under the Civil Aviation Secretary of the Presidency of the Federative Republic of Brazil, which supervises and certifies aircraft, aircraft parts, manufacturers and operations. We are also subject to the regulation of aviation authorities in other countries, including the FAA in the United States and the EASA for the European Union. Once an aircraft is certified by the Brazilian National Civil Aviation Agency, and validated by the FAA and/or the EASA, some authorities, such as those in Australia and Mexico, may opt to ratify the product certification instead of running a full domestic validation process. Other countries, such as Canada, require compliance with their own specific national requirements before certification. Some countries simply validate and complement original certification of the Brazilian National Civil Aviation Agency or of the FAA or the EASA, in accordance with their own rules. The Brazilian National Civil Aviation Agency has a bilateral certification agreement with the FAA and European Union. This cooperation among regulatory authorities leads to faster certification.

Aircraft certification is a continuous process. The Brazilian Aviation Authority must approve any change in the design of any of our aircraft. Significant changes to aircraft design may require a separate validation/certification by other authorities as specified in their regulations and bilateral agreements. Changes in aircraft certification requirements do not require a new certification or a new validation of a previously certified aircraft, but significant safety improvements may otherwise be required by the authorities acting through operational rules or airworthiness directives.

Our defense products must comply with the certification guidelines defined in each contract with the customer. Unlike our civil aircraft, our defense products are not subject to regulatory obligations. Some contracts, such as those for civil aircraft modified for military purposes, require civil certification (e.g. India, SIVAM, etc.). Finally, other contracts, such as those for LAS, demand approval from the Military Certification Authority.

Seasonality

No material portion of our business is seasonal in any material respect.

4D.

Organizational Structure

Our operations are conducted by Embraer S.A. as the controlling and principal operating company. We have a number of direct and indirect subsidiaries, none of which is considered significant. A complete list of our subsidiaries is filed as Exhibit 8.1 to this annual report, and a description of our joint ventures and project subsidiaries and strategic alliances is included in the annual report in item 3 above.

4E.

Property, Plant and Equipment

We own our headquarters and plant, located in São José dos Campos. Significant portions of our facilities in São José dos Campos are subject to mortgages held by the BNDES – Banco Nacional de Desenvolvimento Econômico e Social. For further information on our property, plant and equipment, see Notes 2.2.15 and 16 to our audited consolidated financial statements included elsewhere in this annual report.

For a discussion of our capital expenditures relating to property, plant and equipment, see “Item 4B.—History and Development of the Company—Capital Expenditures (Property, Plant and Equipment and Development).”

Production

The manufacture of an aircraft consists of three principal stages: production of primary parts, assembly of major components and final assembly. Primary parts include metal sheets and plates (produced from die-cast molds, stretch forming or various chemical treatments), parts produced using computerized and non-computerized machines, and prefabricated parts. The primary parts are then assembled, or mated, with one another to produce the aircraft’s major components, which are in turn joined to create the aircraft’s basic structure. In the final assembly stage, the aircraft’s various operating systems (such as wiring and electronics) are installed into the structure and tested.

Production facilities for the commercial, executive and defense aircraft are located in São José dos Campos in the State of São Paulo, Brazil. In our Defense & Security segment, we also have production facilities located in the Gavião Peixoto Plant, which is close to the city of Araraquara, located in the central region of the State of São Paulo, Brazil.

We have the flexibility to increase/decrease production in response to increased/decreased demand.

We built a facility in Gavião Peixoto, in the State of São Paulo, Brazil, to enhance our flight-testing capabilities and provide a final assembly line for our defense aircraft and our executive jets. This facility has been operational since November 2002. We are conducting our flight tests for the EMBRAER 170/190 jet family and have a fully operational executive jet interior factory at Gavião Peixoto. We also have a production facility for the ERJ 145 jet family in Harbin, China, which we jointly built with our China joint venture.

In July 2009, in line with our initiatives to improve production efficiency pursuant to the Business Efficiency Strategy (Frente Eficiência Empresarial), we inaugurated the final assembly line of EJets with significant reduction in the final assembly cycle time. In addition to this initiative, we transferred the assembly line of Phenom 100 and Phenom 300 from the plant located in Gavião Peixoto to the plant located in São José dos Campos, São Paulo and Melbourne, Florida, where we manufactured the 100th Phenom 300 in 2012. In 2014, we announced an expansion plan to assemble the Legacy 450 and Legacy 500 in the same facility in order to improve production capacity.

On September 21, 2012, we opened two plants in Évora, Portugal, one for the manufacture and assembly of metal components and one for the manufacture and assembly of components in composite material. The start-up of these plants occurred as planned, and they made their first deliveries in November 2012.

EZ Air Interior Limited, our joint venture with Zodiac Aerospace for the production in Mexican factories of interior parts for our Commercial Aviation Segment, began production and shipping of parts to Brazil in 2013. It achieved full production capacity in January 2015.

In April 2013, the first building for the KC-390 program was completed in our Botucatu unit in the state of Sao Paulo. The building will be used for structural assembly. The construction of an assembly hangar in our Gavião Peixoto unit was concluded in the end of 2014.

In May 2014, we inaugurated the final assembly line of the KC-390 military transport.

Environmental Matters

We have all material permits required to operate our business in all Embraer sites around the world. The terms of these operating permits are reviewed every year and, as of December 31, 2014, we were in compliance with our permits. In addition, our Environmental and Occupational Health and Safety Management System was established in 2001 to organize our processes, allowing us to obtain and maintain ISO 14001 certification since 2002. ISO 14001 is an internationally recognized standard of environmental management system efficiency for businesses and organizations. Certified environmental management systems have been progressively implemented across our manufacturing sites, with over 91% of our employees operating under an ISO 14001.

We encourage not only the environmental certification of our operations but also the development of a full life cycle orientation for products and services, as this remains the most cost-efficient and practical way to effectively reduce environmental impacts. The site and product life cycle orientation of the environmental management system attempts to create economic value by reducing environmental costs and exposure at each stage of the product life, from design to operations to end of life. Integrated Development of Environmentally Sustainable Products (DIPAS) and Design for Environment (DfE) programs aim to incorporate environmental requirements into product development throughout the various stages of production.

We seek to anticipate and address future environmental challenges as part of our commitment to reconciling environmental responsibility with economic success.

The implementation of further innovative and eco-efficient technologies and processes is a key factor in ensuring our sustainability, increasing the attractiveness of our products and our overall competitiveness. We continuously pursue eco-efficiency by seeking “green” business opportunities, mitigating the environmental impact of our activities and products throughout their life cycle, developing breakthrough technologies, products and services and, more generally, integrating environment into our business. We also believe that environmental requirements, such as reduction of greenhouse gas emissions, are becoming one of the main drivers of airline fleet decisions and will influence future aircraft developments. In 2012 at the Air Transport Action Group (ATAG) Aviation and Environment summit, Embraer, Boeing and Airbus signed a memorandum of understanding to collaborate on the development of drop-in, affordable aviation biofuels as an effort to reduce the aircraft industry’s greenhouse gas emissions by 50% by 2050 based on 2005 levels.

Special focus is dedicated to the European REACH (Registration, Evaluation and Authorization of Chemicals) regulation (EU No. 2007/1906), which came into force on June 1, 2007. REACH aims at improving the protection of human health and the environment through closer regulation of chemical use by industry; it replaces the pre-existing EU regulatory framework on chemicals. REACH introduces a range of new obligations over a period of 11 years which are intended to reduce the risks of harm that the 30,000 most frequently used chemicals may cause. The regulation will also bring about the phased withdrawal from use of some of the substances that are considered to be of very high concern for human health and the environment.

The regulation requires that any company which produces, imports, uses or places substances, preparations or other items on the EU market be responsible for ensuring that the item complies with REACH. We are affected by the regulation because our products can be exported, not only to the countries of the EU, but also to all countries in which compliance with REACH is required. Embraer has not suffered any penalties in connection with REACH.

Over the past few years, we have been substituting substances used in our production processes with those which are less harmful to the environment and our employees. In this context, various materials have been replaced in accordance with the restrictions imposed by REACH. In addition, we are studying the feasibility of replacing more substances which are widely used in the aviation industry but which also have usage restrictions under REACH. We also participate in working groups, such as IAEG (International Aerospace Environmental Group) and AIA (Aerospace Industries Association), with other firms in the aviation industry to develop solutions for complying with REACH and other environmental laws, and we are working with our supply chain on several initiatives to avoid supply chain disruptions and provide support to customers, including the REACH questionnaire on the Risk Assessment of Suppliers. In summary, we are working to fulfill our responsibilities under REACH.

In addition, certain developments in current or proposed carbon emission reduction laws and regulations could in the future indirectly affect our business and results. In 2010, the International Civil Aviation Organization, through its Environmental Protection Committee, began to develop carbon emission standards for airplanes. The study of these standards is being carried out concurrently with the implementation of local or regional regulations aimed at limiting carbon emissions, such as those adopted by the European Union, with its emissions market (EU ETS – European Union Emissions Trading System). This system establishes goals for emissions reduction by aviation companies. Depending on the compensatory payments and limits imposed, as well as on the cost of carbon equivalents, regulations of this nature may impact the growth potential of the air transportation industry as a whole, due to: (1) the internalization of carbon emission-related costs by air transportation companies, which would reduce their profit margins and, consequently, cut down the demand for new aircraft; or (2) higher prices of air tickets, charged by air transportation companies in an attempt to pass emission-related costs along to their passengers, who would in turn seek alternative means of transportation, reducing the demand for air travel and, as a consequence, causing aircraft sales to decline. The effects of either scenario would likely be a decrease in demand for new aircraft in the affected markets, thereby negatively affecting our results.

For information on how climate change may affect our commercial aircraft segment, see “Item 5A. Operating and Financial Review and Prospects—Operating Results—Current Conditions and Future Trends in the Commercial Airline Industry and Executive Jet Market—Commercial Aircraft.”

Insurance

We insure all of our plants and equipment for loss and replacement. We also carry insurance to cover all potential damages to our own fleet of aircraft, including those occurring during commercial and demonstration flights. In addition, we maintain a comprehensive aviation products liability policy, which covers damage arising from the manufacture, distribution, sale and servicing of our aircraft and parts. We also carry natural disaster and business interruption insurance covering property damage and the related loss of gross income, as defined in the policy, and additional expenses, such as those incurred by us to offset the loss of production and delivery of aircraft due to partial or total interruption of our business because of material losses caused by an accident. We consider the amounts of our insurance coverage to be typical for a company of our size and adequate to meet all foreseeable risks associated with our operations.

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

This discussion should be read in conjunction with our audited consolidated financial statements and notes thereto and other financial information included elsewhere in this annual report. This annual report contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, those set forth in “Item 3D. Key Information—Risk Factors” and the matters set forth in this annual report generally.

Except as otherwise indicated, all consolidated financial information in this annual report has been prepared in accordance with IFRS as issued by IASB and presented in U.S. dollars, while, for local purposes, our consolidated financial statements are also prepared in IFRS but are presented in reais. For certain purposes, such as providing reports to our shareholders located in Brazil, filing financial statements with the CVM, and determining dividend payments and other distributions and tax liabilities in Brazil, we have prepared and will continue to be required to prepare parent company financial statements in accordance with IFRS, presented in reais.

5A.

Operating Results

Current Conditions and Trends our Markets

The following discussion is based largely upon our current expectations about future events, and trends affecting our business, actual results for our industry and performance could differ substantially. See “Introduction—Special Note Regarding Forward-Looking Statements.” For factors which could affect our industry in the future and our own future performance, see “Item 3D. Key Information—Risk Factors.”

Commercial Aircraft

Shortly after the 2008 financial crisis, our industry returned to its long-term growth rate of approximately 5% per year, measured by revenue passenger kilometers. Expectations for a strengthening economic upturn in the United States and Europe, together with sustained growth in emerging markets, support a positive outlook for air travel.

According to the International Air Transport Association, or IATA, global air travel demand continues to trend upward, with 5.9% growth in 2014. International air travel rose by 6.1% and domestic by 5.4% in 2014 compared to 2013, with airlines in all regions seeing growth. The demand environment for air travel continues to improve, suggesting that the growth seen so far should be maintained. Demand conditions are improving in the U.S. and Europe and trade volumes have been on increasing, especially in Asia Pacific. The industry’s output level in 2014 was 1,236 commercial aircraft, representing an increase of 7% over 2013.

Airlines in Europe and North America experienced a solid 5.9% and 2.7% rise in the January to October 2014 period, respectively. Demand for air travel on regional carriers remains strong in these regions. Restructuring efforts are continuing and hub efficiency is critically important to airlines that rely on connecting traffic and 70 to 130-seat jet aircraft that play a key role feeding those hubs.

Air travel growth in emerging markets continues to outpace that in developed countries due to growing regional trade volumes and changing demographic patterns led by rapid urbanization, higher household incomes, discretionary spending and therefore a higher propensity to travel. A growing economy and stronger demand for air transport has historically led to regional integration and generate a need to improve air services. Intra-regional air travel is mostly composed of low and mid-density markets. According to data extracted from Sabre-ADI, some 82% of city pairs have volumes of up to 300 daily passengers. The 70 to 130-seat jet aircraft allow the carriers to access a wider range of cities, not only in the highest-density markets. We believe that secondary markets will lead the demand for new air travel, and expect carriers to continue to acquire newer and more efficient aircraft to serve low and mid-density markets and to maintain network connectivity.

IATA projects the global commercial airline industry to generate net post-tax profits of $19.9 billion in 2014 and $25.0 billion, or 3.2% of revenues, in 2015, an upward revision from previous projections due to lower jet fuel prices, improvements to industry structure and an accompanying focus on improving the efficiency and the utilization of aircraft. The performance of the commercial airline industry is closely linked to the strength of global economic development. After the post-recession 2010 peak, economic activity slowed in both 2011 and 2012. Airline industry profits fell in both years, after their 2010 peak. The improvement in financial performance during 2013 and 2014 was in part due to the upturn in economic growth, first signaled by rising business confidence in the fourth quarter of 2012 and then followed by a slow but significant upturn in industrial production and world trade growth.

We project that from 2014 to 2033, world air travel demand, measured by revenue passenger kilometers, should tend to grow by an average of 4.8% per year. The Middle East and China will lead with annual revenue passenger kilometers (RPK) growth of 7.1% and 6.8% respectively, followed by Latin America at 6.0%. Asia Pacific, the CIS (Commonwealth of Independent States) and Africa are expected to each have growth rates of around 5%. Because Europe (3.9%) and North America (2.7%) are more mature markets, we project them to grow more slowly. By 2033, Asia Pacific and China are expected to be the largest air travel markets in the world, accounting for a combined 40% of total global RPKs. Comparatively, Europe and North America are expected to generate 36% of world demand. However, economic downturns, fuel price increases, natural disasters and credit shortages might impair the ability of commercial airlines, including certain of our customers, to finance aircraft acquisitions (see “Item 4C. Information on the Company—Business Overview—Aircraft Financing Arrangements”).

In North America, the main airlines’ strategies have been focused on cost reductions, increased productivity and consolidation aiming at improved operational and financial efficiency. Focusing on profitability and not on capacity increases will position airlines to sustain better financial results and stability through business cycles. Regional airlines continue to provide essential hub feeder and capacity adjustments to mainline airlines.

In Europe, we believe the revenue environment will remain under pressure caused by a gradual Eurozone economic recovery, combined with low yields due to the highly competitive open aviation area and high regulatory costs. Regional airlines are supporting mainline airlines’ adjustments of capacity and frequency of services as part of their structural cost reduction and improvement programs. Mobility is vital for the intra-European market as Europeans continue to enjoy the freedom to travel that came with air transport liberalization in 1987. European airlines are still adapting to a more dynamic competitive environment and facing many issues such as challenges with labor, increased charges and fees (regulatory, airport and environmental), and the restructuring of businesses to exploit emerging opportunities. In Eastern European countries, we expect more opportunities due to an improved economic environment and maturing markets.

Latin America’s relevance is increasing in the global economy and geopolitics. We expect the region to report solid economic annual growth based on a favorable external environment, political and macroeconomic stability, and more equitable income distribution. Conditions in the Brazilian economy have been challenging, with inflation continuing to rise and consumer confidence waning. However, domestic air travel in Brazil achieved a solid increase of 6.9% in 2014. Also, in 2014, the Brazilian government enacted rules subsidizing regional aviation in Brazil. A growing middle class is demanding different services, such as discretionary expenditures in air travel, and airlines are introducing more fuel-efficient and right-sized aircraft to expand intra-regional aviation. As the region becomes more integrated, we expect there will be opportunities for jets of up to 130 seats to increase network connectivity and expand services to low to mid-density cities.

In the Asia Pacific region, economic prosperity, combined with robust population growth, economic decentralization, rapid rates of urbanization and regional air service liberalization, tend to support increased air travel demand. The role of regional aviation in Asia Pacific/China is related to national integration, providing access to smaller communities in countries like Australia, China and Indonesia. Liberalization policies in some sub-regions tend to encourage the development of intra-regional air transport, which may generate opportunities for regional aviation. As the region becomes more liberalized and trunk routes mature, we believe airlines will be further encouraged to look to secondary markets as the next frontier of expansion. Those city pairs should require 70 to 130-seat aircraft to sustain carrier growth.

Middle Eastern carriers have become global players, driven by the emergence of global hubs with high frequency flights connecting long-haul East-West passengers. Intra-Middle Eastern flights have increased significantly in the past years with the acquisition of smaller aircraft to feed international hubs and cover underserved markets.

In Africa, regional integration and growing foreign direct investment are fostering regional aviation. Challenges in infrastructure, lack of financing and a highly regulated environment are being addressed, albeit at a slow pace. As a result of regional liberalization, some airlines are introducing new aircraft to develop their intra-regional network. Airlines on the continent have recognized the benefits of replacing ageing fleets with new-technology aircraft. The share of new aircraft added to their fleets has more than doubled in the last five years (around 30% of all deliveries).

We estimate a global demand for around 6,250 jets in the 70-130 seat category through 2033 (2,300 units in the 70 to 90-seat segment and 3,950 units in the 90 to 130-seat segment). We project replacement of ageing aircraft to represent 56% of new deliveries and 44% of new deliveries to support market growth. We project world fleet-in-service of jets with up to 130 seats to increase from 3,850 aircraft in 2013 to 6,580 by 2033. We estimate the value of all deliveries at approximately USD 300 billion (list price).

We expect jets in the 70 to 130-seat category to sustain hub-and-spoke efficiency, to complement narrow-body operations, to provide an optimal balance of frequency and seats, and to encourage new market development with lower-risk, incremental capacity, thus generating significant demand for new aircraft in this segment.

Executive Aircraft

Market Overview

During the global economic crisis which began in 2008, markets were fearful of poor performance by economies around the globe. Initially, the U.S. economy was the primary concern, followed by the economic contagion in Europe, both of which contributed to a significant reduction in global economic growth. The resilient economic performance of the Asia Pacific countries, especially China, and certain Latin American countries, especially Brazil, helped avoid a deeper global economic crisis. Now, six years later, economic growth in emerging markets is slowing down while the U.S. economy is showing signs of recovery and there are positive economic news and growing investment in Europe.

Despite the positive recent performance of demand growth drivers such the number and wealth of high net worth individuals and corporate profits, we believe that corporations will continue to be more reluctant to spend on travel alternatives, at least in the short-term.

This scenario has prevented a more solid growth momentum for business jets sales. The industry’s output level in 2014 was 715 jets, representing an increase of 6.0% over 2013. In terms of revenues, the business jet industry increased 3.3% in 2014 due to a better product mix. Over the next 10 years, market forecast indicates that 9,250 aircraft will be delivered, totaling US$265.0 billion in the period.

We estimate a compound annual growth rate for the executive jet industry from 2015 to 2024 of 4.0% in terms of both revenue and units delivered.

In early 2015, the General Aviation Manufacturers Association reported that the industry delivered 705 business jets during 2014 (6.0% more than 2013), equivalent to US$21.9 billion (3.3% more than 2013). The expectation for 2015 is that deliveries will be 742 units.

Although the business jet market has not yet recovered from the 2008 economic crisis, our executive jet fleet in service has experienced a compound annual growth rate of 33.0% since then. In 2013 and 2014, we delivered a total of 119 units and 116 units, respectively, 20% and 3.0% less than 2012 and 2013, respectively. As we continue to introduce new products in the executive jet market, we expect the total number of deliveries in this segment to continue to increase in upcoming years.

The level of pre-owned aircraft for sale continues to pressure new aircraft demand in this segment.

We expect that over the next 10 years, the regional distribution of business jet deliveries will be as follows:

•

The North American market will continue to be the largest by far, representing 50% and 45% of the world market’s volume and revenue, respectively. These figures are well below the 64% participation of the region in the current world fleet and are a function of the growth of markets in other regions rather than an actual reduction in its market size.

•

The European, Middle Eastern and African markets will generate 26% of world deliveries in terms of units and 29% in terms of revenues. These figures are virtually the same as last year’s forecast, reflecting the slow recovery of the European economy.

•

Latin America, Asia Pacific and China will together represent 24% of world deliveries in terms of units and generate 26% of the world’s total business jet market revenue.

Brazilian Economic Environment

Despite recent signs of mild economic recovery, the global economic slowdown, including the events negatively affecting the commercial and executive airline industry and the U.S., has adversely affected the global and Brazilian economies and securities markets, and has resulted in:

•

increased volatility in the market price of securities;

•

significant decline in corporate earnings estimates;

•

substantial losses in important industries, including the air transport and insurance industries; and

•

significant erosion of consumer confidence.

As discussed below, any uncertainty surrounding the U.S., Brazilian and global economies could result in the Brazilian federal government changing existing laws or regulations or imposing new ones, and/or the Central Bank changing base interest rates, which could adversely affect our operations.

The Brazilian federal government has frequently intervened in the Brazilian economy and occasionally made drastic changes in policy and regulations. The Brazilian federal government’s actions to control inflation and affect other policies and regulations have often involved, among other measures, increases in interest rates, changes in tax policies and incentives, price controls, currency devaluations, capital controls and limits on imports. Changes in Brazil’s monetary, credit, tariff and other policies could adversely affect our business, as could inflation, currency and interest-rate fluctuations, social instability and other political, economic or diplomatic developments in Brazil, as well as the Brazilian federal government’s response to such developments.

Rapid changes in Brazilian political and economic conditions that have occurred and may occur in the future will require a continued assessment of the risks associated with our activities and the adjustment of our business and operating strategy accordingly. Future developments in Brazilian federal government policies, including changes in the current policy and incentives adopted for financing the export of Brazilian goods, or in the Brazilian economy, over which we have no control, may have a material adverse effect on our business.

The following table shows data for real GDP growth, inflation, interest rates and the U.S. dollar exchange rate for and as of the periods indicated.


	December 31,
	2014			2013			2012			2011
Real growth in gross domestic product		0.1	%		2.3	%		0.9	%		2.7	%
Inflation (IGP-M)⁽¹⁾		3.7	%		5.5	%		7.8	%		5.1	%
Inflation (IPCA)⁽²⁾		6.4	%		5.9	%		5.8	%		6.5	%
CDI rate⁽³⁾		10.8	%		9.8	%		6.9	%		10.9	%
LIBOR rate⁽⁴⁾		0.3	%		0.3	%		0.3	%		0.6	%
Depreciation of the real vs. U.S. dollar		9.0	%		10.5	%		16.7	%		12.6	%
Period-end exchange rate—US$1.00	R$	2.656		R$	2.343		R$	2.044		R$	1.876
Average exchange rate—US$1.00⁽⁵⁾	R$	2.354		R$	2.174		R$	1.958		R$	1.671

Sources:

Fundação Getúlio Vargas, the Central Bank and Bloomberg

(1)	Inflation (IGP-M) is the general market price index measured by the Fundação Getúlio Vargas.

(2)	Inflation (IPCA) is a broad consumer price index measured by the Instituto Brasileiro de Geografia e Estatística.

(3)	The CDI rate is average of inter-bank overnight rates in Brazil (as of the last date of the respective period).

(4)	Three-month U.S. dollar LIBOR rate as of the last date of the period. The LIBOR rate is the London inter-bank offer rate.

(5)	Represents the average of the exchange rates on the last day of each month during the period.

Inflation and exchange-rate variations have had, and may continue to have, substantial effects on our financial condition and results of operations. Inflation and exchange-rate variations affect our monetary assets and liabilities denominated in reais. The value of such assets and liabilities as expressed in U.S. dollars declines when the real devalues against the U.S. dollar and increases when the real appreciates. In periods of devaluation of the real, we report (a) a remeasurement loss on real-denominated monetary assets and (b) a remeasurement gain on real-denominated monetary liabilities.

For further information on our macro-economic impacts on our financial position, see note 28 of our audited consolidated financial statements for the year ended December 31, 2014.

Critical Accounting Estimates

The preparation of financial statements in accordance with IFRS requires us to use estimates and assumptions that affect the reported assets and liabilities, revenues and expenses and our disclosures. Therefore, to prepare the financial statements included in this annual report, variables and assumptions derived from past experience and various other factors we believe to be reasonable and relevant. These estimates and assumptions are reviewed and relevant adjustments are recorded in our ordinary course of business.

The most significant accounting policies, including the variables and assumptions used in the estimates, and the sensitivity of these assessments to the different variables and conditions are described below:

Sales and Other Operating Revenues

We recognize revenues from sales made by the Commercial Aviation, Executive Jets, Defense & Security and Other Related businesses when benefits and risk are transferred to customers, which, in the case of aircraft, occurs when delivery is made, and, in the case of aviation services, when the service is rendered.

We also recognize rental revenue for leased aircraft, based on operating lease contracts over the lease term, being the rental revenue recorded in the relevant operating segment.

In the Defense & Security segment, a significant portion of revenue is derived from long-term development contracts with the Brazilian and foreign governments accounted for using the percentage of completion method and the physical advancement methods. These contracts contain provisions for price escalation based on a mix of indices related to raw material and labor cost. From time to time, we reassess the expected margins of construction contracts, adjusting revenue recognition based upon projected costs to completion. Were the total costs to be incurred to come in 10% below management’s estimates, the amount of revenue recognized in the year of 2014 would increase by US$168.2 million, and if the total costs were to be 10% above the estimate, the amount of revenue recognized would decrease by US$253.1 million.

Revenue under exchange pool programs is recognized monthly over the contract term and consists partly of a fixed fee and partly of a variable fee directly related to aircraft flying hours.

We enter into transactions that represent multiple-element arrangements, such as training, technical assistance, spare parts and other concessions, which are included in the aircraft purchase price. Multiple-element arrangements are assessed to determine whether they can be separated into more than one unit of accounting when all of the following criteria are met:

•

the delivered item has value to the client on a stand-alone basis; and

•

there is objective and reliable evidence of the fair value of the undelivered item.

If these criteria are met for each element and there is objective and reliable evidence of fair value for all units of accounting in an arrangement, the arrangement consideration is allocated to the separate units of accounting based on each unit’s relative fair value.

Product Warranties

Generally, aircraft sales are accompanied by a standard warranty for systems, accessories, equipment, parts and software manufactured by us and/or by our risk-sharing partners and suppliers. We recognize warranty expenses, as cost of sales and services, at the time of sale based on the estimated warranty costs anticipated to be incurred. These estimates are based on a number of factors, including historical warranty claims and cost experience, the type and duration of the warranty coverage, volume and mix of aircraft sold and in service and warranty coverage available from the related suppliers. Actual product warranty costs may have different patterns from past experience, mainly when a new family of aircraft enters service, which could require us to increase the product warranty reserve. The warranty period is three years for spare parts and five years for components that are a part of the aircraft when sold.

Financial Guarantees

We may offer off-balance sheet financial guarantees related to aircraft sold. The guarantee is granted at fair value and is recorded as a reduction in sales and is amortized to the income statement over the period of the guarantee. We evaluate the creditworthiness of the obligor at aircraft delivery and discloses our maximum exposure under the guarantee as a contingent liability in Note 36 – Joint liabilities co-obligation, responsibilities and commitments. We monitor the obligor’s credit worthiness periodically and in the event of an official default (Chapter 11) or negotiation the exposure is recalculated based on the best estimate when and if the payments become probable and can be estimated reliably, recognizing a provision according to IAS 37—Provisions, Contingent Assets and Liabilities. If an agreement for the payment of this allowance is negotiated, the default values are reclassified to accounts payable. For further information, see “Item 5E – Off-Balance Sheet Agreements.”

Residual Value Guarantees

We may offer residual value guarantees related to sold aircraft, which might be exercised at the end of the financing term agreed between the financing agent and the customer/operator. At the time of the offering, the guarantees are evaluated by the fair value and are reviewed quarterly to reflect eventual loss due to the fair value of these commitments. The residual value guarantees can be exercised if the aircraft fair value is lower than the guaranteed fair value. The future fair value is estimated using aircraft assessments of third parties, including information obtained from the selling or leasing of similar aircraft in the secondary market. For further information, see “Item 5E – Off-Balance Sheet Agreements.”

Residual Interests in Aircraft

In structured financing arrangements, an entity purchases an aircraft from us, pays the full purchase price on delivery or at the conclusion of the sales financing structure and leases the aircraft to the ultimate customer. A third-party financial institution facilitates the financing of the aircraft, and a portion of the credit risk remains with that third party.

Although we have no equity investee interests, we control special purpose entity, or SPE, operations or take a majority share of their risks and rewards. When we no longer hold control, the assets and liabilities related to the aircraft are deconsolidated from our statement of financial position.

We evaluate control characteristics over the SPEs principally based on a qualitative assessment. This includes a review of the SPE’s capital structure, contractual relationships and terms, nature of the SPE’s operations and purpose, nature of the SPE’s interests issued, and our interests in the entity which either create or absorb variability. We evaluate the design of a SPE and the related risks the entity and the variable interest holders are exposed to in evaluating consolidation. In a few cases, when it is unclear from a qualitative standpoint if we have control over a SPE, it uses a quantitative analysis to calculate the probability-weighted expected losses and probability-weighted expected residual returns using cash flow and statistical risk measurement modeling.

Impairment

The impairment test takes into consideration premises and assumptions adopted by management, in line with our strategic plan, as well as a discount rate that reflects our shareholders’ expectations.

In general, all assumptions below, as well as each cash generating unit’s projected cash flows are derived from our strategic plan:

Gross margin – management has made inflow and outflow projections based on past performance and considering its market expectations. The projections also consider efficiency gains according to the product cycle.

Growth rate – growth rates were considered in the revenue projections according to forecasts included in sector reports.

Discount rate – we use a discount rate that reflects the return expected by investors at the moment of calculation.

If the discount applied to future cash flows varied 10%, adjustments for non-recovery of assets would still not need to have been made.

Fair Value of Financial Instruments

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. We use our judgment to select a variety of methods using assumptions that are mainly based on market conditions existing at the end of each reporting period.

Income Taxes

We are subject to income taxes in multiple jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. We also recognize liabilities based on estimates of whether additional taxes will be due. When the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.

The amounts in our financial statements are calculated in the functional currency (U.S. dollar) while the calculation of the income tax is in Brazilian reais. Therefore, changes in the exchange rate may significantly affect the income tax expense in the period, particularly from changes in non-monetary assets.

Had the real devalued or appreciated by 10% against the U.S. dollar in relation to the actual exchange rate as of December 31, 2014, the deferred income tax expense would have been higher or lower by approximately US$ 124.5 million.

Post-employment medical benefit plan

We and certain of our subsidiaries have a post-employment medical benefit plan that provides medical care to retired employees. To identify the future exposure of this benefit and therefore its measurement in the financial statements, we and our subsidiaries use assumptions from studies based on statistical data, often observed internally or supplied by institutes or entities dedicated to this type of activity.

Principal Operating Data and Components of Our Statement of Income

Operating Data

The following chart sets forth statistical data for our deliveries of our aircraft at the end of the respective periods. Deliveries consist of aircraft that have been delivered to customers and for which the corresponding revenue has been recognized. Our backlog consists of all firm orders that have not yet been delivered. A firm order is a contractual commitment from a customer, customarily accompanied by a down payment, for which we have reserved a place on one of our production lines. See “Item 5D.—Trend Information” for certain information on our firm orders and options.


	At and for the year ended December 31,
Other Data:	2014		2013		2012		2011		2010
Aircraft delivered during period:
To the Commercial Aviation Market
ERJ 145		—		—		—		2		6
EMBRAER 170		1		4		1		1		9/2	⁽¹⁾
EMBRAER 175		62		24		20		10		8
EMBRAER 190		19		45		62		68		58
EMBRAER 195		10		17		23		24		17
To the Defense & Security Market
Legacy 600		—		—		—		—		1
EMB 135		—		—		—		—		1
EMB 145 AEW&C/RS/MP⁽²⁾		—		—		2		—		—
EMB 312 Tucano/AL-X/ Super Tucano⁽²⁾		7		6		14		—		—
To the Executive Jets Market
Legacy 600/650		18		23		19		13		10
Legacy 500		3
EMBRAER 145/170/190 Shuttle		—		2		1		—		3
Phenom 100		19		30		29		41		100
Phenom 300		73		60		48		42		26
Lineage 1000		3		4		2		3		5
To the General Aviation Market
Light Propeller Aircraft		38		60		62		54		40

Total delivered		253		275		283		258		286

(1)	Figures appearing after a forward slash (/) refer to aircraft delivered under operating leases.

(2)	Recorded for under the percentage of completion method.

Revenue

We generate revenues from the sale of aircraft and spare parts as well as from providing maintenance and repair, training and other product support services. Of total revenues in 2014, 67.9% are generated through aircraft sales. Revenue arising from the sale of commercial and executive aircraft is denominated in U.S. dollars. In 2014, total Defense & Security revenue included 31.1% of revenue denominated in foreign currency, predominantly in U.S. dollars, and 68.9% denominated in Brazilian reais. In addition, we generate revenue from our Other Related Businesses, which include single-source supply of structural parts and mechanical and hydraulic systems to other aircraft manufacturers, and general aviation propeller aircraft, such as crop dusters, which are also referred to as light aircraft.

For the sales of our commercial aircraft, we customarily receive a deposit upon signing of the purchase agreement and progress payments in the amount of 5% of the sales price of the aircraft 18 months before scheduled delivery, another 5% twelve months before scheduled delivery and another 5% six months before scheduled delivery. For the EMBRAER 170/190 jet family, we receive an additional 5% progress payment 24 months before scheduled delivery. We typically receive the remaining amount of the sales price upon delivery of the aircraft. The deposits and the progress payments are for the most part nonrefundable in the event orders are cancelled. We typically receive the remaining amount of the sales price upon delivery. Payments in advance of delivery are recorded under advances from customers as a liability on our statement of financial position and, when we deliver the aircraft, these payments are recorded against trade account receivables of such aircraft. For sales of our executive jets, we customarily receive a deposit at the time of order, progress payments totaling 15% to 30% of the aircraft price, and the full payment of the balance is due upon delivery. We generally receive between US$10,000 and US$200,000 for each option to purchase an executive jet. See “Item 5A.—Operating Results—Critical Accounting Estimates—Sales and Other Operating Revenues.”

Our sales contracts with our Commercial Aviation and Executive Jets segment customers include adjustments for the CPI, and our sales contracts with our Defense & Security segment customers typically include adjustments to the purchase price of the aircraft based on an escalation formula which is based on a mix of indices related to raw material and labor costs. The deposits, progress payments and option payments are nonrefundable for the most part. Once a customer decides to exercise an option, we account for it as a firm order, and we begin to receive progress payments and recognize revenue upon delivery as discussed above.

We recognize revenue from the sale of our defense aircraft, including the research and development for specific programs, in accordance with the percentage of completion method. Certain contracts contain provisions for the redetermination of price based upon future economic conditions. Our defense customers continue to provide customer advances, which are converted into revenue as we fulfill pre-determined stages of completion of the project, such as conception, development and design, and engineering, systems integration and customization. These installments are nonrefundable for the most part.

Cost of Sales and Services

Cost of sales and services consists of the cost of the aircraft, spare parts and services rendered, comprising:

•

Raw materials. Substantially all materials costs are covered by contracts with suppliers. Prices under these contracts are generally adjusted based on an escalation formula which reflects, in part, inflation in the United States.

•

Labor. These costs comprise salaries and related charges primarily in Brazilian reais.

•

Depreciation. Property, plant and equipment are depreciated over their useful lives, ranging from five to 48 years, on a straight-line basis. Depreciation of aircraft under operating leases is recorded in cost of sales and services from the beginning of the lease term using the straight-line method over the estimated useful life and considering a residual value at the end of the lease term. For further information on depreciation, see note 16 to our audited consolidated financial statements as of and for the year ended December 31, 2014.

•

Amortization. Internally-generated intangible assets are amortized in accordance with the estimated sales of the series of aircraft. Intangible assets acquired from third parties are amortized on straight-line bases over the estimated useful lives of the assets.

In accordance with the accounting standard for contingencies, we accrue a liability for the obligations associated with product warranties at the aircraft delivery date, which is estimated based on historical experience and recorded in cost of sales and services.

We enter into transactions that represent multiple-element arrangements, such as training, technical assistance, spare parts and other concessions. These costs are recognized when the product or service is provided to the customer.

Results of Operations

The following table presents statement of income data by business segment for the periods indicated:


	2014		2013		2012
Revenue
Commercial aviation		3,163.3		3,307.0		3,755.4
Executive jets		1,591.5		1,644.5		1,292.0
Defense & Security		1,456.4		1,196.9		1,045.2
Other related businesses		77.6		86.6		74.4

Total		6,288.8		6,235.0		6,167.0
Cost of sales and services
Commercial aviation		(2,542.2)		(2,532.6)		(2,809.3)
Executive jets		(1,299.6)		(1,284.7)		(1,035.8)
Defense & Security		(1,158.9)		(951.2)		(785.5)
Other related businesses		(37.6)		(50.4)		(46.0)

Total		(5,038.3)		(4,818.9)		(4,676.6)
Gross profit
Commercial aviation		621.1		774.4		946.1
Executive jets		291.9		359.8		256.2
Defense & Security		297.5		245.7		259.7
Other related businesses		40.0		36.2		28.4

Total		1,250.5		1,416.1		1,490.4
Operating expenses
Commercial aviation		(321.2)		(272.3)		(507.7)
Executive jets		(229.6)		(262.8)		(216.7)
Defense & Security		(148.0)		(154.1)		(144.9)
Other related businesses		(8.4)		(13.5)		(9.2)

Total		(707.2)		(702.7)		(878.5)

Operating profit before finance income (expense)		543.3		713.4		611.9

The following table sets forth statement of income information, and such information as a percentage of our revenue, for the periods indicated:


Consolidated Statements of Income	2014					2013					2012
	(in US$ millions, except percentages)
Revenue		6,288.8		100	%		6,235.0		100	%		6,167.0		100	%
Cost of sales and services		(5,038.3	)	80.1			(4,818.9	)	77.3			(4,676.6	)	75.8
Gross profit		1,250.5		19.9			1,416.1		22.7			1,490.4		24.2
Operating income (expense)
Administrative		(207.5	)	3.3			(210.5	)	3.4			(279.2	)	4.5
Selling		(419.9	)	6.7			(454.4	)	7.3			(480.4	)	7.8
Research		(47.1	)	0.7			(74.7	)	1.2			(77.3	)	1.3
Other operating income (expense), net		(32.6	)	0.5			36.9		0.6			(42.8	)	0.7
Equity in losses of associates		(0.1	)	—			—		—			1.2		—

Operating profit before financial income (expense)		543.3		8.6			713.4		11.4			611.9		9.9
Financial expenses, net		(24.5	)	0.4			(96.4	)	1.5			(6.8	)	0.1
Foreign exchange gain (loss), net		(14.9	)	0.2			(14.6	)	0.2			8.7		0.1

Profit before taxes on income		503.9		8.0			602.4		9.6			613.8		10.0
Income taxes expense (benefit)		(156.2	)	2.5			(256.4	)	4.1			(265.2	)	4.3

Net income		347.7		5.5			346.0		5.5			348.6		5.7

Attributable to:
Owners of Embraer		334.7		5.3			342.0		5.5			347.8		5.6
Non-controlling interest		13.0		0.2			4.0		0.1			0.8		0.0

2014 Compared with 2013

Revenue

Revenue increased 0.9% to US$6,288.8 million in 2014, from US$6,235.0 million in 2013. Revenue in the Commercial Aviation segment decreased 4.4% to US$3,163.3 million in 2014, from US$3,307.0 million in 2013. Executive Jets revenues declined 3.2% to US$1,591.5 million in 2014, from US$1,644.5 million in 2013. Defense & Security revenues increased by 21.7% to US$1,456.4 million in 2014, from US$1,196.9 million in 2013. Other Related Businesses segment revenues decreased 10.4% to US$77.6 million in 2014, from US$86.6 million in 2013.

Commercial Aviation revenues decreased in 2014, despite deliveries increasing by 2.2% to 92 in 2014, from 90 in 2013. The decline in revenue was principally driven by a less favorable product mix in the year, as a result of a higher proportion of smaller E170 and E175 jets delivered relative to E190 and E195 models. In 2014, 68.5% of our deliveries in the Commercial Aviation segment were E170 and E175 models, compared to 31.1% in 2013.

The decrease in Executive Jets segment revenues in 2014 was largely driven by a decrease in the number of executive jets delivered during the year, as compared to 2013. During 2014, we delivered 116 executive jets (92 light jets and 24 large jets) compared to deliveries of 119 executive jets (90 light jets and 29 large jets) in 2013, an decrease of 2.5%. In addition, we had a less positive mix of large jet deliveries in the year (20.7% of total deliveries in 2014, compared to 24.4% of total deliveries in 2013), which also impacted revenues in the segment.

Defense & Security segment revenues are accounted for under the percentage-of-completion method, and we continued to execute under our contracts with the Brazilian federal government, specifically the KC-390 development program as well as the Integrated Border Monitoring System (SISFRON) and the Geostationary Defense and Communications Satellite programs, as well as the Light Air Support (LAS) program with the United States Air Force (USAF). In addition, deliveries of the Super Tucano to militaries around the world and ongoing modernization programs with the Brazilian federal government continued apace, helping to drive revenue growth of 21.7% to US$1,456.4 million, compared to US$1,196.9 million in 2013.

Cost of Sales and Services

Cost of sales and services increased 4.6% to US$5,038.3 million in 2014, from US$4,818.9 million in 2013. The 4.6% increase in cost of sales was higher than the 0.9% growth in revenues in 2014, thus driving an increase in cost of sales and services as a percentage of revenue, to 80.1% in 2014 compared to 77.% in 2013. This increase in cost of sales and services as a percentage of revenue is largely due to a less favorable mix of deliveries in both the Commercial Aviation and Executive Jets segments, coupled with inflation in direct labor costs, partially offset by ongoing efforts to improve productivity and efficiency, the appreciation of the dollar against the real, and stimulus packages implemented in Brazil.

Cost of sales and services in the Commercial Aviation segment increased 0.4%, to US$2,542.2 million in 2014, from US$2,532.6 million in 2013. The increase in cost of sales and services compared to the decrease in revenues for the year of 4.3% due to a less favorable product and services mix, as smaller E-Jet aircraft model deliveries as a proportion of total deliveries was higher in 2014 compared to 2013. Gross margin in the Commercial Aviation segment declined from 23.4% in 2013 to19.6% in 2014.

Cost of sales and services in the Executive Jets segment increased 1.2% to US$1,299.6 million in 2014 from US$1,284.7 million in 2013. Cost of sales and services increased while revenues declined 3.2% in this segment in 2014 due to the decline in total deliveries during the year as well as a less favorable mix, as light jets made up 79.3% of total deliveries in 2014 compared to 75.6% in 2013. Gross margin in the Executive Jets segment declined from 21.9% in 2013 to 18.3% in 2014.

Cost of sales and services in the Defense & Security segment increased by 21.8% to US$1,158.9 million in 2014, from US$951.2 million in 2013. The increase in cost of sales and services was in line with the 21.7% increase in revenues in 2014. Gross margin in the Defense & Security segment was 20.4% in 2014 and was 20.5% in 2013.

Cost of sales and services in Other Related Businesses decreased 25.4% to US$37.6 million in 2014, from US$50.4 million in 2013, while revenues for this segment decreased 10.4% in 2014.

Gross Profit

As a result of the aforementioned factors, our gross profit decreased 11.7%, to US$1,250.5 million in 2014 from US$1,416.1 million in 2013. Our gross margin decreased from 22.7% in 2013 to 19.9% in 2014.

Operating Income (Expense)

As further discussed below, operating expense increased 0.7%, to US$707.2 million in 2014, from US$702.7 million in 2013. Operating expense as a percentage of revenues remained stable at 11.3% in 2014 when compared with 2013.

Administrative. Administrative expenses decreased 1.4%, to US$207.5 million in 2014, from US$210.5 million in 2013, as a result of ongoing efficiency initiatives combined with the appreciation of the dollar against the real, as well as the stimulus packages implemented in Brazil.

Selling. Selling expenses decreased 7.6% to US$419.9 million in 2014, compared to US$454.4 million in 2013. The decline in selling expenses is due to expense reductions in the Commercial Aviation and Executive Jets segments, government fiscal benefits, and the appreciation of the dollar against the real.

Research. Research expenses declined 36.9% to US$47.1 million in 2014, from US$74.7 million in 2013. The decrease in this expense is primarily explained by the launch of the E2 second generation E-Jets program, in which program costs are now capitalized to intangible assets instead of recognized as research expenses, following approval by our Board of Directors of the economic viability of the program.

Other operating (expense) income, net. Other operating (expense) income, net changed from income of US$36.9 million in 2013 to expense of US$32.6 million in 2014, mainly due to income in 2013 related to non-recurring factors resulting largely from reversals of provisions associated with the bankruptcy process of AMR Corporation that were originally accounted for in 2011, and reversed following the more favorable final outcome of the AMR bankruptcy process.

Equity in loss of associates. Equity in loss of associates changed from zero in 2013 to a loss of US$0.1 in 2014.

Operating Profit Before Financial Income (Expense)

As a result of the aforementioned factors, our consolidated operating profit decreased 23.8% to US$543.3 million in 2014, from US$713.4 million in 2013. Our operating margin decreased to 8.6% in 2014 from 11.4% in 2013.

As mentioned above regarding cost of sales and services and operating income (expense), the operating profit by segment for 2014 for the Commercial Aviation, Executive Jets, Defense & Security and Other Related Businesses segments was US$299.9 million, US$62.3 million, US$149.5 million and US$31.6 million, respectively. In 2013, the operating profit for these segments was US$502.0 million, US$97.0 million, US$91.6 million, and US$22.7 million, respectively. See Note 38 to our audited consolidated financial statements for operating profit by segment.

Financial income (expense), net

Financial expense, net decreased from US$96.4 million in 2013 to US$24.5 million in 2014, due to greater financial income generated coupled with lower expenses related to outstanding residual value guarantees, principally those related to the favorable resolution of the AMR bankruptcy process in 2013.

Foreign exchange gain (loss), net

Foreign exchange gain (loss), net changed to a loss of US$14.9 million in 2014 from a loss of US$14.6 million in 2013, reflecting net foreign exchange rate changes on monetary assets and liabilities denominated in other currencies which are translated into our functional currency, the U.S. dollar.

Profit Before Taxes on Income

As a result of the aforementioned factors, profit before taxes on income decreased 16.4% to US$503.9 million in 2014 from US$602.4 million in 2013.

Income tax benefit (expense)

Income taxes represented an expense of US$156.2 million in 2014, compared to an expense of US$256.4 million in 2013. Income taxes declined principally due to lower profit before taxes on income in 2014 as compared to 2013.

Our effective tax rate decreased to 31.0% in 2014 as compared to 42.6% in 2013 due to lower deferred income taxes and social contribution in 2014 as compared to 2013, due to a decline in the impact of changes in the real to dollar exchange rate over non-monetary assets (primarily Inventory, Intangibles and PP&E).

Net Income

As a consequence of the aforementioned factors, our consolidated net income after taxes increased 0.5% to US$347.7 million in 2014, from US$346.0 million in 2013. As a percent of revenue, net income after taxes remained the same at 5.5% in 2014 compared to 2013.

2013 Compared with 2012

Revenue

Revenue increased 1.1% to US$6,235.0 million in 2013, from US$6,167.0 million in 2012. Revenue in the Commercial Aviation segment declined 11.9% to US$3,307.0 million in 2013, from US$3,755.4 million in 2012. Executive Jets revenues increased 27.3% to US$1,644.5 million in 2013, from US$1,292.0 million in 2012. Defense & Security revenues increased by 14.5% to US$1,196.9 million in 2013, from US$1,045.2 million in 2012. Other Related Businesses segment revenues increased 16.4% to US$86.6 million in 2013, from US$74.4 million in 2012.

Commercial Aviation revenues declined in 2013, principally due to a lower level of deliveries in the year compared to 2012, representing a decrease of 15.1%. In 2013, the Commercial Aviation segment delivered 90 commercial aircraft, compared to 106 aircraft in 2012, with a slightly less favorable product mix in the year, as a result of a higher proportion of smaller E170 and E175 jets delivered relative to E190 and E195 models.

The increase in Executive Jets segment revenues in 2013 was largely driven by an increase in the number of executive jets delivered during the year, as compared to 2012. During 2013, we delivered 119 executive jets (90 light jets and 29 large jets) compared to deliveries of 99 executive jets (77 light jets and 22 large jets) in 2012, an increase of 20.2%. In addition, we had a slightly more positive mix of large jet deliveries in the year (24.4% in 2013, compared to 22.2% in 2012).

Defense & Security segment revenues are accounted for under the percentage-of-completion method, and we continued to execute under our contracts with the Brazilian federal government, specifically the KC-390 development program as well as the Integrated Border Monitoring System (SISFRON). In addition, deliveries of the Super Tucano to militaries around the world and ongoing modernization programs with the Brazilian federal government continued apace, helping to drive revenue growth of 14.5% to US$1,196.9 million, compared to US$1,045.2 million in 2012.

Cost of Sales and Services

Cost of sales and services increased 3.0% to US$4,818.9 million in 2013, from US$4,676.6 million in 2012. The 3.0% increase in cost of sales was higher than the 1.1% growth in revenues in 2013, thus driving an increase in cost of sales and services as a percentage of revenue, to 77.3% in 2013 compared to 75.8% in 2012. This increase in cost of sales and services is mainly a result of a less favorable product and services mix in 2013, combined with inflation in direct labor costs, partially offset by ongoing efforts to improve productivity and efficiency, the appreciation of the dollar against the real, and the stimulus packages implemented in Brazil.

Cost of sales and services in the Commercial Aviation segment decreased 9.8%, to US$2,532.6 million in 2013, from US$2,809.3 million in 2012. The decrease in cost of sales and services was lower than the 11.9% decrease in revenues in this segment due to a less favorable product and services mix, coupled with lower operating leverage on a decline of commercial aircraft deliveries in 2013. These impacts were only partially offset by the appreciation of the dollar against the real, ongoing efforts to improve productivity, and the stimulus packages implemented in Brazil. Gross margin in the Commercial Aviation segment declined from 25.2% in 2012 to 23.4% in 2013.

Cost of sales and services in the Executive Jets segment increased 24.0% to US$1,284.7 million in 2013 from US$1,035.8 million in 2012. The increase in cost of sales and services in this segment increased less than the 27.3% increase in revenues in 2013, representing a shift to a more favorable product mix as we delivered more large planes and benefitted from the appreciation of the dollar against the real, as well as stimulus packages implemented in Brazil and our efforts to improve productivity and efficiency.

Cost of sales and services in the Defense & Security segment increased by 21.1% to US$951.2 million in 2013, from US$785.5 million in 2012. The increase in cost of sales and services was higher than the 14.5% increase in revenues in 2013, driven primarily by a less favorable revenue and product mix delivered in 2013, as well as higher costs related to certain contracts in this segment.

Cost of sales and services in Other Related Businesses increased 9.6% to US$50.4 million in 2013, from US$46.0 million in 2012, while revenues for this segment increased 16.4% in 2013.

Gross Profit

As a result of the aforementioned factors, our gross profit decreased 5.0%, to US$1,416.1 million in 2013 from US$1,490.4 million in 2012. Our gross margin also fell from 24.2% in 2012 to 22.7% in 2013.

Operating Income (Expense)

As further discussed below, operating expense decreased 20.0%, to US$702.7 million in 2013, from US$878.5 million in 2012. Operating expense as a percentage of revenues decreased to 11.3% in 2013 from 14.2% in 2012.

Administrative. Administrative expenses decreased 24.6%, to US$210.5 million in 2013, from US$279.2 million in 2012, due to the appreciation of the dollar against the real, as well as the stimulus packages implemented in Brazil.

Selling. Selling expenses decreased 5.4% to US$454.4 million in 2013, compared to US$480.4 million in 2012. The decline in selling expenses is due to reductions in the Defense & Security segment, government fiscal benefits and the appreciation of the dollar against the real.

Research. Research expenses declined 3.4% to US$74.7 million in 2013, from US$77.3 million in 2012. The decrease in this expense is primarily explained by the launch of the E2 second generation E-Jets program, in which program costs are now capitalized to intangible assets instead of recognized as research expenses, following approval by our Board of Directors of the economic viability of the program.

Other operating (expense) income, net. Other operating (expense) income, net improved from an expense of US$42.8 million in 2012 to income of US$36.9 million in 2013. The expense in 2012 is mainly due to the expense of US$37.4 million in renegotiated financing arrangement expenses in connection with the restructuring of Chautauqua Airlines, Inc., an airline operator controlled by Republic Airways Holdings.

The change in income from 2012 to 2013 was due to a variety of non-recurring factors. In 2011, as a result of the bankruptcy filing of AMR Corporation, or AMR, the parent company of our customer American Airlines, we provisioned a total of US$317.5 million to our results in the fourth quarter to account for expected expenses related to obligations from financial guarantees and residual value guarantees for the fleet of 216 ERJ 145 family aircraft operated by AMR. Of the US$317.5 million provision related to the AMR bankruptcy process, US$241.9 million was provisioned under other operating (expense) income, net. As a consequence of the more favorable final outcome of the AMR bankruptcy process in the last quarter of 2013, since the initial provisions made in the fourth quarter of 2011, we incurred total expenses of approximately US$43 million related to the financial guarantees for AMR (including the purchase of 39 ERJ 145 family aircraft). As a consequence of this outcome, in the fourth quarter of 2013 a total of US$180.7 million positively impacted operating results, recognized in the other operating (expense) income, net account. The US$180.7 million was comprised of a provision reversal of US$109.3 million coupled with a US$71.4 million payment reversal, which we had already made on these financial guarantees. In the fourth quarter of 2013, we also recognized a US$33.7 million expense related to deferred revenues, attached to a total of US$199.0 million of financial guarantee obligations which remain for 163 aircraft of the original AMR ERJ 145 family fleet that have been added back to our off-balance sheet exposure. Therefore, the net effect in the fourth quarter of reversals and expenses related to the AMR financial guarantees is US$147.0 million (US$180.7 million less US$33.7 million).

Also, in 2013, the Brazilian federal government initiated a multi-industry effort, known as Programa de Recuperação Fiscal (Fiscal Recovery Program), or Refis, to resolve various open tax debt negotiations with a number of companies. As part of this initiative, the Brazilian federal government offers favorable terms to companies that choose to voluntarily enroll in the program and settle their tax debts. In the last three months of 2013, we opted to enroll in this program in order to take advantage of the opportunity to resolve our related tax negotiations with the government. Consequently, we recorded a provision of US$36.9 million in the other operating (expense) income, net account. We do not anticipate that additional provisions will be made relating to this item.

Equity in loss of associates. Equity in loss of associates decreased from positive US$1.2 million in 2012 to zero in 2013.

Operating Profit Before Financial Income (Expense)

As a result of the aforementioned factors, our consolidated operating profit increased 16.6% to US$713.4 million in 2013, from US$611.9 million in 2012. Our operating margin increased to 11.4% in 2013 from 9.9% in 2012.

As mentioned above regarding cost of sales and services and operating income (expense), the operating profit by segment for 2013 for the Commercial Aviation, Executive Jets, Defense & Security and Other Related Businesses segments was US$502.1 million, US$97.0 million, US$91.6 million, and US$22.7 million, respectively. In 2012, the operating profit for these segments was US$438.4 million, US$39.5 million, US$114.8 million, and US$19.2 million, respectively. See Note 38 to our audited consolidated financial statements for operating profit by segment.

Financial income (expense), net

Financial expense, net increased from US$6.8 million in 2012 to US$96.4 million in 2013, due to a combination of non-recurring and recurring factors. In 2011, as a result of the AMR bankruptcy filing, we provisioned a total of US$317.5 million to our fourth quarter results to account for expected expenses related to obligations for financial guarantees and residual value guarantees, as explained above. Of the US$317.5 million provision related to this bankruptcy process in the fourth quarter of 2011, US$75.6 million was recognized in financial income (expense), net, as this amount was related to residual value guarantees. This amount was not reversed in the fourth quarter of 2013, as we took the opportunity to reduce our total exposure by buying back US$98 million in residual value guarantees related to a portion of the AMR fleet of ERJ 145 family aircraft. Considering that since the original provision in the fourth quarter of 2011, as a result of ongoing revisions of residual value projections observed by independent aircraft appraisers, we reversed US$17.1 million of this original provision, in the fourth quarter of 2013 an additional non-recurring expense of US$40 million was accounted for in financial income (expense), net to complete all required provisions for these residual value guarantees. As a result, we no longer have any outstanding residual value guarantee exposure related to the AMR fleet of ERJ 145 family aircraft.

In addition, we also recognized an expense of US$7.9 million in financial income (expense), net related to the accrued interest on the tax obligations related to the Refis program, explained in greater detail under “—Operating Income (Expense).”

Foreign exchange gain (loss), net

Foreign exchange gain (loss), net changed to a loss of US$14.6 million in 2013 from a gain of US$8.7 million in 2012, reflecting net foreign exchange rate changes on monetary assets and liabilities denominated in other currencies which are translated into our functional currency, the U.S. dollar.

Profit Before Taxes on Income

As a result of the aforementioned factors, profit before taxes on income decreased 1.9% to US$602.4 million in 2013 from US$613.8 million in 2012.

Income tax benefit (expense)

Income taxes represented an expense of US$256.4 million in 2013, compared to an expense of US$265.2 million in 2012. Income taxes declined principally due to lower profit before taxes on income in 2013 as compared to 2012.

Our effective tax rate was relatively stable in 2013 as compared 2012, at 42.6% compared to 43.2%, respectively, declining slightly due to the slightly lower profit before taxes in 2013.

Net Income

As a consequence of the aforementioned factors, our consolidated net income after taxes decreased 0.7% to US$346.0 million in 2013, from US$348.6 million in 2012. As a percent of revenue, net income after taxes was 5.5% in 2013 compared to 5.7% in 2012.

Accounting Pronouncements Not Yet Adopted

For a description of recently issued accounting pronouncements, see Note 4 to our consolidated financial statements contained in “Item 18. Financial Statements.” We prepared our consolidated financial statements as of and for the year ended December 31, 2014 in accordance with IFRS, as issued by the IASB.

5B.

Liquidity and Capital Resources

Overview

Our liquidity needs arise principally from research, capital expenditures, principal and interest payments on our debt, working capital requirements and distributions to shareholders. We generally rely on funds provided by operations, borrowings under our credit arrangements, cash contributions from risk-sharing partners, advance payments from customers and, to a lesser extent, issuance of debt and equity securities in the capital markets in order to meet these needs. For further information, see “Item 4C. Information on the Company—Business Overview—Suppliers and Components; Risk-Sharing Arrangements” and “Item 4C. Information on the Company—Business Overview—Commercial Aviation Business—Production, New Orders and Options” and “—Credit Facilities and Lines of Credit.”

As of the date of this annual report, we believe that our traditional sources of funds are sufficient to meet our foreseeable working capital requirements, including to (1) continue to improve the EMBRAER 170/190 jet family, the Phenom 100, the Phenom 300 and the Lineage 1000 executive jets, (2) further develop our new Legacy 450/500 executive jets, (3) further develop the E2 jet family, (4) make other planned capital expenditures and (5) pay dividends and interest on shareholders’ equity. At this point, our access to liquidity sources has not been materially impacted by the current credit environment, and we do not expect that such access will be materially impacted in the near future. However, there can be no assurance that our traditional sources of funds, or that the cost or availability of our credit facilities or future borrowing sources, will not be materially impacted by the ongoing market disruptions.

Our customers may reschedule deliveries, fail to exercise options or cancel firm orders as a result of the economic downturn and the financial volatility in the commercial airline industry. In addition, our risk-sharing partners’ cash contributions are refundable under certain limited circumstances and we may need to find replacement sources of capital.

Net Cash Generated by Operating Activities and Working Capital

2014

In 2014, net cash generated by operating activities was US$482.3 million, compared to net cash generated by operating activities of US$564.6 million in 2013. The decrease in the inflow of cash generated by operating activities in 2014 is primarily a result of an increase in working capital driven by increases in trade accounts receivable and Inventories as well as a decrease in Advances from customers.

We had working capital of US$3,257.8 million at December 31, 2014 and US$2,875.1 million at December 31, 2013. Our working capital increased in 2014 primarily as a result of the aforementioned impacts on cash generated by operating activities. During 2014, delays in payment cycles by some customers negatively affected our cash position and working capital by increasing trade accounts receivables.

2013

In 2013, net cash generated by operating activities was US$564.6 million, compared to net cash generated by operating activities of US$693.0 million in 2012. The decrease in the inflow of cash generated by operating activities in 2013 is primarily a result of financial investments we made, which are short-term investments with maturity greater than three months that we expect to use in our regular operations, and the reversal of financial guarantees, which were significantly higher in 2013 compared to 2012.

We had working capital of US$2,875.1 million at December 31, 2013 and US$2,570 million at December 31, 2012. Our working capital increased in 2013 primarily as a result of an increase in our financial investments and a decrease in our short-term loans and financing.

2012

In 2012, net cash generated by operating activities was US$693 million, compared to net cash generated by operating activities of US$480.1 million in 2011. The increase in the inflow of cash generated by operating activities in 2012 is primarily a result of higher net income in 2012 and relatively consistent balances of current asset and current liability accounts in 2011 and 2012.

We had working capital of US$2,570 million at December 31, 2012 and US$2,325.5 million at December 31, 2011. Our working capital increased in 2012 as a result of an increase in cash flow from operating activities in 2012.

Net Cash Used in Investing Activities

2014

In 2014, net cash used in investing activities was US$671.4 million, compared to net cash used in investing activities of US$764.0 million in 2013.

Net cash used in investing activities in 2014 decreased as a result of of lower additions to property, plant and equipment when compared to 2013, partially offset by higher additions to intangibles in 2014 as compared to 2013. Also, in 2014 we had no acquisitions of non-controlling interests, while in 2013 we spent US$17.3 million in the acquisition of all the non-controlling interests in our subsidiary Atech Negócios e Tecnologia S.A. in Brazil. The higher spending on additions to intangibles was largely driven by higher development spending on our E-2 commercial jet program as well as the continuation of our Legacy 500 and Legacy 450 executive jet programs.

2013

In 2013, net cash used in investing activities was US$764.0 million, compared to net cash used in investing activities of US$617.3 million in 2012.

Net cash used in investing activities in 2013 increased as a result of higher additions to intangibles and property, plant and equipment when compared to 2012. We also spent US$17.3 million in the acquisition of all the non-controlling interests in our subsidiary Atech Negócios em Tecnologia S.A. in Brazil and in 2012 we spent US$17.4 million in the acquisition of a non-controlling interest in our subsidiary Airholding SGPS S.A. in Portugal.

2012

In 2012, net cash used in investing activities was US$617.3 million, compared to net cash used in investing activities of US$602.0 million in 2011.

Net cash used in investing activities remained fairly constant between 2011 and 2012, primarily as a result of consistent investment in capital expenditure and product development during the two years.

Net Cash Generated by Financing Activities and Total Debt

2014

In 2014, net cash generated by financing activities was US$333.3 million, compared to net cash generated by financing activities of US$192.5 million in 2013. During 2014, we we raised new financing of US$798.6 million compared to new borrowing of US$890.8 million in 2013. Furthermore, we also repaid US$386.1 million of borrowing during 2014 as compared to repayment of US$650.2 million during 2013. In 2014 we distributed US$99.3 million in interest on shareholder’s equity or dividends compared to US$71.4 million in 2013. We did not spend any amounts in connection with share repurchase programs during 2014.

At December 31, 2014, we had total debt of US$2,508.1 million under our financing arrangements described below, 96.4% of which was long-term debt and 3.6% of which consisted of short-term debt. In comparison, we had total debt of US$2,194.3 million at December 31, 2013, consisting of 96.4% of long-term debt and 3.6% of which consisted of short-term debt.

2013

In 2013, net cash generated by financing activities was US$192.5 million, compared to net cash generated by financing activities of US$422.3 million in 2012. During 2013, we raised new financings of US$890.8 million compared to new borrowings of US$1,692.6 million in 2012. Furthermore, we also repaid US$650.2 million of our indebtedness in 2013 compared to debt repayments in the aggregate amount of US$1,225.3 million in 2012. In 2013, we distributed US$71.4 million in interest on shareholders’ equity or dividends compared to US$59.5 million in 2012. In 2013, like in 2012, we did not spend any amounts in connection with share buyback programs.

At December 31, 2013, we had total debt of US$2,194.3 million under our financing arrangements described below, 96.4% of which was long-term debt and 3.6% of which consisted of short-term debt. In comparison, we had total debt of US$2,066.5million at December 31, 2012, consisting of 83.7% of long-term debt and 16.3% of which consisted of short-term debt. Our total debt increased in 2013 in comparison with 2012.

2012

In 2012, net cash generated by financing activities was US$422.3 million, compared to net cash used in financing activities of US$96.4 million in 2011. During 2012, we raised new financings of US$1,692.6 million compared to new borrowings of US$2,362.5 million in 2011. Furthermore, we also repaid US$1,225.3 million of our indebtedness in 2012 compared to debt repayments in the aggregate amount of US$2,082.7 million in 2011. In 2012, we distributed US$59.5 million in interest on shareholders’ equity or dividends compared to US$183.4 million in 2011. In 2012, like in 2011, we did not spend any amounts in connection with share buyback programs.

At December 31, 2012, we had total debt of US$2,066.5 million under our financing arrangements described below, 83.7% of which was long-term debt and 16.3% of which consisted of short-term debt. In comparison, we had total debt of US$1,658.1 million at December 31, 2011, consisting of 84.8% of long-term debt and 15.2% of which consisted of short-term debt. Our total debt increased in 2012 in comparison with 2011, largely due to the issuance of US$500 million of bonds in June 2012.

Credit Facilities and Lines of Credit

Long-term Facilities

In October 2006, our wholly owned finance subsidiary, Embraer Overseas Limited, or Embraer Overseas, issued US$400 million 6.375% guaranteed notes due 2017 and, as of December 31, 2014, US$242.2 million was outstanding (US$6.5 million in the short-term), including principal and accrued interest. Interest will be paid semiannually. The notes are unconditionally guaranteed by us. The notes have been listed on the Luxembourg Stock Exchange. On March 30, 2007, we and Embraer Overseas commenced an exchange offer to exchange the notes for new notes registered with the SEC. The exchange offer was successfully completed as of May 18, 2007 and, as a consequence, US$376.3 million or approximately 95% of the notes were registered. The indenture under which the notes were issued contains customary covenants and restrictions such as limitation on liens, consolidation, merger or transfer of assets. By December 31, 2014, Embraer had repurchased and canceled 19,908 (5.0%) of these bonds, totaling US$15.2 million, with a face value of US$19.9 million. These bonds were purchased by Embraer Overseas through open market transactions. As described below, in September 2013 we completed an exchange offer in which US$146.4 million in principal amount of our guaranteed notes due 2017 were exchanged for our guaranteed notes due 2023.

In November 2006, December 2007 and October 2008, we entered into certain credit facilities in the aggregate amount of US$60.0 million with the FINEP to support the research and development expenses of the Phenom 100 and Phenom 300 aircraft, which were totally disbursed in 2008. The facility bears interest at TJLP plus 5.0% per annum and is fully secured by a pledge of certain machines and equipment and by a bank standby letter of credit. The credit facility is repayable from December 2008 to September 2015. As of December 31, 2014, we had outstanding US$2.3 million under our credit facilities with the FINEP, including principal and accrued interest. The FINEP credit facilities are denominated in reais, and amounts appearing herein have been converted into U.S. dollars, our functional currency, for purposes of preparing our IFRS consolidated financial statements.

In October 2009, Embraer Overseas issued US$500 million 6.375% guaranteed notes due 2020 and, as of December 31, 2014, US$161.6 million was outstanding (US$2.4 million in the short-term), including principal and accrued interest. Interest will be paid semiannually. The notes are unconditionally guaranteed by us. As described below, in September 2013 we completed an exchange offer in which US$337.2 million in principal amount of our guaranteed notes due 2020 were exchanged for our guaranteed notes due 2023. In connection with the exchange offer, we received the requisite consents from holders of our guaranteed notes due 2020 to eliminate substantially all the restrictive covenants, certain events of default and related provisions contained in the indenture under which the notes were issued, and we delisted our guaranteed notes due 2020 from the New York Stock Exchange.

In March 2011, we entered into certain credit facilities with the FINEP in the aggregate amount of US$58.1 million, to support the research and development expenses of the Legacy 500 aircraft, all of which were totally disbursed in 2011. The facility bears interest at 3.5% per annum and is fully secured by a pledge of certain machines and equipment and by a bank standby letter of credit. The credit facility is repayable from May 2013 to April 2018. As of December 31, 2014, we had US$23.6 million outstanding under our credit facilities with the FINEP, of which US$7.1 million is due in the short-term, including principal and accrued interest. The FINEP credit facilities are denominated in reais, and amounts appearing herein have been converted into U.S. dollars, our functional currency, for purposes of preparing our IFRS consolidated financial statements.

In March 2011, we entered into certain credit facilities with the BNDES in the aggregate amount of US$227.6 million, to support the research and development expenses of the Legacy 500 aircraft, including conceptual study and project and development, which were partially disbursed in 2012. The facility bears interest at TJLP plus 1.92% and 3.5% to 4.5% per annum and is fully secured by a pledge of certain machines and equipment and by a bank standby letter of credit. The credit facility is repayable from May 2013 to April 2018. As of December 31, 2014, we had US$112.1 million outstanding under our credit facilities with the BNDES, of which US$33.8 million is due in the short-term, including principal and accrued interest. The BNDES credit facilities are denominated in reais, and amounts appearing herein have been converted into U.S. dollars, our functional currency, for purposes of preparing our IFRS consolidated financial statements.

In June 2012, we issued US$500 million 5.150% notes due 2022 and, as of December 31, 2014, US$498.6 million was outstanding (US$1.1 million in the short-term), including principal and accrued interest. Interest will be paid semiannually. The notes are our unsecured and unsubordinated obligations. The notes have been registered with the SEC and listed on the New York Stock Exchange. The indenture under which the notes were issued contains customary covenants and restrictions such as limitation on liens, consolidation, merger or transfer of assets.

In February 2013, we signed contracts in the form of export credit notes with five Brazilian financial institutions in the total aggregate amount of R$712.0 million, equivalent to US$268.1 million, maturing in February 2016. This facility bears interest at 5.5% per annum. In December 2014, we renegotiated R$116.0 million of the facility, equivalent to US$43.7 million, extending the maturity to 2017 and increasing the interest to 8.0% per annum. As of December 31, 2014, we had US$304.8 million of total export credit notes outstanding, of which US$1.0 million is due in the short-term, including principal and accrued interest. The export credit notes are denominated in reais, and amounts appearing herein have been converted into U.S. dollars, our functional currency, for purposes of preparing our IFRS financial statements.

In March and April 2013, we signed credit agreements in the form of BNDES pre-shipment export credit lines (BNDES PSI – Subprograma Exportação de Pré-embarque) with four Brazilian financial institutions in the total aggregate amount of R$200.0 million, equivalent to US$75.3 million, with maturity in March and April of 2016. These facilities bear interest at 5.5% per annum. In August and September 2014, we signed additional agreements totaling R$100.0 million, equivalent to US$37.6 million, under this credit line, with maturity in August 2017 and interest at 8.0% per annum. As of December 31, 2014, we had US$113.2 million total outstanding, of which US$0.2 million is due in the short-term, including principal and accrued interest. These facilities are denominated in reais, and amounts appearing herein have been converted into U.S. dollars, our functional currency, for purposes of preparing our IFRS financial statements.

In August 2013, we signed a credit facility with the FINEP in the amount of R$303.9 million, equivalent to US$114.4 million, to support the research and development expenses of the Legacy 450 aircraft, of which an aggregate of US$71.7 million was disbursed in 2013 and 2014. The facility bears interest at 3.5% per annum and is fully secured by a bank guarantee. The final maturity is in September 2023. As of December 31, 2014, we had US$71.6 million outstanding under this credit facility with the FINEP, including principal and accrued interest. The FINEP credit facilities are denominated in reais, and amounts appearing herein have been converted into U.S. dollars, our functional currency, for purposes of preparing our IFRS financial statements.

In September 2013, we completed an exchange offer in which US$146.4 million in principal amount of our guaranteed notes with maturity in 2017 and US$337.2 million in principal amount of our guaranteed notes with maturity in 2020 were exchanged for approximately US$540.5 million in principal amount of notes issued by Embraer Overseas, with maturity in 2023. The notes due in 2023 are unconditionally guaranteed by us and were issued pursuant to exemptions from SEC registration pursuant to Regulation S and Rule 144A under the Securities Act. The notes due in 2023 are subject to a registration rights agreement, pursuant to which we have agreed to (i) exchange the notes within 270 days of their issuance for notes with the same terms and conditions which are registered with the SEC or (ii) file a resale shelf registration statement with the SEC on Form F-3. In June 2014, we filed a resale shelf registration statement accordingly. As of December 31, 2014, a total of US$492.0 million under our notes due 2023 was outstanding, of which US$8.9 million was due in the short-term, including principal and accrued interest.

We may from time to time seek to retire or purchase our outstanding debt, including our guaranteed notes due 2017, 2020, 2022 and 2023, through cash purchases and/or exchanges for other securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material, and notes repurchased may be cancelled or resold, but will only be resold in compliance with applicable requirements or exemptions under the relevant securities laws.

In December 2013, we signed a contract with BNDES to support project development in the total aggregate amount of R$1.4 billion, equivalent to US$531.5 million, of which US$209.3 million was disbursed in 2014. The final maturity is in January 2022. The facility is secured by guarantee deposits and by a bank stand by letter of credit. As of December 31, 2014, we had US$210.1 million outstanding under this credit facility, of which US$14.5 million is due in the short-term, including principal and accrued interest. This BNDES credit facility is denominated in reais.

We have various other long-term loans and credit agreements with aggregate outstanding borrowings of US$321.0 million at December 31, 2014. See Note 20 to our audited consolidated financial statements for further information on these financing arrangements.

Some of our long-term financing agreements include customary covenants and restrictions, including those that require us to maintain: (1) a maximum leverage ratio, calculated as net debt to earnings before interest, taxes, depreciation and amortization, or EBITDA, of 3.5:1 and (2) a minimum net debt service coverage ratio, calculated as EBITDA to financial expenses, of 2.25:1. Other restrictions included in our long-term financings include negative pledge covenants and restrictions on significant changes in control, sales of substantially all of our assets, dividend payments during events of default and certain transactions with our affiliates. As of December 31, 2014, we were in compliance with all restrictive covenants contained in our financing agreements.

At December 31, 2014, US$266.5 million of our total debt was secured by a combination of mortgages on certain of our real estate, liens on certain of our machinery and equipment and by a bank standby letter of credit.

For further information on our loans and financings, including currency and maturity breakdowns and breakdowns between fixed and floating rate debt, see Note 20 to our audited consolidated financial statements as of and for the year ended December 31, 2014.

Recourse and Non-Recourse Debt

Total debt excludes non-recourse and recourse debt associated with customer financing arrangements transacted through special purposes entities, or SPEs. In structured financings, an SPE purchases an aircraft from us, pays us the full purchase price on delivery or at the conclusion of the sales financing structure, and leases the related aircraft to the ultimate customer. A third party financial institution facilitates the financing of an aircraft purchase through an SPE, and a portion of the credit risk remains with that third party. We may provide financial guarantees and/or residual value guarantees in favor of the financial institution, as well as act as the equity participant in such financial structuring process.

Our audited condensed consolidated financial statements at and for the year ended at December 31, 2014 contain balances related to recourse and non-recourse debt associated with customer financing arrangements of US$400.0 million and collateralized accounts receivable of US$425.6 million. Of this debt, US$31.3 million is non-recourse for which we have no obligation as a debtor or guarantor, other than potential obligations under existing financial guarantees for the financed aircraft. The remaining US$368.7 million of debt is recourse to us as a result of pending equity contributions and is partially secured by a pledge of a deposit with a financial institution. Our non-recourse and recourse debt is collateralized by the collateralized accounts receivables and by the financed aircraft and, as a result, we do not anticipate a net cash outflow related to our non-recourse debt in the future. These financing transactions do not materially affect our income statement and cash flow data since the terms of the leases and the loans are substantially the same.

5C.

Research and Development, Patents and Licenses, etc.

We incur research expenses related to the creation of new technologies that may be applied to our aircraft in the future. Such expenses are not associated with any particular aircraft and include the implementation of quality assurance initiatives, improvements to the productivity of production lines and studies to determine the latest developments in technology and quality standards. Under IFRS, research costs are expensed as incurred in the research line item of our statement of income. Development costs in the Commercial Aviation and Executive Jets segments are capitalized from the board approval for the relevant project until the final certification, while major development costs in the Defense segment are recorded based on the percentage of completion method.

Research expenses totaled US$47.1 million in 2014 and US$74.7 million in 2013. The decrease in this expense is primarily explained by the launch of the E2 second generation E-Jets program, in which program costs are now capitalized to intangible assets instead of recognized as research expenses, following approval by our Board of Directors of the economic viability of the program.

In 2015, we expect to invest approximately US$50.0 million in our research activities.

For information on our capital expenditures, comprising investments in development and property, plant and equipment, see “Item 4B. Information on the Company—History and Development of the Company—Capital Expenditures (Property, Plant and Equipment and Development).”

Intellectual Property

Our intellectual property, which includes utility patents, design patents, trade secrets, know-how and trademarks, is important to our business. We hold trademarks over our name and symbol and the names of our products, some of which are registered and some of which are in the process of registration in a number of countries, including Brazil, the United States, Canada, Singapore, Hong Kong, China, European Union and Japan. At December 31, 2014, we had more than 432 trademarks registered or in the process of registration. Our trademarks are generally renewed at the end of their validity period, which usually runs from ten years from the date of application for registration. We do not believe that the loss of any of our trademarks would have a material impact on our business or results of operations.

We develop our intellectual property in our research, development and production process. Under the agreements we have with some of our suppliers and risk-sharing partners, they grant us access to information and technology necessary to better develop, manufacture and market our products.

We aim to protect our intellectual property rights resulting from investments in technical research and development.

We hold granted patents and patent applications relating to our manufacturing technology. Currently, we hold granted patents and patent applications from the appropriate registries in Brazil, the United States, the European Union, Russia, Japan, India and China in connection with the various technologies of our products. We require that our suppliers and risk-sharing partners respect the intellectual property rights of third parties, and we believe that we have the necessary intellectual property rights to conduct our business and operations.

At December 31, 2014, we had filed 473 patent applications and have been granted 164 patents.

Innovation

We seek to remain in the technological vanguard by constantly reinventing ourselves as we search for opportunities to transform our business, products, services and markets.

We view a focus on innovation as key to the competitiveness and sustainability of our business. For this reason, we created an innovation and knowledge management area to reinforce our initiatives. The area is responsible for the promotion of innovative ideas aimed at the development of new businesses, products, technologies, services and processes. Our Innovation Management Model contains the bases related to our innovation processes.

Our Innova program, or Innova, is the principal tool created by our innovation and knowledge management area to promote innovation within Embraer. The program makes channels and spaces which promote the development and implementation of innovations available, such as the prototype laboratories in São José dos Campos and Gavião Peixoto, and the Innova Spaces, in São José dos Campos, Fort Lauderdale and Melbourne.

Innova acts on the fronts of spontaneous innovation, stimulated innovation and recognition. On the spontaneous innovation front, the Green Light program evaluates innovative proposals presented voluntarily by employees. If approved, the proposing employees are granted time and resources to develop the projects. In 2014, 12 innovative projects were selected for the Green Light program, which provides resources for the employees to carry out their project. For 2015, there are 38 projects under evaluation.

We have also created the Innova Challenge, by which challenges are submitted to our employees to be solved in a collaborative environment. In 2014, eight challenges were launched, resulting in 660 new ideas and 17 prototypes for three innovation projects.

In 2014, under the Innovation Recognition Program, all successfully implemented innovations must be acknowledged and celebrated. In 2014, 970 employees were recognized for their 153 innovations in both spontaneous and encouraged innovations. In addition, nine management groups in the categories of manufacturing, engineering and main office were acknowledged as the most favorable environments for innovation in the company.

Innovations developed between 2010 and 2014 accounted for 46% of our net revenues in 2014. We implemented 20,062 innovations in 2014.

In 2013, Embraer received the National Innovation Award, sponsored by CNI, Sebrae and the Competitive Brazil Movement, in the category of Technological Innovation Projects. The winning project was Ahead-PRO, a system of preventive monitoring for aircraft, created with the purpose of providing, at all times, an updated view of the condition in which the aircraft’s components are operating. We believe the implementation of the innovative project impacted our competitiveness, increasing our rates of customer satisfaction. The system is available for the E-Jets and Phenoms.

5D.

Trend Information

Given the order activity over the last couple of years, during which we received a significant amount of orders from U.S. carriers, particularly for 76-seat regional jets, we can anticipate to a great extent the production and delivery schedules for 2015 in the Commercial Aviation segment. We expect deliveries of the E175 jet model to account for a greater share of total segment deliveries.

In the executive jet market, despite further record levels of corporate profits, the number of high net worth individuals and near-record stock market levels in key geographies, the level of pre-owned aircraft for sale continues to pressure new aircraft demand and has impeded recovery in the segment. We believe, however, that new executive jet product offerings, namely the Legacy 500 midsize jet, which will have its first full year of deliveries, and the Legacy 450 jet, which is expected to enter into service in 2015, will help us to increase our total executive jet deliveries in 2015 as compared to 2014.

With respect to the Defense & Security segment, we expect to progress in our execution of existing programs, including the KC-390, the Border Monitoring system (SISFRON), the Super Tucano LAS program and the satellite programs. However, due to the majority of revenues being denominated in reais, a lower expected average real to U.S. dollar exchange rate is likely to pressure revenues as reported in U.S. dollars in the segment.

The following table summarizes our order book for the Commercial Aviation segment at December 31, 2014. Our total firm order backlog at that date, including executive jets and defense aircraft, was US$20.9 billion.


Commercial Aviation	Firm Orders		Options		Deliveries		Firm Order Backlog
EMB 120 Brasília		352		—		352		—
ERJ 135		108		—		108		—
ERJ 140		74		—		74		—
ERJ 145		708		—		708		—
EMBRAER 170		193		12		188		5
EMBRAER 175		421		353		249		172
EMBRAER 190		580		135		515		65
EMBRAER 195		145		2		138		7
EMBRAER 175-E2		100		100		—		100
EMBRAER 190-E2		60		70		—		60
EMBRAER 195-E2		50		50		—		50

The following tables set forth our Commercial Aviation order book at December 31, 2014 by aircraft type, customer and country.

ERJ 135:


Customer	Firm Orders		Delivered		Firm Order Backlog
American Eagle (USA)		40		40		—
British Midland (UK)		3		3		—
City Airline AB (Sweden)		2		2		—
ExpressJet (USA)		30		30		—
Flandair (France)		3		3		—
Jet Magic (Ireland)		1		1		—
Luxair (Luxembourg)		2		2		—
Pan Européenne (France)		1		1		—
Proteus (France)		3		3		—
Regional Airlines (France)		3		3		—
Republic Airways (USA)		15		15		—
South Africa Airlink (South Africa)		5		5		—

Total		108		108		—

ERJ 140:


Customer	Firm Orders		Delivered		Firm Order Backlog
American Eagle (USA)		59		59		—
Republic Airways (USA)		15		15		—

Total		74		74		—

ERJ 145:


Customer	Firm Orders		Delivered		Firm Order Backlog
Aerolitoral (Mexico)		5		5		—
Air Caraibes (Guadalupe)		2		2		—
Alitalia (Italy)		14		14		—
American Eagle (USA)		118		118		—
Axon (Greece)		3		3		—
British Midland (UK)		9		9		—
British Regional Airlines (UK)		23		23		—
Brymon (UK)		7		7		—
China Southern (China)		6		6		—
China Eastern Jiangsu (China)		5		5		—
China Eastern Wuhan (China)		5		5		—
Cirrus (Germany)		1		1		—
ExpressJet (USA)		245		245		—
ERA (Spain)		2		2		—
Flandre Air (France)		5		5		—
GECAS (PB Air – Thailand)		2		2		—
Hainan (China)		25		25		—
KLM EXEL (Holland)		2		2		—
Lot Polish (Poland)		14		14		—
Luxair (Luxembourg)		9		9		—
Mesa (USA)		36		36		—
Nigeria (Nigeria)⁽¹⁾		1		1		—
Portugalia (Portugal)		8		8		—
Proteus (France)		8		8		—
Regional (France)		15		15		—
Republic Airways (USA)		60		60		—
Rheintalflug (Austria)		3		3		—
Rio Sul (Brazil)		16		16		—
Satena (Colombia)⁽¹⁾		3		3		—
Sichuan (China)		5		5		—
Skyways (Sweden)		4		4		—
Swiss (Switzerland)		25		25		—
Transtates (USA)		22		22		—

Total		708		708		—

(1)	Aircraft delivered by Embraer Defense & Security.

EMBRAER 170:


Customer	Firm Orders		Delivered		Firm Order Backlog
Airnorth (Australia)		1		1		—
Alitalia (Italy)		6		6		—
BA CityFlyer (UK)		6		6		—
Cirrus (Germany)		1		1		—
ECC (Ireland)⁽¹⁾		6		6		—
Egypt Air (Egypt)		12		12		—
Finnair (Finland)		10		10		—
GECAS (USA)		9		9		—
JAL (Japan)		20		15		5
Jetscape (USA)		1		1		—
Lot Polish (Poland)		6		6		—
Petro Air (Libya)		2		2		—
Regional (France)		10		10		—
Republic Airline (USA)		48		48		—
Satena (Colombia)⁽²⁾		1		1		—
Saudi Arabian Airlines (Saudi Arabia)		15		15		—
Sirte Oil (Libya)		1		1		—
Suzuyo (Japan)		2		2		—
TAME (Ecuador)⁽²⁾		2		2		—
US Airways (USA)		28		28		—
Virgin Blue (Australia)		6		6		—

Total		193		188		5

(1)	The customer is Embraer’s ECC Leasing, which delivered one aircraft to Cirrus, two to Paramount, one to Satena and two to Gulf Air.

(2)	Aircraft delivered by Embraer Defense & Security.

EMBRAER 175:


Customer	Firm Orders		Delivered		Firm Order Backlog
Air Canada (Canada)		15		15		—
Aldus (Ireland)		5		—		5
ECC Leasing (Ireland)⁽¹⁾		1		1		—
Air Lease (USA)		8		8		—
Alitalia (Italy)		2		2		—
American Airlines (USA)		60		—		60
CIT (USA)		4		4		—
Flybe (UK)		15		11		4
Gecas (USA)		5		5		—
Jetscape (USA)		4		4		—
Lot Polish (Poland)		12		12		—
Northwest Airlines (USA)		36		36		—
Oman Airlines (Oman)		5		5		—
Republic Airlines (USA)		151		95		56
Royal Jordanian (Jordan)		2		2		—
TRIP (Brazil)		5		5		—
United Airlines (USA)		30		19		11
Skywest (USA)		47		20		27
Suzuyo (Japan)		8		5		3
Undisclosed		6		—		6

Total		421		249		172

(1)	The customer is Embraer’s ECC Leasing, which delivered one aircraft to Air Caraibes.

EMBRAER 190:


Customer	Firm Orders		Delivered		Firm Order Backlog
Aero Republica (Colombia)		5		5		—
Aeromexico (Mexico)		12		12		—
Aldus (Ireland)		15		4		11
Air Astana (Kazakhstan)		2		2		—
Air Canada (Canada)		45		45		—
Air Caraibes (Guadalupe)		1		1		—
Air Lease (USA)		23		23		—
Air Moldova (Moldova)		1		1		—
Augsburg (Germany)		2		2		—
Austral (Argentina).		22		22		—
AZAL (Azerbaijan)		6		4		2
Azul (Brazil)		5		5		—
BA CityFlyer (UK)		9		9		—
BOC Aviation (Singapore)		14		14		—
Conviasa (Venezuela)		14		14		—
China Southern (China)		20		20		—
CIT (USA)		7		6		1
Copa (Panama)		15		15		—
ECC Leasing (Ireland)⁽¹⁾		1		1		—
Finnair (Finland)		12		12		—
GECAS (USA)		27		27		—
Goiania (Ukraine)		5		5		—
Hainan (China)		50		50		—
Hebei (China)		7		5		2
JAL (Japan)		10		—		10
JetBlue (USA)		88		64		24
Jetscape (USA)		7		7		—
Kenya Airways (Kenya)		10		10		—
KLM (Holland)		22		22		—
KunPeng (China)		5		5		—
LAM (Mozambique)		2		2		—
Lufthansa (Germany)		9		9		—
M1 Travel (Lebanon)		8		8		—
NAS Air (Saudi Arabia)		10		3		7
NIKI (Austria)		7		7		—
Regional (France)		10		10		—
Republic (USA)		2		2		—
Taca (El Salvador)		11		11		—
TAME (Ecuador)⁽²⁾		3		3		—
TRIP (Brazil)		3		3		—
US Airways (USA)		25		25		—
Virgin Blue (Australia)		18		18		—
Virgin Nigeria (Nigeria)		2		2		—
Undisclosed		8		—		8

Total		580		515		65

(1)	The customer is Embraer’s ECC Leasing, which delivered one aircraft to Jet Blue (USA).

(2)	Aircraft delivered by Embraer Defense & Security.

EMBRAER 195:


Customer	Firm Orders		Delivered		Firm Order Backlog
Aurigny (Guernsey)		1		1		—
Azul (Brazil)		59		52		7
Belavia (Belarus)		2		2		—
BOC Aviation (Singapore)		1		1		—
Flybe (UK)		14		14		—
GECAS (USA)		12		12		—
Globalia (Spain)		12		12		—
Jetscape (USA)		2		2
LOT Polish (Poland)		4		4		—
Lufthansa (Germany)		34		34		—
Montenegro (Montenegro)		1		1		—
Royal Jordanian (Jordan)		2		2		—
Trip (Brazil)		1		1		—

Total		145		138		7

EMBRAER 175 – E2:

Customer

Firm
Orders

Delivered

Firm Order
Backlog

Skywest (USA)

100

—

100

Total

100

—

100

EMBRAER 190 E2:


Customer	Firm Orders		Delivered		Firm Order Backlog
Air Costa (India)		25		—		25
ILFC (USA)		25		—		25
ICBC (China)		10		—		10

Total		60		—		60

EMBRAER 195 E2:


Customer	Firm Orders		Delivered		Firm Order Backlog
Air Costa (India)		25		—		25
ILFC (USA)		25		—		25

Total		50		—		50

For additional information regarding trends in our business, see “Item 4C. Information on the Company—Business Overview—Business Strategies” and “Item 5A. Operating and Financial Review and Prospects—Operating Results—Current Conditions and Future Trends in the Commercial Airline Industry and Executive Jet Market.” For risks affecting our business, see “Item 3D. Key Information—Risk Factors.”

5E.

Off-Balance Sheet Arrangements

In the normal course of our business, we enter into certain off-balance sheet arrangements, including financial and residual value guarantees, trade-in obligations, product warranty commitments and operating leases. We also have a number of swap transactions that are described in “Item 11. Quantitative and Qualitative Disclosures about Market Risk.” For a detailed description of our derivate instruments, see Note 8 to our consolidated financial statements as of and for the year ended December 31, 2014. See also Note 36 to our audited consolidated financial statements for additional information on our off-balance sheet arrangements. In addition, see “Item 3D. Key Information—Risk Factors—Risks Relating to Embraer—Some of our aircraft sales may be subject to financial and residual value guarantees and trade-in options that may require us to make significant cash disbursements in the future.”

Financial and Residual Value Guarantees

Financial guarantees are triggered if customers do not perform their obligation to service the debt during the term of the financing under the relevant financing arrangements. Financial guarantees provide credit support to the guaranteed party to mitigate default-related losses. The underlying assets collateralize these guarantees. The value of the underlying assets may be adversely affected by an economic or industry downturn. Upon an event of default, we are usually the agent for the guaranteed party for the refurbishment and remarketing of the underlying asset. We may be entitled to a fee for such remarketing services. Typically a claim under the guarantee shall be made only upon surrender of the underlying asset for remarketing.

Residual value guarantees provide a third party with a specific guaranteed asset value at the end of the financing agreement. In the event of a decrease in market value of the underlying asset, we shall bear the difference between the specific guaranteed amount and the actual fair market value. Our exposure is mitigated by the fact that, in order to benefit from the guarantee, the guaranteed party has to make the underlying assets meet stringent specific return conditions.

Assuming all customers supported by financial guarantees defaulted on their aircraft financing arrangements, and also assuming we were required to pay the full aggregate amount of outstanding financial and residual value guarantees and were not able to remarket any of the aircraft to offset our obligations, our maximum unrecorded exposure under these guarantees (less provisions and liabilities) would have been US$531.5 million as of December 31, 2014. For further discussion of these off-balance sheet arrangements, see Note 36 to our audited consolidated financial statements.

At December 31, 2014, we had US$251.7 million deposited in an escrow account as collateral for the financing of certain aircraft sold where we serve as secondary guarantor. If the initial guarantor of the debt (an unrelated third party) is required to pay the lender, the initial guarantor will be entitled to the amount in the escrow account. The amount is returned in the form of cash to us at maturity of the financing contracts (until 2021) if the aircraft purchaser does not default on the loan. The interest on the escrow account is added to the principal and recognized by us as financial income.

We allocated the deposits from the escrow account to 14-year structured notes with the depositary bank in order to earn a better interest rate. This yield enhancement was obtained through a credit default swap (CDS) transaction, which provides the right of early redemption of the note in case of a credit event by us. Upon such a credit event, the note may be redeemed by the holder at the greater of the note’s market value or its original face amount, which would result in a loss to us of all interest accrued on such note to date. Credit events include obligation and payment defaults under the terms of the guarantees above specified thresholds, events related to the restructuring of the obligations above a specified threshold, bankruptcy and a repudiation of and/or moratorium on the obligations above a specified threshold.

Residual value guarantees typically ensure that, at the exercise date (between 6 and 18 years after the aircraft delivery date), the relevant aircraft will have a residual market value of a percentage of the original sale price. Most of our residual value guarantees are subject to a limitation (a “cap”) and, therefore, on average our guaranteed residual value is 17% of the original sale price. In the event of a decrease in the market value of the underlying aircraft and an exercise by the purchaser of the residual value guarantee, we will bear the difference, if any, between the guaranteed residual value and the market value of the aircraft at the time of exercise, limited to a cap. Our exposure is mitigated by the fact that the guaranteed party, in order to benefit from the guarantee, must make the aircraft meet specific return conditions. See Note 11 to our audited consolidated financial statements.

We continuously re-evaluate our risk under our guarantees and trade-in obligations based on a number of factors, including the estimated future market value of our aircraft based on third-party appraisals, including information developed from the sale or lease of similar aircraft in the secondary market, and the credit rating of customers.

The following table provides quantitative data regarding guarantees we render to third parties. The maximum potential payments represent the worst-case scenario and do not necessarily reflect the results expected by us. Estimated proceeds from performance guarantees and underlying assets represent the anticipated values of assets we could liquidate or receive from other parties to offset our payments under guarantees.


	At December 31,
	2014			2013			2012			2011			2010
	(in US$ millions)
Description
Maximum financial guarantees		487.6			545.5			374.2			471.6			1,133.9
Maximum residual value guarantees		307.5			359.9			372.7			542.2			743.4
Mutually exclusive exposure⁽¹⁾		(107.4	)		(94.7	)		(115.0	)		(209.8	)		(393.9	)
Provisions and liabilities recorded⁽²⁾		(156.2	)		(155.3	)		(114.0	)		(121.2	)		(143.2	)
Off-balance sheet exposure		531.5			655.4			517.9			682.8			1,340.2
Estimated proceeds from performance guarantees and underlying assets		725.2			907.8			656.7			896.5			1,255.9

(1)

When an underlying asset is covered by mutually exclusive financial and residual value guarantees, the residual value guarantee may only be exercised if the financial guarantee has expired without having been exercised. On the other hand, if the financial guarantee is exercised, the residual value guarantee is automatically terminated. After a financial guarantee expires without being exercised, there is an average three-month period in which a guaranteed party may exercise the residual value guarantee. This means that our exposure to mutually exclusive financial and residual value guarantees covering a single underlying asset cannot be cumulative. Therefore, the maximum exposure shown in this line item is not an aggregate amount of the combined value of mutually exclusive financial and residual value guarantees covering a single underlying asset.

(2)	Represents the sum of our financial and residual value guarantees (see Note 25 to our audited consolidated financial statements).

As discussed in Note 11 to our audited consolidated financial statements, as of December 31, 2014, 2013, 2012, 2011 and 2010, we maintained escrow deposits in the total amount of US$251.7 million, US$261.4 million, US$275.8 million, US$268.4 million and US$263.6 million, respectively, in favor of third parties for whom we have provided financial and residual value guarantees in connection with certain aircraft sales financing structures.

As of December 31, 2011, as a result of our customer American Airlines filing for creditor protection under Chapter 11, we recorded a provision of US$317.5 million to cover losses estimated in relation to our financial guarantee obligations to the vendor for 216 aircraft (ERJ 135, ERJ 140 and ERJ 145 models). During 2012, until the court approved the proposed bankruptcy terms, we made payments of US$59.7 million as a guarantee advance, which were presented as a reduction (disposals) to the provision established in 2011. The proposal for the restructuring of American Airlines was filed on September 8, 2012 with the court, which approved the conditions proposed in the negotiations. As a result of the approval and formalization of the agreements between the parties, we recognized the assets acquired and the obligations assumed in relation to the operation in the amount of US$149.6 million. The remaining balance for the additional provision for guarantee obligations was US$211.9 million as of December 31, 2012. On November 29, 2013 the U.S. court approved the merger between U.S. Airways and American Airlines and its bankruptcy filing was finalized. Consequently, through this event, our obligation on financial guarantees by AMR’s creditor has been completed and part of the amount paid as advance financial guarantees to such creditor of US$71.4 million was returned to us and the remaining provision of US$111.9 million was reversed against the operating result. The residual value guarantees were finalized along with American Airlines in exchange for concessions from contractual receivables and the amount of US$58.6 million was transferred from provisions to accounts payable in 2013. There was no remaining balance for the additional provision as of December 31, 2014.

Trade-in Obligations

We sometimes provide trade-in options to our customers in purchase agreements for new aircraft. These options provide customers with the right to trade in aircraft upon the purchase and acceptance of a new aircraft. The trade-in price for commercial aircraft is determined in the manner discussed under “Item 5A.—Operating Results—Critical Accounting Estimates—Guarantees and Trade-In Rights.” In 2014, we accepted five aircraft, with a total invoiced value of US$43.9 million, for trade-in pursuant to trade-in options. In the aggregate, we are currently subject to trade-in options relating to 12 aircraft, as a result of trade-ins tied to contractual obligations with customers and to their taking delivery of certain new aircraft. In addition, other aircraft may become subject to trade-in due to new sales agreements. The trade-in price is determined based on the new aircraft sold, as well as other factors, including a market value assessment performed by independent third party appraisers. See Note 36 to our audited consolidated financial statements for further information on our trade-in options.

We continue to monitor all trade-in commitments to anticipate any adverse economic impact they may have on our financial condition. We may be required to accept trade-ins at prices that are slightly above the then-market price of the aircraft, which would result in financial loss for us when we resell the aircraft. Based on our current evaluation and on third-parties appraisals, we believe that any aircraft accepted in connection with trade-in commitments may be sold or leased in the market without significant profits or losses. See “Item 5A.—Operating Results—Critical Accounting Estimates—Guarantees and Trade-In Rights.”

Operating Leases

A significant part of the risks and benefits of ownership are assumed by the lessor and are classified as operating leases. Payments made for operating leases are amortized to the statement of income on the straight-line method over the contract period. Our parent company operating leases refer to telephone and computer equipment, and those relating to our subsidiaries in the United States relate to non-cancelable operating leases of land and equipment. These leases expire at various dates through 2020. For more information on our operating leases, see Note 36 to our audited consolidated financial statements.

5F.

Tabular Disclosure of Contractual Obligations

The following table and discussion provide additional disclosure regarding our material contractual obligations and commercial commitments as of December 31, 2014:


	Total		Less than 1 year		1 – 3 years		3 – 5 years		More than 5 years
	(in US$ millions)
Contractual Obligations
Loans and interest		3,279.9		195.0		1,079.0		320.5		1,685.4
Pension fund		125.4		12.5		25.1		25.1		62.7
Capital lease obligations		0.3		0.2		0.1		—		—
Operating leases		76.9		17.8		14.0		15.1		30.0
Non-recourse and recourse debt		400.0		10.3		328.8		32.1		28.8
Customer advances		828.6		652.5		64.8		82.3		29.0
Contribution from suppliers		—		—		—		—		—
Suppliers		980.6		980.6		—		—		—
Financial guarantees		238.0		29.5		42.1		14.8		151.6
Other liabilities		386.1		85.5		118.4		111.4		70.8

Total		6,315.8		1,983.9		1,672.3		601.3		2,058.3

The above table shows the sum of the outstanding principal and anticipated interest due at maturity date. For the fixed rate loans, the interest expenses were calculated based on the rate established in each debt contract. For the floating rate loans, the interest expenses were calculated based on a market forecast for each period (LIBOR 6m – 12m), dated on December 31, 2014. This floating rate exposure is managed through derivatives operations. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk.”

The above table does not reflect contractual commitments related to trade-in options and financial and residual value guarantees discussed in “Item 5E.—Off-Balance Sheet Arrangements” above. See “Item 3D. Key Information—Risk Factors—Risks Relating to Embraer— Some of our aircraft sales may be subject to financial and residual value guarantees and trade-in options that may require us to make significant cash disbursements in the future.”

Other liabilities include taxes and payroll charges payable in the total amount of US$269.7 million at December 31, 2014. The above table does not reflect any information about our derivative instruments, which are discussed more fully in “Item 11. Quantitative and Qualitative Disclosures About Market Risk.”

5G.

Safe Harbor

See “Special Note Regarding Forward-Looking Statements.”

ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

6A.

Directors and Senior Management

We are managed by our Conselho de Administração, or Board of Directors, composed of 11 members, and our Diretoria, or Executive Officers, composed of at least four and at the most 11 members (each an Executive Officer). We have a permanent Conselho Fiscal, which is composed of three to five members and an equal number of alternates.

There are no family relationships among the members of our Board of Directors and/or our Executive Officers.

Board of Directors

Our Board of Directors ordinarily meets eight times a year and extraordinarily when called by the Chairman or by the majority of members of the Board. It has responsibility, among other things, for establishing our general business policies and for electing our Executive Officers and supervising their management.

Our Board of Directors is appointed by our shareholders for a two-year term, reelection being permitted, having three reserved seats as follows: (1) one acting member to be appointed by the Brazilian federal government, as holder of the “golden share,” and (2) two acting members to be appointed by our employees. The remaining eight directors are elected in accordance with the slate voting or cumulative voting rules contained in our bylaws. See “Item 10B. Additional Information—Memorandum and Articles of Association—Board of Directors—Election of Board of Directors” for a detailed description of the rules and procedures regarding the nomination and election of our Board members. There is no mandatory retirement age for our Directors.

Under the rules of the Novo Mercado, the members of our Board of Directors have agreed to comply with the Novo Mercado Listing Rules and with the rules of the São Paulo Stock Exchange Arbitration Chamber before taking office, and for such purpose have executed a Statement of Consent from the Directors (Termo de Anuência dos Administradores).

Set forth below are the names, ages, positions, the year first elected and brief biographical descriptions of the members of our Board of Directors elected at our annual shareholders’ meeting held on April 25, 2013:


Name	Age		Position	Year First Elected to Board
Alexandre Gonçalves Silva		69	Chairman of the Board of Directors	2011
Sérgio Eraldo de Salles Pinto		50	Member of the Board of Directors	2009
Antonio Franciscangelis Neto		61	Member of the Board of Directors	2013
Arno Hugo Augustin Filho		54	Member of the Board of Directors	2012
Ernani de Almeida Ribeiro Junior		48	Member of the Board of Directors	2013
Israel Vainboim		70	Member of the Board of Directors	2009
João Cox Neto		51	Member of the Board of Directors	2011
Josué Christiano Gomes da Silva		51	Member of the Board of Directors	2011
Paulo Roberto de Oliveira		50	Member of the Board of Directors	2013
Samir Zraick		73	Member of the Board of Directors	2006
Vitor Paulo Camargo Gonçalves		58	Member of the Board of Directors	2011

Alexandre Gonçalves Silva. Mr. Silva holds a BS in Mechanical Engineering from PUC Rio de Janeiro. In his 40-year career, he has occupied positions in several areas, including 22 years as a CEO. Mr. Silva was CEO of GE in Brazil from 2001 to 2007 and since then, Mr. Silva has occupied positions on boards of directors of various companies. Mr. Silva is Chairman of the Board of Directors of Embraer and an independent board member at Fibria Celulose, Alupar, Tecsis and Nitroquímica. Mr. Silva is a Pro Bono Director of AMCHAM Brazil and the Maria Cecilia Souto Vidigal Foundation, Senior Advisor of Global Infrastructure Partners in New York and Board member of the American Chamber of Commerce since 2003. Mr. Silva is an independent member of the Board of Directors of Embraer.

Sérgio Eraldo de Salles Pinto. Mr. Salles Pinto has been CEO of Bozano Group since 2011 and he was an Executive Officer from 2000 to 2010. From 1988 to 2000, he worked at several companies of Banco Bozano, Simonsen S.A. He was originally elected to the Board of Directors of Embraer in April 2009 and he is an independent member, being a member of the Human Resources Committee and coordinator of the Audit and Risk Committee. Mr. Salles Pinto earned undergraduate degrees in Economics and Electrical Engineering from the Center of Unified Teaching of Brasília (CEUB) and the University of Brasília (UnB), respectively. He holds a Master’s degree in Economics from Fundação Getúlio Vargas—Rio de Janeiro (EPGE) and a Master’s degree in Administration from the Catholic University of Rio de Janeiro (PUC). Mr. Salles Pinto is the President of Bozano Investimentos Gestora de Recursos, and a member of the Board of Directors of Netpoints, a member of the Board of Directors of Azul Linhas Aéreas and a member of the Board of Directors of Ouro Preto Óleo e Gás.

Antonio Franciscangelis Neto. Mr. Franciscangelis is Secretary of Economy and Finance of the Brazilian Air Force. Among other positions, Mr. Franciscangelis was Head of Office of the Brazilian Air Force Commander, Commander of 2nd / 5th Aviation Group; Head of Office of the Brazilian Air Force’s COMDABRA; Assistant to the Deputy Chief of the General Staff of the Armed Forces; Commander of Anapolis Air Base; Assistant to the Defense and Aeronautics Attaché at United States and Canada; Chief of the Brazilian Air Force Commission in Washington, DC; Chief of the 2nd, 1st and 6th Subchefias of EMAER; Commander of the Air Force Instruction and Adaptation Center and Commander of the Brazilian Aerospace Defense Command. Among the main academic courses completed by Mr. Franciscangelis are the Aviator Officers Formation Course—AFA; Officers Improvement Course—EAOAR; Graduation in Command and General Staff Course—ECEMAR; Politics and Aerospace Strategy Course; Recycling in Economics and Finance Course (SEFA); Management and Business Administration (MBA) at Getúlio Vargas Foundation FGV- RJ; Mirage F 103 Fighter Pilot and Air Defense Course; Fighter Leadership Course; the Brazilian Institute of Corporate Governance (IBGC) Course for board members.

Arno Hugo Augustin Filho. Mr. Augustin graduated in Economics from the School of Economics of the Federal University of Rio Grande do Sul in 1983. Mr. Augustin has been Secretary of the Brazilian Federal Treasury since 2007. During 2003 and 2004, Mr. Augustin occupied the positions of Assistant Executive Secretary of the Ministry of Finance, and Chairman of the Boards of Directors of Caixa Econômica Federal and Banco da Amazônia S.A. – BASA. From 1999 to 2003, Mr. Augustin acted as State Secretary of Finance of Rio Grande do Sul and as Chairman of the Board of Directors of Banrisul. From 1985 to 1998, Mr. Augustin was: Secretary of Finance of the Municipality of Porto Alegre, Economic Advisor to the Mayor, among other positions held.

Ernani de Almeida Ribeiro Junior. Mr. Ribeiro Junior has an undergraduate degree in business administration from the Nogueira da Gama College, with an MBA in Business Administration from Fundação Getúlio Vargas, and graduate degrees in Business Management from Fundação Dom Cabral and in Marketing and Foreign Trade from INPG. MR. Ribeiro Junior has been our employee since 1986, and currently holds the position of advisor and coordinator of the Boa Idéia Program, which encourages our employees to suggest improvements to our business processes, especially those related to cost reduction, occupational safety and the environment. Mr. Ribeiro Junior was an alternate member of the Board of Directors of Embraer from April 2011 to April 2013.

Israel Vainboim. Mr. Vainboim was a member of the Board of Directors of Itaú Unibanco S.A. from 2009 to April 2015. He is a member of the Board of Directors of Cia. Iochpe-Maxion, member of the Decision-making Council of MAM (Museu de Arte Moderna de São Paulo), Chairman of the Fiscal Council of Albert Einstein Hospital in São Paulo and Chairman of the Board of the Brazilian-Israeli Chamber of Commerce. Mr. Vainboim served at Unibanco in various capacities since 1969. Mr. Vainboim was also the President of Unibanco from 1988 to 1992 and member of its Board of Directors until 2008. Mr. Vainboim was president of Unibanco Holdings S.A. from 1994 to 2007, Chairman of the Board of Directors and President of the Audit Committee of Unibanco Holdings S.A. from 2007 to February 2009. He was first elected to the Board of Directors of Embraer in April 2009 and he is an independent member. Mr. Vainboim earned an undergraduate degree in Mechanical Engineering from the Federal University of Rio de Janeiro and holds an MBA from Stanford University.

João Cox Neto. Mr. Cox has a degree in economics from the Federal University of Bahia and extended his postgraduate studies in economics at the Université du Québec in Montréal Quebec, Canada, and the PSC’s Oxford University. Mr. Cox speaks Portuguese, English, French and Spanish. Mr. Cox heads Cox Investments & Advisory, a boutique investment firm providing M&A, financing and consulting services as well as holding interests in private equity funds. He was also a member of the Board of Directors of companies in various countries (Brazil, Argentina, Netherlands and Israel), and acted as advisor for the CRSFN—Appeals Council of the National Financial System, the Board of Directors of ABRASCA (Brazilian Association of Listed Companies) and IBRI (Brazilian Institute of Investor Relations). Mr. Cox serves on the Board of Directors of Estácio de Sá S.A. Since April 1999 he has been deeply involved with the telecommunications industry, in the capacities of President, CEO or vice president. From 2006 to 2010, he served Claro, the second largest mobile operator in Brazil, as President, CEO or Vice-President. From April 1999 to August 2004 he served as Vice-President Finance and Investor Relations of Telemig Celular Participações and Tele Norte Celular Participações, and at the same time was also the CEO of Telemig Celular and Amazonia Celular. In 2005 he served as Vice-Chairman of the Board of Directors of Cellcom, the largest mobile operator in Israel. Mr. Cox maintains ties with the universities where he taught for several years at the undergraduate and graduate levels. Mr. Cox is an independent member of the Board of Directors of Embraer, also acting as a member of the Human Resources Committee and the Strategy Committee.

Josué Christiano Gomes da Silva. Mr. Gomes da Silva is President of the Companhia de Tecidos Norte de Minas – Coteminas, leader in the bed and bath segment, with production facilities throughout Brazil. Mr. Gomes da Silva is founder and chairman of the Board of Directors of Cantagalo General Grains S.A., a company involved in production, marketing and logistics of grain, and member of the Board of Directors of Embraer. Mr. Gomes da Silva served as member of the Board of the Institute for Studies in Industrial Development—IEDI, having chaired the institute from 2005 to 2009, President Emeritus and Member of the Supreme Council of the Association of the Textile and Clothing Industry—ABIT, having chaired the organization from 2005 to 2007, Third Vice-President of the Federation of Industries of the State of São Paulo – FIESP, Vice-Chairman of the Business Council of Latin America – CEAL, Member of the Brazil-US CEOs Forum, Member of the Corporate Council of the Vanderbilt University Owen Graduate School of Management, President of the International Textile Manufactures Federation – ITMF, and member of the Board of Visitors of the Institute of Cancer of São Paulo Octavio Frias de Oliveira – ICESP. Mr. Josué has a degree in Civil Engineering from the Federal University of Minas Gerais, and a Bachelor of Law degree from Law School at Milton Campos. He won the “Gold Medal” (Founder Medal) at Vanderbilt University – United States, where he concluded his Master degree in Business Administration – MBA.

Paulo Roberto de Oliveira. Mr. Oliveira has a degree in mechanical engineering with specialization in project management and MBA in business management. He has been an employee of Embraer since 1987 and has performed several duties, such as expert analyst of planning, including as adviser to Vice President of Engineering, Technology Development and Strategic Planning. Mr. Oliveira is responsible for the planning of new products in their early stages. Mr. Oliveira is Chairman of the Board of CIEMB – Clube de Investimento dos Empregados da Embraer (Investment Club of Embraer Employees), and is its representative on the Board of Directors of Embraer.

Samir Zraick. Mr. Zraick was chief financial officer of Vale S.A., and head of its U.S. affiliate from 1971 to 1986, being responsible for the financial formulation of Carajás Project. Subsequently, Mr. Zraick was a member of the Board of Directors of Vale during 2000 and served as a Special Advisor and member of Vale’s Strategic Committee from 2001 to 2004. Mr. Zraick served as Finance and Development Director of Caemi Mineração e Metalurgia S.A. from 1986 to 1998. Mr. Zraick was a member of the Board of Directors and Chairman of the Marketing Committee of Quebec Cartier Mining, in Montreal, Quebec, Canada, from 1990 to 1999. He served as a Board Member of Canico Resources in Vancouver, British Columbia, Canada, from July 2004 to March 2006. He was first elected in March 2006 to the Board of Directors of Embraer and he is an independent member.

Vitor Paulo Camargo Gonçalves. Mr. Gonçalves is Director of Planning of Previ, elected to serve until May 2014. He joined the Bank of Brazil in 1976 and has served with Previ as Director of Participation, Deliberative Officer and Audit Committee. He is member of the Board of Directors of Embraer S.A., having served as Board member in Paranapanema S.A., Petroflex S.A., Invepar S.A and Kepler Weber S.A. He is a member of the Board of ABRAPP—Brazilian Association of Pension Funds, as the representative of Previ, President of the ICSS and member of the Board of the National Association of Officials of the Bank of Brazil—ANABB. He holds an undergraduate degree in Business Administration from Mackenzie University, and has graduate degrees in Business Management from Fundação Getúlio Vargas (RJ), with specialization in business management from Fundação Dom Cabral (MG) and IBMEC (RJ); in corporate governance from IBMEC (RJ) and IBGC—Brazilian Institute of Corporate Governance; and in management of pension funds from the Wharton School in Philadelphia (USA). Mr. Gonçalves is an independent member of the Board of Directors of Embraer.

Committees

Three committees were formed to assist the Board of Directors in its duties and responsibilities:

•

Strategies Committee: which has no executive power. The primary purpose of the Strategies Committee is to assist the Board of Directors in its functions. The independent members of our Board of Directors and Board of Executive Officers may serve on this committee. The Strategies Committee’s responsibilities include aiding the Board of Directors in the formulation of our strategic plan. The current members of the Strategies Committee are Israel Vainboim (coordinator), Alexandre Gonçalves Silva, Josué Christiano Gomes da Silva and João Cox Neto.

•

Audit and Risks Committee: See “Item 6C.—Board Practices—Audit and Risks Committee” below.

•

Human Resources Committee: the members are appointed by our Board of Directors. The members of the Human Resources Committee must be independent members of our Board of Directors or our Executive Officers. Its purpose is to assist the Board of Directors in connection with human resources issues which include appointing and removing Executive Officers from office and designating their duties as provided by the bylaws, compensation and human relations policy, transferring of our resources to employee associations, charity and recreational entities, the private security fund and foundation. The current members of the Human Resources Committee are Vitor Paulo Camargo Gonçalves (coordinator), João Cox Neto, Alexandre Gonçalves da Silva and Sérgio Eraldo de Salles Pinto.

•

Conselho Fiscal: See “Item 6C.—Board Practices—Audit and Risks Committee—Conselho Fiscal” below.

In the event an Executive Officer serves on the Strategies Committee and the Human Resources Committee, he will only be entitled to receive the compensation corresponding to the higher paying position. The Directors appointed to serve on such Committees and on the Audit and Risks Committee may combine the compensation for each position so held.

Executive Officers

Our Executive Officers are responsible for our day-to-day management. The Executive Officers have individual responsibilities established by our bylaws and by the Board of Directors.

The terms of office for members of our Board of Directors and for our Executive Officers is two years, with each Executive Officer eligible for reelection.

The vote of at least nine members of our Board of Directors is necessary to remove an Executive Officer.

Our bylaws forbid any Executive Officer from also serving at the same time as a member of our Board of Directors. Our bylaws contain a provision that our CEO will participate in meetings of the Board of Directors, but shall not vote on resolutions of the Board of Directors.

Our Executive Officers have agreed to comply with the Novo Mercado Listing Rules and to the rules of the São Paulo Stock Exchange Arbitration Chamber before taking office and for such purpose have executed a Statement of Consent from Senior Managers (Termo de Anuência dos Administradores).

Set forth below are the names, ages, positions, the year first elected and brief biographical descriptions of our current Executive Officers as of the date of this annual report:


Name	Age	Position	Year First Elected
Frederico Pinheiro Fleury Curado	53	President and Chief Executive Officer	1995
Mauro Kern Junior	54	Executive Vice President – Engineering and Technology	2007
Paulo Cesar de Souza e Silva	59	Executive Vice President – Commercial Aviation	2010
Artur Aparecido V. Coutinho	66	Chief Operating Officer	2005
Jackson Medeiros de F. Schneider	50	Executive Vice President – Personnel, Institutional Relations and Sustainability	2012
José Antonio de Almeida Filippo	54	Executive Vice President – Chief Financial and Investor Relations Officer	2012
Marco Tulio Pellegrini	56	Executive Vice President of Executive Jets Market	2013
Terena Penteado Rodrigues	41	Executive Vice President – General Counsel	2013

Frederico Pinheiro Fleury Curado. Mr. Curado has been an Executive Officer of Embraer S.A. since 1995, and President and Chief Executive Officer since 2007. He has a degree in Mechanical Aeronautical Engineering from ITA – Instituto Tecnológico de Aeronáutica and an M.B.A. from the University of São Paulo. Besides his activities at Embraer, he is the Chairman of the Brazilian Chapter of the Brazil-US Business Council, a member of Brazil’s National Council for Industrial Development and an executive board member of the International Chamber of Commerce. He is also an independent board member at Transocean Ltd (NYSE:RIG). Mr. Curado has been awarded the Medal for Aeronautical Merit by the Brazilian Government and the Medal for Merit by the Brazilian Association of Military Engineering

Mauro Kern Junior. In April 2011, Mr. Kern was appointed Embraer’s Executive Vice-President for Engineering and Technology. He joined Embraer in 1982 as a Mechanical Systems Engineer and served for 13 years in several technical and managerial positions. In 1999, Mr. Kern joined the Embraer 170/190 program as its Chief Engineer and Program Manager. In April 2007, he was appointed Embraer’s Executive Vice-President for the Airline Market. Mr. Kern holds a Bachelor’s degree in Engineering from the University of Rio Grande do Sul.

Paulo Cesar de Souza e Silva. Mr. Silva joined the company in 1997 and spent 13 years focusing and developing Embraer’s Customer Financing strategies. Since April 2010 he has been the President & CEO of Embraer Commercial Aviation. As Embraer’s representative at Aviation Working Group, an international industry organization dedicated to developing initiatives to foster and facilitate advanced aviation financing, Mr. Silva contributed to the development and implementation of the Cape Town Treaty and the Aircraft Sector Understanding (ASU), which regulates the terms and conditions for Export Credit Agencies support. Both are key instruments to the airlines gaining access to efficient aircraft financing. Prior to joining Embraer, Mr. Silva held many executive positions within the international bank industry. He holds a bachelor’s degree in economics from Mackenzie University (Sao Paulo—Brazil) and a MBA earned in Switzerland.

Artur Aparecido V. Coutinho. In 2010, Mr. Coutinho was appointed Embraer’s Executive Vice-President and Chief Operating Officer. In 2005, he was appointed our Executive Vice-President for Procurement and Industrial Operations and had been acting in that capacity until being elected as our Chief Operating Officer. From January 2003 to March 2005, Mr. Coutinho was Embraer’s Vice-President responsible for marketing, sales and customer support activities in North America. From February 2000 to December 2002, he was our Vice-President for Customer Service. Prior to that, Mr. Coutinho held several different positions at Embraer in the areas of marketing, training and quality control.

Jackson Medeiros F. Schneider. Mr. Schneider is Chief Executive Officer of Embraer Defense & Security and previously he held the position of Executive Vice President of People, Institutional Relations, and Sustainability of Embraer. He has a Law degree from the University of Brasilia—UNB, and an MBA from the Business School of São Paulo. He began his career in the Ministry of Justice (Brazilian Government). In the private sector, he was Deputy Director of Corporate Affairs of Unilever and Vice President of Human Resources, Legal Relations and Corporate Affairs of Mercedes Benz Brazil. In addition, Mr. Schneider was President of ANFAVEA (Brazilian Vehicle Manufacturer Association) and ABIPLA (Brazilian Association of Manufacturers of Cleaning Products, and Related Items), as well as a member of the Board of Tax Council of the Ministry of Economy and Finance, among other assignments. He is currently Vice President of the FIESP (State of São Paulo industry federation), and Board member of organizations including the Biennial Foundation of São Paulo, the Ayrton Senna Institute, the AACD (association to support disabled children) and MASP (São Paulo’s Art Museum Assis Chateaubriand), among others.

José Antonio de Almeida Filippo. In June 2012, Mr. José Antonio de Almeida Filippo was elected CFO and Investor Relations Executive Vice-President of Embraer. Mr. Filippo started his career at Gafisa Imobiliária, in which he held the position of CFO and Administrative Director. From 1995 to 2000 he held the Corporate Financial Manager position at Reynolds Aluminum—Latasa. From 2000 to 2004, he held the position of CFO of Latin America at Ingersoll-Rand Company. From June 2004 to 2010 he held the position of CFO and Investors Relations Vice-President at CPFL Energia. Since March 2010, he held the position of CFO of Companhia Brasileira de Distribuição (Grupo Pão de Açucar), before joining Embraer. Mr. Filippo has a degree in Civil Engineering from the Federal University of Rio de Janeiro in 1983, with postgraduate studies in Finance at the Catholic University of Rio de Janeiro and IBMEC—Brazilian Institute of Capital Markets. He also participated in the Program Development and Management at the Harvard Business School in 1999.

Marco Tulio Pellegrini. In January 2014, Mr. Pellegrini was appointed President and CEO of Embraer Executive Jets, after having served close to three years as Embraer’s Senior Vice President Operations and COO. His experience in the aerospace industry spans more than 25 years, most of which have been spent in senior management at Embraer. Prior to his roles in the Executive Jets segment, Mr. Pellegrini was Embraer’s VP of New Programs – Airline Market and before that Vice President of Production and Industrial Strategy, responsible for manufacturing, manufacturing engineering, tooling and industrial architecture. Mr. Pellegrini also served as VP of Market Intelligence for Executive Jets, responsible for product strategies, sales support, market assessment, marketing and competitive analysis for business aviation. He was formerly responsible for industrial architecture and site selection of new Embraer facilities as Sr. Manager for Industrial Planning. Before joining Embraer, Mr. Pellegrini spent time at Vasp, a major Brazilian airline, as Sr. Manager for Quality Assurance. In addition, he did a year-long training program at McDonnell Douglas’ Long Beach facility in the R&D and production liaison areas. Mr. Pellegrini holds a Master’s degree of Science in Mechanical Engineering from São Paulo University. After graduating from university, Mr. Pellegrini began his career as a manufacturing engineer at an automobile parts manufacturer.

Terena Penteado Rodrigues. Mrs. Rodrigues holds a LL.B. from the University of São Paulo Law School and an LL.M. from the Georgetown University Law Center (Washington, DC). She joined Embraer in 2004 as Legal Advisor, becoming Associate General Counsel for industry/regulatory and later for sales/aftermarket. She became Senior Vice President, General Counsel & Compliance in 2012, and since April 2013 she is the Executive Vice President, General Counsel. Before Embraer, she worked as Senior Legal Counsel at United Technologies Corporation (Hartford, CT), and as an International Associate at Wilmer, Cutler & Pickering (Washington, DC).

6B.

Compensation

Overview

Our Executive Officers, directors and fiscal council members are entitled to fixed compensation. In addition, our Executive Officers are eligible to participate in our executive profit sharing plan, which provides them with variable compensation that is based on their and our performance and is limited to a percentage of our net income for the year.

For the fiscal year ended December 31, 2014, the aggregate compensation (including benefits in kind granted) that we paid to members of the Board of Directors, the Audit and Risks Committee, the Conselho Fiscal and the Executive Officers for services in all capacities was US$18.6 million: US$3.8 million to members of the Board of Directors, US$0.3 million to members of the Conselho Fiscal and US$14.5 million to the Executive Officers.

For the fiscal year ended December 31, 2014, members of our committees of the Board of Directors, including our Audit and Risks Committee, received an aggregate additional compensation of US$0.8 million, which is included in the US$18.6 million compensation mentioned above.

In addition, in 2014, we contributed US$0.3 million for the payment of pension benefits to our Executive Officers. Members of our Board of Directors and Conselho Fiscal do not receive such benefits. The board members, Conselho Fiscal members and Executive Officers did not receive any compensation (including benefits in kind) from any of our subsidiaries. At December 31, 2014, none of the board members, Conselho Fiscal members or Executive Officers had any financial or other interests in any transaction involving us which was not in the ordinary course of our business.

In addition, on December 31, 2014, our board members and Executive Officers owned an aggregate of 264,896 common shares.

For additional information on our executive compensation, see Note 15.2 of our consolidated financial statements as of and for the year ended December 31, 2014.

Stock Option Plan

At a special shareholders’ meeting held on April 19, 2010, our shareholders approved a second stock option plan for management and employees, including those of our subsidiaries, subject to their continuous employment with us for at least two years. Our Board of Directors may choose employees and members of management who will be eligible to receive stock options, which are to be awarded free of charge. Nevertheless, in extraordinary circumstances our Board of Directors may grant stock options to persons employed with us for less than two years with a view to hiring and retaining strategic personnel. Our Board of Directors may also determine the terms of the stock option contracts. This second stock option plan has an indefinite period of duration and may be terminated at any time by our Board of Directors, after which no new options may be granted. However, options granted prior to the termination of the plan will not be affected and may be exercised subject to the terms and conditions of the plan and respective stock option contract. Under the terms of this second stock option plan, we are authorized to grant options to purchase up to 1.5% of our common shares, and the options vest as follows: 20% after one year following the date the options were granted; 30% after two years following the date the options were granted; and 50% after three years following the date the options were granted. As of December 31, 2012, 6,510,000 options had been granted on April 30, 2010, at an exercise price of R$10.19 per share, 6,345,000 options had been granted on January 18, 2011, at exercise prices of R$12.05 per share, 150,000 options had been granted on March 16, 2011, at exercise prices of R$12.89 per share, 4,860,000 options had been granted on January 23, 2012, at an exercise price of R$11.50 per share, 4,494,000 options had been granted on March 20, 2013, at exercise prices of R$15.71 per share, 584,400 options had been granted on April 25, 2013, at exercise prices of R$16.81 per share.

At a special shareholders’ meeting held on January 10, 2012, the second stock option plan detailed above was amended to provide for a revised vesting schedule, such that options granted after January 10, 2012 vest as follows: 33% after three years following the date the options were granted; 33% after four years following the date the options were granted; and 34% after five years following the date the options were granted. The exercise price of each option is to be set on the grant date as the weighted average trading price of the last 60 trading days and can be adjusted by up to 30% to counteract any speculative activity in the market. Each option holder has up to five years from the date of grant to exercise options received prior to and during 2011, and up to seven years from the date of grant to exercise options received after 2011. Option holders may only exercise options during the term of their employment with Embraer. This amendment does not affect the accounting for grants existing prior to this plan.

Phantom Shares Plan

In February 2014, we adopted a new model of long-term incentive plan aligned with our remuneration policy. The new model is based on the granting of virtual shares to officers and management and has the main objective to attract and retain highly qualified staff to ensure continuity of management and align the interest of officers and key personnel of the Company and its shareholders. Participants in the plan will receive two classes of virtual shares, 50% in the form of virtual restricted shares and 50% in the form of virtual performance shares. We will pay the amount of the long-term incentive converting the virtual shares into reais by the average price of the Company’s shares in the 10 trading sessions preceding the relevant determination date three, four and five years after the grant of the virtual shares, respectively. On February 25, 2014, we approved a total benefit of US$13.0 million under the plan, equivalent to 1,570,698 virtual shares with a fair value of US$4.0 million at December 31, 2014, equivalent to 170,486 virtual shares. For more information on this plan, see Note 30.2 of our audited consolidated financial statements for the year ended December 31, 2014.

Long-Term Incentive Plan

The objectives of our Long-Term Incentive Plan are the recruitment and retention of highly-qualified personnel and to allow those who can contribute to our performance the opportunity to participate in our profits. We intend for incentives under the plan to promote continuity among our management and alignment of the interests of our executives with those of shareholders. Amounts distributed are defined with reference to the market, under the conditions described in our Long-Term Incentive Plan.

Short-Term Variable Compensation Policy

Our Short-Term Variable Compensation Policy is designed to promote the retention of executives and alignment of their interests with those of shareholders. Goals with greater impact and importance for our company are given greater weight. We distribute short-term variable compensation to our eligible executives which is equal to a percentage of our operating profits.

Employee Profit Sharing Plan

We first implemented a profit sharing plan in 1998 that linked employee profit sharing to dividend payments. In December 2008, the Board of Directors approved changes to the methodology for calculating the employee profit sharing. The new program, as amended in 2008 by our Board of Directors, is now tied to our net income, calculated in accordance with IFRS, and to individual and business unit performance targets. Of the total amount reserved for the profit sharing program, 50% is distributed in equal parts to all employees, while 50% is distributed proportionally to the employee’s salary.

For the 2014, 2013, 2012, 2011 and 2010 fiscal years, we distributed US$47.8 million, US$57.2 million, US$36.1 million, US$33.4 million and US$41.3 million, respectively, to our employees under our profit sharing plan.

Defined Contribution Pension Plan

We sponsor a defined contribution pension plan for employees, the participation in which is optional. The plan is managed by EMBRAER PREV – Sociedade de Previdência Complementar. Contributions made by us to this plan in the years ended December 31, 2014, 2013, 2012, 2011 and 2010 were US$29.2 million, US$28.1 million, US$27.4 million, US$28.4 million and US$22.8 million, respectively. For more information on our post-retirement benefits, see Note 27 to our audited consolidated financial statements.

We amended our healthcare plan for retired employees, considered a post-employment benefit. Under this healthcare plan, our employees who retire have the option of remaining in the plan, contributing the full amount charged by the insurance company. However, due to certain rules for increases under Brazilian law, there could be times at which the contribution made by our retired employees is insufficient to cover the medical plan expenses, which would represent exposure for us.

Actuarial studies are made annually to identify the future exposure to be recorded as a provision. The provision recorded was US$57 million on December 31, 2012 and US$68.5 million on December 31, 2013 and US$36.8 million on December 31, 2014. As of December 31, 2011, we had recorded no provision.

EAH sponsors a post-retirement healthcare plan, which was amended in 2007 and employees hired as of that date do not qualify for this plan. The estimated pension and post-retirement healthcare costs for the beneficiaries and their dependents are recorded as a provision using the accrual method, based on actuarial studies. The provision recorded was US$4.4 million on December 31, 2012 and US$2.5 million on December 31, 2013 and US$4.4 million on December 31, 2014.

The actuarial methods used comply with the generally accepted actuarial methods in force, in accordance with the projected unit credit method.

D&O Insurance

We maintain officers’ and directors’ liability insurance in the total amount of US$100 million. This insurance covers our officers and directors for liabilities resulting from wrongful acts, including any act or omission committed or attempted by any officer or director acting in his or her capacity as officer or director or any matter claimed against an officer or director solely by reason of his or her serving in such capacity.

6C.

Board Practices

Our Board of Directors is appointed for a two-year term. See “Item 6A.—Directors and Senior Management—Board of Directors.”

The Executive Officers are elected by the Board of Directors. Our current Executive Officers were elected on April 25, 2013, with a term of office until the meeting of our Board of Directors to be held following the annual general meeting of our shareholders in April 2015 to approve our financial statements for the fiscal year ended December 31, 2014.

The members of our Board of Directors and our Executive Officers have a uniform two-year term and are eligible for reelection. A vote of at least nine members of our Board of Directors is necessary to remove an Executive Officer. See “Item 6A.—Directors and Senior Management—Executive Officers.”

None of our Directors is party to an employment agreement providing for benefits upon termination of term. All of our Executive Officers are party to a service agreement setting forth the rights and obligations of the Executive Officers. If we terminate a service agreement with any of our Executive Officers, we will be required to pay a termination benefit to such Executive Officer equivalent to 50% of his/her remaining annual compensation, provided that a minimum of six monthly wages of the annual compensation is paid.

Audit and Risks Committee

Our Audit and Risks Committee may have up to five members and has no executive power. The primary purpose of the Audit and Risks Committee is to assist the Board of Directors in its functions. The members of our Board of Directors may serve on the committee. The Audit and Risks Committee’s responsibilities include validation and submission to the Board of Directors of guidelines for risk policy, verification of risk management policy compliance, supervision of activities performed by our independent auditors and monitoring the quality and integrity of internal controls and financial statements. Embraer’s statutory “Audit and Risks Committee” is composed of independent members of our Board of Directors. Because foreign private issuers are subject to local legislation which may prohibit the full Board of Directors from delegating certain responsibilities to the audit committee, pursuant to Rule 10A-3, audit committees of foreign private issuers may be granted responsibilities, which may include advisory powers, with respect to such matters to the extent permitted by law. Due to certain restrictions imposed by the Brazilian Corporate Law, our Audit and Risks Committee, unlike a U.S. audit committee, only has an “advisory” role and may only make recommendations for adoption by the full Board of Directors, which is responsible for the ultimate vote and final decision. For example, our Audit and Risks Committee makes recommendations regarding the appointment of auditing firms, which are subject to a vote of the board of directors. Our Audit and Risks Committee complies with Brazilian legal requirements (including for “independent directors,” as defined by Brazilian law).

Set forth below are the names, ages, the year first elected and positions of the members of our Audit and Risks Committee elected at our annual shareholders’ meeting held on April 16, 2014.


Name	Age	Position	Year First Elected
Sergio Eraldo de Salles Pinto	50	Coordinator and Effective member	2011
Israel Vainboim	70	Effective member	2011
Samir Zraick	73	Effective member	2011
Vitor Paulo Camargo Gonçalves	58	Effective member	2011

Conselho Fiscal

Under the Brazilian Corporate Law, the Conselho Fiscal is a corporate body independent of management and a company’s external auditors. The Conselho Fiscal has not typically been equivalent to or comparable with a U.S. audit committee; its primary responsibility has been to monitor management’s activities, review the financial statements, and report its findings to the shareholders. In our case, our statutory Audit and Risks Committee, established in accordance with the Novo Mercado Listing Rules, will serve as our equivalent of a U.S. audit committee. See “Item 6A.—Directors and Senior Management— Committees.”

Under the Brazilian Corporate Law, the Conselho Fiscal may not contain members who are members of the Board of Directors or the executive committee, or who are our employees or employees of a controlled company or of a company of this group, or a spouse or relative of any member of our management. In addition, the Brazilian Corporate Law requires that Conselho Fiscal members receive a remuneration of at least 10% of the average amount paid to each Executive Officer. The Brazilian Corporate Law requires a Conselho Fiscal to be composed of a minimum of three and a maximum of five members and their respective alternates. Under the rules of the Novo Mercado, the members of the Conselho Fiscal have agreed to comply with the Novo Mercado Listing Rules and to the rules of the São Paulo Stock Exchange Arbitration Chamber before taking office and for such purpose have executed a Statement of Consent from of the Conselho Fiscal.

Our Conselho Fiscal is composed of three to five members who are elected at the annual shareholders’ meeting, with terms lasting until the next annual shareholders’ meeting after their election. Under the Brazilian Corporate Law, in the event a company acquires control of another company, minority shareholders that in the aggregate hold at least 10% of the voting shares also have the right to elect separately one member of the Conselho Fiscal. Such provision will not be applicable to us as long as we are subject to widespread control. Set forth below are the names, ages, the year first elected and positions of the members of our Conselho Fiscal and respective alternates, elected at our annual shareholders’ meeting held on April 16, 2014.


Name	Age	Position	Year First Elected
Ivan Mendes do Carmo⁽¹⁾	52	Effective member	2008
Tarcísio Luiz Silva Fontenele	52	Alternate	2001
José Mauro Laxe Vilela	67	Effective member	2011
Wanderley Fernandes da Silva	41	Alternate	2011
Taiki Hirashima	74	Effective member	2004
Carla Alessandra Trematore	39	Alternate	2013
Eduardo Coutinho Guerra⁽²⁾	48	Effective member	2007
Marcus Pereira Aucélio	48	Alternate	2013
Nelson de Menezes Filho	58	Effective member	2013
José Pedro da Broi	56	Alternate	2014

(1)	President of the Conselho Fiscal.

(2)	Vice-President of the Conselho Fiscal.

6D.

Employees

The table below sets forth the number of our employees by category as of the dates indicated, which number includes the employees of our consolidated joint ventures and subsidiaries OGMA, HEAI, ECTS, EZ Air, AST (EUA), Atech, Bradar, Harpia, Visiona and Savis:


	At December 31,
	2014		2013		2012		2011		2010
Production Process		6,945		6,628		6,558		6,950		8,541
Research and Development		5,948		5,914		5,245		4,463		3,373
Customer Support		3,797		3,737		3,269		3,035		3,026
Administrative – Production Support		2,006		2,067		2,367		2,218		2,453
Administrative – Corporate		3,605		3,302		2,711		2,600		1,491

Total		22,301		21,648		20,150		19,266		18,884

Approximately 82.0% of our workforce is employed in Brazil. Most of our technical staff is trained at leading Brazilian engineering schools, including ITA, located in São José dos Campos. A small percentage of our employees belong to one of two labor unions: the Sindicato dos Metalúrgicos (Union of Metallurgical Workers) and the Sindicato dos Engenheiros do Estado de São Paulo (Union of Engineers of the State of São Paulo). Overall, union membership as a percentage of total workforce has declined significantly in past years. At December 31, 2000, approximately 74.1% of our employees were not affiliated with any unions, compared to 91.7% at December 31, 2014. We believe that relations with our employees are good.

We actively support the training and professional development of our employees. We have established a program at our facility in São José dos Campos to provide newly graduated engineers with specialized training in aerospace engineering.

6E.

Share Ownership

At December 31, 2014, our board members and Executive Officers owned an aggregate of 264,896 of our common shares. None of the officers or directors individually owns more than 1% of the outstanding common shares.

See “Item 6B.—Compensation—Stock Option Plan” for a description of our stock option plan applicable to our management and employees, including those of our subsidiaries.

ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

7A.

Major Shareholders

Shareholders

We have total authorized capital of 1,000,000,000 shares, with a total aggregate of 740,465,044 common shares, including one special “golden share” held by the Brazilian federal government, issued and outstanding. The golden share provides the Brazilian federal government with veto rights in certain specific circumstances. In addition, non-Brazilian shareholders may have their voting rights restricted in certain specific circumstances. See “Item 10B. Additional Information—Memorandum and Articles of Association—Description of Capital Stock—Voting Rights of Shares.”

The following table sets forth share ownership information for each significant shareholder that beneficially owns our equity securities and sets forth the aggregate shareholdings on the São Paulo Stock Exchange and the New York Stock Exchange at December 31, 2014:


	Common Shares
	Shares		(%)
Oppenheimer Funds⁽¹⁾		91,017,851		12.30
PREVI⁽²⁾		49,713,903		6.71
Baillie Gifford & Co.⁽³⁾		47,849,248		6.46
BNDESPAR⁽⁴⁾		39,762,489		5.37
União Federal/Brazilian federal government⁽⁶⁾		1		0.0
Shares in company treasury		5,494,583		0.74
Others		506,626,969		68.42

Total		740,465,044		100.0

(1)

Oppenheimer Funds is one of the largest asset management companies in the United States, and its controlled affiliates offer a broad range of products and services to individuals, corporations and institutions, including mutual funds, separately managed accounts, investment management for institutions, hedge fund products, qualified retirement plans and sub-advisory investment-management services.

(2)	Banco do Brasil Employee Pension Fund, or PREVI, was founded in 1904 as a pension fund for the employees of Banco do Brasil S.A., which is controlled by the Brazilian federal government.

(3)

Baillie Gifford & Co., also known as Baillie Gifford International, L.L.C., is an Edinburgh, Scotland-based independent investment management firm. The firm is 100% owned by its senior partners. The firm manages the Baillie Gifford series of funds in addition to other funds and caters to individuals and institutions.

(4)	BNDESPAR is a wholly-owned subsidiary of Banco Nacional de Desenvolvimento Econômico e Social–BNDES, the government-owned national development bank of Brazil.

(5)	Thornburg Investment Management is an employee-owned investment management company based in Santa Fe, New Mexico. The firm manages the Thornburg series of mutual funds in addition to other funds for select institutions and individuals.

(6)	The Brazilian federal government holds our “golden share.”

Other than as discussed in “Item 4B. Information on the Company—History and Development of the Company,” there have been no significant changes in percentage ownership by any major shareholder in the past three years.

On December 31, 2014, we had approximately 41,000 holders of common shares, including common shares in the form of ADSs. According to the most accurate information available to us, on December 31, 2014, an aggregate of 95,959,138 common shares in the form of ADSs were held by 145 record holders, including DTC in the United States.

7B.

Related Party Transactions

The Brazilian Federal Government

The Brazilian federal government, through its direct and indirect stakes in us and its ownership of our “golden share,” is one of our major shareholders. The issuance of the “golden share” was a requirement of the regulations governing our privatization in 1994 and grants the Brazilian federal government veto rights over certain military-related programs and corporate actions (such as transfers of control and changes in our name, logo and corporate purposes). See “Item 10B. Additional Information—Memorandum and Articles of Association—Description of Capital Stock—Voting Rights of Shares—Golden Share.” As of February 28, 2014, in addition to the “golden share,” the Brazilian federal government owned an indirect 5.37% stake in us through the BNDESPAR, a wholly-owned subsidiary of the Banco Nacional do Desenvolvimento Econômico e Social (the Brazilian Development Bank), which, in turn, is controlled by the Brazilian federal government. As a result, for the purposes of this Form 20-F’s disclosure requirements, we consider transactions between Embraer and the Brazilian federal government or its agencies as falling within the definition of “related party transactions.”

The Brazilian government plays an important role in our business activities, including as:

•

a major customer of our defense products (through the Brazilian Air Force);

•

a source for research debt financing through technology development institutions such as the FINEP and the BNDES;

•

an export credit agency (through the BNDES); and

•

a source of short-term and long-term financing and a provider of asset management and commercial banking services (through Banco do Brasil).

See “Item 5B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Credit Facilities and Lines of Credit,” “Item 4C. Information on the Company—Business Overview—Aircraft Financing Arrangements,” “Item 3D. Key Information—Risk Factors—Risks Relating to Embraer—Any decrease in Brazilian federal government-sponsored customer financing, or increase in government-sponsored financing that benefits our competitors, may decrease the cost competitiveness of our aircraft” and “Item 3D. Key Information—Risk Factors——Risks Relating to Embraer—The Brazilian federal government may reduce funds available to our customers under government-sponsored financing programs.” For more information regarding our related party transactions, see Note 15 to our audited consolidated financial statements.

A Major Customer (Brazilian Federal Government)

The Brazilian federal government, principally through the Brazilian Air Force, has been a significant customer of Embraer since its inception. For the year ended December 31, 2014, the Brazilian federal government, principally through the Brazilian Air Force, accounted for 16% or US$1,004.5 million, of the revenue of our Defense & Security segment. In addition, as of December 31, 2014, the Brazilian Air Force owed us US$270.4 million in trade account receivables and had a credit against us of US$198.5 million in customer advances. We expect to continue to be the primary source of new aircraft and spare parts and services for the Brazilian federal government. For a description of our transactions with the Brazilian federal government, see “Item 4C. Information on the Company—Business Overview—Defense & Security Business.”

Financing Source

BNDES

We are borrowers under a number of credit facilities from the BNDES, the sole parent of BNDESPAR, one of our significant direct shareholders and an affiliate of the Brazilian Federal Government. As of December 31, 2014, we had a total outstanding balance of loans borrowed from the BNDES in the aggregate amount of US$437.7 million. For further information on the amounts, maturity dates and interest rates of the principal loans we have with the BNDES, see “Item 5B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Credit Facilities and Lines of Credit.”

FINEP

We maintain credit facilities with the FINEP, which as of December 31, 2014 had a total outstanding balance of US$97.6 million. These loans were extended to us primarily to fund research and development expenses of the Phenom 100 and 300 aircraft and the Legacy 500 aircraft. For further information on the amounts, maturity dates and interest rates of the principal loans we have with the FINEP, see “Item 5B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Credit Facilities and Lines of Credit.”

Banco do Brasil

Banco do Brasil is a publicly-listed, state-owned bank controlled by the Brazilian federal government. As of December 31, 2014, we maintained outstanding non-recourse and recourse debt with Banco do Brasil in the total amount of US$321.8 million, which is recorded as a non-current liability on our statement of financial position. In addition, we maintained outstanding Export Credit Notes with Banco do Brasil in the total amount of US$76.0 million. For further information on the amounts, maturity dates and interest rates of the principal loans we have with Banco do Brasil, see “Item 5B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Credit Facilities and Lines of Credit.”

Caixa Econômica Federal

Caixa Econômica Federal is a state-owned bank controlled by the Brazilian federal government. As of December 31, 2014 we maintained outstanding Export Credit Notes with Caixa Econômica Federal in the total amount of US$37.7 million. For further information on the amounts, maturity dates and interest rates of the principal loans we have with Caixa Econômica Federal, see “Item 5B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Credit Facilities and Lines of Credit.”

Customer Financing by the BNDES

The Brazilian federal government has been an important source of export financing for our customers through the BNDES-exim program, managed by the BNDES. Beginning in the second half of 2007, the BNDES started providing financing to our customers on financial terms and conditions which complied with the Aircraft Sector Understanding of the OECD. Brazil has been joined by Canada, the United States and the European Union, among others, at the OECD, as a participant in the “Sector Understanding on Export Credits for Civil Aircraft” that aims to assure a “level-playing field” among the airframe manufacturers and encourages manufacturers and airlines to focus on price and quality rather than on financial packages provided under government support (see “Item 4C. Information on the Company—Business Overview—Aircraft Financing Arrangements”).

A Service Provider (Banco do Brasil)

At December 31, 2014, we maintained cash and cash equivalents of US$240.7 million with Banco do Brasil and several of its affiliates. At that date, we also had deposited with Banco do Brasil an amount of US$320.5 million in cash and cash equivalents, which served as collateral for a loan extended by Banco do Brasil to one of our subsidiaries. Banco do Brasil has been a provider of regular commercial banking and asset management services to us for many decades. These services include maintaining our checking account and managing exclusive investment funds in which we are the sole investor.

7C.

Interests of Experts and Counsel

Not applicable.

ITEM 8.

FINANCIAL INFORMATION

8A.

Consolidated Statements and Other Financial Information

See “Item 3A. Key Information—Selected Financial Data.”

Legal Proceedings

Labor Lawsuits. We are defendants in individual labor lawsuits, for which we are awaiting the decision of the Brazilian labor courts. Due to the immaterial amount involved in these legal proceedings, we do not believe that any liabilities related to these individual labor lawsuits would have a material adverse effect on our financial condition or results of operations. See Note 23 and Note 26 to our audited consolidated financial statements for a further discussion of our labor lawsuits.

Tax Matters. We have challenged the constitutionality of certain Brazilian taxes and payroll charges, as well as modifications and the increases in the rates and basis of calculation of such taxes and charges and have obtained writs of mandamus or injunctions to avoid their payments or recover past payments.

Interest on the total amount of unpaid taxes and payroll charges accrues monthly based on the Selic rate, the key lending rate of the Central Bank, and we make an accrual to the interest income (expenses), net item of our statements of income. As of December 31, 2014, there was a US$136.1 million provision recorded as a liability (taxes and payroll charges) on our statement of financial position in connection with litigation contingencies that we classify as representing probable losses to us. See Note 23 and Note 26 to our audited consolidated financial statements for a further discussion of these challenges.

SEC/DOJ Investigation. We received in September, 2010 a subpoena from the SEC and associated inquiries from the DOJ concerning possible non-compliance with the FCPA in relation to certain aircraft sales outside of Brazil. In response we retained outside counsel to conduct an internal investigation of sales in three countries.

In light of additional information, we voluntarily expanded the scope of the internal investigation to include sales in other countries, have reported on these matters to the SEC and the DOJ and have otherwise cooperated with them. The U.S. government inquiries, related inquiries and developments in other countries and our own internal investigation are continuing. Any action in these or related inquiries, proceedings or other developments, or any agreement we enter into to settle the same, may result in substantial fines and other sanctions and adverse consequences. Based upon the opinion of our outside counsel, we believe that there is no adequate basis at this time for estimating accruals or quantifying any contingency with respect to these matters.

In light of the above, we embarked on a comprehensive effort to improve and expand our compliance program worldwide. This multi-year task involved reexamining every aspect of our compliance systems, and where appropriate, redesigning or adding to them. Some of the key enhancements include the creation of a Compliance Department, the appointment of a Chief Compliance Officer reporting directly to the Risk and Audit Committee of the Board of Directors, the development of a program to monitor engagement of and payments to third parties, improvements to compliance policies, procedure and controls, the enhancement of anonymous and other reporting channels, and the development of a comprehensive training and education program designed to maintain and reinforce a strong compliance culture at all levels of Embraer globally. We will continue to promote enhancements and update our compliance program.

Other Proceedings. In addition, we are involved in other legal proceedings, including tax disputes, all of which are in the ordinary course of business.

Our management does not believe that any of our proceedings, if adversely determined, would materially or adversely affect our business, financial condition or results of operations. See Note 23 and Note 26 to our audited financial statements.

Dividends and Dividend Policy

Amounts Available for Distribution

At each annual shareholders’ meeting, the Board of Directors is required to recommend how net profits for the preceding fiscal year are to be allocated. For purposes of the Brazilian Corporate Law, net profits are defined as net income after income taxes and social contribution taxes for such fiscal year, net of any accumulated losses from prior fiscal years and any amounts allocated to employees’ and management’s participation in our profits, determined under IFRS. In accordance with the Brazilian Corporate Law and our bylaws, the amounts available for dividend distribution are the amounts determined under IFRS in our parent company financial statements. Such amount for distribution is equal to our net income after taxes less any amounts allocated from such net income after taxes to:

•

the legal reserve;

•

a contingency reserve for anticipated losses; and

•

an unrealized revenue reserve.

For further information on amounts available for distributions, see Note 29 to our audited consolidated financial statements.

We are required to maintain a legal reserve, to which we must allocate 5% of net profits for each fiscal year until the amount for such reserve equals 20% of our paid-in capital. However, we are not required to make any allocations to our legal reserve in respect of any fiscal year in which it, when added to our other established capital reserves, exceeds 30% of our capital. Net losses, if any, may be charged against the legal reserve. The balance of our legal reserve was US$180.3 million, which was equal to 8.3% of our paid-in capital at December 31, 2014.

The Brazilian Corporate Law also provides for two additional, discretionary allocations of net profits that are subject to approval by the shareholders at the annual meeting. First, a percentage of net profits may be allocated to a contingency reserve for anticipated losses that are deemed probable in future years. Any amount so allocated in a prior year must be either reversed in the fiscal year in which the loss was anticipated if such loss does not in fact occur, or written off in the event that the anticipated loss occurs. Second, if the amount of unrealized revenue exceeds the sum of:

•

the legal reserve;

•

the investment and working capital reserve;

•

retained earnings; and

•

the contingency reserve for anticipated losses,

Such excess amount may be allocated to an unrealized revenue reserve. Under the Brazilian Corporate Law, unrealized revenue is defined as the sum of:

•

price-level restatement of statement of financial position accounts;

•

the share of equity earnings of affiliated companies; and

•

profits from installment sales to be received after the end of the next succeeding fiscal year.

According to our bylaws and subject to shareholder approval, our Board of Directors may allocate to an investment and working capital reserve up to 75% of our parent company adjusted net income after taxes under IFRS. The reserve may not exceed 80% of our capital. The purpose of the investment and working capital reserve is to make investments in fixed assets or increase our working capital. This reserve may also be used to amortize our debts. We may also grant a participation in our net income to our management and employees. However, the allocation to the investment and working capital reserve or the participation of our management and employees cannot reduce the mandatory distributable amount (discussed below). Otherwise, the amount in excess of our capital must be used to increase our capital or be distributed as a cash dividend. The balance of the investment and working capital reserve may be used:

•

in the deduction of accumulated losses, whenever necessary;

•

in the distribution of dividends, at any time;

•

in the redemption, withdrawal, purchase or open market repurchase of shares, as authorized by law; and

•

to increase our capital, including by means of an issuance of new shares.

The amounts available for distribution may be further increased by a reversion of the contingency reserve for anticipated losses constituted in prior years but not realized, or further increased or reduced as a result of the allocations of revenues to or from the unrealized revenue reserve. The amounts available for distribution are determined on the basis of financial statements prepared in accordance with the Brazilian Corporate Law method. We have no such contingency reserve.

At December 31, 2014, unappropriated retained earnings of R$3,454.4 million (equivalent to US$2,208.5 million) were recorded in our statutory parent company books under IFRS. At December 31, 2013, such amounts are net of minimum dividends and interest on shareholders’ equity paid or payable, as determined by the Brazilian Corporate Law. For further information, see Note 29 to our audited consolidated financial statements.

Mandatory Distribution

The Brazilian Corporate Law generally requires that the bylaws of each Brazilian corporation specify a minimum percentage of the amounts available for distribution by such corporation for each fiscal year that must be distributed to shareholders as dividends, also known as the mandatory distributable amount. Under our bylaws, the mandatory distribution is based on a percentage of adjusted net income, not lower than 25%, rather than a fixed monetary amount per share. The Brazilian Corporate Law, however, permits a publicly held company, such as Embraer, to suspend the mandatory distribution of dividends if the Board of Directors and report of the fiscal council to the shareholders’ meeting indicate that the distribution would be inadvisable in view of the Embraer’s financial condition. This suspension is subject to approval of holders of common shares. In this case, the Board of Directors shall file a justification for such suspension with the CVM. Profits not distributed by virtue of the suspension mentioned above shall be attributed to a special reserve and, if not absorbed by subsequent losses, shall be paid as dividends as soon as the financial condition of such company permits such payments.

Payment of Dividends

We are required by the Brazilian Corporate Law and by our bylaws to hold an annual shareholders’ meeting by the end of the fourth month after the end of each fiscal year at which, among other things, the shareholders have to decide on the payment of an annual dividend. The payment of annual dividends is based on our parent company financial statements prepared under IFRS for the relevant fiscal year. Brazilian companies, like us, are permitted to make a special distribution to shareholders referred to as interest on shareholders’ equity, which may be distributed in lieu of dividends as part of the mandatory distributable amount. Such payments of interest on shareholders’ equity are treated as deductible tax expense for Brazilian income and social contribution tax purposes. Under the Brazilian Corporate Law, dividends generally are required to be paid within 60 days following the date the dividend was declared, unless a shareholders’ resolution sets forth another date of payment, which, in either case, must occur prior to the end of the fiscal year in which the dividend was declared. A shareholder has a three-year period from the dividend payment date to claim dividends (or interest payments) in respect of its shares, after which the amount of the unclaimed dividends reverts to us.

The Brazilian Corporate Law permits a company to pay interim dividends out of preexisting and accumulated profits determined under IFRS for the preceding fiscal year or semester, based on financial statements approved by its shareholders. According to our bylaws, the shareholders may declare, at any time, interim dividends based on the preexisting and accumulated profits, provided the mandatory dividend has already been distributed to the shareholders. Our bylaws also permit us to prepare financial statements semiannually and for shorter periods. Our Board of Directors may approve the distribution of dividends calculated with reference to those financial statements, even before they have been approved by the shareholders. However, such dividends cannot exceed the amount of capital reserves.

In general, shareholders who are not residents of Brazil must register with the Central Bank to have dividends, sales proceeds or other amounts with respect to their shares eligible to be remitted outside of Brazil. The common shares underlying our ADSs will be held in Brazil by Banco Itaú S.A., also known as the custodian, as agent for the depositary, which will be the registered owner on the records of the registrar for our shares. Our current registrar is Banco Itaú S.A. The depositary electronically registers the common shares underlying our ADSs with the Central Bank and, therefore, is able to have dividends, sales proceeds or other amounts with respect to these shares eligible to be remitted outside Brazil.

Payments of cash dividends and distributions, if any, will be made in Brazilian currency to the custodian on behalf of the depositary, which will then convert such proceeds into U.S. dollars and will cause such U.S. dollars to be delivered to the depositary for distribution to holders of ADSs. Under current Brazilian law, dividends paid to shareholders who are not Brazilian residents, including holders of ADSs, will not be subject to Brazilian withholding income tax, except for dividends declared based on profits generated prior to December 31, 1995. See “Item 10E. Additional Information—Taxation—Material Brazilian Tax Consequences.”

History of Dividend and Interest on Shareholders’ Equity Payments and Dividend Policy

Law No. 9,249, dated December 26, 1995, as amended, provides for distribution of interest on shareholders’ equity as an alternative form of payment to shareholders and treats those payments as a deductible expense for purposes of calculating Brazilian corporate income tax and social contribution on net profits. These distributions may be paid in cash. Such interest is limited to the daily pro rata variation of the TJLP and cannot exceed the greater of:

•

50% of net income (after the deduction of social contribution on net profits, but before taking into account the provision for corporate income tax and the amounts attributable to shareholders as net interest on shareholders’ equity) for the period in respect of which the payment is made; or

•

50% of the sum of retained profits and profit reserves as of the beginning of the period in respect of which the payment is made.

Any payment of interest on shareholders’ equity to holders of ADSs or common shares, whether or not they are Brazilian residents, is subject to Brazilian withholding income tax at the rate of 15% or 25% if the beneficiary is resident in a tax haven jurisdiction, that is, a country or location that does not impose any income tax or which imposes such tax at a maximum rate of less than 20%, or in which the domestic legislation imposes restrictions on the disclosure of the shareholding composition or the ownership of the investment (“Tax Haven Holder”). See “Item 10E. Additional Information—Taxation—Material Brazilian Tax Consequences.” The amount paid to shareholders as interest on shareholders’ equity, net of any withholding tax, may be included as part of any mandatory distributable amount.

Under Brazilian law, we are obligated to distribute to shareholders an amount sufficient to ensure that the net amount received by them, after payment by us of applicable Brazilian withholding taxes in respect of the distribution of interest on shareholders’ equity, plus the amount of declared dividends, is at least equal to the mandatory distributable amount. When we distribute interest on net worth, and that distribution is not accounted for as part of the mandatory distribution, Brazilian withholding tax will apply. All payments to date were accounted for as part of the mandatory distribution.

The following table sets forth the historical payments of dividends and historical payments of interest on shareholders’ equity we have made to our shareholders:


Date of approval	Period in which profits were generated	Total amount of Distribution
		(in R$ millions)		(in US$ millions)⁽¹⁾
April 19, 2010⁽³⁾	Full year of 2009		55.2		31.7
June 10, 2010⁽²⁾	First quarter of 2010		34.5		19.2
September 16, 2010⁽²⁾	Third quarter of 2010		21.7		12.8
December 9, 2010⁽²⁾⁽⁴⁾	Fourth quarter of 2010		144.7		86.9
March 16, 2011⁽³⁾	First quarter of 2011		43.4		26.7
June 9, 2011⁽³⁾	Second quarter of 2011		72.4		46.4
September 4, 2011⁽³⁾	Third quarter of 2011		65.1		35.1
June 14, 2012⁽²⁾	First semester of 2012		65.3		32.3
September 13, 2012⁽²⁾	Third quarter of 2012		50.8		25.0
December 6, 2012⁽²⁾⁽⁵⁾	Fourth quarter of 2012		36.3		17.8
April 25, 2013⁽³⁾	Full year of 2012		30.1		15.0
March 11, 2013⁽²)	First quarter of 2013		29.1		14.4
June 13, 2013⁽²⁾	Second quarter of 2013		29.1		13.2
September 12 ,2013⁽²⁾	Third quarter of 2013		29.2		13.1
December 5, 2013⁽²⁾⁽⁶⁾	Fourth quarter of 2013		65.8		28.1
April 16, 2014⁽³⁾⁽⁷⁾	Full year of 2013		49.0		20.9
March 11, 2014⁽²⁾	First quarter of 2014		36.6		16.2
June 10, 2014⁽²⁾	Second quarter of 2014		36.7		16.7
September 11, 2014⁽²⁾	Third quarter of 2014		36.7		14.9
December 4, 2014⁽²⁾⁽⁶⁾	Fourth quarter of 2014		88.2		33.1
April 15, 2015⁽³⁾⁽⁷⁾	Full year of 2014		16.1		6.1

(1)	Translated from nominal reais into U.S. dollars at the selling exchange rates in effect on the last date of the month in which the dividends were approved.

(2)	Represents interest on shareholders’ equity.

(3)	Represents dividend payments.

(4)	Amount declared in 2010 but paid in 2011.

(5)	Amount declared in 2012 but paid in 2013.

(6)	Amount declared in 2013 but paid in 2014.

(7)	Proposal pending shareholder approval.

In 2014, we distributed US$80.9 million in interest on shareholders’ equity or/and dividends in connection with profits generated in the year ended December 31, 2014. Our Board of Directors declared interest on shareholders’ equity with respect to profits generated during the first half of 2014, the third quarter of 2013 and the fourth quarter of 2014 (see “Item 8A. Financial Information—Mandatory Distribution”).

We intend to declare and pay dividends and/or interest on shareholders’ equity, as required by the Brazilian Corporate Law and our bylaws. Our Board of Directors may approve the distribution of dividends and/or interest on shareholders’ equity, calculated based on our semiannual or quarterly financial statements. The declaration of annual dividends, including dividends in excess of the mandatory distribution, requires approval by the vote of the majority of the holders of our common stock. The amount of any distributions will depend on many factors, such as our results of operations, financial condition, cash requirements, prospects and other factors deemed relevant by our Board of Directors and shareholders. Within the context of our tax planning, we may in the future continue to determine that it is to our benefit to distribute interest on shareholders’ equity.

8B.

Significant Changes

No significant changes or events have occurred after the close of the statement of financial position date at December 31, 2014, other than the events already described in this annual report.

ITEM 9.

THE OFFER AND LISTING

9A.

Offer and Listing Details

Our ADSs are listed on the New York Stock Exchange, or NYSE, under the symbol “ERJ.” In addition, our common shares are traded on the São Paulo Stock Exchange under the symbol “EMBR3.” Each ADS represents four common shares.

The reported high and low closing prices in U.S. dollars for the ADSs on the NYSE for the periods indicated are set forth in the following table. Trading prices for the ADSs until June 2, 2006 are for the former Embraer ADSs, each of which represented four preferred shares of former Embraer. Our ADSs began trading on the NYSE on June 5, 2006, with each ADS representing four common shares issued by us.


	Price in U.S. dollars per ADS
	High		Low
2010
Year		31.25		20.01
2011
Year		35.27		21.40
2012
Year		35.29		23.06
2013
First quarter		35.67		26.80
Second quarter		38.58		32.35
Third quarter		39.22		31.74
Fourth quarter		35.33		29.36
Year		39.22		26.80
2014
First quarter		36.48		29.86
Second quarter		37.80		33.59
Third quarter		39.97		36.87
Fourth quarter		39.21		34.33
Year		39.97		29.86
Month ended:
October 31, 2014		39.21		34.89
November 30, 2014		38.42		35.73
December 31, 2014		37.67		34.33
January 31, 2015		37.04		32.26
February 28, 2015		36.79		34.99

The tables below set forth, for the periods indicated, the reported high and low closing prices in nominal reais for the common shares on the São Paulo Stock Exchange. Trading prices for the common shares until June 2, 2006 are for the former Embraer common shares. Our common shares began trading on the Novo Mercado segment of the São Paulo Stock Exchange on June 5, 2006.


	Nominal reais per common share
	High		Low
2010
Year-end		12.84		9.21
2011
Year		14.30		8.54
2012
First quarter		14.64		11.74
Second quarter		16.53		12.86
Third quarter		14.34		11.87
Fourth quarter		14.52		12.77
Year		16.53		11.74
2013
First quarter		18.00		13.77
Second quarter		21.25		16.01
Third quarter		21.70		17.82
Fourth quarter		19.05		16.35
Year		21.70		13.77
2014
First quarter		21.15		18.27
Second quarter		21.07		18.62
Third quarter		24.15		20.44
Fourth quarter		25.26		21.10
Year		25.26		18.27
Month ended:
October 31, 2014		24.40		21.10
November 30, 2014		24.78		23.07
December 31, 2014		25.26		22.45
January 31, 2015		24.85		21.23
February 28, 2015		26.26		23.74

On March 19, 2015, the closing sale price for our common shares on the São Paulo Stock Exchange was R$25.63, which is equivalent to US$31.62 per ADS. On the same date, the closing sale price for our ADSs on the NYSE was US$31.88. The ADSs are issued under a deposit agreement and JPMorgan Chase Bank serves as depositary under that agreement.

9B.

Plan of Distribution

Not applicable.

9C.

Markets

Trading on the São Paulo Stock Exchange

In 2000, the São Paulo Stock Exchange was reorganized through the execution of memoranda of understanding by the Brazilian stock exchanges. Under the memoranda, all securities are now traded only on the São Paulo Stock Exchange, with the exception of electronically traded public debt securities and privatization auctions, which are traded on the Rio de Janeiro Stock Exchange.

The common shares are listed and traded on the Novo Mercado segment of the São Paulo Stock Exchange. Trades in our common shares on the São Paulo Stock Exchange settle in three business days after the trade date. Delivery of and payment for shares is made through the facilities of the CBLC—Companhia Brasileira de Liquidação e Custódia (clearinghouse for the São Paulo Stock Exchange), which maintains accounts for member brokerage firms.

In order to better control volatility, the São Paulo Stock Exchange adopted a “circuit breaker” system pursuant to which trading sessions may be suspended for a period of 30 minutes or one hour whenever the indices of this stock exchange fall below the limit of 10% and 15%, respectively, in relation to the index registered in the previous trading session.

The São Paulo Stock Exchange is less liquid than the NYSE and other major exchanges in the world. The São Paulo Stock Exchange had an aggregate market capitalization of approximately R$2.24 trillion, equivalent to US$0.89 trillion at December 31, 2014. In comparison, the NYSE had a market capitalization of approximately US$19.4 trillion at the same date. Although any of the outstanding shares of a listed company may trade on the São Paulo Stock Exchange, in most cases less than one-half of the listed shares are actually available for trading by the public, the remainder being held by small groups of controlling persons, by governmental entities or by one principal shareholder. At December 31, 2014, we accounted for approximately 0.81% of the market capitalization of all listed companies on the São Paulo Stock Exchange.

There is also significantly greater concentration in the Brazilian securities markets than in the NYSE or other major exchanges. During the one-year period ended December 31, 2014, the ten largest companies listed on the São Paulo Stock Exchange represented approximately 45.65% of the total market capitalization of all listed companies.

Trading on the São Paulo Stock Exchange by non-residents of Brazil is subject to limitations under Brazilian foreign investment legislation.

Novo Mercado Corporate Governance Practices

In 2000, the São Paulo Stock Exchange introduced three special listing segments, known as Levels 1 and 2 of Differentiated Corporate Governance Practices and the Novo Mercado, aiming at fostering a secondary market for securities issued by Brazilian companies with securities listed on the São Paulo Stock Exchange, by prompting such companies to follow good practices of corporate governance. The listing segments were designed for the trading of shares issued by companies voluntarily undertaking to abide by corporate governance practices and disclosure requirements in addition to those already imposed by Brazilian law. These rules generally increase shareholders’ rights and enhance the quality of information provided to shareholders.

To become a Level 1 (Nível 1) company, in addition to the obligations imposed by current Brazilian law, an issuer must agree to (a) ensure that shares of the issuer representing 25% of its total capital are effectively available for trading, (b) adopt offering procedures that favor widespread ownership of shares whenever making a public offering, (c) comply with minimum quarterly disclosure standards, (d) follow stricter disclosure policies, with regards to contracts with related parties, material contracts and transactions made by controlling shareholders, directors and officers involving securities issued by the issuer, (e) submit any existing shareholders’ agreements and stock option plans to the São Paulo Stock Exchange, and (f) make a schedule of corporate events available to shareholders.

To become a Level 2 (Nível 2) company, in addition to the obligations imposed by current Brazilian law, an issuer must agree to (a) comply with all of the listing requirements for Level 1 companies, (b) grant tag-along rights for all shareholders in connection with a transfer of control of the company, offering the same price paid per share for controlling block common shares and 80% of the price paid per share of controlling block preferred shares, (c) grant voting rights to holders of preferred shares in connection with certain corporate restructurings and related party transactions, such as (1) any transformation of the company into another corporate form, (2) any merger, consolidation or spin-off of the company, (3) approval of any transactions between the company and its controlling shareholder, including parties related to the controlling shareholder, (4) approval of any valuation of assets to be delivered to the company in payment for shares issued in a capital increase, (5) appointment of an expert firm to ascertain the fair value of the company in connection with any deregistration and delisting tender offer, and (6) any changes to these voting rights, (d) have a Board of Directors composed of at least five members, of which 20% must be independent directors, with a term limited to two years, (e) prepare annual financial statements in English, including cash flow statements, in accordance with international accounting standards, such as U.S. GAAP or IFRS, (f) if it elects to delist from the Level 2 segment, hold a tender offer by the company’s controlling shareholder (the minimum price of the shares to be offered will be determined by an appraisal process), and (g) adhere exclusively to the rules of the São Paulo Stock Exchange Arbitration Chamber for resolution of disputes between the company and its investors.

To be listed on the Novo Mercado, an issuer must meet all of the requirements described above, in addition to (a) issuing only voting shares and (b) granting tag-along rights for all shareholders in connection with a transfer of control of the company, offering the same price paid per share for controlling block common shares. Our shares are listed on the Novo Mercado segment.

Regulation of Brazilian Securities Markets

The Brazilian securities markets are regulated by the CVM, which has regulatory authority over stock exchanges and the securities markets generally, and by the Central Bank, which has, among other powers, licensing authority over brokerage firms and regulates foreign investment and foreign exchange transactions.

Under the Brazilian Corporate Law, a corporation is either public (companhia aberta), like us, or closely held (companhia fechada). All public companies, including us, are registered with the CVM and are subject to reporting requirements. Our shares are listed and traded on the Novo Mercado segment of the São Paulo Stock Exchange and may be traded privately subject to limitations.

We have the option to ask that trading in our securities on the São Paulo Stock Exchange be suspended in anticipation of a material announcement. Trading may also be suspended on the initiative of the São Paulo Stock Exchange or the CVM, among other reasons, based on or due to a belief that a company has provided inadequate information regarding a material event or has provided inadequate responses to the inquiries by the CVM or the São Paulo Stock Exchange.

Trading on the São Paulo Stock Exchange by non-residents of Brazil is subject to limitations under Brazilian foreign investment and tax legislation. The Brazilian custodian for our common shares and the depositary for our ADSs have obtained an electronic certificate of registration from the Central Bank to remit U.S. dollars abroad for payments of dividends, any other cash distributions, or upon the disposition of the shares and sales proceeds thereto. In the event that a holder of ADSs exchanges ADSs for common shares, the holder will be entitled to continue to rely on the depositary’s electronic certificate of registration for five business days after the exchange. Thereafter, the holder may not be able to obtain and remit U.S. dollars abroad upon the disposition of the common shares, or distributions relating to the common shares, unless the holder obtains a new electronic certificate of registration or registers its investment in the common shares under Resolution No. 2,689.

Disclosure Requirements

Pursuant to CVM Rule No. 358, of January 3, 2002, the CVM revised and consolidated the requirements regarding the disclosure and use of information related to material facts and acts of publicly held companies, including the disclosure of information on the trading and acquisition of securities issued by publicly held companies.

These requirements include provisions that:

•

establish the concept of a material fact that gives rise to reporting requirements. Material facts include decisions made by the controlling shareholders, resolutions of the general meeting of shareholders and of management of the company, or any other facts related to the company’s business (whether occurring within the company or otherwise somehow related thereto) that may influence the price of its publicly traded securities, or the decision of investors to trade such securities or to exercise any of such securities’ underlying rights;

•

specify examples of facts that are considered to be material, which include, among others, the execution of shareholders’ agreements providing for the transfer of control, the entry or withdrawal of shareholders that maintain any managing, financial, technological or administrative function with or contribution to the company, and any corporate restructuring undertaken among related companies;

•

oblige the investor relations officer, controlling shareholders, other officers, directors, members of the audit committee and other advisory boards to disclose material facts;

•

require simultaneous disclosure of material facts to all markets in which the corporation’s securities are admitted for trading;

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•

require the acquirer of a controlling stake in a corporation to publish material facts, including its intentions as to whether or not to de-list the corporation’s shares, within one year;

•

establish rules regarding disclosure requirements in the acquisition and disposal of a material stockholding stake; and

•

restrict the use of insider information.

9D.

Selling Shareholders

Not applicable.

9E.

Dilution

Not applicable.

9F.

Expenses of the Issue

Not applicable.

ITEM 10.

ADDITIONAL INFORMATION

10A.

Share Capital

Not applicable.

10B.

Memorandum and Articles of Association

Set forth below is certain information concerning our capital stock, and a brief summary of certain significant provisions of our bylaws, the Brazilian Corporate Law, the relevant rules and regulations of the CVM, and the relevant rules of the Novo Mercado applicable to our capital stock. This description does not purport to be complete and is qualified by reference to our bylaws and to Brazilian law.

Corporate Purpose

We are a joint stock company with a principal place of business and jurisdiction in the city of São José dos Campos, São Paulo, Brazil, governed mainly by our bylaws and the Brazilian Corporate Law. Our corporate purpose, as stated in our bylaws, is to (1) design, build and market aircraft and aerospace materials and related accessories, components and equipment, according to the highest standards of technology and quality, (2) perform and carry out technical activities related to the manufacturing and servicing of aerospace materials, (3) contribute to the training of technical personnel as necessary for the aerospace industry, (4) engage in other technological, manufacturing and business activities in connection with the aerospace industry, and to provide services therefore, (5) design, build and trade equipment, materials, systems, software, accessories and components for the defense, security and energy industries, as well as to perform and carry out technical activities related to such manufacturing and maintenance activities, according to the highest standards of technology and quality, and (6) perform other technological, manufacturing and trade activities and services related to the defense, security and energy industries.

Description of Capital Stock

General

As of December 31, 2014, our capital stock consisted of a total of 740,465,044 common shares, without par value, including 5,494,583 common shares held in treasury and one special class of common share known as the “golden share,” held by the Brazilian federal government. Our bylaws authorize the Board of Directors to increase the capital stock up to 1,000,000,000 common shares without seeking specific shareholder approval. All our outstanding shares are fully paid. Our shareholders must approve at a shareholders’ meeting any capital increase that exceeds the above-referenced authorized amounts. Our shareholders are not liable for further capital calls. Their liability is limited to the amount of any portion of our capital which they have subscribed but not fully paid in.

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Share Buyback

Pursuant to our bylaws, our Board of Directors approved on December 7, 2007 a share buyback program for our common shares, in compliance with Instrução CVM No. 10/80, for the purpose of adding value to our shareholders through the management of our capital structure. We were authorized to buy back up to an aggregate of 16,800,000 common shares, representing approximately 2.3% of our outstanding capital, which totaled 740,465,044 common shares outstanding. The acquisition of the shares was made on the São Paulo Stock Exchange and the common shares bought back will be kept in treasury form, and the treasury shares would not have any political or economic rights. The program was terminated on March 31, 2008. A total of 16,800,000 shares were purchased at an average price of R$19.06 per share. See “Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.”

On January 23, 2012, our Board of Directors approved a new share buyback program for our common shares, in compliance with Instrução CVM No. 10/80, for the purpose of backing our second and third stock option plans, to be launched in 2012 and 2013, respectively. We were authorized to buy back up to an aggregate of 1,065,000 common shares, representing approximately 0.15% of our outstanding capital, which totaled 740,465,044 common shares outstanding. No shares have been acquired by us under this program. The acquisition of the shares will be made on the São Paulo Stock Exchange, and may not be superior to 30% of the average daily volume of shares traded, and the common shares bought back will be kept in treasury, with no political or economic rights. The program will last for one year as of the date of approval.

Common Shares

Each common share entitles the holder thereof to one vote at our annual and special shareholders’ meetings. Pursuant to our bylaws and the São Paulo Stock Exchange listing agreement in connection with the listing of our shares on the Novo Mercado, we cannot issue shares without voting rights or with restricted voting rights.

The Brazilian Corporate Law and our bylaws require that all our shareholders’ meetings be called by publication of a notice in the Diário Oficial do Estado de São Paulo (official government publication of the State of São Paulo), and in a newspaper of general circulation in the city in which our principal place of business is located, currently the O Vale in São José dos Campos, at least 30 days prior to the meeting, and in another newspaper of general circulation in São Paulo, where the São Paulo Stock Exchange is located, currently the Valor Econômico. The quorum to hold general meetings of our shareholders at first call is the presence of shareholders representing 35% of the common shares; at second call the meetings can be held with the presence of shareholders representing 25% of the common shares; and at third call the meeting can be held with the presence of any number of shareholders.

According to our by-laws, in order to attend a shareholders’ meeting, a shareholder must show the ownership of the shares it intends to vote by showing an identification document and a proof of share ownership. Our shareholders may be represented at shareholders’ meetings by (1) a proxy, issued within a one-year period prior to the meeting, (2) one of our directors or officers, (3) a lawyer or (4) a financial institution. Investment funds must be represented by their administrator.

According to the Brazilian Corporate Law, the common shares are entitled to dividends in proportion to their share of the amount available for distribution. See “Item 8A. Financial Information—Consolidated Statements and Other Financial Information—Dividends and Dividend Policy” for a more complete description of payment of dividends on our shares. In addition, upon any liquidation of the company, the common shares are entitled to return of capital in proportion to their share of our net worth.

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According to the Brazilian Corporate Law, neither our bylaws nor actions taken at a shareholders’ meeting may deprive a shareholder of the following rights:

•

the right to participate in the distribution of profits;

•

the right to participate equally and proportionally in any remaining residual assets in the event of liquidation of the company;

•

preemptive rights in the event of issuance of shares, convertible debentures or warrants, except in some specific circumstances under Brazilian law described in “Item 10D.—Preemptive Rights”;

•

the right to supervise our management in accordance with Article 109 of the Brazilian Corporate Law; and

•

the right to appraisal rights in the cases specified in the Brazilian Corporate Law, which are described in “Item 10D.—Redemption and Right of Withdrawal.”

Golden Share

The golden share is held by the Federative Republic of Brazil. For a discussion of the rights to which the golden share is entitled, see “Item 10B.—Voting Rights of Shares—Golden Share.”

Voting Rights of Shares

Each share of common stock is generally empowered with one vote at general meetings of our shareholders. Pursuant to our bylaws and the São Paulo Stock Exchange listing agreement in connection with the listing of our shares on the Novo Mercado, we cannot issue shares without voting rights or with restricted voting rights.

Limitations on the Voting Rights of Certain Holders of Common Shares

Our bylaws provide that, at any general meeting of our shareholders, no shareholder or group of shareholders, including brokers acting on behalf of one or more holders of ADSs, may exercise votes representing more than 5% of the quantity of shares into which our capital stock is divided. Votes that exceed this 5% threshold will not be counted.

For purposes of our bylaws, two or more of our shareholders are considered to be a “group of shareholders” if:

•

they are parties in a voting agreement;

•

one of them is, directly or indirectly, a controlling shareholder or controlling parent company of the other, or the others;

•

they are companies directly or indirectly controlled by the same person/entity, or group of persons/entities, which may or may not be shareholders; or

•

they are companies, associations, foundations, cooperatives and trusts, investment funds or portfolios, universalities of rights or any other forms of organization or undertaking (a) with the same administrators or managers, or further (b) whose administrators or managers are companies that are directly or indirectly controlled by the same person/entity, or group of persons/entities, which may or may not be shareholders.

In the case of investment funds having a common administrator, only funds with policies of investment and of exercise of voting rights at shareholders’ meetings that fall under the responsibility of the administrator on a discretionary basis will be considered to be a group of shareholders.

In addition, shareholders represented by the same proxy, administrator or representative on any account at any general meeting of our shareholders will be considered to be a group of shareholders, except for holders of our ADSs when represented by the relevant depositary. All signatories to a shareholders’ agreement that addresses the exercise of voting rights will also be considered to be a group of shareholders for purposes of the foregoing limitation.

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This limitation on the voting rights of certain holders of common shares is illustrated in the following table:


Equity Interest of Shareholder or Group of Shareholders		Voting Rights as a Percentage of our Capital Stock
1%		1%
2%		2%
3%		3%
4%		4%
5%		5%
> 5%		5%

Limitation on the Voting Rights of Non-Brazilian Shareholders

In accordance with the edital (invitation to bid) issued by the Brazilian federal government in connection with the privatization of Embraer in 1994, voting participation of non-Brazilian holders of Embraer common shares was limited to 40% of Embraer common shares.

Our bylaws provide that, at any general meeting of our shareholders, non-Brazilian shareholders and groups of non-Brazilian shareholders may not exercise voting rights representing more than two-thirds of the total votes of all of the Brazilian shareholders present at such meeting. The total number of votes that may be exercised by Brazilian shareholders and by non-Brazilian shareholders will be assessed after giving effect to the 5% voting limitation described above in “Item 10B.—Limitation on the Voting Rights of Certain Holders of Common Shares” above. Votes of non-Brazilian shareholders that exceed this two-thirds threshold will not be counted. If the total vote of non-Brazilian shareholders at any general meeting of our shareholders exceeds two-thirds of the votes that may be exercised by the Brazilian shareholders present at such meeting, the number of votes of each non-Brazilian shareholder will be proportionately reduced so that the total vote of non-Brazilian shareholders does not exceed two-thirds of the total votes that can be exercised by Brazilian shareholders present at such shareholders’ meeting.

The fraction of two-thirds effectively limits the voting rights of non-Brazilian shareholders and groups of non-Brazilian shareholders to 40% of our total share capital. The objective of this limitation is to ensure that Brazilian shareholders constitute a majority of the total votes cast at any general meeting of our shareholders. This limitation will effectively prevent our takeover by non-Brazilian shareholders and limit the ability of non-Brazilian shareholders to effect control over us.

For purposes of our bylaws, the following are considered to be “Brazilian shareholders”:

•

Brazilian individuals, whether native or naturalized, resident in Brazil or abroad;

•

legal private entities organized under the laws of Brazil that have their administrative head offices in Brazil and (a) do not have a foreign controlling parent company, unless the parent company meets the requirements of clause (b) of this item, and (b) are controlled, directly or indirectly, by one or more Brazilian individuals, whether native or naturalized, resident in Brazil or abroad; and

•

investment funds or clubs organized under the laws of Brazil that have their administrative head office in Brazil and whose managers and/or quotaholders holding the majority of their quotas are persons/entities referred to above.

A Brazilian shareholder will be required to provide evidence to us and the depositary for the book-entry registry that such shareholder satisfies the foregoing requirements and only after such evidence is given will such shareholder be included in the records of Brazilian shareholders.

For purposes of our bylaws, “non-Brazilian shareholders” are considered to be persons or legal entities, investment funds or clubs and any other entities not composed of Brazilian shareholders and that cannot evidence that they satisfy the requirements to be considered Brazilian shareholders.

A “group of shareholders,” as defined above, will be considered to be non-Brazilian whenever one or more of its members is a non-Brazilian shareholder.

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The effect of this limitation on the voting rights of non-Brazilian shareholders (i.e., their participation) is illustrated in the following table, where the column “Non-Brazilian Shareholder Participation” indicates the maximum percentage of votes a non-Brazilian shareholder may cast:


Brazilian Shareholder Participation	Non-Brazilian Shareholder Participation	Non-Brazilian Shareholder Participation⁽¹⁾
(% of capital stock)	(% of capital stock)	(%)
90	10	10.00
80	20	20.00
70	30	30.00
60	40	40.00
59	41	39.33
50	50	33.33
40	60	26.67
30	70	20.00
20	80	13.33
10	90	6.67

(1)	Number of votes calculated based on two-thirds of the Brazilian shareholders’ votes.

The tables below illustrate, in different situations, the voting system that will apply at our shareholders’ meetings.

Example 1

All Brazilian shareholders hold less than 5% and non-Brazilian shareholders hold a total of 40%, but without any individual holdings higher than 5%. This example shows a situation where the general restriction for non-Brazilian shareholders does not affect the voting ratio.


Shareholder	% Shares Attending		Effective % of Votes After 5% Vote Restriction		Effective % of Votes After Non-Brazilian Restriction		% of Valid Votes			Vote Ratio (Votes/Share)
Brazilian A		5		5		5		5			1.00
Brazilian B		5		5		5		5			1.00
Brazilian C		5		5		5		5			1.00
Brazilian D		5		5		5		5			1.00
Brazilian E		5		5		5		5			1.00
Brazilian F		5		5		5		5			1.00
Brazilian G		5		5		5		5			1.00
Brazilian H		5		5		5		5			1.00
Brazilian I		5		5		5		5			1.00
Brazilian J		5		5		5		5			1.00
Brazilian K		5		5		5		5			1.00
Brazilian L		5		5		5		5			1.00

Total Brazilians		60		60		60		60			1.00
Non-Brazilians⁽¹⁾		40		40		40		40	⁽²⁾		1.00

Total		100		100		100		100			1.00

(1)	Assumes that no individual non-Brazilian shareholder holds more than 5% of our capital. If a non-Brazilian shareholder holds more than 5% of our capital, such shareholder will also be subject to the 5% voting restriction on such holding.

(2)	Two-thirds of 60 (total votes of the Brazilian shareholders after application of the 5% voting restriction) equals 40 votes.

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Example 2

One Brazilian shareholder holds more than 5% of our capital, the other Brazilian shareholders hold 5% and non-Brazilian shareholders hold a total of 50%, but without any individual holdings higher than 5%.


Shareholder	% Shares Attending		Effective % of Votes After 5% Vote Restriction		Effective % of Votes After Non-Brazilian Restriction			% of Valid Votes		Vote Ratio (Votes/Share)
Brazilian A		20		5		5.0			8.57		0.25
Brazilian B		5		5		5.0			8.57		1.00
Brazilian C		5		5		5.0			8.57		1.00
Brazilian D		5		5		5.0			8.57		1.00
Brazilian E		5		5		5.0			8.57		1.00
Brazilian F		5		5		5.0			8.57		1.00
Brazilian G		5		5		5.0			8.57		1.00

Total Brazilians		50		35		35.0			59.99		1.00
Non-Brazilians⁽¹⁾		50		50		23.3	⁽²⁾		40.00		0.47

Total		100		85		58.3	⁽²⁾		100.00		0.58

(1)	Assumes that no individual non-Brazilian shareholder holds more than 5% of our capital. If a non-Brazilian shareholder holds more than 5% of our capital, such shareholder will also be subject to the 5% voting restriction on such holding.

(2)	Two-thirds of 35 (total votes of the Brazilian shareholders after application of the 5% voting restriction) equals 23 votes.

Example 3

No Brazilian shareholders hold more than 5% of our capital, a non-Brazilian shareholder holds 30% and other non-Brazilian shareholders hold a total of 40%, but without any individual holdings higher than 5%.


Shareholder	% Shares Attending		Effective % of Votes After 5% Vote Restriction		Effective % of Votes After Non-Brazilian Restriction			% of Valid Votes		Vote Ratio (Votes/Share)
Brazilian A		5		5		5.0			10.0		1.00
Brazilian B		5		5		5.0			10.0		1.00
Brazilian C		5		5		5.0			10.0		1.00
Brazilian D		5		5		5.0			10.0		1.00
Brazilian E		5		5		5.0			10.0		1.00
Brazilian F		5		5		5.0			10.0		1.00

Total Brazilians		30		30		30.0			60.0		1.00
Non-Brazilians A		30		5		2.2	⁽²⁾		4.4		0.07
Non-Brazilians⁽¹⁾		40		40		17.8	⁽²⁾		35.6		0.44

Total		100		75		50.0			100.0		0.50

(1)	Assumes that no individual non-Brazilian shareholder (except Non-Brazilian A) holds more than 5% of our capital. If a non-Brazilian shareholder holds more than 5% of our capital, such shareholder will also be subject to the 5% voting restriction on such holding.

(2)	Two-thirds of 30 (total votes of the Brazilian shareholders after application of the 5% voting restriction) equals 20 votes, proportionally divided between Non-Brazilian A and the other non-Brazilians.

Example 4

Two Brazilian shareholders holding more than 5% of our capital, three Brazilian shareholders holding 5% and non-Brazilian shareholders holding a total of 30%, but without individual holdings higher than 5%.

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Shareholder	% Shares Attending		Effective % of Votes After 5% Vote Restriction		Effective % of Votes After Non-Brazilian Restriction			% of Valid Votes		Vote Ratio (Votes/Share)
Brazilian A		30		5		5.0			12		0.17
Brazilian B		25		5		5.0			12		0.20
Brazilian C		5		5		5.0			12		1.00
Brazilian D		5		5		5.0			12		1.00
Brazilian E		5		5		5.0			12		1.00

Total Brazilians		70		25		25.0			60		1.00
Non-Brazilians⁽¹⁾		30		30		16.7	⁽²⁾		40		0.56

Total		100		55		41.7			100		0.42

(1)	Assumes that no individual non-Brazilian shareholder (except Non-Brazilian A) holds more than 5% of our capital. If a non-Brazilian shareholder holds more than 5% of our capital, such shareholder will also be subject to the 5% voting restriction on such holding.

(2)	Two-thirds of 25 (total votes of the Brazilian shareholders after application of the 5% voting restriction) equals 16.7 votes.

Shareholders’ Agreement

In connection with the merger of former Embraer with and into Embraer approved on March 31, 2006, Cia. Bozano, PREVI and SISTEL, the former controlling shareholders of former Embraer, terminated the shareholders’ agreement governing matters relating to their equity ownership of former Embraer, and relinquished voting control over former Embraer in favor of all Embraer shareholders. As of the implementation of the merger, Cia. Bozano, PREVI and SISTEL no longer have the ability to control the outcome of matters submitted to a vote of Embraer shareholders. Our bylaws prohibit any shareholder or group of shareholders from exercising voting control over us.

Golden Share

The golden share is held by the Federative Republic of Brazil. The golden share is entitled to the same voting rights as the holders of common shares. In addition, the golden share entitles the holder thereof to veto rights over the following corporate actions:

•

change of our name and corporate purpose;

•

modification and/or application of our logo;

•

creation and/or alteration of military programs (whether or not involving Brazil);

•

development of third party skills in technology for military programs;

•

discontinuance of the supply of spare parts and replacement parts for military aircraft;

•

transfer of our control;

•

any amendments to the list of corporate actions over which the golden share carries veto rights, including the right of the Brazilian federal government to appoint one acting member to our Board of Directors and the right of our employees to appoint two acting members to our Board of Directors, and to the rights conferred to the golden share; and

•

changes to certain provisions of our bylaws pertaining to voting restrictions, rights of the golden share and the mandatory tender offer requirements applicable to holders of 35% or more of our outstanding shares.

The matters listed above are subject to prior approval by our Board of Directors and the approval within 30 days of the Brazilian federal government, as holder of the golden share. Such matters are also subject to prior notice to the Brazilian Ministry of Finance. In the absence of the approval of the Brazilian federal government within the 30-day period, the matter will be deemed to have been approved by our Board of Directors.

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Disclosure of Significant Interest

Brazilian Requirements

Brazilian law and our bylaws provide that all shareholders or groups of shareholders will be required to disclose, through notice to us and to the stock exchanges on which our securities are traded, the acquisition of shares that, together with those already held by them, exceed 5% of our capital stock. A violation of this disclosure obligation could result in the suspension of rights, including voting rights, by a resolution of shareholders at a shareholders’ meeting.

Certain U.S. Legal Requirements

In addition, the U.S. Exchange Act imposes reporting requirements on shareholders or groups of shareholders who acquire beneficial ownership (as such term is defined under Rule 13d-3 of the U.S. Exchange Act) of more than 5% of our common shares. In general, such shareholders must file, within ten days after such acquisition, a report of beneficial ownership with the SEC containing the information prescribed by the regulations under the U.S. Exchange Act. This information is also required to be sent to us and to each U.S. securities exchange on which our common shares are traded. Shareholders should consult with their own legal advisor regarding their reporting obligations under the U.S. Exchange Act.

Form and Transfer

As our shares are in registered book-entry form, the transfer of shares is governed by the rules of Article 35 of the Brazilian Corporate Law. This Article provides that a transfer of shares is effected by an entry made by Banco Itaú S.A., also known as the registrar, in its books, by debiting the share account of the transferor and crediting the share account of the transferee. Banco Itaú S.A. also performs all the services of safe-keeping and transfer of shares and related services for us.

Transfers of shares by a non-Brazilian shareholder are made in the same way and executed by that shareholder’s local agent on the shareholder’s behalf except that if the original investment was registered with the Central Bank pursuant to Resolution No. 2,689, the foreign investor must also seek amendment, if necessary, through its local agent, of the electronic registration to reflect the new ownership.

The São Paulo Stock Exchange operates as a central clearing system. A holder of our shares may choose, in its discretion, to participate in this system and all shares elected to be put into this system will be deposited in the custody of the São Paulo Stock Exchange (through a Brazilian institution duly authorized to operate by the Central Bank and having a clearing account with the São Paulo Stock Exchange). The fact that those shares are held in the custody of the São Paulo Stock Exchange will be reflected in our register of shareholders. Each participating shareholder will, in turn, be registered in our register of beneficial shareholders maintained by the São Paulo Stock Exchange and will be treated in the same way as registered shareholders.

Board of Directors

Under the Brazilian Corporate Law, the members of a company’s Board of Directors must be shareholders of the company. There is no requirement as to the number of shares an individual must own in order to act as a member of the Board of Directors.

According to the Brazilian Corporate Law, our officers and directors are prohibited from voting on, or acting in, matters in which their interests conflict with ours.

Our bylaws provide that the shareholders are responsible for determining the global remuneration of the members of our management bodies. Our Board of Directors is responsible for dividing such remuneration among the members of management. There are no specific provisions regarding the directors’ power to vote on their compensation in the absence of an independent quorum.

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With respect to the borrowing powers of the Board of Directors, the Board of Directors has the power to authorize the borrowing of funds, either in the form of bonds, notes, commercial papers or other instruments of regular use in the market. Other financing arrangements, including bank loans, may be entered into by us upon the joint signatures of (1) two Executive Officers, (2) one officer and one attorney-in-fact, or (3) two attorneys-in-fact.

There is no requirement under the Brazilian Corporate Law or our bylaws that directors retire upon reaching a certain age. In addition, our bylaws do not provide for the re-election of directors at staggered intervals.

For a discussion of our Board of Directors, see “Item 6A. Directors, Senior Management and Employees—Directors and Senior Management—Board of Directors” and “Item 6C. Directors, Senior Management and Employees—Board Practices.”

Election of Board of Directors

The election of members of our Board of Directors, absent a request to adopt a cumulative voting system, will be conducted under a system of slate voting whereby voting will be based on a slate of directors and no voting will be allowed on individual candidates. According to our bylaws, the current members of the board at the time of the election will always be candidates as a slate for a new term of office. Our Board of Directors is appointed by our shareholders for a two-year term, having three reserved seats as follows: (1) one acting member to be appointed by the Brazilian federal government, as holder of the “golden share” and (2) two acting members to be appointed by our employees. The remaining eight directors are elected in accordance with the slate voting or cumulative voting rules contained in our bylaws. A person may participate in two or more different slates. Each shareholder may only vote on one slate and the slate that receives the highest number of votes shall be declared elected.

Any shareholder has a right to propose and submit other slates of members for election to the Board of Directors, other than the slate of members provided according to our bylaws. Our bylaws also contain a provision whereby a shareholder that intends to appoint one or more members of the Board of Directors, other than the current members of the Board of Directors, must notify Embraer in writing at least ten days prior to the general meeting at which the members of the Board of Directors will be elected, providing us with the name and resume of the candidate. In case we receive such a notification, we must disclose receipt and the contents of such notification (1) immediately, electronically, to the CVM and the São Paulo Stock Exchange and (2) through a press release to our shareholders that must also be available on our website, within at least eight days before the date of the general meeting.

Alternatively, the election of members of the Board of Directors may be conducted under a system of cumulative voting. According to the regulations of the CVM and to our bylaws, adoption of a resolution for cumulative voting depends on a written request by shareholders representing at least 5% of our capital stock, submitted at least 48 hours in advance of the time for which the general shareholders’ meeting has been called. Under the cumulative voting system, each share is entitled to the same number of votes as the number of board members to be elected (subject to the restriction on shareholders holding greater than 5% of the common shares and restrictions on non-Brazilian shareholders), and each shareholder is entitled to concentrate votes in just one member or to distribute the votes among more than one or all of the members. Any vacant offices not filled due to a tie in the voting will be subject to a new vote, under the same process.

Preemptive Rights

Each of our shareholders has a general preemptive right to subscribe for shares in the event of any capital increase, or securities convertible into shares, in proportion to its shareholding, except in the event of the grant and exercise of any option to acquire shares of our capital stock. A period of at least 30 days following the publication of notice of the issuance of shares or securities convertible into shares is allowed for exercise of the right, and the right is negotiable. According to the Brazilian Corporate Law and our bylaws, the Board of Directors may, in its discretion, eliminate the preemptive rights of the shareholders in the event that we issue shares, debentures convertible into shares, or subscription warrants that will be offered either through a stock exchange or in a public offering, or through an exchange of shares in a public offering, the purpose of which is to acquire control of another company, as established by law.

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In the event of a capital increase by means of the issuance of new shares, holders of ADSs, or of common shares, would, except under the circumstances described above, have preemptive rights to subscribe to any class of our newly issued shares. However, a holder may not be able to exercise the preemptive rights relating to the common shares underlying the ADSs unless a registration statement under the Securities Act is effective with respect to those shares to which the rights relate or an exemption from the registration requirements of the Securities Act is available. See “Item 3D. Key Information—Risk Factors—Risks Relating to Our Common Shares and ADSs—Holders of our ADSs might be unable to exercise preemptive rights with respect to the common shares.” We are not obligated to file such registration statement.

Redemption and Right of Withdrawal

According to our bylaws, our common shares will not be redeemable.

The Brazilian Corporate Law provides that, under limited circumstances, a shareholder has the right to withdraw his equity interest from the company and to receive payment for the portion of shareholder’s equity attributable to his equity interest. This right of withdrawal may be exercised by our dissenting shareholders in the event that at least half of all voting shares outstanding authorize us to:

•

reduce the mandatory distribution of dividends;

•

change our corporate purpose;

•

merge into or consolidate with another company, subject to the conditions set forth in the Brazilian Corporate Law;

•

transfer all of our shares to another company or receive shares of another company in order to make the company whose shares were transferred a wholly owned subsidiary of such other company, known as incorporação de ações;

•

acquire control of another company at a price which exceeds the limits set forth in the Brazilian Corporate Law;

•

participate in a centralized group of companies as defined under the Brazilian Corporate Law and subject to the conditions set forth therein; or

•

conduct a spin-off that results in (a) a change of our corporate purposes, except if the assets and liabilities of the spun-off company are contributed to a company that is engaged in substantially the same activities, (b) a reduction in the mandatory dividend or (c) any participation in a centralized group of companies, as defined under the Brazilian Corporate Law.

In addition, in the event that the entity resulting from a merger, incorporação de ações, as described above, or a consolidation or a spin-off of a listed company fails to become a listed company within 120 days of the shareholders’ meeting at which such decision was taken, the dissenting shareholders may also exercise their right of withdrawal.

The Brazilian Corporate Law contains provisions that restrict withdrawal rights and allow companies to redeem their shares at their economic value, subject to certain requirements. As our bylaws currently do not provide that our shares would be redeemable at their economic value, our shares would be redeemable at their book value, determined on the basis of the last statement of financial position approved by the shareholders. If the shareholders’ meeting giving rise to withdrawal rights occurs more than 60 days after the date of the last approved statement of financial position, a shareholder may demand that its shares be valued on the basis of a new statement of financial position that is as of a date within 60 days of such shareholders’ meeting.

According to the Brazilian Corporate Law, in events of consolidation, merger, incorporação de ações, participation in a group of companies, and acquisition of control of another company, the right to withdraw does not apply if the shares in question meet certain tests relating to market liquidity and float. Shareholders would not be entitled to withdraw their shares if the shares are a component of a general stock index in Brazil or abroad and shares held by persons unaffiliated with the controlling shareholder represent more than half of the outstanding shares of the relevant type or class.

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Mechanism to Promote Dispersed Ownership of Our Shares

Our bylaws contain provisions that have the effect of avoiding concentration of our shares in the hands of an investor or a small group of investors, in order to promote more dispersed ownership of our shares. To this end, these provisions place certain obligations on a shareholder or group of shareholders that becomes a holder of 35% or more of our total capital stock, or an Acquiring Shareholder. Not later than 15 days after a shareholder becomes an Acquiring Shareholder, such shareholder must submit a request to the Brazilian federal government, through the Ministry of Finance, to make a public tender offer to acquire all of our capital stock. The Brazilian federal government will have full discretion to accept or deny this request. The Acquiring Shareholder may not purchase any additional shares until the Brazilian federal government provides its opinion on the public offer. If the request is accepted by the Brazilian federal government, the Acquiring Shareholder must make a public offer for all shares within 60 days of acceptance. The offer must be made in accordance with the CVM and the São Paulo Stock Exchange regulations and the provisions of our bylaws. If the request is denied by the Brazilian federal government, the Acquiring Shareholder must sell all shares such Acquiring Shareholder owns in excess of 35% of our total capital stock within 30 days. Failure to comply with these provisions will subject the Acquiring Shareholder to the potential suspension of all voting rights inherent to the shares held by it, if a resolution to such effect is approved at a general meeting of our shareholders called by our management. These provisions are not applicable to shareholders who become holders of 35% or more of our total capital stock in certain transactions specified in our bylaws as, for example, cancellation of our common shares held in treasury.

The public tender offer must be (1) directed to all of our shareholders, (2) made through an auction to take place on the São Paulo Stock Exchange, (3) launched at a set price calculated in accordance with the procedure set forth below, (4) paid upfront, in Brazilian currency, (5) made so as to assure equal treatment to all shareholders, (6) irrevocable and not subject to any changes after publication of the bidding offer, and (6) based on a valuation report to be prepared in accordance with the rules set forth in our bylaws and in applicable CVM rules and regulations.

The price to be offered for the shares in such public tender offer shall be calculated as follows:

•

Tender Offer Price = Value of the Share + Premium,

where:

•

“Tender Offer Price” corresponds to the acquisition price for each share issued by us in the public offering of shares provided hereunder.

•

“Value of the Share” corresponds to the greater of:

(1)

the highest unit quotation obtained for the shares issued by us during the 12-month period prior to the tender offer among values recorded on any stock exchange on which the shares were traded;

(2)

the highest price paid by the Acquiring Shareholder, during the 36-month period prior to the tender offer, for a share or tranche of shares issued by us;

(3)

the amount equivalent to 14.5 times our Consolidated Average EBITDA, as defined below, reduced by our net consolidated indebtedness, divided by the total number of shares issued by us; or

(4)

the amount equivalent to 0.6 times the amount of our firm backlog orders, according to the last information disclosed by the latter, reduced by our net consolidated indebtedness, divided by the total number of shares issued by us.

•

“Premium” corresponds to 50% of the Value of the Share.

•

“Consolidated EBITDA” is our consolidated operating profit before net financial expenses, income tax and social contribution, depreciation, depletion and amortization, as assessed based on the audited statements for our most recent complete fiscal year.

•

“Average Consolidated EBITDA” is the arithmetic average of our consolidated EBITDA for the two most recent complete fiscal years.

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The launch of a public tender offer does not preclude us or any of our shareholders from launching a competing public tender offer, in accordance with applicable regulations.

Arbitration

Any disputes or controversies relating to the regulations of the Novo Mercado, our bylaws, the Brazilian Corporate Law, the rules published by the CMN, the Central Bank, the CVM, any shareholders’ agreement filed at our headquarters, and other rules applicable to the Brazilian capital markets in general, must be submitted to arbitration conducted in accordance with the rules of the São Paulo Stock Exchange Arbitration Chamber. According to Chapter 12 of such Rules, the parties may consensually agree to use another arbitration chamber or center to resolve their disputes. Any shareholder that becomes a holder of shares representing our control must agree to comply with the rules of the São Paulo Stock Exchange Arbitration Chamber within 30 days of the acquisition of the shares. These provisions will not apply however, in the event of a dispute or controversy related to a dispute or controversy deriving from the golden share.

Going Private Process

We may become a private company only if we or our controlling shareholders conduct a public tender offer to acquire all of our outstanding shares subject to prior approval of the public offer by the Brazilian federal government, as holder of the golden share, and in accordance with the rules and regulations of the Brazilian Corporate Law and the CVM regulations and rules of the Novo Mercado, if applicable. The minimum price offered for the shares in the public tender offer will correspond to the economic value of such shares, as determined by a valuation report issued by a specialized firm.

The valuation report must be prepared by a specialized and independent firm of recognized experience chosen by the shareholders representing the majority of the outstanding shares (excluding, for such purposes, the shares held by the controlling shareholder, its partner and any dependents included in the income tax statement, should the controlling shareholders be an individual, treasury shares, shares held by our affiliates and by other companies that are a part of our economic group, as well as blank votes) from a list of three institutions presented by our Board of Directors. All the expenses and costs incurred in connection with the preparation of the valuation report must be paid for by the controlling shareholder.

Shareholders holding at least 10% of our outstanding shares may require our management to call a special meeting of our shareholders to determine whether to perform another valuation using the same or a different valuation method. This request must be made within 15 days following the disclosure of the price to be paid for the shares in the public offering. The shareholders who make such request, as well as those who vote in its favor, must reimburse us for any costs involved in preparing the new valuation, if the new valuation price is not higher than the original valuation price. If the new valuation price is higher than the original valuation price, the public offering must be made at the higher price. If our shareholders determine to take us private and at that time we are controlled by a shareholder holding less than 50% of our total capital stock or by a shareholder that is not a member of a group of shareholders (as defined in its bylaws), we must conduct the public tender offer, within the limits imposed by law. In this case, we may only purchase shares from shareholders that have voted in favor of us becoming a private company after purchasing all shares from the other shareholders that did not vote in favor of such deliberation and that have accepted the public tender offer.

Delisting from the Novo Mercado

At any time, we may delist our shares from the Novo Mercado, provided that shareholders representing the majority of our shares approve the action and that at least 30 days’ written notice is given to the São Paulo Stock Exchange. The decision of the shareholders must specify if the delisting will occur because the securities will no longer be traded on the Novo Mercado, or because we are going private. Our delisting from the Novo Mercado will not result in the loss of our registration as a public company on the São Paulo Stock Exchange.

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If we delist from the Novo Mercado, by decision taken at a shareholders’ meeting, any controlling shareholder or group of controlling shareholders at the time, if any, must conduct a public offering for the acquisition of our outstanding shares, within a period of 90 days if we delist in order for its shares to be tradable outside the Novo Mercado, or within a period of 120 days if we delist as a result of a corporate reorganization in which the surviving company is not listed on the Novo Mercado. The price per share shall be equivalent to the economic value of those shares as determined in a valuation report prepared by a specialized and independent company of recognized experience, which will be chosen at a shareholders’ meeting from a list of three institutions presented by our Board of Directors, by an absolute majority of the votes of the shareholders of our outstanding shares present at the meeting (excluding, for such purposes, the shares held by any controlling shareholder or group of shareholders at the time, if any, its partners and dependents included in our income tax statement, should the controlling shareholder be an individual, treasury shares, shares held by our affiliates and by other companies that are a part of our economic group, as well as blank votes). All the expenses and costs incurred in connection with the preparation of the valuation report must be paid by the controlling shareholder.

If we are subject to widespread control at the time of our delisting from the Novo Mercado, either for our shares to be traded outside the Novo Mercado or as a result of a corporate reorganization, the shareholders that voted in favor of such deliberation must conduct a public tender offer for the acquisition of our shares.

Pursuant to our bylaws, we may also be delisted if the São Paulo Stock Exchange decides to suspend trading of our shares on the Novo Mercado due to our non-compliance with the Novo Mercado Regulations. In this case, the Chairman of the Board of Directors must call a shareholders’ meeting, within two days of the determination by the São Paulo Stock Exchange, in order to replace all members of our Board of Directors. If the Chairman of the Board of Directors does not call the shareholders’ meeting, any shareholder may do so. The new Board of Directors will be responsible for the compliance with the requirements that resulted in the delisting.

Additionally, if we are delisted from the Novo Mercado (1) because a decision taken at a general meeting of our shareholders resulted in non-compliance with the Novo Mercado Regulations, the public tender offer must be conducted by the shareholders that voted in favor of the deliberation, or (2) as a result of our non-compliance with the Novo Mercado Regulations resulting from acts of our management, we must conduct the public tender offer in order to become a private company, within the limits imposed by law.

According to the Novo Mercado Regulations, in the event of a transfer of our shareholding control within 12 months following our delisting from the Novo Mercado, the selling controlling shareholders and the acquirer must offer to acquire the remaining shares for the same price and terms offered to the selling controlling shareholders, adjusted for inflation.

If our shares are delisted from the Novo Mercado, we will not be permitted to have shares listed on the Novo Mercado for a period of two years after the delisting date, unless there is a change in our control after our delisting from the Novo Mercado.

According to the Novo Mercado Regulations, the São Paulo Stock Exchange may issue complementary rules to regulate the public offering in the event of delisting in case a company has dispersed ownership.

Sarbanes Oxley Act of 2002

We maintain controls and procedures designed to ensure that we are able to collect the information required to disclose in the report we file with the SEC, and to process, summarize and disclose the information within the periods specified in the rules of the SEC. We have filed the relevant officer certifications under Section 404 of the U.S. Sarbanes Oxley Act of 2002 regarding internal controls over financial reporting as Exhibits 12.1 and 12.2 to this annual report.

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10C.

Material Contracts

None.

10D.

Exchange Controls

There are no restrictions on ownership of our common shares by individuals or legal entities domiciled outside Brazil. However, the right to convert dividend payments and proceeds from the sale of common shares into foreign currency and to remit such amounts outside Brazil is subject to restrictions under foreign investment legislation which generally requires, among other things, the registration of the relevant investment with the Central Bank.

Pursuant to Brazilian law, investors may invest in the common shares under Resolution No. 2,689 of January 26, 2000 of the CMN. The rules of Resolution No. 2,689 allow foreign investors to invest in almost all financial assets and to engage in almost all transactions available in the Brazilian financial and capital markets, provided that some requirements are fulfilled. In accordance with Resolution No. 2,689, the definition of foreign investor includes individuals, legal entities, mutual funds and other collective investment entities domiciled or headquartered abroad.

Pursuant to the rules, foreign investors must: (1) appoint at least one representative in Brazil with powers to perform actions relating to the foreign investment; (2) complete the appropriate foreign investor registration form; (3) register as a foreign investor with the CVM; and (4) register the foreign investment with the Central Bank.

Securities and other financial assets held by foreign investors pursuant to Resolution No. 2,689 must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Central Bank or the CVM. In addition, securities trading is restricted to transactions carried out in the stock exchanges or organized over-the-counter markets licensed by the CVM.

Under Resolution No. 2,689, foreign investors registered with the CVM may buy and sell shares on the São Paulo Stock Exchange without obtaining a separate certificate of registration for each transaction. Investors under these regulations are also generally entitled to favorable tax treatment.

Annex V to Resolution No. 1,289, as amended, of the CMN, also known as the Annex V Regulations, provides for the issuance of depositary receipts in foreign markets in respect of shares of Brazilian issuers.

In connection with the equity offerings of our common shares, an electronic registration was issued in the name of the depositary with respect to the ADSs and is maintained by the custodian on behalf of the depositary. This electronic registration was carried out through the Central Bank Information System-SISBACEN. Pursuant to the registration, the custodian and the depositary are able to convert dividends and other distributions with respect to the common shares represented by ADSs into foreign currency and remit the proceeds outside Brazil. In the event that a holder of ADSs exchanges such ADSs for common shares, the holder will be entitled to continue to rely on the depositary’s registration for five business days after the exchange. Thereafter, a holder must seek to obtain its own electronic registration. Unless the common shares are held pursuant to Resolution No. 2,689 by a duly registered investor or a holder of common shares who applies for and obtains a new certificate of registration, that holder may not be able to convert into foreign currency and remit outside Brazil the proceeds from the disposition of, or distributions with respect to, the common shares. In addition, if the foreign investor resides in a “tax haven” jurisdiction or is not an investor registered under Resolution No. 2,689, the investor will be subject to less favorable Brazilian tax treatment than a holder of ADSs.

See “Item 3D. Key Information—Risk Factors—Risks Relating our Common Shares and ADSs—If holders of ADSs exchange the ADSs for common shares, they risk losing the ability to remit foreign currency abroad and Brazilian tax advantages” and “Item 10E. Additional Information—Taxation—Material Brazilian Tax Consequences.”

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10E.

Taxation

The following discussion, subject to the limitations set forth below, summarizes certain Brazilian and United States tax considerations relating to the ownership of our common shares or ADSs. This discussion does not purport to be a complete analysis of all tax considerations in those countries and does not address tax treatment of shareholders under the laws of other countries. Shareholders who are resident in countries other than Brazil and the United States, along with shareholders that are resident in those two countries, are urged to consult with their own tax advisors as to which countries’ tax laws could be relevant to them. This summary is based upon the tax laws of Brazil and the United States as in effect on the date of this annual report, which are subject to change, possibly with retroactive effect, and to differing interpretations. Any change in such law may change the consequences described below.

Although there presently is no income tax treaty between Brazil and the United States, the tax authorities of the two countries have had discussions that may culminate in such a treaty. No assurance can be given, however, as to if or when a treaty will enter into force or how it will affect the U.S. holders of common shares or ADSs.

Material Brazilian Tax Consequences

General. The following discussion summarizes the principal Brazilian tax consequences of the acquisition, ownership and disposition of common shares or ADSs, as the case may be, by a holder that is not considered domiciled in Brazil (“Non-Brazilian Holder”), for purposes of Brazilian taxation.

Taxation of Dividends. Dividends, including stock dividends and other dividends paid in property, paid by us to the depositary in respect of the ADSs, or to a Non-Brazilian Holder in respect of the common shares, are currently not subject to income withholding tax, provided that they are paid out of profits generated as of January 1, 1996 (or out of reserves derived therefrom). We do not have retained earnings generated prior to January 1, 1996 (or reserves out of such earnings).

Taxation of Gains. According to Law No. 10,833, enacted on December 29, 2003, the sale or disposition of assets located in Brazil, by a Non-Brazilian Holder, regardless of whether the sale or the disposition is made to another non-Brazilian resident or to a Brazilian resident, is subject to taxation in Brazil. Accordingly, on the disposition of the common shares, which are considered assets located in Brazil, the Non-Brazilian Holder will be subject to income tax on the gains assessed, following the rules described below, regardless of whether the transactions are conducted in Brazil or abroad and with a Brazilian resident or not. Regarding the ADSs, although the matter is not free from doubt, arguably the gains realized by a Non-Brazilian Holder on the disposition of ADSs to another non-Brazilian resident are not taxed in Brazil, based on the argument that ADSs would not constitute assets located in Brazil for purposes of Law No. 10,833/03. However, we cannot assure you of how Brazilian courts would interpret the definition of assets located in Brazil in connection with the taxation of gains realized by a Non-Brazilian Holder on the disposition of ADSs to another non-Brazilian resident. Thus, the gain on a disposition of ADSs by a Non-Brazilian Holder to a resident in Brazil (or even to a non-Brazilian resident in the event that courts determine that ADSs would constitute assets located in Brazil) may be subject to income tax in Brazil according to the rules described below for ADSs or those applicable to the disposition of common shares, when applicable.

As a general rule, gains assessed are the positive difference between the amount in reais realized on the sale of exchange of the security and its acquisition cost measured in reais (without correction for inflation).

Under Brazilian law, income tax rules on such gains can vary depending on the domicile of the Non-Brazilian Holder, the type of registration of the investment by the Non-Brazilian Holder with the Central Bank and how the disposition is carried out, as described below.

The deposit of common shares in exchange for ADSs may be subject to Brazilian income tax on capital gains at the rate of 15% or 25%, in case of a Non-Brazilian Holder located in a tax haven jurisdiction (as defined below), if the acquisition cost of the common shares is lower than (1) the average price per common share on a Brazilian stock exchange on which the greatest number of such shares were sold on the day of deposit or (2) if no common shares were sold on that day, the average price on the Brazilian stock exchange on which the greatest number of common shares were sold in the 15 trading sessions immediately preceding such deposit. In such case, the difference between the average price of the common shares, calculated as above, and the corresponding acquisition cost, will be considered a capital gain. There are arguments to support that such taxation is not applicable in case of Non-Brazilian Holders registered under Resolution No. 2,689/00 (“2,689 Holder”) that are not Tax Haven Holders. The withdrawal of ADSs in exchange for common shares is not subject to Brazilian tax as far as the regulatory rules in respect to the registration of the investment before the Central Bank are duly observed.

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Gains assessed on the disposition of common shares carried out on the Brazilian stock exchange (which includes the transactions carried out on the organized over-the-counter market):

•

are exempt from income tax when assessed by a Non-Brazilian Holder that is a 2,689 Holder and is not a Tax Haven Holder; or

•

are subject to income tax at a rate of 15% in any other case, including the gains assessed by a Non-Brazilian Holder that (1) is not a 2,689 Holder; or (2) is a 2,689 Holder but a Tax Haven Holder. In these cases, a withholding income tax of 0.005% on the sale value shall be applicable and can be later offset with the eventual income tax due on the capital gain.

Any other gains assessed on a disposition of the common shares that is not carried out on Brazilian stock exchanges are subject to income tax at a rate of 15%, except for Tax Haven Holders, which, in this case, are subject to income tax at a rate of 25%. In case the gains are related to transactions conducted on the Brazilian non-organized over-the-counter market with intermediation, the withholding income tax of 0.005% on the sale value shall also be applicable and can be offset with the eventual income tax due on the capital gain.

In the case of a redemption of common shares or a capital reduction, the positive difference between the amount effectively received by the Non-Brazilian Holder and the acquisition cost of the securities redeemed or returned, is treated as capital gain derived from sale or exchange of common shares carried out in a Brazilian stock exchange market and is therefore subject to income tax at the rate of 15%, or 25%, in case of Tax Haven Holders.

Any exercise of preemptive rights relating to the common shares or ADSs will not be subject to Brazilian taxation. Any gain on the sale or assignment of preemptive rights relating to our common shares by the depositary on behalf of holders of our ADSs or to Non-Brazilian Holders of common shares will be subject to Brazilian income taxation according to the same rules applicable to the sale or disposition of these shares.

Taxation on Interest on Shareholders’ Equity. Any payment of interest on shareholders’ equity (see “Item 8A. Financial Information—Consolidated Statements and Other Financial Information—Dividends and Dividend Policy—History of Dividend and Interest on Shareholders’ Equity Payments and Dividend Policy”) to Non-Brazilian Holders of ADSs or common shares is subject to Brazilian withholding income tax at the rate of 15% at the time Embraer records such liability, whether or not the effective payment has been made at that time. In the case of Tax Haven Holders, the applicable rate of withholding income tax is 25%. For tax purposes, this interest is limited to the daily pro rata variation of the TJLP, as determined by the Central Bank from time to time, and the amount of the deduction may not exceed the greater of:

•

50% of net income (after the deduction of social contribution on net profits but before taking into account the provision for corporate income tax and the amounts attributable to shareholders as net interest on shareholders’ equity) related to the period in respect of which the payment is made; and

•

50% of the sum of retained profits and profit reserves as of the date of the beginning of the period in respect of which the payment is made.

The Brazilian Corporation Law establishes that interest attributed to shareholders’ equity can either be accounted for as part of the mandatory dividend or not. In the event that the payment of such interest is accounted for as part of the mandatory dividend, we would be required to pay an additional amount to ensure that the net amount received by the shareholders, after the income tax, plus the amount of declared dividends, is at least equal to the minimum mandatory dividend. The distribution of interest attributed to shareholders’ equity would be proposed by our Board of Directors and subject to subsequent declaration by the shareholders at a general meeting.

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Taxation on Foreign Exchange Transactions. Brazilian law imposes a Tax on Foreign Exchange Transactions, or IOF/Exchange, due on the conversion of reais into foreign currency and on the conversion of foreign currency into reais. Currently, for most exchange transactions, the rate of IOF/Exchange is 0.38%.

However, on the inflow of resources into Brazil for investments carried out by Non-Brazilian Holders in the Brazilian financial and capital markets, IOF/Exchange is assessed at a 1.5% rate, except for the rate of zero percent applicable to investments related to (a) variable yield instruments carried out in the stock, commodities and future exchanges; and (b) the acquisition of shares in a public offering registered with the CVM, or for the underwriting of shares, provided, in both cases, that the issuer is authorized to trade its shares at the Brazilian stock exchange. The outflow of funds related to investments carried out by Non-Brazilian Holders in the Brazilian financial and capital markets, as well as the remittance of dividends and interest on shareholders’ equity, are subject to IOF/Exchange at a zero percent rate.

In any case, the Brazilian federal government may increase the rate at any time, up to 25.0%. However, any increase in rates may only apply to future transactions.

Tax on Transactions Involving Bonds and Securities. Brazilian law imposes a Tax on Transactions Involving Bonds and Securities, or IOF/Bonds Tax, due on transactions involving bonds and securities, including those carried out on a Brazilian stock exchange. Although the rate of IOF/Bonds Tax applicable to transactions involving common shares is currently zero, the rate of the IOF/Bonds Tax applicable to the transfer of shares with the sole purpose of enabling the issuance of ADSs is currently 1.5%. This rate is applied on the product of (1) the number of shares which are transferred, multiplied by (2) the closing price for those shares on the date prior to the transfer or, if such closing price is not available on that date, the last available closing price for those shares. The Brazilian federal government may increase the rate of the IOF/Bonds Tax at any time by up to 1.5% per day of the transaction amount, but only in respect of future transactions.

Other Brazilian Taxes. There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of common shares or ADSs, except for gift and inheritance taxes which are levied by some states of Brazil on gifts made or inheritances bestowed by Non-Brazilian Holders to individuals or entities resident or domiciled or residing within such state in Brazil. There are no Brazilian stamp, issue, registration or similar taxes or duties payable by holders of common shares or ADSs.

Material U.S. Federal Income Tax Consequences

The following discussion, subject to the limitations and conditions set forth herein, summarizes certain U.S. federal income tax consequences of the purchase, ownership and disposition of Embraer common shares and ADSs. This discussion only applies to beneficial owners of Embraer common shares or ADSs that are “U.S. Holders” (as defined below) that hold common shares or ADSs of Embraer as capital assets (generally for investment purposes). This discussion does not address all aspects of U.S. federal income taxation that may be applicable to a U.S. Holder, including Medicare contribution tax consequences, or the tax consequences to U.S. Holders subject to special treatment under U.S. federal income tax law, including:

•

partnerships and other entities classified as partnerships for U.S. federal income tax purposes;

•

persons subject to the alternative minimum tax;

•

tax-exempt entities;

•

dealers and traders in securities or foreign currencies;

•

insurance companies;

•

certain financial institutions;

•

persons who own Embraer common shares or ADSs as part of an integrated investment, including a straddle, hedging or conversion transaction, comprising the Embraer common shares or ADSs and one or more other positions for tax purposes;

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•

persons whose functional currency is not the U.S. dollar for U.S. federal income tax purposes;

•

persons who actually or constructively own 10% or more of Embraer’s voting stock;

•

persons who acquired Embraer common shares or ADSs pursuant to the exercise of any employee stock option or otherwise as compensation; and

•

persons holding Embraer common shares or ADSs in connection with a trade or business conducted outside the United States.

In addition, there is no discussion of state, local, or non-U.S. tax considerations of the purchase, ownership and disposition of Embraer common shares or ADSs. The discussion is based upon the provisions of the Internal Revenue Code of 1986, as amended, or Code, its legislative history, existing final, temporary, and proposed U.S. Treasury regulations, rulings and other pronouncements of the U.S. Internal Revenue Service, or IRS, and judicial decisions as of the date of this annual report. Such authorities may be repealed, revoked or modified (with possible retroactive effect) so as to result in U.S. federal income tax consequences different from those discussed below.

This discussion is also based in part on the representations of the depository and the assumption that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms.

Shareholders are urged to consult their own independent tax advisors concerning the U.S. federal income tax consequences of the ownership of Embraer common shares and ADSs in light of their particular situations, as well as any consequences arising under the laws of any other taxing jurisdiction.

As used herein, the term “U.S. Holder” means a beneficial owner of Embraer common shares or ADSs representing Embraer common shares that is (1) an individual who is a citizen or resident of the United States, (2) a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any State or the District of Columbia, (3) an estate the income of which is subject to U.S. federal income taxation regardless of its source or (4) a trust (X) that is subject to the supervision of a court within the United States and the control of one or more U.S. persons as described in Section 7701(a)(30) of the Code or (Y) that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. Except where specifically described below, this discussion assumes that we are not a passive foreign investment company, or PFIC, for U.S. federal income tax purposes.

If a partnership (or an entity treated as a partnership for U.S. federal income tax purposes) holds Embraer common shares or ADSs, the tax treatment of such partnership and each partner will generally depend upon the status of the partner in such partnership. Partnerships that hold Embraer common shares or ADSs, and partners of a partnership holding such common shares or ADSs, are urged to consult their own tax advisors regarding the consequences of the purchase, ownership and disposition of Embraer common shares or ADSs.

In general, for U.S. federal income tax purposes, a U.S. Holder who is a beneficial owner of an ADS will be treated as the owner of the underlying Embraer common shares that are represented by such ADS. The U.S. Treasury has expressed concerns that parties to whom ADSs are pre-released before shares are delivered to the depositary, or intermediaries in the chain of ownership between holders of ADSs and the issuer of the security underlying the ADSs, may be taking actions that are inconsistent with the claiming of foreign tax credits by holders of ADSs. Accordingly, the creditability of any Brazilian taxes could be affected by actions taken by such parties or intermediaries. Deposits or withdrawals of underlying shares by U.S. Holders for ADSs will not be subject to U.S. federal income tax.

Distributions on Embraer Common Shares or ADSs

For U.S. federal income tax purposes, the gross amount of any distributions (including distributions of notional interest charges attributed to shareholders’ equity) paid to U.S. Holders of Embraer common shares or ADSs (including Brazilian withholding taxes imposed on such distributions) will be treated as a dividend, to the extent paid out of current or accumulated earnings and profits of Embraer and its predecessor as determined under U.S. federal income tax principles. Such a dividend will be includable in the gross income of a U.S. Holder as ordinary income on the date received by the U.S. Holder. To the extent that the amount of any distribution exceeds Embraer’s current and accumulated earnings and profits for a taxable year (as determined under U.S. federal income tax principles), the distribution will first be treated as a tax-free return of capital to the extent of a U.S. Holder’s adjusted tax basis in the Embraer common shares or ADSs, and thereafter as capital gain. Because we do not expect to maintain earnings and profits in accordance with U.S. federal income tax principles, U.S. Holders should expect that a distribution will be treated as a dividend for U.S. federal income tax purposes.

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Dividends paid by Embraer will not be eligible for the dividends received deduction allowed to corporations under the Code.

The amount of any cash distribution paid in reais will be included in a U.S. Holder’s gross income in an amount equal to the U.S. dollar value of the reais calculated by reference to the exchange rate in effect on the date the dividend is received by the U.S. Holder, in the case of Embraer common shares, and by the depository, in the case of ADSs, regardless of whether the reais are converted into U.S. dollars. If the reais received as a dividend are not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the reais equal to their U.S. dollar value on the date of receipt. Any gain or loss realized on a subsequent conversion or other disposition of the reais will be treated as U.S. source ordinary income or loss for U.S. federal income tax purposes.

Subject to the discussion above regarding concerns expressed by the U.S. Treasury and a number of other complex limitations and conditions, a U.S. Holder will be entitled to claim a U.S. foreign tax credit in respect of any Brazilian withholding taxes imposed on dividends received on Embraer’s common shares or ADSs. U.S. Holders who do not elect to claim a credit for foreign taxes may instead claim a deduction in respect of such Brazilian withholding taxes. Dividends received with respect to the Embraer common shares or ADSs will be treated as foreign source income for U.S. federal income tax purposes, and will be “passive category income” for purposes of calculating foreign tax credits in most cases, subject to various limitations. The rules relating to computing foreign tax credits or deducting foreign income taxes are extremely complex, and U.S. Holders are urged to consult their own independent tax advisors regarding the availability of foreign tax credits with respect to any Brazilian withholding taxes in regards of dividends paid on Embraer’s common shares or ADSs.

Subject to certain exceptions for short-term and hedged positions, the amount of dividends received by certain non-corporate U.S. holders (including individuals) with respect to the Embraer common shares or ADSs may be eligible for a reduced rate of taxation if the dividends represent “qualified dividend income.” Dividends paid on the Embraer common shares or ADSs will be treated as qualified dividend income if (1) the Embraer common shares or ADSs are readily tradable on an established securities market in the United States and (2) neither Embraer nor its predecessor was in the year prior to the year in which the dividend was paid, and is not in the year in which the dividend is paid, a passive foreign investment company, or PFIC. Under guidance issued by the IRS, the ADSs of Embraer should qualify as readily tradable on an established securities market in the United States so long as they are listed on the NYSE. In the case of Embraer common shares held directly by U.S. Holders and not underlying an ADS, it is not clear whether dividends paid with respect to such shares will represent “qualified dividend income.” U.S. Holders holding Embraer common shares directly and not through an ADS are urged to consult their own independent tax advisors.

Based on its audited financial statements as well as relevant market and shareholder data, Embraer believes that it was not a PFIC for U.S. federal income tax purposes with respect to its 2013 taxable year. In addition, based on Embraer’s audited or projected financial statements and current expectations regarding the value and nature of its assets, the sources and nature of its income, and relevant market and shareholder data, Embraer does not anticipate becoming a PFIC for its 2014 taxable year. However, because this determination is based on the nature of Embraer’s income and assets from time to time, involves the application of complex tax rules, and since Embraer’s view is not binding on the courts or the IRS, no assurances can be provided that Embraer (or its predecessor) will not be considered a PFIC for the current, or any past or future tax year. The potential application of the PFIC rules is further discussed below.

Sale, Exchange or Other Taxable Disposition of Embraer Common Shares or ADSs

A U.S. Holder will recognize taxable gain or loss on any sale, exchange or other taxable disposition of Embraer common shares or ADSs in an amount equal to the difference between the amount realized on the sale, exchange or other taxable disposition and the U.S. Holder’s adjusted tax basis (determined in U.S. dollars) in the Embraer common shares or ADSs. Such gain or loss will generally be capital gain or loss and will be long-term capital gain or loss if the Embraer common shares or ADSs have a holding period of more than one year. Certain non-corporate U.S. Holders (including individuals) may be eligible for preferential rates of U.S. federal income tax in respect of long-term capital gains. The deductibility of capital losses is subject to limitations under the Code.

119

Any gain or loss recognized by a U.S. Holder from the sale, exchange or taxable disposition of Embraer common shares or ADSs generally will be gain or loss from U.S. sources for U.S. foreign tax credit purposes. Consequently, if a Brazilian withholding tax or capital gains tax is imposed pursuant to a sale of Embraer common shares or ADSs, U.S. Holders who do not have sufficient foreign source income might not be able to derive effective U.S. foreign tax credit benefit in respect of such Brazilian withholding tax or capital gains tax. The rules relating to foreign tax credits, including the amount of foreign income taxes that may be claimed as a credit in any given year, are extremely complex and subject to limitations. U.S. Holders are urged to consult their own independent tax advisor regarding the application of the foreign tax credit rules to their particular circumstances.

Deposits and withdrawals of Embraer common shares in exchange for ADSs will not result in the realization of gain or loss for U.S. federal income tax purposes.

Passive Foreign Investment Company Rules

If, during any taxable year of a non-U.S. corporation, 75% or more of the corporation’s gross income consists of certain types of “passive” income, or the average value during a taxable year of the “passive assets” of the corporation (generally assets that generate passive income) is 50% or more of the average value of all the corporation’s assets, the corporation will be treated as a PFIC under U.S. federal income tax law. If a corporation is treated as a PFIC, a U.S. Holder may be subject to increased tax liability upon the sale of its stock, or upon the receipt of certain dividends, unless such U.S. Holder makes an election to be taxed currently on its pro rata portion of the corporation’s income, whether or not such income is distributed in the form of dividends, or otherwise makes a “mark-to-market” election with respect to the corporation’s stock as permitted by the Code. Under recently issued temporary regulations, a U.S. Holder who owns common shares or ADSs in any year that Embraer is a PFIC in excess of certain de minimis amounts and fails to qualify for certain other exemptions would be required to file IRS Form 8621 to report such holdings. In addition, as discussed above, a U.S. Holder would not be entitled to (if otherwise eligible for) the preferential reduced rate of tax payable on certain dividend income. As stated above, although no assurances can be given, based on Embraer’s operations, projections and business plans and the other items discussed above, Embraer does not believe that it (or its predecessor) was or currently is a PFIC, and does not expect to become a PFIC for subsequent taxable years.

U.S. Holders are urged to consult their own independent tax advisors regarding the potential application of the PFIC rules and related reporting requirements to the common shares or ADSs and the availability and advisability of making an election to avoid the adverse tax consequences of the PFIC rules should Embraer be considered a PFIC for any taxable year.

Information Reporting and Backup Withholding

In general, payments of dividends on Embraer common shares or ADSs, and payments of the proceeds of the sale, exchange or other disposition of Embraer common shares or ADSs, paid within the United States or through certain U.S.-related financial intermediaries to a U.S. Holder may be subject to information reporting and backup withholding at a current maximum rate of 28% unless the U.S. Holder (1) is a corporation or other exempt recipient or (2) in the case of backup withholding, provides an accurate taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a refund or a credit against the U.S. Holder’s U.S. federal income tax liability, provided the required information is timely provided to the IRS. A U.S. Holder generally may obtain a refund of any amounts withheld under the backup withholding rules that exceed its U.S. federal income tax liability by filing a timely refund claim with the IRS.

In addition, certain U.S. Holders are required to report to the IRS information relating to an interest in the shares or ADSs, subject to exceptions (including an exception for shares or ADSs held in accounts maintained by certain financial institutions), by attaching a complete IRS Form 8938, Statement of Specified Foreign Financial Assets, with its tax return for each year in which it held an interest in the shares or ADSs. U.S. Holders are urged to consult their own tax advisors regarding the effect, if any, of this information reporting requirement on their acquisition, ownership and disposition of the shares or ADSs.

120

10F.

Dividends and Paying Agents

Not applicable.

10G.

Statements by Experts

Not applicable.

10H.

Documents on Display

We are subject to the periodic reporting and other informational requirements of the Exchange Act. Accordingly, we are required to file reports and other information with the SEC. You may inspect and obtain copies, at prescribed rates, of reports and other information filed by us with the SEC at its Public Reference Room maintained at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC in the United States at 1-800-SEC-0330. You may also inspect and copy this material at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.

We file our annual report on Form 20-F, including our financial statements, and other reports, including our reports on Form 6-K, electronically with the SEC. These filings are available at www.sec.gov. We also file financial statements and other periodic reports electronically with the CVM at its website, www.cvm.gov.br. Copies of our annual reports on Form 20-F and documents referred to in this annual report and our bylaws will be available for inspection upon request at our headquarters at Av. Brigadeiro Faria Lima, 2170, 12227-901 São José dos Campos, São Paulo State, Brazil.

10I.

Subsidiary Information

Not required.

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks, primarily related to potential loss arising from adverse changes in interest rates and foreign currency exchange rates. We have established policies and procedures to manage sensitivity to interest rate and foreign currency exchange rate risk. These procedures include the monitoring of our levels of exposure to each market risk, including an analysis based on forecast of future cash flows, the funding of variable rate assets with variable rate liabilities, and limiting the amount of fixed rate assets which may be funded with floating rate liabilities. We may also use derivative financial instruments to mitigate the effects of interest rate fluctuations and to reduce our exposure to exchange rate risk. The following sections address the significant market risks associated with our financial activities.

Interest Rate Risk

Our exposure to market risk for interest rate fluctuations principally relates to changes in the market interest rates of our U.S. dollar-denominated and real-denominated monetary assets and liabilities, principally our short- and long-term debt obligations. Increases and decreases in prevailing interest rates generally translate into increases and decreases in interest expense. Additionally, the fair values of interest rate-sensitive instruments are also affected by general market conditions.

Our short and long-term debt obligations totaled US$2,508.1 million at December 31, 2014 and were denominated in U.S. dollars, Brazilian reais and Euros. Of the total amount of debt denominated in U.S. dollars (i.e., US$1,587.0 million), approximately US$1,413.7 million was subject to fixed rates. The remaining floating rate U.S. dollar-denominated debt was indexed to LIBOR. Of our US$838.7 million Brazilian real-denominated debt at December 31, 2014, US$44.0 million bears interest at a variable rate based on the TJLP, the long-term interest rate in Brazil, US$0.1 million bears interest at a variable rate based on the CDI, and US$794.6 million bears interest at a fixed rate of 4.88% per annum. The TJLP was 5.0% per annum at December 31, 2014. Our Euro-denominated debt totaled US$82.4 million at fixed rate at December 31, 2014.

121

The table below provides information about our short-term debt obligations as of December 31, 2014 that are sensitive to changes in interest rates and foreign currency exchange rates.


	Weighted Average Interest Rate 2014	Total Amount Outstanding		Total Fair Value
Short-Term Debt	(%)	(in US$ millions)
U.S. dollars (fixed rate)	5.99		19.4		19.4
U.S. dollars (LIBOR indexed)	2.04		3.7		3.7
Euro (fixed rate)	2.91		6.7		6.7
Euro (EURIBOR indexed)	—		—		—
Reais (fixed rate)	4.88		44.4		44.4
Reais (CDI indexed)	12.77		0.1		0.1
Reais (TJLP indexed)	6.53		15.4		15.4

Total short-term debt			89.7		89.7

The table below provides information about our long-term debt obligations as of December 31, 2014 that are sensitive to changes in interest rates and foreign currency exchange rates:


	Weighted Average Interest Rate 2014	Total Amount Outstanding		2016		2017		2018		2019		2020 and there-after		Total Fair Value
Long-Term Debt	(%)
U.S. dollars (fixed rate)	5.99		1,390.6		1.4		241.0		0.4		0.4		1,209.0		1,544.3
U.S. dollars (LIBOR indexed)	2.04		173.3		1.9		1.9		2.0		20.1		148.8		173.3
Euro (fixed rate)	2.91		75.7		29.0		16.0		28.3		1.2		1.2		75.7
Euro (EURIBOR indexed)	—		—		—		—		—		—		—		—
Reais (fixed rate)	4.88		750.1		367.7		183.2		59.2		49.6		90.4		750.1
Reais (CDI indexed)	12.77		—		—		—		—		—		—		—
Reais (TJLP indexed)	6.53		28.6		12.1		12.1		4.1		0.1		0.2		28.6

Total long-term debt			2,418.4		412.1		456.3		94.1		71.3		1,384.6		2,572.1

In order to manage our interest rate risk on our monetary liabilities, we have entered into a number of swaps, which effectively convert US$505.7 million of our fixed interest rate, Brazilian real-denominated debt into floating interest rate, Brazilian real-denominated obligations and convert US$4.9 million of our floating interest rate, U.S. dollar-denominated debt to fixed interest rate, U.S. dollar-denominated obligations.

The table below provides information about our short-term debt obligations as of December 31, 2014, after considering the effects of the above mentioned derivative transactions:


	Weighted Average Interest Rate 2014	Total Amount Outstanding		Total Fair Value
Short-Term Debt	(%)	(in US$ millions)
U.S. dollars (fixed rate)	5.99		19.7		19.7
U.S. dollars (LIBOR indexed)	2.03		3.4		3.4
Euro (fixed rate)	2.91		6.7		6.7
Euro (EURIBOR indexed)	—		—		—
Reais (fixed rate)	3.55		36.1		36.1
Reais (CDI indexed)	7.35		8.4		8.4
Reais (TJLP indexed)	6.53		15.4		15.4

Total short-term debt			89.7		89.7

122

The table below provides information about our long-term debt obligations as of December 31, 2014, after considering the effects of the above mentioned derivative transactions:


	Weighted Average Interest Rate 2014		Total Amount Outstanding		2016		2017		2018		2019		2020 and thereafter		Total Fair Value
Long-Term Debt	(%)		(in US$ millions)
U.S. dollars (fixed rate)		5.99		1,394.3		1.8		241.4		0.8		0.8		1,211.8		1,548.0
U.S. dollars (LIBOR indexed)		2.04		169.6		1.5		1.6		1.6		19.6		146.1		169.6
Euro (fixed rate)		2.91		75.7		29.0		16.0		28.3		1.2		1.2		75.7
Euro (EURIBOR indexed)		—		—		—		—		—		—		—		—
Reais (fixed rate)		3.55		252.8		54.9		68.2		43.4		33.8		67.9		252.8
Reais (CDI indexed)		12.77		497.4		321.5		121.7		15.8		15.8		22.6		497.4
Reais (TJLP indexed)		6.53		28.6		12.1		12.1		4.1		0.1		0.2		28.6

Total long-term debt				2,418.4		412.1		456.3		94.1		71.3		1,384.6		2,572.1

Foreign Exchange Rate Risk

In managing our foreign currency risk, we focus on balancing our non-U.S. dollar-denominated assets against our non-U.S. dollar-denominated liabilities plus shareholders’ equity in relation to our forecasts of future cash flows. Beyond the foreign currency exposure related to our debt obligations as summarized above, we also have other assets and liabilities denominated in currencies other than the U.S. dollar. These monetary assets and liabilities are primarily cash and cash equivalents, financial assets, accounts receivable and payable, deferred income taxes, dividends and certain other assets and liabilities and are primarily denominated in Brazilian reais. The effects on such assets and liabilities of the appreciation or devaluation of other foreign currencies against the U.S. dollar result in foreign exchange gains (losses) recognized as interest income (expense), net. The translation gains and losses arising from the remeasurement of our financial statements to U.S. dollars are recognized on our Statement of Income as foreign exchange gain (loss), net.

Our cash flow exposure comes as a result of the fact that approximately 10% of our net revenues and 25% of our total costs are denominated in reais. Having more real denominated costs than revenues generates such exposure. For further information on our hedges and derivate instruments, see Note 8 to our audited consolidated financial statements as of and for the year ended December 31, 2014.

123

The table below provides information about our assets and liabilities exposed to foreign currency risk as of December 31, 2014, as well as the derivative transactions outstanding at the same date:


				Outstanding Amount by Year of Maturity
	Total Outstanding Amount			2015			2016			2017			2018			2019			Thereafter			Total Fair Value
	(in US$ millions)
ASSETS
Cash and cash equivalents and financial investments
In reais		1,392.4			1,392.4			—			—			—			—			—			1,392.4
In Euro		11.0			11.0			—			—			—			—			—			11.0
In Other Currencies		54.2			54.2			—			—			—			—			—			54.2
*Trade accounts receivable*
In reais		77.9			77.9			—			—			—			—			—			77.9
In Euro		116.8			116.8			—			—			—			—			—			116.8
In Other Currencies		1.1			1.1			—			—			—			—			—			1.1
*Deferred income tax assets*
In Euro		7.5			0.7			0.7			0.7			0.6			0.7			4.1			7.5
In Other Currencies		0.6			0.1			0.1			0.1			0.1			0.1			0.1			0.6
*Other assets*
In reais		338.3			151.6			186.7			—			—			—			—			338.3
In Euro		25.0			17.6			7.4			—			—			—			—			25.0
In Other Currencies		5.4			5.4			—			—			—			—			—			5.4
*Total Assets in reais*		1,808.6			1,621.9			186.7			—			—			—			—			1,808.6
*Total Assets in Euro*		160.3			146.1			8.1			0.7			0.6			0.7			4.1			160.3
*Total Assets in Other Currencies*		61.3			60.8			0.1			0.1			0.1			0.1			0.1			61.3
LIABILITIES
Loans
In reais		838.7			59.9			379.8			195.3			63.3			49.7			90.7			838.7
In Euro		82.4			6.7			29.0			16.0			28.4			1.2			1.1			82.4
*Accounts payable to suppliers*
In reais		114.7			114.7			—			—			—			—			—			114.7
In Euro		95.2			95.2			—			—			—			—			—			95.2
In Other Currencies		0.6			0.6			—			—			—			—			—			0.6
*Customer advances*
In reais		—			—			—			—			—			—			—			—
*Other accounts payable & accrued liabilities*
In reais		673.0			412.4			260.6			—			—			—			—			673.0
In Euro		175.3			109.5			65.8			—			—			—			—			175.3
In Other Currencies		4.0			3.0			1.0			—			—			—			—			4.0
*Taxes and payroll charges payable*
In reais		263.2			119.2			60.8			24.3			13.1			8.2			37.6			263.2
In Euro		5.4			5.4			—			—			—			—			—			5.4
In Other Currencies		—			—			—			—			—			—			—			—
*Accrued taxes on income*
In reais		3.1			3.1			—			—			—			—			—			3.1
In Euro		(20.5	)		(20.5	)		—			—			—			—			—			(20.5	)
In Other Currencies		2.0			2.0			—			—			—			—			—			2.0
*Deferred income tax liabilities*
In reais		233.6			21.2			21.2			21.2			20.0			21.6			128.4			233.6
In Other Currencies		1.1			0.1			0.1			0.1			0.l			0.l			0.6			1.1
*Accrued dividends*
In reais		37.3			37.3			—			—			—			—			—			37.3
*Contingencies*
In reais		39.9			4.6			—			—			—			—			35.3			39.9
In Euro		23.2			0.2			—			—			—			—			23.0			23.2
*Total liabilities in reais*		2,203.5			772.4			722.4			240.8			96.4			79.5			292.0			2,203.5
*Total liabilities in Euro*		361.0			196.5			94.8			16.0			28.4			1.2			24.1			361.0
*Total liabilities in Other Currencies*		7.8			5.8			1.1			0.1			0.1			0.l			0.6			7.8
*Total exposure in reais*		(394.9	)		849.5			(533.7	)		(240.8	)		(96.4	)		(79.5	)		(292.0	)		(394.9	)
*Total exposure in Euro*		(200.7	)		(50.4	)		(86.7	)		(15.3	)		(27.8	)		(0.5	)		(20.0	)		(200.7	)
*Total exposure in Other Currencies*		53.5			55.0			(1.0	)		—			—			—			(0.5	)		53.5

Credit Risk

We may incur losses if counterparties to our various contracts do not pay amounts that are owed to us. In that regard, our primary credit risk derives from the sales of aircraft, spare parts and related services to customers, including the financial obligations related to those sales in the cases where we provide guarantees for the benefit of the providers of finance to the aircraft purchases of our customers. We are also exposed to the credit risk of the counterparties to our financial derivative contracts.

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Financial instruments which may potentially subject us to credit risk concentration include (1) cash and cash equivalents, (2) trade and other accounts receivable, (3) customer commercial financing, (4) advances to suppliers and (5) financial derivative contracts. We seek to limit our credit risk associated with cash and cash equivalents by placing the investments we make with those instruments with investment grade-rated institutions in short-term securities and mutual funds. With respect to trade accounts receivable and customer commercial financing, we seek to limit our credit risk by performing ongoing credit evaluations. All such customers are currently meeting their commitments with us, are operating within the established credit limits that we assign to them and are considered by management to represent an acceptable credit risk level to us. Advances to suppliers are made only to select, long-standing suppliers. The financial condition of those suppliers is analyzed on an ongoing basis with a view to limiting credit risk. We address credit risk related to derivative instruments by restricting the counterparties of such derivatives to major financial institutions.

We may also have credit risk related to the sale of aircraft during the period in which their purchasers are finalizing the financing arrangements for their aircraft purchases from us. In order to try to minimize these risks, customer credit analyses are continuously monitored and we work closely with financial institutions to facilitate customer aircraft financing.

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

12A.

Debt Securities

Not applicable.

12B.

Warrants and Rights

Not applicable.

12C.

Other Securities

Not applicable.

12D.

American Depositary Shares

Depositary Fees and Charges

The depositary may charge, and collect from, (i) each person to whom ADSs are issued, including, without limitation, issuances against deposits of shares, issuances in respect to share distributions, rights and other distributions, issuances pursuant to a stock dividend or stock split declared by us, or issuances pursuant to a merger, exchange of securities or any other transaction or event affecting the ADSs or the deposited securities, and (ii) each person surrendering ADSs for withdrawal of deposited securities or whose ADSs are cancelled or reduced for any other reason, U.S.$5.00 for each 100 ADSs (or portion thereof) issued, delivered, reduced, cancelled or surrendered (as the case may be) plus any additional fees charged by any governmental authorities or other institutions such as the Companhia Brasileira de Liquidação e Custódia (the Brazilian Clearing and Depository Corporation) or the BM&FBOVESPA S.A. – Bolsa de Valores, MErcadorias e Futuros, the stock exchange on which the shares are registered for trading. The depositary may sell (by public or private sale) sufficient securities and property received in respect of share distributions, rights and other distributions prior to such deposit to pay such charge.

The following additional charges shall be incurred by ADS Holders, by any party depositing or withdrawing shares or by any party surrendering ADSs, to whom ADSs are issued (including, without limitation, issuances pursuant to a stock dividend or stock split declared by us or an exchange of stock regarding the ADSs or the deposited securities or a distribution of ADSs pursuant to section 10 of the deposit agreement, whichever is applicable:

•

a fee of $.02 or less per ADS for any cash distribution made pursusant to the deposit agreement;

•

a fee of U.S.$1.50 per ADR or ADRs or transfers made pursuant to section 3 of the deposit agreement;

•

a fee for the distribution or sale of securities pursuant to section 10 of the deposit agreement, such fee being in an amount equal to the fee for the execution and delivery of ADSs, referred to above which would have been charged as a result of the deposit of such securities (for purposes of section 7 of the deposit agreement treating all such securities as if they were shares) but which securities or the net cash proceeds from the sale thereof are instead distributed by the depositary to ADS holders entitled thereto;

•

any other charge payable by any of the depositary, any of the depositary’s agents, including, without limitation, the custodian, or the agents of the depositary’s agents in connection with the servicing of our common shares or other deposited securities (which charge shall be assessed against registered holders of our ADSs as of the record date or dates set by the depositary and shall be payable at the sole discretion of the depositary by billing such registered holders or by deducting such charge from one or more cash dividends or other cash distributions);

125

•

an aggregate fee of U.S.$.02 per ADS per calendar year (or portion thereof) for the services performed by the depositary in administering the ADRs (which fee may be charged on a periodic basis during each calendary year and shall be assessed against holders as of the record date or record dates set by the depositary during each calendar year and shall be payable at the sole discretion of the depositary by billing such holders or by deducing such charge from one or more cash dividends or other cash distributions); and

•

a fee for the reimbursement of such fees, charges and expenses as are incurred by the depositary and/or any of its agents (including, without limitation, the custodian and expenses incurred on behalf of holders in connection with compliance with foreign exchange control regulations or any law or regulation relating to foreign investment) in connection with the servicing of the shares or other deposited securities, the sale of securities (including, without limitation, deposited securities), the delivery of deposited securities or otherwise in connection with the depositary’s or its custodian’s compliance with applicable law, rule or regulation (which fees and charges shall be assessed on a proportionate basis against holders as of the record date or dates set by the depositary and shall be payable at the sole discretion of the depositary by billing such holders or by deducting such charge from one or more cash dividends or other cash distributions).

We will pay all other charges and expenses of the depositary and any agent of the depositary (except the custodian) pursusant to agreements from time to time between us and the depositary, except:

•

stock transfer or other taxes and other governmental charges (which are payable by holders or persons depositing shares);

•

cable, telex and facsimile transmission and delivery charges incurred at the request of persons depositing, or holders delivering shares, ADRs or deposited securities (which are payable by such persons or holders);

•

transfer or registration fees for the registration or transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited securities (which are payable by persons depositing shares or holders withdrawing deposited securities; there are no such fees in respect of the shares as of the date of the deposit agreement); and

•

in connection with the conversion of foreign currency into U.S. dollars, JPMorgan Chase Bank, N.A. (“JPMorgan”) shall deduct out of such foreign currency the fees, expenses and other charges charged by it and/or its agent (which may be a division, branch or affiliate) so appointed in connection with such conversion, JPMorgan and/or its agent may act as principal for such conversion of foreign currency.

Such charges may at any time and from time to time be changed by agreement between us and the depositary.

Depositary Payments for the Year December 31, 2014

In 2014, JPMorgan Chase Bank paid US$2.5 million in connection with investor relations related expenses of Embraer incurred in 2014 that are eligible for reimbursement from JPMorgan Chase Bank under our contractual arrangements with that entity.

PART II

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

No matters to report.

126

ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Material Modifications to the Rights of Security Holders

Not applicable.

Use of Proceeds

Not applicable.

ITEM 15.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Disclosure controls and procedures refers to the controls and other procedures adopted by us that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.

Our President and CEO, Frederico Pinheiro Fleury Curado, and our executive vice-president and chief financial and investor relations officer, José Antonio de Almeida Filippo, after evaluating, together with management, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2014, the end of the period covered by this annual report, concluded that, as of such date, our disclosure control and procedures were effective to ensure information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and were effective in ensuring that such information is accumulated and communicated to our management, including our CEO and chief financial officer, as appropriate to allow timely decisions regarding required disclosures.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance to our management and Board of Directors regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Effective internal control over financial reporting cannot, and does not, provide absolute assurance of achieving our control objectives. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (1992). Based on this assessment, our management concluded that, as of December 31, 2014, our internal control over financial reporting was effective based on those criteria.

Attestation Report of the Registered Public Accounting Firm

The effectiveness of our internal control over financial reporting as of December 31, 2014 has been audited by KPMG Auditores Independentes, an independent registered public accounting firm, as stated in their report which appears herein on page F-2.

127

Changes in Internal Control over Financial Reporting

Our risks and internal controls department periodically evaluates our internal controls for the main cycles, documenting the processes used in each cycle, identifying opportunities and suggesting improvements for the existing control mechanisms. There was no change in our internal controls over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

ITEM 16.A

AUDIT COMMITTEE FINANCIAL EXPERT

Our Board of Directors has determined that Mr. Sergio Eraldo de Salles Pinto, an effective member of our statutory Audit and Risks Committee is an “audit committee financial expert” as defined by current SEC rules. For a discussion of the role of our Audit and Risks Committee, see “Item 6C. Directors, Senior Management and Employees—Board Practices—Audit and Risks Committee.”

ITEM 16.B

CODE OF ETHICS

Our Board of Directors has adopted a Code of Ethics and Conduct applicable to our directors, officers and employees worldwide, including our principal executive officer, principal financial officer and controller. A copy of our Code of Ethics and Conduct has been filed as Exhibit 11.1 to this annual report.

ITEM 16.C

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth by category of service the total fees for services performed by KPMG Auditores Independentes during the fiscal years ended December 31, 2014 and 2013:


Principal accountant fees and services	Year ended December 31,
	2014		2013
	(in US$ thousands)
Audit Fees		2,873		3,095
Audit-Related Fees		61		89
Tax Fees		37		162

All Other Fees		2		10

Total		2,973		3,356

Audit Fees

Audit fees consisted of the aggregate fees in connection with (1) the audit of our annual financial statements and quarterly limited reviews under Brazilian GAAP and IFRS as issued by the IASB, which are published in Brazil and United States (filed with the SEC on Form 6-K), (2) our annual consolidated statements under IFRS as issued by the IASB and (3) statutory audits of our subsidiaries.

Audit-Related Fees

Audit-related fees consisted mainly of the aggregate fees billed in 2014 in connection with services related to regulatory compliance by certain of our subsidiaries.

Tax Fees

Tax fees in 2014 consisted of the aggregate fees billed by KPMG Auditores Independentes in connection with tax compliance for some of our subsidiaries.

All Other Fees

All other audit fees refer to miscellaneous permitted services rendered by KPMG Auditores Independentes in 2014 and 2013.

128

Pre-Approval Policies and Procedures

Our Board of Directors approves all audit and audit-related services provided by KPMG Auditores Independentes. Any services provided by KPMG Auditores Independentes that are not specifically included within the scope of the audit must be pre-approved by our Audit and Risks Committee in advance of any engagement. Pursuant to Rule 2-01 of Regulation S-X, audit committees are permitted to approve certain fees for audit-related services, tax services and other services pursuant to a de minimis exception prior to the completion of an audit engagement. In 2014, 2013, 2012, 2011and 2010, none of the fees paid to KPMG Auditores Independentes and PricewaterhouseCoopers Auditores Independentes were approved pursuant to the de minimis exception.

ITEM 16.D

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

None.

ITEM 16.E

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

ITEM 16.F

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

ITEM 16.G

CORPORATE GOVERNANCE

We are subject to NYSE corporate governance listing standards. As a foreign private issuer, the standards applicable to us are considerably different than the standards applied to U.S. listed companies. Under the NYSE rules, we are required only to: (1) have an audit committee or audit board, pursuant to an applicable exemption available to foreign private issuers, that meets certain requirements, as discussed below, (2) provide prompt certification by our CEO of any material non-compliance with any corporate governance rules and (3) provide a brief description of the significant differences between our corporate governance practices and the NYSE corporate governance practice required to be followed by U.S. listed companies. The discussion of the significant differences between our corporate governance practices and those required of U.S. listed companies follows below.

Majority of Independent Directors

The NYSE rules require that a majority of the Board must consist of independent Directors. Independence is defined by various criteria, including the absence of a material relationship between the director and the listed company, which independence must be affirmatively determined by the Board of Directors. Likewise, the Novo Mercado Listing Rules requires that at least 20% of the members of the Board of Directors of a company listed on the Novo Mercado segment of the São Paulo Stock Exchange be independent. Independence of Board members in accordance with the Novo Mercado Listing Rules is defined by criteria similar to those set forth in the NYSE rules. However, under the Novo Mercado Listing Rules and Brazilian law, neither our Board of Directors nor our management is required to test the independence of Directors before their election to the Board.

With the exception of Mr. Antonio Franciscangelis Neto (the representative of the Brazilian federal government, through the government’s ownership of the “golden share”), Messrs. Ernani de Almeida Ribeiro Junior, Paulo Roberto de Oliveira (both representatives of our employees) and Arno Hugo Augustin Filho, all the current members of our Board of Directors have declared that they are independent for purposes of the Novo Mercado Listing Rules. While our Directors meet the qualification requirements of the Brazilian Corporate Law, the CVM requirements and the Novo Mercado Listing Rules, our Board of Directors has not determined whether our Directors are considered independent under the NYSE test for Director independence.

129

The Brazilian Corporate Law and our bylaws require that our Directors be elected by our shareholders at a general shareholders’ meeting. The election of members of our Board of Directors, absent a request to adopt a cumulative voting system, will be conducted under a system of slate voting whereby voting will be based on a slate of Directors and no voting will be allowed on individual candidates. According to our bylaws, the Board of Directors will nominate a slate for the subsequent term of office. Our Board of Directors is appointed by our shareholders for a two-year term, having three reserved seats as follows: (1) one acting member to be appointed by the Brazilian federal government, as holder of the “golden share” and (2) two acting members to be appointed by our employees. The remaining eight Directors are elected in accordance with the slate voting or cumulative voting rules contained in our bylaws. A person may participate in two or more different slates. Each shareholder may only vote on one slate and the slate that receives the highest number of votes shall be declared elected. See “Item 10B. Additional Information—Memorandum and Articles of Association—Board of Directors—Election of Board of Directors.”

Executive Sessions

NYSE rules require that the non-management directors must meet at regularly scheduled executive sessions without management. The Brazilian Corporate Law does not have a similar provision. According to the Brazilian Corporate Law, up to one-third of the members of the Board of Directors can be elected from management. The remaining non-management directors are not expressly empowered to serve as a check on management and there is no requirement that those directors meet regularly without management. As a result, the non-management directors on our board do not typically meet in executive session.

Nominating/Corporate Governance Committee

NYSE rules require that listed companies have a Nominating/Corporate Governance Committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities, which include, among other things, identifying and selecting qualified board member nominees and developing a set of corporate governance principles applicable to the company. We are not required under applicable Brazilian law to have a Nominating Committee/Corporate Governance Committee, and accordingly, to date, have not established such a committee. The directors are elected by our shareholders at a general shareholders’ meeting. Our corporate governance practices are adopted by the entire board.

Compensation Committee

NYSE rules require that listed companies have a Compensation Committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities, which include, among other things, reviewing corporate goals relevant to CEO compensation, evaluating CEO performance and approving CEO compensation levels and recommending to the board non-CEO compensation, incentive-compensation and equity-based plans. We are not required under applicable Brazilian law to have a Compensation Committee. Under the Brazilian Corporate Law, the total amount available for compensation of our directors and Executive Officers and for profit-sharing payments to our Executive Officers is established by our shareholders at the annual general meeting. The Board of Directors is then responsible for determining the individual compensation and profit sharing of each Executive Officer, as well as the compensation of our board and committee members. In making such determinations, the board reviews the performance of the Executive Officers, including the performance of our CEO.

130

Audit Committee

NYSE rules require that listed companies have an audit committee that (1) is composed of a minimum of three independent directors who are all financially literate, (2) meets the SEC rules regarding audit committees for listed companies, (3) has at least one member who has accounting or financial management expertise and (4) is governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities. We have an Audit and Risks Committee which meets the requirements of Rule 10A-3 under the U.S. Securities Exchange Act of 1934. We do not claim an exemption from the listing standards for audit committees.

Embraer’s statutory “Audit and Risks Committee” is composed of independent members of our Board of Directors. Because foreign private issuers are subject to local legislation which may prohibit the full Board of Directors from delegating certain responsibilities to the audit committee, pursuant to Rule 10A-3, audit committees of foreign private issuers may be granted responsibilities, which may include advisory powers, with respect to such matters to the extent permitted by law. Due to certain restrictions imposed by the Brazilian Corporate Law, our Audit and Risks Committee, unlike a U.S. audit committee, only has an “advisory” role and may only make recommendations for adoption by the full Board of Directors, which is responsible for the ultimate vote and final decision. For example, our Audit and Risks Committee makes recommendations regarding the appointment of auditing firms, which are subject to a vote of the Board of Directors. Our Audit and Risks Committee complies with Brazilian legal requirements (including “independent directors,” as defined by Brazilian law).

Shareholder Approval of Equity Compensation Plans

NYSE rules require that shareholders be given the opportunity to vote on all equity compensation plans and material revisions thereto, with limited exceptions. Under the Brazilian Corporate Law, shareholders must approve all stock option plans. In addition, any issuance of new shares that exceeds our authorized share capital is subject to shareholder approval.

Corporate Governance Guidelines

NYSE rules require that listed companies adopt and disclose corporate governance guidelines. In addition to being subject to the Novo Mercado Regulations that include rules on corporate governance, we have not adopted any formal corporate governance guidelines. We have adopted and observe a disclosure policy, our Policy on Publicizing Acts or Relevant Facts, which requires the public disclosure of all relevant information pursuant to guidelines set forth by the CVM, as well as an insider trading policy, our Policy on Securities Transactions, which, among other things, establishes black-out periods and requires insiders to inform management of all transactions involving our securities.

Code of Business Conduct and Ethics

NYSE rules require that listed companies adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or Executive Officers. Applicable Brazilian law does not have a similar requirement. However, we adopted a Code of Ethics and Conduct applicable to our officers, directors and employees worldwide, including at the subsidiary level. We believe this code substantially addresses the matters required to be addressed pursuant to the NYSE rules. A copy of our Code of Ethics and Conduct has been filed as Exhibit 11.1 to this annual report. For a further discussion of our Code of Ethics and Conduct, see “Item 16.B Code of Ethics.” We review our Code of Ethics every two years. The last version of the Code of Ethics is the 4^thEdition reviewed on September 11, 2014.

Internal Audit Function

NYSE rules require that listed companies maintain an internal audit function to provide management and the audit committee with ongoing assessments of the company’s risk management processes and system of internal control. Our internal audit reports to the Audit and Risks Committee, and risk management and internal control report to the Chief Financial Officer, respectively, assuring the necessary independence and competence to assess the design of our internal control over financial reporting, as well as to test its effectiveness as required by Section 404 of the Sarbanes-Oxley Act of 2002.

131

ITEM 16.H

MINE SAFETY DISCLOSURE

Not applicable.

PART III

ITEM 17.

FINANCIAL STATEMENTS

We have responded to Item 18 in lieu of responding to this item.

ITEM 18.

FINANCIAL STATEMENTS

Our audited consolidated financial statements, together with the Independent Registered Public Accounting Firm thereon, are filed as part of this annual report and are located following the signature page hereof.

ITEM 19.

EXHIBITS


Exhibit Number		Description

1.1		Bylaws of Embraer approved at the Annual and Special Shareholders’ Meeting held on March 8, 2013, incorporated herein by reference from Form 6-K furnished on March 11, 2013. (English translation).

2.1		Form of Amended and Restated Deposit Agreement, as amended, among Embraer S.A., JP Morgan Chase Bank, N.A., as depositary, and the Holders from time to time of American Depositary Shares issued thereunder, including the Form of American Depositary Receipts, incorporated herein by reference from Exhibit 9(a)(2) to Embraer’s Registration Statement No. 333-133162.

2.2		The registrant hereby agrees to furnish to the SEC, upon request, copies of instruments defining the rights of holders of long-term debt of the registrant and its consolidated subsidiaries and for any of its unconsolidated subsidiaries for which financial statements are required to be filed.

4.1		Protocol of Merger and Justification of Embraer-Empresa Brasileira de Aeronáutica S.A. with and into Rio Han Empreendimentos e Participações S.A., dated as of January 19, 2006, and exhibits thereto, or Merger Agreement (English translation), incorporated herein by reference from Exhibit 2.1 to Embraer’s Registration Statement No. 333-132289.

4.2		Lease Agreement, as amended, between Howard County and Embraer Aircraft Corporation, dated as of April 21, 1998, incorporated herein by reference from Exhibit 10.6 to Embraer’s Registration Statement No. 333-12220.

4.3		Lease Agreement, as amended, between the Paris Airport and Embraer, dated as of January 1, 1999, together with an English translation, incorporated herein by reference from Exhibit 10.6 to Embraer’s Registration Statement No. 333-12220.

8.1		List of Embraer’s subsidiaries.

11.1		Code of Ethics and Conduct, dated September 11, 2014.

12.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

12.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

13.1		Section 1350 Certification of Chief Executive Officer.

13.2		Section 1350 Certification of Chief Financial Officer.

132

SIGNATURES

The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.


EMBRAER S.A.

By:		/S/ FREDERICO PINHEIRO FLEURY CURADO
		Name: Frederico Pinheiro Fleury Curado Title: President and Chief Executive Officer



By:		/S/ JOSÉ ANTONIO DE ALMEIDA FILIPPO
		Name: José Antonio de Almeida Filippo Title: Executive Vice-President and Chief Financial and Investor Relations Officer

Date: March 27, 2015

Embraer S.A.

Consolidated Financial Statements at

December 31, 2014

and Report of Independent Registered

Public Accounting Firm

F-1

INDEX TO FINANCIAL STATEMENTS


	Page
Index to Financial Statements		F-2
Consolidated Statements of Financial Position as of December 31, 2014 and 2013		F-4
Consolidated Statements of Income for the Years Ended December 31, 2014, 2013 and 2012		F-6
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2014, 2013 and 2012		F-7
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2014, 2013 and 2012		F-8
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012		F-9
Notes to Consolidated Financial Statements		F-10

F-2

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Embraer S.A.

We have audited the accompanying consolidated statement of financial position of Embraer S.A. and subsidiaries (“The Company”) as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2014. We also have audited Embraer S.A.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Embraer S.A.’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting under item 15 of the Company’s Form 20-F. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Embraer S.A. and subsidiaries as of December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2014, in conformity with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). Also in our opinion, Embraer S.A. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

/s/ KPMG Auditores Independentes

São José dos Campos—Brazil

March 27, 2015

F-3

Embraer S.A.

Consolidated Statements of Financial Position

as of December 31, 2014 and 2013

In millions of U.S. dollars


ASSETS	Note		12.31.2014		12.31.2013
CURRENT
Cash and cash equivalents		5		1,713.0		1,683.7
Financial investments		6		710.6		939.9
Trade accounts receivable, net		7		696.9		572.2
Derivative financial instruments		8		5.2		14.6
Customer and commercial financing		9		13.6		9.6
Collateralized accounts receivable		10		9.0		10.5
Inventories		12		2,405.3		2,287.3
Income tax and social contribution				89.2		88.2
Other assets		13		167.9		161.8

				5,810.7		5,767.8

NON-CURRENT
Financial investments		6		45.8		45.4
Trade accounts receivable		7		6.9		6.5
Derivative financial instruments		8		12.7		15.8
Customer and commercial financing		9		55.0		64.1
Collateralized accounts receivable		10		416.6		415.4
Guarantee deposits		11		582.0		574.7
Deferred income tax and social contribution		24		8.1		8.5
Other assets		13		186.1		141.9

				1,313.2		1,272.3
Investments				0.4		—
Property, plant and equipment, net		16		2,025.8		1,993.3
Intangible assets		17		1,260.9		1,109.1

				4,600.3		4,374.7

TOTAL ASSETS				10,411.0		10,142.5

The accompanying notes are an integral part of these consolidated financial statements.

F-4

Embraer S.A.

Consolidated Statements of Financial Position

as of December 31, 2014 and 2013

In millions of U.S. dollars


LIABILITIES	Note		12.31.2014			12.31.2013
CURRENT
Trade accounts payable		19		980.6			1,013.6
Loans and financing		20		89.7			79.3
Non-recourse and recourse debt		10		10.3			12.1
Other payables		21		324.5			304.8
Contribution from suppliers				—			33.6
Advances from customers		22		652.5			875.9
Derivative financial instruments		8		15.4			13.7
Taxes and payroll charges payable		23		125.6			133.1
Income tax and social contribution				8.6			18.8
Financial guarantee and residual value		25		29.5			90.0
Dividends payable		29.8		37.3			45.7
Unearned income				183.5			173.6
Provisions		26.1		95.4			98.5

				2,552.9			2,892.7

NON-CURRENT
Loans and financing		20		2,418.4			2,115.0
Non-recourse and recourse debt		10		389.7			388.1
Other payables		21		87.6			88.3
Advances from customers		22		176.1			131.1
Taxes and payroll charges payable		23		144.1			215.6
Deferred income tax and social contribution		24		270.4			209.2
Financial guarantee and residual value		25		208.5			203.5
Unearned income				145.4			101.1
Provisions		26.1		153.1			165.7

				3,993.3			3,617.6

TOTAL LIABILITIES				6,546.2			6,510.3


SHAREHOLDERS’ EQUITY
Capital		29.1		1,438.0			1,438.0
Treasury shares		29.4		(60.1	)		(103.8	)
Revenue reserves				2,429.5			2,205.5
Share-based remuneration		30		33.1			27.8
Accumulated other comprehensive loss				(75.7	)		(33.9	)

				3,764.8			3,533.6

Non-controlling interest				100.0			98.6

TOTAL SHAREHOLDERS’ EQUITY				3,864.8			3,632.2


TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY				10,411.0			10,142.5

The accompanying notes are an integral part of these consolidated financial statements.

F-5

Embraer S.A.

Consolidated Statements of Income

Years Ended

In millions of U.S. dollars


	Note		12.31.2014			12.31.2013			12.31.2012
Revenue				6,288.8			6,235.0			6,167.0
Cost of sales and services				(5,038.3	)		(4,818.9	)		(4,676.6	)

Gross Profit				1,250.5			1,416.1			1,490.4
Operating Income (Expense)
Administrative				(207.5	)		(210.5	)		(279.2	)
Selling				(419.9	)		(454.4	)		(480.4	)
Research				(47.1	)		(74.7	)		(77.3	)
Other operating income (expense), net		33		(32.6	)		36.9			(42.8	)
Equity in income (losses) of associates				(0.1	)		—			1.2

Operating profit before financial income				543.3			713.4			611.9

Financial income (expense), net		35		(24.5	)		(96.4	)		(6.8	)
Foreign exchange gain (loss), net		36		(14.9	)		(14.6	)		8.7

Profit before taxes on income				503.9			602.4			613.8
Income tax expense		24.2		(156.2	)		(256.4	)		(265.2	)

Net income for the year				347.7			346.0			348.6

Attributable to:
Owners of Embraer				334.7			342.0			347.8
Non-controlling interest				13.0			4.0			0.8
Weighted average number of shares (in thousands)
Basic		31		733,677			729,001			725,023
Diluted		31		737,463			733,796			727,731
Earnings per share-basic in US$		31		0.4562			0.4691			0.4797
Earnings per share-diluted in US$		31		0.4538			0.4661			0.4780

The accompanying notes are an integral part of these consolidated financial statements.

F-6

Embraer S.A.

Consolidated Statements of Comprehensive Income

Years Ended

In millions of U.S. dollars


	12.31.2014			12.31.2013			12.31.2012
Net income for the year		347.7			346.0			348.6
Items that are or may be reclassified subsequently to profit or loss
Actuarial loss on post employment benefit obligation		(0.8	)		(7.4	)		(37.4	)
Translation adjustments		(51.5	)		9.0			6.1
Put options of minority interest		—			1.1			—
Financial instruments available for sale		(1.1	)		(0.9	)		—

Other comprehensive income, net of tax effects⁽ⁱ⁾		(53.4	)		1.8			(31.3	)

Total of comprehensive income		294.3			347.8			317.3

Attributable to:
Owners of Embraer		292.9			344.4			312.8
Non-controlling interest		1.4			3.4			4.5

		294.3			347.8			317.3

(i)	presented items above are net of deferred income tax.

The accompanying notes are an integral part of these consolidated financial statements.

F-7

Embraer S.A.

Consolidated Statements of Shareholders’ Equity

Years Ended

In millions of U.S. dollars


									Revenue reserves									Accumulated other comprehensive (loss) income
		Capital		Treasury shares			Share-based remuneration		Investment subsidy		Legal Reserve		For investment and working capital		Retained earnings			Result in transactions with non controlling interest			Actuarial gain (loss) on post employment benefit obligation			Cumulative Translation adjustment			Other Cumulative Translation adjustment			Total Shareholders equity			Non-controlling interest			Total Shareholders’ equity
At December 31, 2011			1,438.0		(183.7	)		13.1		32.6		131.6		1,573.1		—			—			0.7			1.9			—			3,007.3			110.5			3,117.8

Net income for the year			—		—			—		—		—		—		347.8			—			—			—			—			347.8			0.8			348.6
Actuarial loss on post employment benefit obligation			—		—			—		—		—		—		—			—			(37.4	)		—			—			(37.4	)		—			(37.4	)
Translation adjustments —subsidiaries			—		—			—		—		—		—		—			—			—			2.4			—			2.4			3.7			6.1

Total comprehensive income			—		—			—		—		—		—		347.8			—			(37.4	)		2.4			—			312.8			4.5			317.3
Share-based remuneration			—		—			7.9		—		—		—		—			—			—			—			—			7.9			—			7.9
Stock options grants exercised			—		29.5			—		—		—		—		(15.0	)		—			—			—			—			14.5			—			14.5
Acquisition of non controlling interest			—		—			—		—		—		—		—			5.6			—			—			—			5.6			(23.0	)		(17.4	)
Allocation of profits:
Investment in subsidy			—		—			—		4.3		—		—		(4.3	)		—			—			—			—			—			—			—
Legal reserve			—		—			—		—		17.1		—		(17.1	)		—			—			—			—			—			—			—
Interest on own capital			—		—			—		—		—		—		(75.1	)		—			—			—			—			(75.1	)		—			(75.1	)
Dividends			—		—			—		—		—		—		(14.7	)		—			—			—			—			(14.7	)		—			(14.7	)
Reserve for investments and working capital			—		—			—		—		—		221.6		(221.6	)		—			—			—			—			—			—			—

At December 31, 2012			1,438.0		(154.2	)		21.0		36.9		148.7		1,794.7		—			5.6			(36.7	)		4.3			—			3,258.3			92.0			3,350.3

Net income for the year			—		—			—		—		—		—		342.0			—			—			—			—			342.0			4.0			346.0
Actuarial loss on post employment benefit obligation			—		—			—		—		—		—		—			—			(7.4	)		—			—			(7.4	)		—			(7.4	)
Translation adjustments			—		—			—		—		—		—		—			—			—			9.9			—			9.9			(0.9	)		9.0
PUT options of non-controlling interest			—		—			—		—		—		—		—			—			—			—			1.1			1.1			—			1.1
Financial instruments available for sale			—		—			—		—		—		—		—			—			—			—			(0.9	)		(0.9	)		—			(0.9	)

Total comprehensive income			—		—			—		—		—		—		342.0			—			(7.4	)		9.9			0.2			344.7			3.1			347.8
Share-based remuneration			—		—			6.8		—		—		—		—			—			—			—			—			6.8			—			6.8
Stock options grants exercised			—		50.4			—		—		—		—		(27.1	)		—			—			—			—			23.3			—			23.3
Acquisition of non controlling interest			—		—			—		—		—		—		—			(9.8	)		—			—			—			(9.8	)		3.5			(6.3	)
Allocation of profits:
Investment in subsidy			—		—			—		3.2		—		—		(3.2	)		—			—			—			—			—			—			—
Legal reserve			—		—			—		—		16.6		—		(16.6	)		—			—			—			—			—			—			—
Interest on own capital			—		—			—		—		—		—		(68.8	)		—			—			—			—			(68.8	)		—			(68.8	)
Dividends			—		—			—		—		—		—		(20.9	)		—			—			—			—			(20.9	)		—			(20.9	)
Reserve for investments and working capital			—		—			—		—		—		205.4		(205.4	)		—			—			—			—			—			—			—

At December 31, 2013			1,438.0		(103.8	)		27.8		40.1		165.3		2,000.1		—			(4.2	)		(44.1	)		14.2			0.2			3,533.6			98.6			3,632.2

Net income for the year			—		—			—		—		—		—		334.7			—			—			—			—			334.7			13.0			347.7
Actuarial loss on post employment benefit obligation			—		—			—		—		—		—		—			—			(0.8	)		—			—			(0.8	)		—			(0.8	)
Translation adjustments			—		—			—		—		—		—		—			—			—			(39.9	)		—			(39.9	)		(11.6	)		(51.5	)
Financial instruments available for sale			—		—			—		—		—		—		—			—			—			—			(1.1	)		(1.1	)		—			(1.1	)

Total comprehensive income			—		—			—		—		—		—		334.7			—			(0.8	)		(39.9	)		(1.1	)		292.9			1.4			294.3
Share-based remuneration			—		—			5.3		—		—		—		—			—			—			—			—			5.3			—			5.3
Stock options grants exercised			—		43.7			—		—		—		—		(23.6	)		—			—			—			—			20.1			—			20.1
Allocation of profits:
Investment in subsidy			—		—			—		0.6		—		—		(0.6	)		—			—			—			—			—			—			—
Legal reserve			—		—			—		—		15.0		—		(15.0	)		—			—			—			—			—			—			—
Interest on own capital	16.5		—		—			—		—		—		—		(81.0	)		—			—			—			—			(81.0	)		—			(81.0	)
Dividends			—		—			—		—		—		—		(6.1	)		—			—			—			—			(6.1	)		—			(6.1	)
Reserve for investments and working capital			—		—			—		—		—		208.4		(208.4	)		—			—			—			—			—			—			—

At December 31, 2014			1,438.0		(60.1	)		33.1		40.7		180.3		2,208.5		—			(4.2	)		(44.9	)		(25.7	)		(0.9	)		3,764.8			100.0			3,864.8

The accompanying notes are an integral part of these consolidated financial statements.

F-8

Embraer S.A.

Notes to the Consolidated Statements of Cash Flows

Years Ended

In millions of U.S. dollars


	Note		12.31.2014			12.31.2013			12.31.2012
Operating activities
Net income for the year				347.7			346.0			348.6
Adjustment to net income for items not affecting cash
Depreciation		16		168.9			145.8			139.9
Amortization		17		117.4			144.8			138.9
Contribution from suppliers		17		(25.2	)		(26.0	)		(31.8	)
Allowance (reversal) for inventory obsolescence				(5.3	)		13.4			9.2
Inventory and PPE provision for adjustment to realizable value				22.0			28.6			39.3
Provision (reversal) for doubtful accounts				(1.9	)		(4.8	)		11.4
Deferred income tax and social contribution		24.2		79.1			192.6			75.3
Accrued interest				16.4			(2.4	)		(5.5	)
Equity in the losses (gain) of associates				0.1			3.6			(1.2	)
Share-based remuneration				5.3			6.8			7.9
Foreign exchange gain (loss), net		35		11.9			1.9			4.5
Residual value guarantee		25		19.0			21.3			14.0
Other				3.3			0.3			0.9
Changes in assets:
Financial investments				150.9			(443.7	)		160.0
Derivative financial instruments				14.3			18.4			(5.4	)
Collateralized accounts receivable and accounts receivable				(149.1	)		(40.0	)		10.8
Customer and commercial financing				5.1			35.9			(7.3	)
Inventories				(108.8	)		(157.2	)		70.1
Other assets				(107.2	)		60.1			(162.0	)
Changes in liabilities:
Trade accounts payable				(27.8	)		258.4			(72.2	)
Non-recourse and recourse debt				(0.3	)		—			(62.4	)
Other payables				10.3			125.7			140.5
Contribution from suppliers				151.8			84.5			1.0
Advances from customers				(167.6	)		50.4			(48.2	)
Taxes and payroll charges payable				(52.1	)		(62.5	)		23.5
Financial guarantees				(74.5	)		(312.2	)		(8.6	)
Other provisions				24.4			42.0			(125.0	)
Unearned income				54.2			32.9			26.8

Net cash generated operating activities				482.3			564.6			693.0

Investing activities
Acquisition of property, plant and equipment		16		(283.7	)		(437.6	)		(328.0	)
Proceeds from sale of property, plant and equipment				—			0.2			1.3
Additions to intangible assets		17		(415.4	)		(316.6	)		(252.4	)
Investments in associates		14		(0.5	)		—			2.5
Business acquisitions, net of cash acquired				—			2.5			(6.2	)
Acquisition of non controlling interest							(17.3	)		(17.4	)
Proceeds from financial investments				28.1			4.8			(17.1	)

Net cash used in investing activities				(671.5	)		(764.0	)		(617.3	)

Financing activities
Repayment of borrowings				(386.1	)		(650.2	)		(1,225.3	)
Proceeds from borrowings				798.6			890.8			1,692.6
Dividends and interest on own capital				(99.3	)		(71.4	)		(59.5	)
Proceeds from stock options exercised				20.1			23.3			14.5

Net cash generated by financing activities				333.3			192.5			422.3

Increase (decrease) in cash and cash equivalents				144.1			(6.9	)		498.0
Effects of exchange rate changes on cash and cash equivalents				(114.8	)		(106.4	)		(48.8	)
Cash and cash equivalents at the beginning of the year				1,683.7			1,797.0			1,347.8

Cash and cash equivalents at the end of the year				1,713.0			1,683.7			1,797.0

The accompanying notes are an integral part of these consolidated financial statements.

F-9

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

1.	Operations

Embraer S.A. (the “Embraer” or “the Company”) is a publicly-held Company incorporated under the laws of the Federative Republic of Brazil with headquarters in São José dos Campos, State of São Paulo, Brazil. The corporate purpose of the Company is:

(i)

To design, build and market aircraft and aerospace materials and related accessories, components and equipment, according to the highest standards of technology and quality;

(ii)

To perform and carry out technical activities related to the manufacturing and servicing of aerospace materials;

(iii)

To contribute to the training of technical personnel as necessary for the aerospace industry;

(iv)

To engage in other technological, manufacturing and business activities in connection with the aerospace industry, and to provide services therefor;

(v)

To design, build and trade in equipment, materials, systems, software, accessories and components for the defense, security and power industries, as well as perform and carry out technical activities related to the manufacturing and servicing thereof, in accordance with the highest technological and quality standards; and

(vi)

To conduct other technological, manufacturing, trading and services activities related to the defense, security and power industries.

The Company’s shares are listed on the enhanced corporate governance segment of the Stock Exchange in Brazil (“BM&FBOVESPA”), known as the New Market (“Novo Mercado”). Embraer S.A. also has American Depositary Shares (evidenced by American Depositary Receipts—ADRs) which are registered with the Securities and Exchange Commission (“SEC”) and are listed on the New York Stock Exchange (“NYSE”). The Company has no controlling group and its capital is comprised entirely of common shares.

These consolidated financial statements were approved by the Board of Directors of the Company on March 03, 2015.

2.	Presentation of the Financial Statements and Accounting Practices

2.1

Presentation and preparation of the financial statements

The consolidated financial statements have been prepared in conformity with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) which includes (i) IFRS, (ii) the International Accounting Standard (“IAS”), and (iii) the International Financial Reporting Interpretations Committee (“IFRIC”) or its predecessor, the Standing Interpretations Committee (“SIC”).

2.1.1

Basis of preparation

These consolidated financial statements were prepared under the historical cost convention except when the item requires different criteria and adjusted to reflect assets and liabilities measured at fair value through profit or loss or marked to market when available for sale.

The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management of the Company to exercise its judgment in the process of applying the Company’s accounting policies. These consolidated financial statements include accounting estimates for certain assets, liabilities and other transactions.

The areas which involve a higher degree of judgment or complexity, or assumptions and estimates significant to the consolidated financial statements are disclosed in Note 3.

F-10

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

2.1.2

Consolidation

The consolidated financial statements include the balances of December 31, 2014 financial statements of the Company and all subsidiaries that Embraer, directly or indirectly has control, special purpose entities (SPEs) for which the Company has control, exclusive investment funds (FIE) and participation investment funds (FIP). Jointly controlled entities (joint ventures) are not consolidated and are presented as Investments and accounted for by the equity method. Joint operations are consolidated in the proportion of investiment.

All accounts and balances arising from transactions occurred between consolidated entities are eliminated.

a)	Subsidiaries

Subsidiaries are all entities (including SPEs) whose financial and operating policies can be directed by the Company and in which it normally holds more than half of the voting shares. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company.

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

b)	Consortia

The activities of a Consortium and their registration in its accounting records are governed by specific regulations. There is not a specific vehicle established of this operation, as based on its caractheristics it is considered as a joint operation. Although there are mandatory accounting controls, applicable to the consortia, the entries are posted in the accounts of the members of consortia in accordance with the proportion of the consortia attributed to each one. Such accounts of the members, which are subsidiaries of Embraer are consolidated financial statements of the Company.

2.1.3

Interest in other entities

Interest in other entities is not consolidated in the consolidated financial statements. As of December 31, 2014, these comprise AEL Sistemas SA—“AEL”, domiciled in Porto Alegre, Brazil, in which Embraer Defesa e Segurança Participações S.A. has a 25% interest. AEL’s main activities are research, development, manufacture and sales of electronic components: electronic equipment used in aviation and software programs. Despite its 25% interest, Embraer Defesa e Segurança Participações S.A. does not have significant influence in AEL, and, therefore, the investment is classified as a non-current financial instrument asset, measured at fair value, and the changes in valuation are recognized in other comprehensive income and presented in shareholders’ equity.

2.1.4

Company’s corporate structure

ELEB—Equipamentos Ltda.—“ELEB”—a wholly-owned subsidiary located in São José dos Campos, São Paulo, Brazil, which produces and sells precision hydraulic and mechanical equipment for the aviation industry, mainly for Embraer aircraft.

Embraer Aircraft Holding Inc.—“EAH”—a wholly-owned subsidiary, located in Fort Lauderdale, United States, responsible for corporate and institutional activities. It also has the following wholly-owned subsidiaries also located in the United States:

•

Embraer Aircraft Customer Services, Inc.—“EACS” – located in Fort Lauderdale, United States of America, sells spare parts and provides product support to customers in the United States, Canada and the Caribbean.

F-11

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

•

Embraer Aircraft Maintenance Services Inc.—“EAMS”— located in Delaware, with its operational base in Nashville, United States of America, provides maintenance services for aircraft and components.

•

Embraer Training Services—“ETS”—located in Dallas, United States, is responsible for corporate and institutional activities and has a 51% subsidiary, Embraer CAE Training Services—“ECTS”, also located in Dallas, which provides training for pilots, mechanics and crew.

•

Embraer Executive Jet Services, LLC—“EEJS”—located in Delaware, provides after sales support services and maintenance services for executive aircraft.

•

Embraer Services Inc.—“ESI”— located in Delaware, with its operational base in Fort Lauderdale, United States of America, which provides support in the United States for the defense and commercial market programs.

•

Embraer Executive Aircraft, Inc.—“EEA”—located in Delaware, has its operational base in Melbourne, Florida, United States where it provides final assembly and delivery of the Phenom executive jet.

•

Embraer Engineering & Technology Center USA, Inc.—“EETC”— located in Delaware in the United States provides engineering services related to research and development of aircraft.

•

Aero Seating Technologies LLC.—“AST”—a subsidiary in which EAH holds 85.5% of the capital, is domiciled in San Gabriel, United States of America and its core activity is the production and maintenance of aircraft seats.

•

Embraer Defense and Security Incorporated—“EDSI”— located in Jacksonville Florida in the United States, and is the basis to attend the LAS (Light Air Support) program which is providing aircraft A-29 Super Tucano for the U.S. Air Force.

Embraer Australia PTY Ltd.—“EAL”—a wholly-owned subsidiary—located in Melbourne, Australia, which provided after-sales support services to customers in the Australasian and Asian regions. The company is currently inactive.

Embraer Aviation Europe SAS—“EAE”—a wholly-owned subsidiary—located in Villepinte, France, is responsible for corporate and institutional activities and has the following wholly-owned subsidiaries:

•

Embraer Aviation International SAS—“EAI”—located in Villepinte—sells parts and provides after sales support services in Europe, Africa and the Middle East.

•

Embraer Europe SARL—“EES”—located in Villepinte—provides sales representation for the Company in Europe, Africa and the Middle East.

Embraer Credit Ltd.—“ECL”—a wholly-owned subsidiary—located in Delaware, which provides support for sales operations.

Embraer GPX Ltda—“GPX” – a subsidiary with 99.9% of its capital is held by Embraer, located in Gavião Peixoto, State of São Paulo, provides specialized aircraft maintenance services.

Embraer Overseas Limited—“EOS”—a wholly-owned subsidiary—located in the Cayman Islands, B.W.I., with the sole objective of carrying out financial transactions, including raising and investing funds, and provides intercompany loans for Embraer companies.

Embraer Representation LLC—“ERL”—a wholly-owned subsidiary—located in Delaware—provides commercial and institutional representation for the Company.

Embraer Spain Holding Co. SL—“ESH”—a wholly-owned subsidiary—located in Spain—coordinates investments in subsidiaries abroad. ESH’s operations are carried out by the following subsidiaries:

•

ECC Investment Switzerland AG, a wholly-owned subsidiary, located in Switzerland, holds 100% of the capital of the following:

F-12

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

•

ECC Insurance & Financial Co. Ltd.— “ECC Insurance”—located in the Cayman Islands, is an in-house insurance company providing cover for the financial guarantees offered to customers and/or financing agents involved in structuring the sales of Embraer aircraft.

•

Embraer Finance Ltd.—“EFL”—located in the Cayman Islands, assists customers in obtaining third-party financing, as well as providing support for some of the Company’s purchase and sale transactions.

•

Harbin Embraer Aircraft Industry Company Ltd. “HEAI”— a subsidiary consolidated by Embraer, in which Embraer Spain Holding Co. SL holds 51% of the capital, is based in the town of Harbin, China.With the objective of manufacturing aircraft to meet the demands of the Chinese air transport market, its activities has been dedicated to the manufacture of Legacy 600/650 executive jets since signing an agreement with the leaders of the Chinese Government whose the first delivery occurred in the 1^st quarter 2014.

Embraer Netherlands B.V.— “ENL”—a wholly-owned subsidiary—located in Netherlands, has as its main objective the coordination of investments in subsidiaries abroad, including those intended to support the marketing activities of aircraft and asset management from these operations. The activities of ENL are affected by its subsidiaries:

•

Embraer Asia Pacific PTE. Ltd.—“EAP”—a wholly-owned subsidiary—located in Singapore with the objective of providing after-sales support and aircraft spare parts services in Asia.

•

Airholding SGPS, S.A.—a wholly-owned subsidiary—located in Portugal. Its main activity is its 65% participation in the voting capital of OGMA—Indústria Aeronáutica de Portugal S.A., a Portuguese aviation maintenance and production company. The remaining 35% of the voting capital is held by Empresa Portuguesa de Defesa—EMPORDEF.

•

ECC Leasing Co. Ltd.— “ECC Leasing”— a wholly-owned subsidiary—located in Dublin, Ireland, leases and sells used aircraft.

•

EMBRAER CAE Training Services Ltd.—“ECUK” – a subsidiary in which ENL holds 51% of the capital, located in Burges Hill, United Kingdom, provides training for pilots, mechanics and crew.

•

EMBRAER Portugal—SGPS S.A.—a wholly-owned subsidiary located in Evora, Portugal, coordinates investments and economic activities in the following wholly-owned subsidiaries as following:

•

Embraer-Portugal Estruturas Metalicas S.A.—located in Evora, Portugal, manufactures, assembles, maintains and sells parts, components and metal sets and carries out other technological, industrial, commercial and service activities related to the metal products industry.

•

Embraer-Portugal Estruturas em Compositos S.A.—located in Evora, Portugal manufactures, assembles and sells structures based on parts and sets in composite materials and carries out other technological, industrial, commercial and service activities related to the composite, non-metal products manufacturing industry.

•

Embraer (China) Aircraft Technical Services Co., Ltd — “ECA”, a wholly-owned subsidiary located in Beijing, China, provides after-sales support services, maintenance services and sells parts to customers in the China.

•

EZ Air Interior Limited. “EZ”—joint venture owned by Embraer Netherlands and Zodiac Aerospace (50% each)—located in Ireland, with the objective of manufacturing cabin interiors of the EMBRAER 170/190 jet family and will be jointly operated with a factory located in México.

F-13

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

ECC do Brasil Participações S.A.— “ECC”— a subsidiary with 99.9% of its capital is held by Embraer, domiciled in São José dos Campos, São Paulo, Brazil, aims to participate as a partner or shareholder in other companies, but is out of operation at this time.

Indústria Aeronáutica Neiva Ltda.—“Neiva”— a wholly-owned subsidiary located in Botucatu, State of São Paulo, Brazil, sells agricultural aircraft and related parts and components.

Embraer Defesa e Segurança Participações S.A. “EDSP”— a wholly-owned subsidiary, located in São José dos Campos, state of São Paulo, Brazil, coordinates the investments in the Defense and Security segment and holds interests in the following companies:

•

Bradar Indústria S.A.— of which 90% of its capital is held by Embraer Defesa e Segurança Participações S.A.—located in São José dos Campos, state of São Paulo, Brazil, develops technology for remote sensing and builds air, sea and land surveillance radars.

•

Bradar Aerolevantamento Ltda— located in São José dos Campos, State of São Paulo, with the participation of Bradar Indústria S.A. in 25% of its capital, it aims at providing aerial survey service (mapping areas based on advanced technology onboard aircraft) and remote sensing.

•

Atech Negócios em Tecnologias S.A.—“Atech”—wholly owned subsidiary of Embraer Defensa & Segurança S.A. Located in São Paulo, it develops strategic solutions for command, control, communications, computers and intelligence and provides specialized consulting services and technical and logistics support in all of the following project phases: conceptualization, specification, development, integration, implementation management, installation, testing, maintenance and training.

•

Harpia Sistemas S.A.—“Harpia”—located in Brasilia, Distrito Federal, Brazil, is an entity controlled by Embraer Defesa e Segurança Participações S.A., which hold interests of 51%, 40% interests are hold by AEL Sistemas (a subsidiary of Elbit Systems Lts. Of Israel), and 9% interests are hold by Avibrás Divisão Aérea e Naval S.A. Its main activity is the development, construction, sale, maintenance, modernization and after-sales services of unmanned aerial vehicles (“UAV’s”). Harpia Sistemas S.A. will also focus on marketing, development, systems integration, manufacturing, sales and after-sales support of simulators and modernization of avionics systems.

•

Visiona Tecnologia Espacial S.A.—“Visiona”— located in São José dos Campos, State of São Paulo, Brasil, and fully consolidated subsidiary of Embraer, in which Embraer Defesa e Segurança Participações S.A. and Telebrás hold interests of 51% and 49%, respectively. It will initially act integration and delivery of the Geostationary Satellite System Defense Communication (SGDC) of the Brazilian Government, with the aim of serving the satellite communication needs of the federal government, including the National Broadband Program and a wide spectrum of strategic defense transmissions.

•

Visiona International B.V. (International Visiona) — wholly owned subsidiary of Visiona Brazil, located in Amsterdam in Netherlands, and work on integrating and providing of the SGDC – Brazilian Government system.

•

SAVIS Tecnologia e Sistemas S.A.—“SAVIS” — incorporated in June 2012 and based in Campinas, State of São Paulo, is a wholly owned subsidiary of Embraer Defesa e Segurança. Its objective is to operate with the Brazilian government in the defense and security market.

Special Purpose Companies—“SPEs”—the Company organizes some of its aircraft sale financing transactions through SPEs, in which the Company has no direct or indirect interest. Although it has no equity interests, the Company controls all operations of the SPEs or takes a majority share of their risks and rewards, therefore the SPEs are consolidated in the financial statements of the Parent Company (Embraer S.A.). The consolidated SPEs are: PM Limited, Refine Inc., RS Limited, River One Ltd. and Table Inc. Other SPEs in which Embraer has no control or continuous involvement were not consolidated, based on technical analyses made by Management. Apart from the consolidated SPEs mentioned, Embraer has no significant risks attributed to other structured operations involving SPEs.

F-14

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

Consortium Tepro—a consortium formed by Savis Tecnologia e Sistemas S.A. and Bradar Indústria S.A., companies controlled by Embraer Defesa e Segurança Participações S.A., created to meet the Brazilian Army in November 2012 for implementation of the first phase of the Integrated Frontier Monitoring System (Sistema Integrado de Monitoramento de Fronteiras—Sisfron). Located in Campinas—SP, the consortium is 93.5% owned by Savis and 6.5% owned by Bradar. For the case of a consortium, which has a different legal form, its operations are reflected in the financial statements of its participating SAVIS and Bradar.

Exclusive Investment Funds—in connection with its business strategies, the Company has investments in exclusive funds, which are consolidated in the financial statements. The balances of marketable securities and investments maintained through these funds are recorded in cash and cash equivalents or financial investments, based on the original maturities of the securities and the fund investment strategies, which take into account immediate liquidity (Note 5 and 6).

Equity investment fund (FIP)—set up in the 2nd half of 2014, it is an Embraer initiative with BNDES, FINEP and Desenvolve SP, and was created with the aim to strengthen the aerospace supply chain, aerospace, defense and security and promote integration of related systems to these sectors through support for small and medium enterprises.

2.2

Summary of significant accounting policies

The accounting policies presented next are the more relevant ones adopted on the preparation of these financial statements. Are considered as relevant accounting practices that, if not disclosed could comprimise the correct interpretation of the financial statements, either because of the existence of more than one treatment option offered by the international acounting standards or by the complexity of the operation. The accounting policies used by the Company are:

2.2.1

Functional and presentation currency

After analyzing Embraer’s operations and businesses, particularly in relation to the factors involved in determining its functional currency, Management concluded that the Company’s functional currency is the US dollar (“US$” or “dollar”). This conclusion was based on an analysis of the following indicators:

•

Currency that most influences sales prices of goods and services;

•

Currency of the country whose competitive forces and regulations most determine the sales price of its goods and services;

•

Currency that most influences labor, materials and other costs of providing goods or services;

•

Currency in which the funds for financial operations are largely obtained; and

•

Currency in which revenue from operations is usually accumulated.

2.2.2

Transactions in foreign currencies

Transactions in currencies other than the functional currency are translated to the functional currency, using the exchange rates in effect on the date of the transactions or measurement, on which the items are re-measured. Foreign exchange gains and losses resulting from translation using the closing rate at the end of the year, relating to monetary assets and liabilities that are due or payable in currencies other than the functional currency, are recognized in the statement of income.

2.2.3

Translation of subsidiaries’ financial statements

For subsidiaries whose functional currency is a currency other than the US dollar, asset and liability accounts are translated into the Company’s reporting currency using exchange rates in effect at the date of the statement of financial position, and income and expense items are translated using period average exchange rates. The resulting translation adjustments are reported in a separate component of shareholders’ equity, as cumulative translation adjustment.

F-15

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

2.2.4

Financial Instruments

Financial assets

The Company classifies its financial assets among the following categories: (i) measured at fair value through profit or loss, including assets held for trading (ii) available for sale, (iii) held to maturity and (iv) loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management decides on the classification of its financial assets at initial recognition.

Regular purchases and sales of financial assets are recognized on the trade date—the date on which the Company commits to purchase or sell the asset.

Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are expensed in the statement of income.

Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred. Derecognition occurs if the Company has transferred substantially all risks and rewards of the asset ownership.

Classification and measurement

b.1)

Financial assets measured at fair value through profit or loss

Financial assets measured at fair value through profit or loss are those held for active and frequent trading and are classified as current assets. Gains and losses resulting from differences in the fair value are presented in the statement of income in financial income in the period in which they occur.

The fair values of publicly quoted investments are based on the current purchase and sale prices. In the case of financial assets without an active market or not publicly quoted, the Company uses valuation techniques to calculate the fair value. These methods include comparison with recent transactions with third parties, reference to other substantially similar instruments, analysis of discounted cash flows and options pricing models that prioritize market information and minimize information generated by Management.

b.2)

Financial assets available for sale

Financial assets available for sale are non-derivative instruments classified in this category. They are included in non-current assets, unless Management intends to dispose of the investment within 12 months after the statement of financial position date and are recorded at fair value.

The interest on securities available for sale, calculated by the effective interest rate method, is recorded in the statement of income as financial income (expense). The portion corresponding to the change in fair value is posted directly to shareholders’ equity, in other comprehensive income, and realized through profit or loss on settlement when the loss is considered permanent (impairment).

b.3)

Investments held to maturity

The investments in non-derivative instruments that the Company has the ability and intention to hold until maturity are classified as investments held to maturity and are measured initially recorded at fair value, including cost of the transaction and subsequently at amortized cost.

The Company evaluates whether there is objective evidence that a financial asset or a group of financial assets is registered above its recovery value. When applicable, a provision for devaluation is recognized.

b.4)

Loans and receivables

This category includes loans granted and receivables that are non-derivative financial assets with fixed or determinable payments, not quoted in an active market.

F-16

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

The Company’s loans and receivables comprise loans to associates, trade accounts receivable, customer financing and other accounts receivable.

The Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. When applicable, a loss allowance is recorded.

2.2.5

Cash and cash equivalents

Cash and cash equivalents includes cash on hand, cash in transit (amounts paid by our customers or debtors but at the reporting date was in the release process by intervening bank), bank deposits and highly liquid short-term investments, usually maturing within 90 days of the investment date, readily convertible into a known amount of cash and subject to an insignificant risk of change in value. This classification includes repurchase agreements and Bank Deposit Certificates—CDBs with a daily liquidity index in the Clearing House for the Custody and Financial Settlement of Securities—CETIP.

Amounts related to cash and cash equivalents, which, however, are not available for use by the Company, are presented within other assets in the consolidated financial statements.

2.2.6

Trade accounts receivable

Trade accounts receivable are recognized initially at present value and include revenues recorded using the percentage-of-completion of the project based on the methods of incurred costs or physical advancement, net of the respective customer advances received from any provision for doubtful accounts.

An allowance for doubtful accounts of trade receivable is recorded when there is objective evidence that the Company will not be able to recover all the amounts owed by its customers. Significant financial difficulties of the debtor, probability of the debtor filing for bankruptcy or reorganization proceedings and failure to pay or default are considered indicators that the trade receivables are impaired. The amount of the provision is the difference between the book value and the recoverable value.

The present value calculation, where applicable, is made on the date of the transaction based on an interest rate that reflects the timing and market conditions at the time.

2.2.7

Derivative financial instruments and hedge operations

The Company uses derivative instruments to protect its operations against the risk of fluctuations in foreign exchange and interest rates; they are not used for speculative purposes.

Gains and losses on derivative transactions are recorded monthly in profit or loss, taking into account the realizable value of these instruments (market value). The provision for unearned gains and losses is recognized in the statement of financial position under derivative financial instruments, and the counterpart in profit and loss under financial income (expense) net, (Note 34), except for operations to hedge exposures to changes in exchange rate or designated as hedge accounting.

Embedded derivatives are separated from their host contracts and are measured at their fair values as long as they meet the derivative definition.

2.2.8

Hedge accounting

Derivative transactions contracted to protect the company against financial risks, accounted for differently, that seek to eliminate the effects of the volatility caused by such risks.

At the time of initial designation of the hedge, the Company formally documents the relationship between hedging instruments and items that are hedged, including the risk management objectives and the strategy for conducting the transaction, together with the methods used to evaluate the effectiveness of the relationship. The Company continually assesses the contract to conclude whether the instrument is “highly effective” in offsetting changes in fair value of the hedged items during the period for which the hedge is designated, and whether the actual results of each hedge are within the range of effectiveness of 80% to 125%.

F-17

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

The Company has derivative financial instruments designated as fair value hedge and cash flow hedges, as follows:

Fair value hedges

Changes in the fair value of derivatives that are designated as hedges are recorded in the statement of income, together with any changes in the fair value of the hedged asset or liability attributable to the hedged risk. The Company only uses fair value hedge accounting to hedge fixed interest risk on borrowings.

If the hedge no longer meets the hedge accounting criteria, the fair value of the instrument continues to be recognized in the statement of income and the fair value of the hedged item is treated as if it were not hedged and amortized to profit or loss over the period to maturity.

Cash flow hedges

The Company uses hedge accounting for cash flow hedges in order to protect itself from cash flow variations attributed to exchange rate variation risk related to a transaction that will likely affect the Company’s results.

The effective portion of changes in the fair value of derivatives that are designated as cash flow hedges is recognized in shareholders’ equity under other comprehensive income. The gain or loss related to the ineffective portion is recognized in profit or loss as financial income (expense).

Amounts accumulated in equity are reclassified to the statement of income in the periods when the hedged item affects profit or loss. However, when the forecasted transaction that is hedged results in the recognition of a non-financial asset, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset.

When a cash flow hedge instrument is settled, or no longer meets the criteria for hedge accounting, any cumulative gain or loss in equity at that time is realized against profit or loss. When the hedged transaction is no longer expected to occur, the gain or loss in equity is immediately transferred to profit or loss for the year under financial income (expense).

2.2.9

Customer and commercial financing

These relate to financing granted to customers on the sale of certain aircraft and are measured at the amortized cost, by the effective interest rate method.

2.2.10

Collateralized accounts receivable and recourse and non-recourse debt

Collateralized accounts receivables are related to structured sales operations, where some transactions financing were structured in way that a Specific Purpose Entity (SPE) buys the aircraft, pays to the Company and participates on the structured financing to the final customer, to make the operation viable, the Financing Institution finances the needed resources to the SPE to support the operation. This obligation assumed is registered as non-recourse and recourse debt.

It also relates to aircraft financed sale operation receivable from the clients, in which the company has granted guarantees to the financing agent, because of that, the company recognizes the inflow and outflow of these operations, that are written off as the financing is paid and the financial guarantees are extinct.

2.2.11

Inventories

Inventories, including spare parts and aircrafts, are valued and stated at acquisition or production cost. In all cases the net realizable value is calculated considering the lower of cost or market value. Except for used aircraft, the cost of sales is calculated using the weighted average cost.

F-18

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

Inventories of work in process and finished goods comprise raw materials, direct labor, and general production costs and, when applicable, are reduced to net realizable value after deduction for costs, taxes and selling expenses.

The Company records a valuation allowance when items are determined to be obsolete or are held in quantities that are in excess of projected usage based on Management’s estimate of net realizable values.

2.2.12

Income tax and social contribution

Tax expenses for the year comprise current and deferred income tax. Income tax is recognized in the statements of income, except the portion of deferred income tax relates to items recognized directly in in shareholders’ equity in other comprehensive income, when the tax is also recognized in other comprehensive income.

The current income tax is calculated at their nominal rates of each country, totaling 34% in Brazil, composed of 25% income tax and 9% social contribution on net income.

Deferred income tax is recognized on temporary differences arising between the tax and accounting bases of assets and liabilities.

Transitional tax regime (Regime Tributário de Transição – “RTT”)

In connection with the Transitional Tax Regime (RTT) from 2009, since the application of international accounting standards on its 2008 financial statements, the Company has been calculating its income tax and social contribution on net income based on the accounting practices until December 31, 2007.

On November 11, 2013, the Brazilian Internal Revenue, issued the Provisional Measure nº 627, converted into Law nº 12.973 in May 2014 by changing federal tax laws relating to Tax Corporate Income, Social Contribution on Net Income, the Contribution to PIS/PASEP, Contribution to Social Security Financing – COFINS and revoked the Transitional Tax Regime – RTT, introduced by Law 1941 of May 27, 2009 promoting substantial changes in the rules of taxation in Universal Bases. This Law provides for the taxation of the legal entity located in Brazil and among others, recognizes the effects of the application of international standards giving the respective treatment in the calculation of Income Tax and Social Contribution on Net Income.

Mandatory on January 2015, the Law permited early adoption as of January 2014, however, Management do not applied the early adoption.

2.2.13

Investments

Investments in associates are recorded and valued in the consolidated financial statements using the equity method of accounting. In the case of exchange variations on foreign investments in a different functional currency used by the Company, variations in the value of the investment caused solely by exchange variations are recorded in cumulative translation adjustments, in shareholders’ equity and only transferred to income of the period at the time the investment is sold or written off as a loss.

For purposes of calculating the equity adjustment, unrealized transactions between the Company and its investees are fully eliminated, as is also done for transactions between the subsidiaries. Unrealized losses are not eliminated since they are an indication of asset impairment.

When necessary, the accounting practices of the investees are adjusted to bring them in line with the Company’s practices.

Investments in associated entities in which the Company has significant influence are presented within the Consolidated Investments in affiliates in noncurrent assets (Note 14) and measured by the equity method. Investments in jointly controlled entities are accounted for under the equity method.

F-19

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

2.2.14

Acquisition of new subsidiaries

The purchase method is used to account for acquisition of new subsidiaries. The cost of an acquisition is measured as the fair value of the assets received, equity instruments issued and liabilities incurred or assumed at the acquisition date. The acquisition-related costs are recognized as expenses in the period in which the costs are incurred and the services received. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of acquisition over the fair value of the Company’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the statement of income.

If the business combination is achieved in stages, any non-controlling equity interest previously held in the acquiree’s capital is remeasured to fair value at the acquisition date with gain or loss recognized in the income statement.

2.2.15

Property, plant and equipment

Property, plant and equipment are recorded at purchase, formation or construction cost, less accumulated depreciation and impairment losses.

Depreciation is calculated on the straight-line method based on their estimated useful lives (Note 16). Land is not depreciated.

The Company estimates the residual value for certain aircraft and spare parts included in the Exchange Pool Program. Other items of property, plant and equipment do not have residual value attributed by the Company since, due to the characteristics and use of these assets, it is unusual to dispose of large quantities of these assets and, when this occurs, they are realized at insignificant values.

In the spare parts pool subsequent costs are included in the book value of the asset or recorded as a separate asset, as appropriate, only when it is likely that the item will yield future economic benefits and the cost of the item can be reliably measured. The book value of replacement items or parts is written off. All other repairs and maintenance costs incurred are recorded in the statement of income.

Materials allocated to specific projects are capitalized in property, plant and equipment in progress and subsequently transferred to the final property, plant and equipment accounts.

The items comprising property, plant and equipment are summarized below:

Land—mainly comprises areas on which the industrial, engineering and administrative buildings are located.

Buildings and land improvements—mainly plants, engineering departments and offices, and land improvements include parking lots, road systems and water and sewage networks.

Facilities—comprise auxiliary industrial facilities that directly or indirectly support the Company’s industrial operations, as well as facilities of the engineering and administrative departments.

Machinery and equipment—machinery and other equipment directly or indirectly used in the manufacturing process.

Furniture and fixtures—furniture and fixtures used in the production, engineering and administrative departments.

Vehicles—mainly industrial vehicles and automobiles.

F-20

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

Aircraft—mainly aircraft leased to airlines, and those used by the parent company to assist in testing new projects.

Computers and peripherals—technology equipment used mainly in the production process, engineering and administration.

Tooling—tools used in the production process of the Company.

Property, plant and equipment in progress—construction works to expand the manufacturing plants and aircraft maintenance centers.

Exchange pool program—a spare parts pool for the exclusive use of customers who are included in the Exchange Pool Program and aircraft still under warranty. These spare parts are used for customer service, whereby these customers are allowed to exchange a damaged component for one in working condition, as defined in the contract.

2.2.16

Intangible assets

Research and development

Research costs are recorded as an expense when they are incurred. Costs of product development, including drawings, engineering designs and construction of prototypes, are recorded as intangible assets when it is probable that the projects will generate future benefits, taking into account their commercial and technological feasibility, availability of technological and financial resources and only if the cost can be reliably measured. Development costs that do not meet these criteria are recorded in the statements of income as research expenses, as they occur.

Capitalized development costs begin to be amortized from the moment that benefits begin to accrue (units produced), based on the number of estimated aircraft sales for each project, and the amortized amounts are appropriated to production cost.

These estimates are reviewed on an annual basis or as required. In the case of inactive projects or those that are unlikely to be completed, the deferred costs are written off or reduced to the recoverable amount (impairment).

The Company has agreements with certain key suppliers, here called partners. To ensure their participation in research and development the Company receives cash contributions. The Company records these contributions when received as liabilities. If the contractual milestones are not achieved the amounts are refunded to the suppliers. As the milestones are completed these contributions are recorded as a reduction of development expenditures capitalized in intangible assets.

Computer software

Software licenses are capitalized and amortized over their estimated useful lives.

Costs associated with development or maintaining computer software programs are recognized as an expense as incurred. Development costs that are directly attributable to identifiable and unique software, controlled by the Company and that are expected to generate benefits greater than costs for more than one year, are recorded in intangible assets.

Intangible assets acquired in business combinations

Identified intangible assets acquired under business combinations are recognized at fair value at the acquisition date. Comprising in this group:

c.1)

Goodwill—recorded in the consolidated financial statements as an intangible asset and is not subject to amortization, once that is achievable at the write-off of the investment, and its recoverability is tested at least annually. If it is identified that goodwill will not be recovered in its entirety, an impairment charge is recorded in the statement of income. Recognized impairment losses on goodwill are not reversed.

F-21

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

c.2)

Trademarks—acquired in business combinations and are recognized at fair value at acquisition date. Trademarks have defined useful lives and are amortized on the straight-line method over their estimated useful life.

c.3)

Product development—from business combinations when these represent significant value to the Company. Product development assets have a defined useful life and are amortized according to the estimated useful life of the product.

c.4)

Non-compete agreements—from business combinations as agreed with the sellers for a contractual period. These contracts are recorded at fair value at the acquisition date as an intangible asset and amortized over the term of the contract.

c.5)

Firm orders—acquired in business combinations and represent orders or production orders awaiting execution, are recorded at fair value and amortized over the period of delivery specified in the contracts.

2.2.17

Impairment

Non-current assets held for use are subject to impairment assessment if facts and circumstances indicate that the carrying value is no longer recoverable based upon the higher of the discounted future cash flows of the asset or its net realizable value.

For evaluation purposes, assets are grouped into cash-generating units (CGU) considering the similarity of goods and services produced and provided by the Company and the way it monitors and manages cash flows. The CGU of the Company are set and reviewed annually, according to families / platforms of aircraft and other businesses developed by the parent company and other group companies. These settings are made and revised on corporate level, regardless of location or locations where the assets, goods and services are used, produced or rendered.

The impairment test is carried out in annual periods at the end of each year, except in the existence of any indicators of impairment that the Company will identify what the force to draw up an intermediate impairment test.

In the case of intangible assets, including goodwill for future profitability originated in product development or the acquisition of new business processes, the impairment test is performed for all related CGU, regardless of loss indicators of existence.

The recoverable amount of a CGU is determined based on calculations of value in use. These calculations use cash flow projections, before income tax and social contribution based on financial budgets approved by management (the Company’s Strategic Plan) for the period corresponding to the expected life cycle of each CGU. The cash flow projections consider all the characteristics of the Company’s business in which investments in fixed assets and intangible assets are made, such as the level of investment and the returns (medium-term), and the possible redirection of assets for new business. These flows are discounted to present value using a discount rate consistent with the market and reflects the return expectations of investors.

In the case there is an adjustment on account of non-recovery of assets allocated to a CGU, its value is prorated depending on the net assets of the Group and recognized in all subsidiaries that operate for that CGU within other operating expenses.

2.2.18

Loans and financing

Loans and financing are recognized initially at fair value. Loans and financing are subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the statement of income over the period of the contract using the effective interest method.

F-22

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the drawdown occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the transaction costs are capitalized as a pre-payment for credit line availability services and amortized over the period of the facility to which it relates.

Loans and financing are registered as current liabilities, unless the Company has an unconditional right to defer the settlement of the liability until at least 12 months after the date of the statement of financial position.

2.2.19

Leases

The classification of a lease depends on whether an agreement is or contains a lease, is based on the essence of the agreement and includes a determination as to whether (i) the fulfillment of the agreement depends on the use of one or more specific assets and (ii) the agreement assigns the right to use the asset.

Aircraft leases

Aircraft leases classified as operating leases are recorded on the statement of financial position as property, plant and equipment, and depreciated over their estimated useful lives. The rental income (net of any subsidy granted to the lessee) is recorded by the straight-line method over the lease period.

Other leases

Other leases in which the Company holds substantially all the risks and benefits of ownership are classified as finance leases. Finance leases are recorded as a financed purchase, initially by recording a property, plant and equipment asset and a financial liability (lease). Property, plant and equipment assets purchased as finance leases are depreciated at the rates in Note 16.

Other leases in which a significant part of the risks and benefits of ownership are assumed by the lessor are classified as operating leases. Payments made for operating leases are amortized to the statement of income on the straight-line method over the contract period.

2.2.20

Borrowing costs

Borrowing costs attributable to the acquisition, construction or production of qualifying assets that will not be ready for use or sale for a considerable time are capitalized as part of the cost of the asset. Other borrowing costs are recognized as an expense in the period in which they are incurred. Borrowing costs include interest and other fund raising costs incurred by the Company in connection with the loan resources.

2.2.21

Advances from customers

These refer basically to advances, mostly denominated in dollars, received from customers prior to the delivery of the aircraft.

2.2.22

Financial guarantees and residual value guarantees

In certain cases, after a market analysis, the Company grants financial or residual value guarantees (“RVG”) as part of the aircraft financing structure. The guaranteed residual value is based on the expected future fair value of the aircraft at the end of the funding. Financial guarantees are granted to the lender over the term of such financing agent and are subject to a guaranteed maximum limit on the situation of non-payment of installments of funding by clients and / or operators.

Financial guarantees are calculated at the time of delivery of the aircraft and recognized as a reduction in sales revenue against unearned income. The income is realized on a straight-line basis as sales revenue over the aircraft financing period and all the unearned income is recognized by the end of that period.

F-23

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

To cover the risk of losses on such guarantees, the Company may record an additional provision in the event of significant circumstances such as a customer filing for Chapter 11, based on the estimated losses resulting from the exposure (Note 25).

In some cases, the Company holds guarantees in the form of deposits in favor of third parties to whom financial and RVGs have been provided as part of aircraft financing structures (Note 11).

2.2.23

Dividends and interest on own capital

Under the bylaws, shareholders are entitled to dividends or interest on own capital equivalent to 25% of net income for the year, adjusted in accordance with the bylaws. The calculation takes into account the interest on own capital net of withholding tax.

Proposed distributions of dividends to shareholders are recorded as a liability in the financial statements at the end of the year, pursuant to the bylaws. Any amount over and above the minimum mandatory dividend is recognized in a specific account as additional dividends proposed in the revenue reserve in shareholders’ equity, pursuant to article 196 of Law 6404/76 until it is approved by the shareholders, at which point the reserve is reversed against a liability in the consolidated financial statements.

Interest on own capital paid or provisioned is recorded as a financial expense for tax purposes. However, for purposes of these consolidated financial statements, the amount is disclosed as distribution of net income for the year, and the gross amount is reclassified to shareholders’ equity, as the tax benefits arising from the distribution are included in the net income for the year.

2.2.24

Unearned income

This refers to commitments to supply spare parts, training, technical representatives and other commitments established in sales contracts for aircraft already delivered, the income from which will be amortized when the service or product is delivered to the customer.

This also refers to deferred revenues of defense contracts for which the milestone of the contract has not been completed. Revenue is recognized when the step is completed and the respective costs are recorded.

2.2.25

Provisions, contingent assets and liabilities, legal obligations and judicial deposits

Provisions—provisions are recognized based on the judgment of the Company’s Management and its legal counsel, the nature of the lawsuits, legal precedent, complexity and court interpretations, whenever the loss is considered probable, when such loss would result in a probable outflow of resources to settle the obligations and when the amounts involved can be measured with a reasonable degree of certainty. The amounts provided represent the Company’s best estimate of the anticipated outflow of resources.

Contingent assets—are not recognized except when the Company concludes that the gain is virtually certain or has the right to real guarantees or has received a favorable legal decision which cannot be appealed.

Contingent liabilities—classified as possible losses are not recorded in the accounts, but merely disclosed in the financial statements. Where the probability of loss is classified as remote, neither provision nor disclosure is required, unless the Company considers disclosure relevant.

Legal obligations—result from tax liabilities which are being challenged as to their legality or constitutionality. The related amounts are fully provided for.

Court-mandated escrow deposits—are recorded as other assets.

F-24

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

2.2.26 Post-retirement benfits

Defined contribution

The Company provides defined contribution pension plans for its employees. Since 2010, for the companies incorporated in Brazil, the plan has been managed by EMBRAER PREV—Sociedade de Previdência Complementar.

Post-retirement healthcare benefits

The Company and some of its subsidiaries provide healthcare benefits to retirees.

The planned costs of offering post-retirement healthcare benefits and coverage for dependents are recorded as a provision during the period of employment services based on actuarial studies conducted to identify future risk exposure whose premises are:

•

Discount rate—brings future benefit flows to present value and it is defined based on the ratio of Brazilian government securities;

•

Growth rate of medical costs—represents the increase in the value of medical care and is not applied linearly, as the companies historically tend to perform actions aimed at reducing the cost, or even change the health plan provider;

•

Rate of morbidity (aging factor)—measures the increased use of health plans in light of the aging population;

•

Mortality rate—uses the RP-2000 generational table provided by Society of Actuaries (SOA), which shows the rate of mortality by age and sex;

•

Probability of Retirement—estimate the probability of retirement by age group;

•

Churn rate—uses the T-3 Table Service available at Society of Actuaries (SOA), which shows the average rate of termination of employees by age.

The Company recognizes changes in the provision of that plan through other comprehensive income in equity, net of taxes, to the extent that there are changes in the assumptions and against profit or loss if a a change on the plan occurs.

This provision is reviewed annually at the reporting date.

2.2.27

Product warranties

Warranty expenses relating to aircraft and spare parts are recognized at the moment of their delivery, based on the estimated amounts to be incurred. These estimates are based on historical factors that include warranty claims and the corresponding repair and replacement costs, the warranty given by the suppliers and the contractual coverage period. The warranty coverage period is usually between three and five years.

In some cases, the Company might be required by the aviation certification authorities to modify the product after delivery, due to upgrades or performance improvements. A provision is recorded for the estimated costs of these modifications when the new requirements or improvements are demanded and known.

Certain sales contracts may contain clauses guaranteeing minimum aircraft performance levels subsequent to delivery, based on predetermined operating targets. If the aircraft which is subject to such guarantees does not achieve the minimum performance indices after delivery, the Company may be obliged to reimburse its customers for the increase in operating costs and services incurred, based on the criteria defined in the agreements. Losses relating to such performance guarantees are recognized when known or when, in Management’s opinion, circumstances indicate that the aircraft is unlikely to meet the minimum expected performance requirement.

F-25

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

2.2.28

Share Based Payment

The Company has a share-based remuneration, destined to directors and employees with the objective of retaining and attract qualified personnel who contributes on an effective way to the Company’s better performance. In retribution to the services provided by its directors and employees, the Company provides two modality of share-based remuneration:

i) stock options plan (own capital instruments based on the Company’s shares emission). On this modality, for the services provided, the program participants receive stock options which fair value is calculated based on the pricing model Black & Scholes and recognized in the statements of income linearly during the acquisition period, which is the period where the acquisition conditions are satisfied;

ii) cash-settled phantom shares plan in which the amount attributed to the services provided by the participants are converted into virtual share units based on the market value of Company’s shares. At the end of the acquisition period the participant receives the quantity of virtual shares converted to Reais, by shares current market value. The company recognizes the obligation during the acquisition period (quantity of virtual shares proportional to the period) on the same group on which the participant normal remuneration is recognized. This obligation is presented as an account payable to employees which fair value is calculated based on the market price of the shares and registered as financial income (expense) in the statements of income. The phantom shares plan is cash-settled share-based payment transaction; therefore, it doesn’t impact calculation of diluted earnings per share.

2.2.29

Government grants

Under Company policy, benefits received in the form of subsidies are recognized against the expenses for which the resources were used.

Government research and development grants are recognized to the extent that the resources are invested and the contractual milestones are met, as a reduction of research expenses.

Subsidies for acquisition of fixed assets are recognized as a reduction of the acquisition cost to the extent that the contractual milestones are met and are recorded in the statement of income by calculating the depreciation, reducing the related expense.

2.2.30

Earnings per share

The Company presents its basic earnings per share and diluted earnings per share in its consolidated financial statements. Basic earnings per common share is computed by dividing net income attributable to owners of Embraer available to common shareholders by the weighted average number of common shares outstanding during the period.

Diluted earnings per share is computed similarly to basic earnings per share except that the weighted average outstanding shares are increased to include the number of additional shares that would have been outstanding had the potentially dilutive shares attributable to stock options had been put in circulation during the respective periods, utilizing the treasury stock method.

2.2.31

Revenue recognition

Revenue comprises the fair value of the remuneration received or to be received for the sale of products and services in the normal course of business. Revenue is presented net of taxes, returns, reductions and discounts, and in the consolidated financial statements, after eliminating intercompany sales.

F-26

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

Revenue from aircrafts, spare parts and services

Revenue from sales of commercial, executive and other aircraft, spare parts and services are generally recognized at the time of delivery or shipment, when the service is provided, when the risks and benefits are transferred to the customer and when all the conditions for recognition are met.

When the sale of aircraft does not meet the contractual obligations at the time of the delivery, related revenue is deferred and accounted for as unearned income until the obligations are met.

Revenue with multiple elements

Revenue from aircraft sales contracts involving the supply of spare parts, training and technical representation. These revenues are recognized when the product or service is provided to the customer.

Revenue from Exchange Pool Program

Revenue from the Exchange Pool Program is recognized during the period of the contract and consists of a fixed charge and a variable charge directly related to the hours effectively flown by the aircraft under the program.

Revenue from construction contracts

In the Defense & Security segment, some operations consist of long-term contracts, and revenues are recognized by the Percentage-of-completion (POC) method, through incurred costs or physical advancement and also through recognition upon delivery or shipment. Some contracts contain provisions for price adjustment based on pre-established index and these are recognized on an accrual basis. The adjustments of revenue recognition relating to sales of the Defense & Security segment contracts is performed based on Management’s best estimates as they become evident.

Revenue from operating leases

The Company also recognizes the revenue from aircraft rental as operating leases, proportional to the lease period, and records such revenues as income by segment. Revenue is allocated to its respective segments (Commercial Aviation, Executive Jets and Defense and Security).

2.2.32

Cost of sales and services

Cost of sales and services consists of the cost of the aircraft, spare parts and services rendered, comprising:

Material—substantially all material cost are covered by contracts with suppliers. Prices under these contracts are generally adjusted based on escalation formulas which reflect, in part, inflation in the United States.

Labor—comprises salaries and related charges, primarily in Brazilian real.

Depreciation—property, plant and equipment are depreciated over their useful lives, on a straight-line basis, from 4 to 25 years.

Depreciation of aircraft classified as operating leases is recorded in cost of sales and services, from lease inception using the straight-line method over the estimated asset useful life less a residual value at the end of the lease term.

Amortization—Internally generated intangible assets are amortized in accordance with the estimated sales of the series of aircraft. Intangible assets acquired from third parties are amortized on straight-line bases over their estimated useful lives.

F-27

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

Product warranties — The Company estimates and records a liability for guarantee obligations related to its products on the date of delivery of the aircraft, based on historical experience and recorded as cost of goods sold.

Multiple elements arrangements — The Company enters into transactions that represent multiple-element arrangements, such as for providing training, technical assistance, spare parts and other concessions. These costs are recognized when the product or service is provided to the customer.

2.2.33

Operating expenses and other income

Operating expenses are principally made up of sales and marketing, administration, research, share in profit/loss of associates and other operating income (expenses).

2.2.34

Employee profit sharing plan

The Company conceives participation on the profit and results to its employees, which is linked to a action plan, subject to results assessment, as well as to reach some specific objectives, which are established and agreed on the beginning of each year. The amount of the participation on the profit and results is equivalent to 12.5% of the net income of the period calculated according to IFRS. Monthly the value are provisioned by applying the percentage agreed over the payroll of the company, recognized on the accounts of the Statements of Income according to each employee activity.

Over all the profit participation amount, 50% are distributed on equal parts to all the employees and the other 50% are proportional to each employee salary.

2.2.35

Financial income and expenses and foreign exchange gains/losses

Financial income and expenses principally comprise earnings on short-term investments, financial charges on loans, interest on contested taxes and contingencies (Note 26), as well as foreign exchange gains/losses (Note 35) on assets and liabilities expressed in currencies other than the functional currency (dollar), on an accrual basis.

It is also recorded as financial revenue (expense) the change in fair value of the residual value guarantees and the result with the provision and implementation of derivative financial instruments.

Financial income and expenses exclude borrowing costs attributable to acquisitions, buildings or the production of qualifying assets that require a substantial period of time to be ready for use or sale which are capitalized as part of the cost of the asset.

2.2.36

Statement of cash flows

The statement of cash flows was prepared using the indirect method.

2.2.37

Segment reporting

Operating segment information is presented in a manner consistent with the internal reports provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources among and assessing the performance of the operating segments and for making strategic decisions, is the chief executive officer.

3.	Critical accounting estimates

The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and adopt assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and its disclosures. Therefore, to prepare the financial statements included in this report, variables and assumptions derived from past experience and other factors deemed relevant are used. These estimates and assumptions are reviewed on an ongoing basis and the changes to accounting estimates are recognized in the period in which the estimates are revised.

The significant accounting policies, including the variables and assumptions used in the estimates, and the relevant sensitivity of those judgments to different scenarios and conditions are described below:

F-28

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

3.1.

Sales and other operating revenues

The Company recognizes revenues from sales made by the Commercial Aviation, Executive Jets, and Defense and Security businesses when benefits and risk of ownership are transferred to customers, which, in the case of aircraft, occurs when delivery is made, and, in the case of aviation services, when the service is rendered.

The Company also recognizes rental revenue for leased aircraft, classified as operating leases on a straight-line basis over the lease term and, when presenting information by operating segment, rental revenue is recorded in its respective operating segment.

In the Defense and Security segment, a significant portion of revenue is derived from long-term development contracts with the Brazilian and foreign governments for which revenues are recognized according to the POC method using the incurred cost and the physical advancement method as reference for measuring revenue. These contracts contain provisions for price escalation based on a mix of indices related to raw material and labor cost. For contracts valued at the incurred cost, time to time, the Company reassesses the expected margins of certain construction contracts, adjusting revenue recognition based upon projected costs to completion. If the total estimated costs decrease 10% of Management’s estimates, the amount of revenue recognized in the year of 2014 would increase by US$ 168.2, as well as if the total estimated costs increase 10% of the actual estimate, the amount of revenue recognized would decrease by US$ 253.0.

Revenue under Exchange Pool Programs is recognized monthly over the contract term and consists in part of a fixed fee and in part a variable fee directly related to aircraft flying hours.

The Company enters into transactions that represent multiple-element arrangements, such as training, technical assistance, spare parts and others concessions, which are included in the aircraft purchase price. Multiple-element arrangements are assessed to determine whether they can be separated into more than one unit of accounting when all of the following criteria are met:

•

the delivered item has value to the client on a stand-alone basis; and

•

there is objective and reliable evidence of the fair value of the undelivered item.

If these criteria are met for each element and there is objective and reliable evidence of fair value for all units of accounting in an arrangement, the revenue is allocated to the separate based on each unit’s relative fair value.

3.2.

Product warranties

Generally, aircraft sales are accompanied by a standard warranty for systems, accessories, equipment, parts and software manufactured by the Company and/or by the Company’s risk-sharing partners and suppliers. The Company recognizes warranty expenses, as cost of sales and services, at the time of sale based on the estimated warranty costs anticipated to be incurred. These estimates are based on a number of factors, including historical warranty claims and cost experience, the type and duration of the warranty coverage, volume and mix of aircraft sold and in service and warranty coverage available from the related suppliers. Actual product warranty costs may have different patterns from past experience, mainly when a new family of aircraft enters service, which could require the Company to increase the product warranty reserve. The warranty period is three years for spare parts and five years for components that are a part of the aircraft when sold.

3.3.

Financial guarantees

The Company may offer financial guarantees related to aircraft sold. The guarantee is granted at fair value. The guarantee is recorded as a reduction in sales and an increase in deferred revenue. The deferred revenue is amortized to the income statement over the period of the guarantee. The Company evaluates the creditworthiness of the obligor at aircraft delivery and discloses its maximum exposure under the guarantee as a contingent liability in Note 36,3 – Joint liabilities co-obligation, responsibilities and commitments. The Company monitors the obligor’s credit worthiness periodically and in the event of an official default (Chapter 11) or negotiation the exposure is recalculated based on the best estimate when and if the payments become probable and can be estimated reliably, recognizing a provision. When an agreement for the payment of this allowance is negotiated, the default values are reclassified to accounts payable.

F-29

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

3.4.

Residual value guarantees

The Company may offer residual value guarantees related to sold aircraft. At the time of the offering the guarantees are evaluated by the fair value and are reviewed quarterly to reflect eventual loss due to the fair value of these commitments. The future fair value is estimated using aircraft assessments of third parties, including information obtained from the selling or leasing of similar aircraft in the secondary market.

3.5.

Residual interests in aircraft

In structured financing arrangements, an entity purchases an aircraft from the Company, pays the full purchase price on delivery or at the conclusion of the sales financing structure, and leases the related aircraft to the ultimate customer. A third-party financial institution facilitates the financing of the aircraft and a portion of the credit risk remains with that third party.

Although it has no equity investee interests, the Company controls the SPE’s operations or takes a majority share of its risks and rewards. When the Company no longer holds control, the assets and liabilities related to the aircraft are deconsolidated from the Company’s statement of financial position.

The Company evaluates control characteristics over a SPE’s principally based on a qualitative assessment. This includes a review of the SPE’s capital structure, contractual relationships and terms, nature of the SPE’s operations and purpose, nature of the SPE’s interests issued, and the Company’s interests in the entity which either create or absorb variability. The Company evaluates the design of a SPE and the related risks the entity and the variable interest holders are exposed to in evaluating consolidation. In a few cases, when it is unclear from a qualitative standpoint if the Company has control over a SPE, it uses a quantitative analysis to calculate the probability-weighted expected losses and probability-weighted expected residual returns using cash flow and statistical risk measurement modeling.

3.6.

Impairment

The impairment test considers assumptions and estimates made by management in line with the Company’s strategic plan, as well as a discount rate that reflects the expectations of shareholders.

In general, the consideration set forth below, and the future cash flows of each CGU has its origin in the Strategic Plan defined and approved by the Company.

Gross margin—the Management projected inflows and outflows based on past performance considering its expectations for the market development. These projections also consider the efficiencies planned for the product cycle;

Growth rates—the rates of growth were reflected in the flow of budgeted revenues by the Company, consistent with the forecasts included in industry reports;

Discount Rates—a discount rate that reflects the expected return of investors at the time the calculation is being made is utilized.

3.7.

Fair value of financial instruments

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Company uses its judgment to select a variety of methods using assumptions that are mainly based on market conditions existing at the end of each reporting period.

3.8.

Income taxes

The Company is subject to income taxes in multiple jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Company also recognizes liabilities based on estimates of whether additional taxes will be due. When the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.

F-30

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

Because the majority of the Company’s tax basis is in Brazilian real and its functional currency is the dollar, the income tax expense line item is highly sensitive to the effects of changes in exchange rates particularly from changes in non-monetary assets.

Had the real devalued or appreciated by 10% against the dollar in relation to the actual exchange rate as of December 31, 2014, the deferred income tax expense would have been higher or lower by approximately US$124.5.

3.9.

Post-retirement benefits

The Company and certain of its subsidiaries have a post-employment medical benefit plan that provides medical care to retired employees. To identify the future exposure of this benefit and therefore its measurement in the financial statements, the Company and its subsidiaries use assumptions that are usually based on statistical data, often observed internally or supplied by institutes or entities dedicated to this type of activity.

Considering that these actuarial studies use premises such as discount rate, medical cost rate increase, morbid rate (aging factor), mortality table, retirement probability and dismissal rate, which most of the time are based on statistic data, the definition of any reasonable possible change is very subjective. With that, an increase of 0,5% on the discount rate used on the actuarial calculation on the post-employment medical benefit conceived by the Company would diminish its exposure on December 31, 2014 on US$2.3 and a reduction of 0,5% on the same rate would increase the exposure on US$2.6. On the increase of the medical cost, 1% increase on the actuarial calculation would increase the Company’s exposure on US$5.5 and a 1% reduction on the same rate would diminish its exposure on US$4.5.

4.	Accounting pronouncements not yet adopted

Standards and amendments to existing standards mentioned in this section have been published, but the implementation is not mandatory for the year ended December 31, 2014, and the Company has not early adopted the amendments in this Financial Statement.

Follow the accounting pronouncements that may be relevant to the Company, which are not yet effective and have not been adopted by the Company:

•

IFRS 9—Financial Instruments: it comprehends the classification, measurement and recognition of financial assets and liabilities. The IFRS 9 requires the classification of the financial assets to be made in two categories: measured by fair value and measured by the amortized cost. The definition is done on the initial recognition. The classification basis depends on the business model of the entity and on the contractual characteristics of the financial instruments cash flow. In regard to the financial liability, the standard maintains most of the requirements established by IAS 39. The major change is that on the cases where the fair value option is adopted for financial liabilities, the changed part on the fair value due to credit risk of the entity itself is registered as Other Comprehensive Income and not on the Profit and Loss, except on the cases where there is a measurement inconsistency. The adoption of the IFRS 9 for the first time can cause effects on the classification and measurement of the Company’s financial assets, depending on the composition of the portfolio at the time of implementation. The standard is applicable on January 1, 2018.

•

IFRS 15—Revenue from Contracts with Costumers: it addresses a single new model for revenue recognition from contracts with costumers based on 5 steps to determine when to recognize the revenue, and on what value. The model specifies that the revenue shall be recognized when a entity transfers the control of goods and services, on the value that the entity expects to have the right to receive. To reach a conclusion on the eventual impacts on the Financial Statement the Company is analyzing the new model brought by the accounting standards, as well as the application on the existing transactions. The standard is applicable on January 1, 2017.

F-31

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

5.	Cash and cash equivalents


	12.31.2014		12.31.2013
Cash and banks		230.6		147.4

		230.6		147.4

Cash equivalents
Repurchase agreements		—		85.2
Private securities⁽ⁱ⁾		973.4		618.0
Fixed deposits⁽ⁱⁱ⁾		507.5		772.2
Investment funds⁽ⁱⁱⁱ⁾		1.5		60.9

		1,482.4		1,536.3

		1,713.0		1,683.7

(i)	Investment in Bank Deposit Certificates—CDBs, issued by Brazilian financial institutions, with original maturities of 90 days or less for which there are no penalties on remuneration.

(ii)	Fixed term deposits with highly-rated financial institutions with original maturities of 90 days or less.

(iii)

Money Market Funds in dollars with daily liquidity and a constant net asset value in conformity with the standards of the SEC. The investment portfolio is comprised of securities issued by premium institutions abroad.

In 2014 in line with its business strategy, the Company settled some investments of exclusive funds.

The weighted average interest rate on December 31, 2014, for cash equivalents in reais and in dollars were 11.14% p.a. and 1.27% p.a. (8.16% p.a. and 1.13% p.a. on December 31, 2013), respectively.

6.	Financial investments


	12.31.2014								12.31.2013
	Assets measured at fair value through profit or loss		Held to maturity		Available for sale		Total		Assets measured at fair value through profit or loss		Held to maturity		Available for sale		Total
Financial instruments
Public securities		—		1.1		—		1.1		140.7		3.4		—		144.1
Private securities		412.4		—		—		412.4		381.9		—		25.1		407.0
Money market funds		287.9		—		—		287.9		266.2		—		—		266.2
Investment funds		9.0		—		—		9.0		123.4		—		—		123.4
Other		0.3		43.1		2.6		46.0		0.4		41.6		2.6		44.6

		709.6		44.2		2.6		756.4		912.6		45.0		27.7		985.3

Current portion		709.6		1.0		—		710.6		912.6		2.2		25.1		939.9
Non-current		—		43.2		2.6		45.8		—		42.8		2.6		45.4

On December 31, 2014, the financial investments comprise of private securities and shares of exclusive investment funds.

On December 31, 2014, the financial investments abroad comprised private securities, fixed term deposits and exclusive investment funds, and consist of securities issued by international institutions and by highly-rated corporations with high liquidity, measured at their realizable values. The investments are marked to market daily and changes in fair value are reflected in the income statement, as the Company classifies these investments as assets measured at fair value through profit or loss.

F-32

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

These investment funds have no significant financial obligations. The financial obligations are restricted to the asset management and custody fees, audit fees and similar expenses, which are already accounted for based on the value of each asset in the portfolio. No Company assets were used as collateral for these obligations and the fund creditors have no right of recourse against the general credit of the Company.

7.	Trade accounts receivable, net


	12.31.2014			12.31.2013
Foreign customers		435.0			437.2
Brazilian Air Force		270.4			161.8
Domestic customers		41.3			26.8

		746.7			625.8

Allowance for doubtful accounts		(42.9	)		(47.1	)

		703.8			578.7

Current portion		696.9			572.2
Non-current portion		6.9			6.5

Unbilled accounts receivables recognized under the POC method for Defense and Security segment totaled US$ 427.3 on December 31, 2014 (US$ 208.9 on December 31, 2013). Revenues recorded in 2014 were US$ 966.0 (US$ 657.9 on December 31, 2013). Costs related to construction contracts using the POC method totaled US$ 747.5 in 2014 (US$ 540.4 on December 31, 2013).

On December 31, 2014, the accounts receivable of US$ 615.3 (US$ 499.1 on December 31, 2013) were current and not past due.

For the period presented, there was accounts receivable overdue, but not impaired related to independent customers with no recent history or expectation of default. The analysis of past due accounts receivable is presented below:


	12.31.2014		12.31.2013
Up to 90 days		48.4		56.3
From 91 to 180 days		13.3		9.7
More than 180 days		26.8		13.6

		88.5		79.6

The net amount of accounts receivable denominated in the following currencies is:


	12.31.2014		12.31.2013
U.S. dollars		508.0		390.3
Euros		116.8		144.3
Reais		77.9		43.1
Other		1.1		1.0

		703.8		578.7

F-33

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

The changes to the allowance for doubtful accounts are summarized as follows:


	12.31.2014			12.31.2013
Beginning balance		47.1			51.9
Foreign exchange variation		(2.3	)		—
Additions		6.0			1.1
Reversal		(5.1	)		(3.5	)
Disposals		(2.8	)		(2.4	)

Ending balance		42.9			47.1

8.	Derivative financial instruments

Derivative financial instruments are contracted to protect the Company’s operations from exchange and interest rate fluctuations and are not used for speculation.

As of December 31, 2014, the Company had derivative financial instruments such as interest swaps, purchase option and sale of currency, non-deliverable forward (NDF), cash flow hedges and interest.

Swaps are contracted to exchange a floating rate loan to a fixed rate loan or to exchange cash flows in dollars to cash flows in reais, or vice versa. They are valued at the future flow determined by applying the contractual rates up to maturity and discounted to present value on the date of the consolidated financial statements at the current market rates.

Cash flow hedging operations are contracted to protect highly probable salary and taxes expense flows denominated in reais from exchange rate variations. The expense flows are expected to occur on a monthly basis beginning in January 2015 and ending in December 2015. Financial instruments normally used by the Company for this type of transaction mode is zero-cost collar, which consists of the buying of Put Options and selling of Call Options contracted with the same counterparty and with zero net premium. The fair value of these instruments is determined by the pricing model observable market (through information providers) and widely used by market participants to measure similar instruments. When the closing rate of dollar is between the values of exercise of Put and Call, the fair value reflects the extrinsic value of the option, i.e., the value that is directly connected to the time remaining to maturity.

During 2015 there was no gain or loss recognized on the maturity of derivative instruments designated as cash flow since during the year the exchange rate was between the Put and Call values. Thus no value was recorded in the income statement, except the extrinsic value of transactions maturing in 2015.

The operations non-deliverable forward (NDF) are contracted with the purpose of protecting the flows of exchange risks. Their fair values are calculated using observable market pricing models.

F-34

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

As of December 31, 2014, the Company did not have any derivative contracts subject to margin calls.


Purpose	Risk	Counterparty	Settlement date		12.31.2014			12.31.2013
Recourse and non-recourse debt⁽ⁱ⁾	Interest rate	Natixis		2022		17.9			21.4
Export financing⁽ⁱⁱ⁾	Interest rate	ItauBBA		2016		(2.4	)		(3.2	)
		Votorantim		2017		(2.5	)		(2.8	)
		Citibank		2016		(1.3	)		(1.7	)
		Santander		2017		(0.8	)		(2.3	)
		HSBC		2016		—			(0.7	)
		Societe Generale		2016		(0.6	)		(0.8	)
		Bradesco		2016		(0.6	)		(0.8	)
Stock options	Object price	Republic Airways Holdings Inc		—		—			8.8
Acquisition of property, plant and equipment⁽ⁱⁱⁱ⁾	Interest rate	Compass Bank		2024		(0.4	)		(0.4	)
Brazilian Real expenses^(iv)	Exchange rate	ItauBBA		2015		(0.4	)		(0.3	)
		Deutsche				—			(0.4	)
		Citibank		2015		(1.1	)		(0.1	)
		Santander		2015		(0.6	)		—
		Votorantim		2015		(1.5	)		—
Brazilian Real expenses^(v)	Exchange rate	ItauBBA		2015		(0.7	)		—
		Votorantim		2015		(0.4	)		-
Export financing^(vi)	Interest rate	ItaúBBA		2016		(0.1	)		—
		Bradesco		2016		(0.1	)		—
		Votorantim		2016		(0.4	)		—
		Bofa Merril Lynch		2016		(0.1	)
		Santander		2016		(0.5	)
Project Development^(vi)	Interest rate	ItaúBBA		2023		(0.1	)		—
		Votorantim		2020		(0.3	)		—
		Bofa Merril Lynch		2022		(0.1	)		—
		Santander		2022		(0.1	)
Export financing^(vii)		Santander Totta		2015		(0.3	)

						2.5			16.7

(i)

Derivative financial instruments (swap), not qualifying for hedge accounting and contracted by the Company and have effectively converted the amount of R$ 330.9 million equivalent to US$ 124.6 for recourse and non-recourse debt, from a fixed interest rate of 6.17% p.a., into a floating rate equivalent to LIBOR 6 month + 1.21% p.a.;

(ii)	Derivative financial instruments in the form of swap that converted a debt in the form of export in the amount of R$ 887.0 million equivalent to US$ 333.9, from a fixed interest rate of 5.50% p.a. to an average rate equivalent floating to 65.29% p.a. CDI (Interbank Deposit Certificate);

(iii)

Derivative financial instruments (swap), not qualifying for hedge accounting, relating to a transaction in the amount of R$ 13.0 million equivalent to US$ 4.9 which converted financing transactions subject to floating interest rate of LIBOR 1 month + 2.44% p.a. to a fixed interest rate of 5.23% p.a.;

(iv)

Derivative financial instruments in the form zero-cost collar, designated as a cash flow hedge in the amount of R$ 1.053.6 million equivalent to US$ 458.1, through a purchase of a put option an exercise price of R$ 2.30 and sales of CALL with an average price of R$ 3.3931 to the real expenditure in 2015;

(v)	Derivative financial instruments in the zero-cost collar mode of R$ 438.9 thousand, equivalent to US$ 180.3 million which made buying PUT with an average exercise price of R$ 2.4335 and call with average exercise price and R$ 3.4251.

(vi)

Derivative financial instruments in the form of interest rate swap designated as hedge accounting that converted a debt in the form of export and development project in the amount of R$ 453.3 million, equivalent to US$ 170.7, from an average fixed interest rate of 5.13% p.a. to an average floating rate equivalent to 45.54% of the CDI (Interbank Deposit Certificate); and

(vii)

Derivative financial instrument in the form non-deliverable forwards, amounting to R$ 27.9 million, equivalent to US$ 10.5 related to currency exchange dollar to euro.

F-35

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

On December 31, 2014 and December 31, 2013, the fair value of derivative financial instruments was presented in the Statement Financial Position as shown below:


Assets	12.31.2014			12.31.2013
Current portion		5.2			14.6
Non-current		12.7			15.8

Liabilities
Current portion		(15.4	)		(13.7	)

Total		2.5			16.7

9.	Customer and commercial financing

Customer and commercial financing refer to the partial financing of certain sales of new aircraft by the Company, at average interest rates on December 31, 2014, of 5.07% p.a. (December 31, 2013 – 5.08% p.a.) , secured by the aircraft covered by the financing and at present value when applicable. The maturities are monthly, quarterly and half-yearly, classified as follows:


	12.31.2014		12.31.2013
Current portion		13.6		9.6
Non-current portion		55.0		64.1

		68.6		73.7

On December 31, 2014 and December 31, 2013, the total value of customer and commercial financing were current and not past due.

On December 31, 2014, the long-term maturities of the financing of accounts receivable were as follows:


Year
2016			9.6
2017			9.8
2018			8.1
2019			5.7
Thereafter 2019			21.8

			55.0

10.

Collateralized accounts receivable and recourse and non-recourse debt

10.1.

Collateralized accounts receivable


	12.31.2014			12.31.2013
Estimated residual value of leased assets		303.2			303.2
Minimum lease payments receivable		241.0			258.3
Unearned income		(118.6	)		(135.6	)

Investment in sales-type lease		425.6			425.9

Current portion		9.0			10.5
Non-current portion		416.6			415.4

F-36

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

On December 31, 2014, the maturities of the amounts classified as non-current assets are as follows:


Year
2016			8.3
2017			18.4
2018			33.8
2019			48.4
Thereafter 2019			307.7

			416.6

10.2.

Recourse and non-recourse debt


	12.31.2014		12.31.2013
Recourse Debt		368.7		364.7
Non Recourse Debt		31.3		35.5

		400.0		400.2

Current portion		10.3		12.1
Non-current portion		389.7		388.1

On December 31, 2014, the maturities of the amounts classified as non-current liabilities were as follows:


Year
2016			328.8
2017			18.4
2018			13.7
2019			14.7
Thereafter 2019			14.1

			389.7

11.

Guarantee Deposits


	12.31.2014		12.31.2013
Sales structure guarantees⁽ⁱ⁾		251.7		261.4
Sales financing guarantees⁽ⁱⁱ⁾		321.8		311.7
Others		8.5		1.6

		582.0		574.7

(i)

US dollar amounts deposited in an escrow account as collateral for the financing of certain aircraft sold where Embraer serves as secondary guarantor. If the initial guarantor of the debt, unrelated party is required to pay the lender, the initial guarantor will be entitled to the amount in the escrow account. The amount is returned in the form of cash to the Company at maturity of the financing contracts (until 2021) if the aircraft purchaser does not default on the loan. The interest on the escrow account is added to the principal and recognized by the Company as financial income.

In 2004, seeking to ensure profitability compatible with the term of the guarantee, the Company allocated the total amount at that time of US$ 123.4 from the deposits in escrow account to 14-year structured notes. This yield enhancement was obtained through a credit default swap (CDS) transaction, which provides the right of early redemption of the note in case of a credit event by the Company. Upon such a credit event, the note may be redeemed by the holder at the greater of the note’s market value or its original face amount, which would result in a loss to us of all interest accrued on such note to date.

In the event of default, the maturity dates of these notes will be accelerated and the notes would be realized at market value, limited to a minimum of the amounts originally invested. Any amount by which the market value exceeds the amount invested will be paid to the Company in the form of bonds, or loans of that amount.

Credit events include obligation and payment defaults under the terms of the guarantees above specified thresholds, events related to the restructuring of the obligations above a specified threshold, bankruptcy and a repudiation of and/or moratorium on the obligations above a specified threshold.

(ii)

Financial investments denominated in US dollars and held by third-party financial institutions as a pledge under a specific sale financing structure. These investments earn interest at the annual LIBOR rate.

F-37

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

12.

Inventories


	12.31.2014			12.31.2013
Raw materials		996.1			948.8
Work-in-process		649.0			614.1
Spare parts		357.3			351.4
Inventory in transit		228.4			217.4
Finished goods⁽ⁱ⁾		157.6			197.3
Advances to suppliers		92.5			70.6
Used aircraft available for sales⁽ⁱⁱ⁾		47.9			36.1
Consumption materials		40.9			31.6
Provision for adjustment to realizable value⁽ⁱⁱⁱ⁾		(8.0	)		(19.2	)
Provision for obsolescence^(iv)		(156.4	)		(160.8	)

		2,405.3			2,287.3

Current portion		2,405.3			2,287.3

(i)

The following aircraft were held in inventory at:

•

December 31, 2014: two EMBRAER 190, two Legacy 650, three Phenom 100, three Phenom 300, one Lineage and ten Ipanema; and

•

December 31, 2013: three Legacy 650, one Phenom 100, four Phenom 300, three Lineage and seven Ipanema.

Of the total aircraft inventories on December 31, 2014, three Ipanema sold through up to February 05, 2015.

(ii)

The following aircraft were held in inventory as available for sale:

•

December 31, 2014: one Legacy 650, one Phenom 100, three Phenom 300 and one Challenger 604; and

•

December 31, 2013: One ERJ 145, one Legacy 600, one Legacy 650.

(iii)

Refers to the provision recorded for adjustments to the realizable value of used aircraft. Changes in market value were as follows:


	12.31.2014			12.31.2013
Beginning balance		(19.2	)		(33.7	)
Additions		(8.2	)		(8.1	)
Disposals		19.4			22.0
Reversals		—			0.6

Ending balance		(8.0	)		(19.2	)

(iv)

A provision was recorded for items without activity for over two years and with no planned use in the production program, as well as to cover expected losses from excess inventories or obsolete work in process, except for inventories of spare parts, for which the provision is based on technical obsolescence of items without activity for over two years. Changes in market value were as follows:


	12.31.2014			12.31.2013
Beginning balance		(160.8	)		(149.3	)
Additions		(79.5	)		(35.5	)
Disposals		83.5			21.0
Reversals		1.3			1.1
Foreign exchange loss		(0.9	)		1.9

Ending balance		(156.4	)		(160.8	)

Current portion		(156.4	)		(160.8	)

F-38

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

13. Other Assets


	12.31.2014		12.31.2013
Taxes recoverable⁽ⁱ⁾		120.2		111.9
Court-mandated escrow deposits⁽ⁱⁱ⁾		76.6		86.0
Advances for services rendered⁽ⁱⁱⁱ⁾		49.3		5.3
Prepaid expenses		24.8		36.3
Credit with suppliers^(iv)		31.6		23.3
Advances to employees		16.8		6.1
Loan with a Joint Operation^(v)		9.0		1.0
Advances of commissions		4.5		3.9
Indemnity assets^(vi)		1.9		3.6
Restricted cash		—		—
Compulsory loan		1.0		1.1
Collateral pledge		0.9		1.0
Prepaid Insurance		0.3		6.1
Other		17.1		18.1

		354.0		303.7

Current portion		167.9		161.8
Non-current portion		186.1		141.9

(i)	Taxes recoverable


	12.31.2014		12.31.2013
Income tax and contribution for social security on net income withheld		9.4		10.2
ICMS (State Value-added Tax) and IPI (Excise Tax)		69.2		64.8
PIS (Social Integration Program) and COFINS (Contribution for Social Security)		19.3		23.1
Others		22.3		13.8

		120.2		111.9

Current portion		69.4		66.9
Non-current portion		50.8		45.0

(ii)	Court-mandated escrow deposits relate to amounts deposited in connection with pending legal actions, substantially federal contributions where there is a liability constituted, as described in (Note 23).

(iii)

Refers mainly to advances carried out to the supplier hired by Visiona subsidiary to launch the geostationary satellite.

(iv)	Refers to rework carried out on products supplied by third parties, which will be reimbursed in accordance with contractual agreements and credits negotiated with certain suppliers that will be consumed over time.

(v)	Refers to the joint operation of the Embraer Group, where only assets and liabilities under the Company’s responsibility are consolidated. Thus, the value displayed refers to the loan balance receivable from the other partner of EZ Air Interior Limited.

(vi)	Assets recorded in a business combination, when the Company has negotiated the right of offset from the sellers, for possible future liabilities.

F-39

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

14.

Interest in entities

(i)

Wholly owned subsidiaries and special purpose entities

Subsidiaries and structured entities that the Company directly or indirectly has control, disclosed in the consolidated financial statements as of December 31, 2014, are consolidated into the Embraer group. The Company does not have any contractual or legal restrictions to access assets or settle liabilities of the wholly owned subsidiaries of the group.

These entities have risks inherent to the operations and the main ones are described below:

•

Economic Risks: are potential losses from fluctuations in market conditions (price of products, exchange rate and interest);

•

Operational risk: are potential losses by the emergence of new technologies or failure of current processes;

•

Credit risk: are potential losses that may occur where the third party (customer) becomes unable to meet its obligations; and

•

Liquidity risk: financial inability to cover financial obligations.

(ii)

Subsidiaries with participation of non-controlling shareholders

Group entities described below have participation of non-controlling shareholders, but based on contractual agreements and analysis of the current accounting standards, the Company has control and therefore to consolidate these entities:


Entity	Country	Participation Embraer Group			Participation noncontrolling
Bradar Indústria S.A.	Brazil		90.0	%		10.0	%
Aero Seating Technologies LLS	United States of America		85.5	%		14.5	%
OGMA—Indústria Aeronática de Portugal S.A.	Portugal		65.0	%		35.0	%
Harbin Embraer Aircraft Industry Company Ltd.	China		51.0	%		49.0	%
Embraer CAE Training Services Ltd.	United Kingdom		51.0	%		49.0	%
Visiona Tecnologia Espacial S.A.	Brazil		51.0	%		49.0	%
Embraer CAE Training Services	United States of America		51.0	%		49.0	%
Harpia Sistemas S.A	Brazil		51.0	%		49.0	%
EZ Air Interior Limited	Ireland		50.0	%		50.0	%
Orbisat Aerolevantamento Ltd.	Brazil		25.0	%		75.0	%

Although the group Embraer has 51.0% of the entities: Harbin Embraer Aircraft Industry Company Ltd., Embraer CAE Training Services Ltd., and Visiona Tecnologia Espacial S.A., the powers described in the contractual agreements demonstrate that the Board of Directors is composed mostly by representatives from Embraer and direction of the relevant activities of the entity are approved with the consent of those representatives.

The shareholder agreement of Bradar Aerolevantamento Ltda. assigns to Embraer S.A. an irrevocable option to purchase all of the shares of non-controlling interest. This option is exercisable at any time and can be transferred to any person, which determined the control group Bradar Aerolevantamento by Embraer, despite the shareholding of only 25% of its capital.

The equity interests held in these subsidiaries do not differ substantially from the right proportion of votes held by Embraer Group.

F-40

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

Following is the summary of the financial position of the group entities that have non-controlling interest:


	12.31.2014		12.31.2013
Cash and cash equivalent		106.4		87.1
Current assets		329.0		341.6
Non current assets		126.0		109.3
Current liabilities		163.8		159.5
Non current liabilities		49.4		49.3
Noncontrolling interest		100.0		98.9
Revenue		323.8		236.5
Net income for the year		25.0		18.2

Group subsidiaries with non-controlling interests are subject to the same risks described for the wholly owned subsidiaries.

(iii) Jointly controlled entity

The EZ Air Interior Limited is a joint operation between group Embraer and Zodiac Aerospace and shares with the other member the joint administration of the relevant activities of the entity.

This joint operation has net assets and liabilities recognized in the consolidation in accordance with the rights and obligations assigned to Embraer.


	12.31.2014			12.31.2013
Cash and cash equivalent		1.4			2.3
Current assets		20.0			9.3
Non current assets		4.3			3.2
Current liabilities		11.8			11.2
Non current liabilities		15.9			2.0
Revenue		18.7			4.4
Net income for the year		(2.5	)		(0.7	)

(iv) Interest in other companies

Interest in other companies in Embraer Group is represented only by the participation of 25% of Embraer Defesa & Segurança in AEL Sistemas SA. Despite this interest, Embraer Group does not have significant influence on the management of this entity, and therefore the investment is measured as a financial instrument in the consolidated financial statements at fair value.

15. Related Party Transactions

15.1. Related party transactions

The table below summarizes balances and transactions with related parties outside the group and refers mainly to:

•

assets: (i) accounts receivable for spare parts, aircraft sales and product development, (ii) balances of financial investments; and (iii) bank deposits;

•

liabilities: (i) purchase of aircraft components and spare parts, (ii) advances received on account of sales contracts; (iii) financing for research and product development at market rates (iv) loans and financing; and (v) export financing; and

•

amounts in profit or loss: (i) purchases and sales of aircraft, components and spare parts and development of products for the defense and security market; (ii) financial income from financial investments; (iii) interest on financing for research and product development, import and export financing and advances on exchange contracts; and (iv) supplementary pension plan.

F-41

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

15.1.1 December 31, 2014


	Current				Non-Current				Financial Results			Operating Results
	Assets		Liabilities		Assets		Liabilities		Financial Results			Operating Results
Banco do Brasil S.A.		240.7		1.4		320.5		396.4		60.8			—
Banco Nacional de Desenvolvimento Econômico e Social—BNDES		—		50.9		—		386.8		(14.9	)		—
Brazilian Air Force		270.4		198.5		—		—		—			89.1
Caixa Econômica Federal		247.2		0.1		—		37.6		24.7			—
Embraer Prev—Sociedade de Previdência Complementar		—		—		—		—		—			(29.2	)
Empresa Portuguesa de Defesa—EMPORDEF		—		—		—		6.3		—			—
Telecomunicações Brasileiras S.A.—Telebrás		53.4		20.3		—		79.5		—			31.9
Exército Brasileiro		17.4		—		—		—		—			12.3
Financiadora de Estudo e Projetos—FINEP		—		9.5		—		88.1		(2.0	)		—

		829.1		280.7		320.5		994.7		68.6			104.1

15.1.2 December 31, 2013


	Current				Non-Current				Financial Results			Operating Results
	Assets		Liabilities		Assets		Liabilities		Financial Results			Operating Results
Banco do Brasil S.A.		497.6		311.8		311.6		85.4		47.1			—
Banco Nacional de Desenvolvimento Econômico e Social—BNDES		—		41.9		—		213.3		(18.3	)		—
Brazilian Air Force		161.8		210.3		—		—		—			130.3
Caixa Econômica Federal		197.6		0.1		—		42.7		7.9			—
Embraer Prev—Sociedade de Previdência Complementar		—		—		—		—		—			(29.1	)
Empresa Portuguesa de Defesa—EMPORDEF		—		—		—		6.9		—			—
Telecomunicações Brasileiras S.A.—Telebrás		14.0		—		—		—		—			3.7
Exército Brasileiro		5.7		—		—		—		—			5.7
Financiadora de Estudo e Projetos—FINEP		—		11.6		—		56.1		(1.7	)		—

		876.7		575.7		311.6		404.4		35.0			110.6

15.1.3 December

31, 2012


	Financial Results			Operating Results
Banco do Brasil S.A.		37.0			—
Banco Nacional de Desenvolvimento Econômico e Social—BNDES		(27.6	)		—
Brazilian Air Force		—			145.4
Embraer Prev—Sociedade de Previdência Complementar		—			(27.6	)
Financiadora de Estudo e Projetos—FINEP		(1.9	)		—

		7.5			117.8

15.2. Remuneration

of key Management personnel:


	12.31.2014		12.31.2013
Short-term benefits⁽ⁱ⁾		15.9		19.7
Share based payment		5.5		3.6
Labor contract termination		1.2		0.5

Total remuneration		22.6		23.8

(i)	Includes salaries and social security contributions.

F-42

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

Key Management includes members of the statutory Board of Directors and Executive Directors.

In 2014 and 2013, no post-retirement or long-term benefits were recognized.

16.

Property, Plant and Equipment

The average annual rate of depreciation by asset class on December, 31, 2014 and 2013 is as follows:


Class of assets	Weighted average rate (%)
	12.31.2014			12.31.2013
Buildings and improvements		4.0	%		4.6	%
Installations		8.9	%		7.7	%
Machinery and equipment		11.8	%		12.3	%
Furniture and fixtures		13.6	%		14.4	%
Vehicles		19.6	%		22.7	%
Aircraft		12.3	%		12.4	%
Computers and peripherals		26.0	%		34.3	%
Tooling		10.2	%		12.1	%
Exchange pool program assets		7.6	%		8.4	%

On 2014 the Company changed the estimated useful life for exchange pool program assets.

This change occurred because of the annual revision of the useful life and residual value of all the classes that composes the fixed assets of the Company.

This revision process took into consideration the learning curve of the business and resulted on a more adequate representation of the consuming pattern of these assets. The useful life of the assets were increased based on the new business projections available and to be consistent to the recent business growth worldwide. The change refers to a change in estimate and was accounted prospectively from October 1, 2014.

The impact arisen from this change is an estimated annual decrease of about US$ 12.1 on the depreciation expense, and has no material effect on the Company’s financial statements.

F-43

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated


	Land			Buildings and improvements			Installations			Machinery and equipment			Furniture and fixtures			Vehicles			Aircraft⁽ⁱ⁾			Computers and peripherals			Tooling			Other assets			Exchange pool program assets			Construction in progress⁽ⁱⁱ⁾			Total
Cost
At December 31, 2013		11.1			520.6			134.1			646.6			59.8			15.9			574.7			147.6			387.2			35.8			576.9			152.4			3,262.7
Additions		—			1.7			—			59.9			4.5			0.6			19.5			12.1			45.6			15.8			36.7			87.3			283.7
Disposals		—			(0.1	)		—			(4.5	)		(0.4	)		(0.3	)		—			(0.5	)		(8.2	)		—			(11.4	)		(1.2	)		(26.6	)
Impairment		—			—			—			—			—			—			(10.8	)		—			—			—			—			—			(10.8	)
Reclassifications*		—			61.4			11.6			55.9			2.4			0.3			(65.3	)		5.0			(4.0	)		(20.0	)		10.8			(105.1	)		(47.0	)
Translation adjustments		(0.1	)		(6.0	)		(0.4	)		(16.6	)		(0.6	)		(0.5	)		3.2			(1.2	)		(0.6	)		2.8			(26.7	)		(3.5	)		(50.2	)

At December 31, 2014		11.0			577.6			145.3			741.3			65.7			16.0			521.3			163.0			420.0			34.4			586.3			129.9			3,411.8

Accumulated depreciation
At December 31, 2013		—			(151.3	)		(90.1	)		(330.7	)		(31.9	)		(11.6	)		(191.5	)		(110.8	)		(188.3	)		(1.1	)		(162.1	)		—			(1,269.4	)
Depreciation		—			(14.8	)		(3.9	)		(37.0	)		(3.7	)		(0.8	)		(47.0	)		(9.5	)		(20.2	)		—			(32.0	)		—			(168.9	)
Disposals		—			—			—			4.6			0.5			0.1			—			0.3			0.6			—			4.8			—			10.9
Reclassifications*		—			—			—			—			—			—			20.8			—			—			(8.3	)		—			—			12.5
Translation adjustments		—			0.8			0.1			11.1			0.5			0.5			0.1			0.5			0.1			—			15.2			—			28.9

At December 31, 2014		—			(165.3	)		(93.9	)		(352.0	)		(34.6	)		(11.8	)		(217.6	)		(119.5	)		(207.8	)		(9.4	)		(174.1	)		—			(1,386.0	)

Net
At December 31, 2013		11.1			369.3			44.0			315.9			27.9			4.3			383.2			36.8			198.9			34.7			414.8			152.4			1,993.3
At December 31, 2014		11.0			412.3			51.4			389.3			31.1			4.2			303.7			43.5			212.2			25.0			412.2			129.9			2,025.8


	Land		Buildings and improvements			Installations			Machinery and equipment			Furniture and fixtures			Vehicles			Aircraft⁽ⁱ⁾			Computers and peripherals			Tooling			Other assets			Exchange pool program assets			Construction in progress⁽ⁱⁱ⁾			Total
Cost
At December 31, 2012		11.1		443.0			127.8			512.1			54.4			15.6			588.1			128.2			327.6			67.3			460.3			136.6			2,872.1
Additions		—		4.1			—			79.5			3.2			0.6			61.5			18.8			49.8			11.3			85.6			127.0			441.4
Additions—business combination		—		—			—			—			—			—			—			0.3			—			—			—			—			0.3
Disposals		—		—			(0.1	)		(5.8	)		(1.0	)		(0.8	)		(0.5	)		(1.6	)		—			(1.1	)		(0.8	)		(2.2	)		(13.9	)
Impairment		—		—			—			—			—			—			(14.1	)		—			—			—			—			—			(14.1	)
Reclassifications*		—		72.0			6.5			56.6			2.3			0.3			(59.8	)		0.1			9.6			(43.0	)		42.6			(114.7	)		(27.5	)
Translation adjustments		—		1.5			(0.1	)		4.2			0.9			0.2			(0.5	)		1.8			0.2			1.3			(10.8	)		5.7			4.4

At December 31, 2013		11.1		520.6			134.1			646.6			59.8			15.9			574.7			147.6			387.2			35.8			576.9			152.4			3,262.7

Accumulated depreciation
At December 31, 2012		—		(137.9	)		(87.3	)		(309.8	)		(29.1	)		(11.3	)		(155.3	)		(104.9	)		(169.9	)		(1.3	)		(126.9	)		—			(1,133.7	)
Depreciation		—		(13.1	)		(3.0	)		(23.5	)		(3.4	)		(0.9	)		(50.6	)		(7.4	)		(18.0	)		—			(25.9	)		—			(145.8	)
Disposals		—		—			0.1			4.8			0.9			0.8			0.5			1.4			—			—			0.7			—			9.2
Reclassifications*		—		—			—			(0.3	)		—			—			13.8			0.5			(0.3	)		0.2			—			—			13.9
Translation adjustments		—		(0.3	)		0.1			(1.9	)		(0.3	)		(0.2	)		0.1			(0.4	)		(0.1	)		—			(10.0	)		—			(13.0	)

At December 31, 2013		—		(151.3	)		(90.1	)		(330.7	)		(31.9	)		(11.6	)		(191.5	)		(110.8	)		(188.3	)		(1.1	)		(162.1	)		—			(1,269.4	)

Net
At December 31, 2012		11.1		305.1			40.5			202.3			25.3			4.3			432.8			23.3			157.7			66.0			333.4			136.6			1,738.4
At December 31, 2013		11.1		369.3			44.0			315.9			27.9			4.3			383.2			36.8			198.9			34.7			414.8			152.4			1,993.3

F-44

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated


	Land		Buildings and improvements			Installations			Machinery and equipment			Furniture and fixtures			Vehicles			Aircraft⁽ⁱ⁾			Computers and peripherals			Tooling			Other assets			Exchange pool program assets			Construction in progress⁽ⁱⁱ⁾			Total
Cost

At December 31, 2011		11.1		428.4			125.4			480.1			47.8			14.0			477.2			120.8			305.6			7.8			351.3			93.4			2,462.9
Additions		—		4.4			0.2			39.5			2.2			0.7			140.4			19.6			15.8			62.4			63.9			63.1			412.2
Additions—business combination		—		—			—			0.1			—			—			—			0.1			—			—			—			—			0.2
Disposals		—		(1.1	)		(0.2	)		(11.2	)		(1.7	)		(0.2	)		—			(2.6	)		—			(0.4	)		(3.5	)		(0.1	)		(21.0	)
Impairment		—		—			—			—			—			—			(9.3	)		—			—			—			—			—			(9.3	)
Reclassifications*		—		15.5			2.5			3.1			5.6			1.0			(20.0	)		(10.2	)		6.1			(2.5	)		43.4			(21.1	)		23.4
Translation adjustments		—		(4.2	)		(0.1	)		0.5			0.5			0.1			(0.2	)		0.5			0.1			—			5.2			1.3			3.7

At December 31, 2012		11.1		443.0			127.8			512.1			54.4			15.6			588.1			128.2			327.6			67.3			460.3			136.6			2,872.1

Accumulated depreciation At December 31, 2011		—		(127.6	)		(85.0	)		(301.1	)		(27.7	)		(10.5	)		(121.1	)		(102.1	)		(146.0	)		(1.2	)		(90.2	)		—			(1,012.5	)
Depreciation		—		(10.8	)		(2.5	)		(23.5	)		(2.9	)		(0.8	)		(35.8	)		(5.1	)		(20.0	)		(0.1	)		(38.4	)		—			(139.9	)
Disposals		—		0.7			0.2			10.4			1.6			0.1			—			2.6			—			—			1.6			—			17.2
Reclassifications*		—		0.2			(0.1	)		(4.8	)		—			—			(1.5	)		—			4.7			—			—			—			(1.5	)
Translation adjustments		—		(0.4	)		0.1			9.2			(0.1	)		(0.1	)		3.1			(0.3	)		(8.6	)		—			0.1			—			3.0

At December 31, 2012		—		(137.9	)		(87.3	)		(309.8	)		(29.1	)		(11.3	)		(155.3	)		(104.9	)		(169.9	)		(1.3	)		(126.9	)		—			(1,133.7	)

Net

At December 31, 2011		11.1		300.8			40.4			179.0			20.1			3.5			356.1			18.7			159.6			6.6			261.1			93.4			1,450.4
At December 31, 2012		11.1		305.1			40.5			202.3			25.3			4.3			432.8			23.3			157.7			66.0			333.4			136.6			1,738.4

*	Non-cash transactions. In the column “Aircraft” this amount relates to aircraft owned by Embraer’s subsidiary ECC Leasing. The balances relating to the aircraft were transferred between property plant and equipment and inventory.

(i)	The aircraft are used for testing, shuttle and operational leasing and are adjusted to the fair value, when applicable. The following aircraft are held:

December 31, 2014: 41 ERJ 135, 17 ERJ 145, seven EMBRAER 170, one EMBRAER 175, two EMBRAER 190, one EMBRAER 120, one Legacy 600, one 690B, and one EMB-810C; and

December 31, 2013: 45 ERJ 135, 19 ERJ 145, seven EMBRAER 170, one EMBRAER 175, two EMBRAER 190, one Phenom 100, three Phenom 300, three Legacy 600, one 690B, and one EMB-810C.

(ii)	Refers mainly to construction projects to expand the manufacturing plants and aircraft maintenance centers.

F-45

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

There was no interest qualified to be capitalized for the year ended December 31, 2014.

On December 31, 2014, US$ 189.4 of property, plant and equipment were pledged as collateral to loans and financing guarantees and labor contingencies. (December 31, 2013, US$ 269.1).

17.

Intangible Assets

Internally developed intangible assets relate to the costs incurred in developing programs for each new aircraft, including support services, production labor, materials and direct labor allocated to the construction of aircraft prototypes or significant components and also the use of advanced technologies to make the aircraft lighter, quieter, more comfortable and energy-efficient and reduce emissions, in addition to speeding up design and manufacture, while optimizing the use of resources.


	Internally developed											Acquired from third party
	Commercial			Executive			Defense and Security			Other		Development			Software			Goodwill		Other			Total
Intangible cost
At December 31, 2013		1,043.8			1,027.9			25.6			11.8		15.0			206.2			38.3		22.8			2,391.4

Additions		203.2			169.8			—			12.7		—			29.7			—		—			415.4
Contributions from suppliers		(133.4	)		(52.0	)		—			—		—			—			—		—			(185.4	)
Reclassifications		—			17.1			—			—		—			—			—		—			17.1
Translation adjustments		—			—			—			—		(2.9	)		—			—		(0.2	)		(3.1	)

At December 31, 2014		1,113.6			1,162.8			25.6			24.5		12.1			235.9			38.3		22.6			2,635.4

Acumulated amortization
At December 31, 2013		(825.5	)		(296.4	)		(24.8	)		—		(5.4	)		(128.1	)		—		(2.1	)		(1,282.3	)
Amortization		(65.7	)		(35.6	)		(0.8	)		—		—			(14.9	)		—		(0.4	)		(117.4	)
Amortization of contribution from suppliers		19.6			5.6			—			—		—			—			—		—			25.2
Translation adjustments		—			—			—			—		—			—			—		—			—

At December 31, 2014		(871.6	)		(326.4	)		(25.6	)		—		(5.4	)		(143.0	)		—		(2.5	)		(1,374.5	)

Intangible, net
At December 31, 2013		218.3			731.5			0.8			11.8		9.6			78.1			38.3		20.7			1,109.1
At December 31, 2014		242.0			836.4			—			24.5		6.7			92.9			38.3		20.1			1,260.9


	12.31.2013
	Internally developed											Acquired from third party
	Commercial			Executive			Defense and Security			Other		Development			Software			Goodwill			Other			Total
Intangible cost At December 31, 2012		996.8			845.8			25.6			—		14.7			175.0			39.4			21.8			2,119.1
Additions		98.8			171.8			—			11.8		—			34.3			(1.1	)		1.0			316.6
Additions — business combination		—			—			—			—		2.9			—			—			—			2.9
Contributions from suppliers		(51.8	)		—			—			—		—			—			—			—			(51.8	)
Disposals		—			—			—			—		—			(3.1	)		—			—			(3.1	)
Reclassifications		—			10.3			—			—		—			—			—			—			10.3
Translation adjustments		—			—			—			—		(2.6	)		—			—			—			(2.6	)

At December 31, 2013		1,043.8			1,027.9			25.6			11.8		15.0			206.2			38.3			22.8			2,391.4

Acumulated amortization
At December 31, 2012		(785.1	)		(235.4	)		(24.0	)		—		(2.4	)		(112.7	)		—			(0.7	)		(1,160.3	)
Amortization		(59.9	)		(67.4	)		(0.8	)		—		—			(15.3	)		—			(1.4	)		(144.8	)
Additions — business combination		—			—			—			—		(2.9	)		(0.1	)		—			—			(3.0	)
Amortization of contribution from suppliers		19.5			6.6			—			—		—			—			—			—			26.1
Reclassifications		—			(0.2	)		—			—		—			—			—			—			(0.2	)
Translation adjustments		—			—			—			—		(0.1	)		—			—			—			(0.1	)

At December 31, 2013		(825.5	)		(296.4	)		(24.8	)		—		(5.4	)		(128.1	)		—			(2.1	)		(1,282.3	)

Intangible, net
At December 31, 2012		211.7			610.4			1.6			—		12.3			62.3			39.4			21.1			958.8
At December 31, 2013		218.3			731.5			0.8			11.8		9.6			78.1			38.3			20.7			1,109.1

F-46

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated


	12.31.2012
	Internally developed									Acquired from third party
	Commercial			Executive			Defense and Security			Development			Software			Goodwill		Other			Total
Intangible cost
At December 31, 2011		974.1			659.2			27.3			14.7			143.7			38.5		4.9			1,862.4
Additions		23.7			186.6			—			—			32.3			—		9.8			252.4
Additions—business combination		—			—			—			—			—			0.9		7.1			8.0
Contributions from suppliers		(1.0	)		—			—			—			—			—		—			(1.0	)
Translation adjustments		—			—			(1.7	)		—			(1.0	)		—		—			(2.7	)

At December 31, 2012		996.8			845.8			25.6			14.7			175.0			39.4		21.8			2,119.1

Acumulated amortization
At December 31, 2011		(742.5	)		(182.2	)		(23.9	)		(1.5	)		(103.5	)		—		(0.5	)		(1,054.1	)
Amortization		(66.6	)		(61.0	)		(0.1	)		(0.9	)		(10.1	)		—		(0.2	)		(138.9	)
Amortization of contribution from suppliers		24.0			7.8			—			—			—			—		—			31.8
Translation adjustments		—			—			—			—			0.9			—		—			0.9

At December 31, 2012		(785.1	)		(235.4	)		(24.0	)		(2.4	)		(112.7	)		—		(0.7	)		(1,160.3	)

Intangible, net
At December 31, 2011		231.6			477.0			3.4			13.2			40.2			38.5		4.4			808.3
At December 31, 2012		211.7			610.4			1.6			12.3			62.3			39.4		21.1			958.8

On December 31, 2014, the Company capitalized interest of US$ 9.1 in intangible assets.

18.

Impairment test

On December 31, 2014, the Company performed an evaluation of its cash-generating units (“CGUs”), in accordance with the Company’s accounting policies. No indication of impairment was identified. No impairment adjustment was necessary, except for aircraft (Note 16). The impairment losses were established for aircraft operating segments are recognized in “Commercial Aviation” or “Executive Aviation” segments in proportion to the respective aircraft.

For these calculations a discount rate of 9% (expectation of return for investors) on the cash-flows presented in the Strategic Plan of the Company.

The goodwill based on future profitability related to the acquisition of subsidiaries was tested along with other fixed and intangible assets allocated to the respective CGU where these subsidiaries are inserted without being identified impairment adjustment.

19.

Trade accounts payable


	12.31.2014		12.31.2013
Foreign suppliers		622.9		640.8
Risk partners⁽ⁱ⁾		282.1		279.0
Domestic suppliers		75.6		93.8

		980.6		1,013.6

Current portion		980.6		1,013.6

(i)

The Company’s risk-sharing suppliers/partners develop and produce significant aircraft components, including engines, hydraulic components, avionics, wings, tail sections, interior parts, and fuselage parts, among others. Certain contracts between the Company and these risk-sharing suppliers/partners are long-term and include deferral of payments for components and systems for a negotiated term after delivery.

Once the risk-sharing suppliers/partners have been selected and the aircraft development and production program has commenced, changing suppliers is more challenging. For example, in the case of engines, the aircraft is specially designed to accommodate a given component, which cannot be easily replaced by another supplier without incurring delays and significant additional expense. This dependence makes the Company vulnerable to the performance, quality and financial position of its risk-sharing suppliers/partners.

F-47

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

20.

Loans and Financing


	Currency	Contractual Interest rate—%	Effective Interest rate—%	Maturity		12.31.2014		12.31.2013
Other currencies:
Working capital	US$	4.60% to 6.38%	4.60% to 7.42%		2023		1,402.4		1,390.4
		Libor 6M + 1.35%	Libor 6M + 1.35%		2019		18.0		—
		Libor 3M + 2.25%	Libor 3M + 2.25%		2026		101.9		—
	Euro	2.00% a 3.37%	2.00% a 3.37%		2020		82.4		76.4
Project development	US$	6.08%	6.08%		2015		0.2		0.5
Property, plant and equipment	US$	2.13% Libor 1M + 2.44%	2.13% Libor 1M + 2.44%		2030 2035		64.4		66.4
Finance leasing	Euro	Euribor 1M + 1.625%	Euribor 1M + 1.625%		2014		—		0.1
	US$	Libor 6M + 3.40%	Libor 6M + 3.40%		2017		0.1		0.2

							1,669.4		1,534.0

In local currency:
Export Financing	R$	5.50% to 8.0%	5.5% to 8.0%		2017		113.2		86.2
Project development	R$	3.50 % to 5.50% TLPJ + 1.92% a 5.00%	3.50 % to 5.50% TLPJ + 1.92% a 5.00%		2023 2022		420.6		236.2
Credit Note for Exportation	R$	5.50% to 8.0%	5.5% to 8.0%		2017		304.8		337.5
Finance leasing	R$	CDI + 1.20%	CDI + 1.20%		2015		0.1		0.4

							838.7		660.3

Total							2,508.1		2,194.3

Current portion							89.7		79.3
Non-current portion							2,418.4		2,115.0

In October 2006, the Company’s wholly-owned finance subsidiary Embraer Overseas Limited, which only performs financial operations, issued US$ 400.0 in Guaranteed Notes at 6.375% p.a. due on January 24, 2017 in an offering subsequently registered with the “SEC”. In October 2009, Embraer Overseas Limited issued US$ 500.0 of 6.375% p.a. guaranteed notes due on January 15, 2020. Because Overseas Limited is a wholly owned subsidiary of Embraer S.A., and exists to conduct financial operations, funding operations made by Embraer Overseas Limited are presented in the statement of financial position of the Company.

Between the months of August and September 2013 Embraer S.A., through its subsidiary Embraer Overseas Limited, made the exchange offer for existing bonds maturing in 2017 and 2020 for “New Notes” maturing in 2023. For titles of 2017 to the Exchange Offer resulted in US$ 146.4 aggregate principal amount of existing notes and US$ 337.2 aggregate principal amount of 2020 Notes, representing a pproximately 54.95% of the Notes exchanged. The total of the “Exchange Offer” which considering the effects of the exchange price negotiations total issuance of New Notes closed on approximately US$ 540.5 in principal at a rate of 5.696% and maturing to September 16, 2023 value.

The separate financial statements of Embraer Oversas Limited are not provided, because the issuer is a fully-owned finance subsidiary of the Company and the Company fully and unconditionally guarantees the securities. There are no significant restrictions on the ability of the Parent Company to obtain funds from its subsidiaries by dividend or loan.

On June 15, 2012, Embraer S.A. raised funds by issuing guaranteed notes, maturing on June 15, 2022, through an overseas offer of US$ 500 at a rate of 5.15% a year.

On February 2013, Embraer S.A. signed loans in the form of Export Credit Notes for the purpose of applying in export activities and the production of goods for export in the accumulated amount of R$ 712.0 million equivalent to US$ 268.1 at a fixed rate of 5.50% p.a.

F-48

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

On March and April, 2013, Embraer S.A. contracted the funding line Programa BNDES de Sustentação do Investimento – BNDES PSI – Subprograma Exportação de Pré-embarque in order to implement the activities of production for export in the total amount of R$ 200.0 million equivalent to US$ 75.3 at a fixed rate of 5.50% p.a.

In August 2013, Embraer S.A. contracted financing line from the Financier of Studies and Projects—FINEP for the purpose of use in research and new product development program totaling approximately R$ 303.9 million equivalent to US$ 114.4 at a rate fixed 3.50% per annum. On December 31, 2014 the Company had received the amount of R$ 190.3 million equivalent to US$ 71.7 million.

In December 2013, Embraer S.A. signed a contract with BNDES for use in developments projects in the amount of approximately R$ 1.4 billion equivalent to US$ 527.1. On December 31, 2013 there was no amount disbursed this line. On December 31, 2014, the Company had received the amount of R$ 555.8 million equivalent to US$ 209.3 at a fixed rate of 3.50% p.a.

On December 31, 2014, the long-term financing agreements will mature as follows:


Year
2016			412.2
2017			456.4
2018			93.9
2019			71.4
After 2019			1,384.5

			2,418.4

20.1.

Currency analysis

Total debt is denominated in the following currencies:


Loans	12.31.2014		12.31.2013
US dollar		1,587.0		1,457.5
Brazilian Real		838.7		660.3
Euro		82.4		76.5

		2,508.1		2,194.3

20.2.

Interest and guarantees

On December 31, 2014, the loans denominated in Real (34% of the total) are subject to fixed interest rates or interest based on the Brazilian Long-term Interest Rate (“TJLP”). The weighted average rate on December 31, 2014 was 6.01% p.a. (6.17% p.a. on December 31, 2013).

On December 31, 2014 the loans denominated in US dollar (63% of the total) are mainly subject to fixed interest rates. The weighted average rate was 5.56% p.a. (5.81% p.a. on December 31, 2013). In addition, as on December 31, 2014, the Company had denominated loans in Euro (3% from total) that are subject to annual weighted interest rates of 2.91% p.a. (2.82% p.a. on December 31, 2013).

The effective rates on the foreign currency financing, which includes the financial structuring costs incurred and already paid, result in an average effective weighted rate equivalent to LIBOR + 4.17% p.a. as on December 31, 2014 (LIBOR + 3.81% p.a. on December 31, 2013).

Real estate, machinery, equipment, commercial pledges and bank guarantees totaling US$ 461.9 as on December 31, 2014 (US$ 374.8 on December 31, 2013) were provided as collateral for loans.

F-49

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

20.3. Restrictive clauses

The long-term financing agreements are subject to restrictive clauses, consistent with normal market practices, which establish control over the degree of leverage through the ratio of total consolidated indebtedness/EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization, as defined), as well as limits for debt service cover based on the EBITDA/net financial expense. Agreements also include customary restrictions on the creation of new encumbrances on assets, change of control of the Company, sale of assets and payment of dividends in excess of the minimum mandatory dividend in the event of default on the financing, and transactions with affiliated companies. As on December 31, 2014, the Company was in compliance with all the restrictive clauses.

21.

Other payables


	12.31.2014		12.31.2013
Provisions related to payroll⁽ⁱ⁾		132.1		130.2
Contractual obligations⁽ⁱⁱ⁾		120.0		107.4
Other accounts payable⁽ⁱⁱⁱ⁾		75.8		56.3
Provision Employee Profit sharing		32.0		57.2
Commercial incentives		23.8		18.5
Security deposit		11.6		9.2
Insurance		6.0		6.3
Accrued materials^(iv)		5.9		5.9
Non controlling interest option^(v)		2.4		0.7
Brazilian Air Force		2.2		0.8
Financial credit		0.3		0.6

		412.1		393.1

Current portion		324.5		304.8
Non-current portion		87.6		88.3

(i)	Refers to the accrued vacation and related charges recorded in the consolidated financial statements under other payroll;

(ii)	Represents mainly amounts recorded to cover maintenance costs of aircraft under operating under lease agreements and contractual commitments in the sale of new aircraft or completeness of financial residual value guarantees;

(iii)

Represents primarily expenses incurred at the statement of financial position date, with payments occurring within one month;

(iv)	Represents accessories or components to be installed in aircraft already delivered, in accordance with the contracts; and

(v)	Refers to non-controlling (whose right to practice has not yet occurred) put options which may require some or all of the interest in the investees to be purchased by the Company.

22.

Advances from customers


	12.31.2014		12.31.2013
Denominated in U.S. dollars		596.8		728.8
Denominated in Reais		231.8		278.2

		828.6		1,007.0

Current portion		652.5		875.9
Non-current portion		176.1		131.1

The amount of advances from customers related to construction contracts using the POC method is US$ 164.3, on December 31, 2014.

F-50

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

23.

Taxes and payroll charges payable

The Company is challenging, through both administrative and judicial proceedings, the constitutionality of the tax calculation base and its expansion, as well as the rate increase on certain taxes, social contributions and charges, with the aim of ensuring its right to withhold payment or recover amounts paid in previous years. By means of administrative and judicial proceedings, the Company has obtained injunctions and similar measures to suspend collection or offset payment of taxes and social contributions and charges. Provisions have been recorded for the amount of taxes not collected, as a result of preliminary legal decisions, and updated based on changes in the SELIC interest rate, pending a final and definitive decision.


	12.31.2014		12.31.2013
INSS (social security contribution)⁽ⁱ⁾		123.8		122.6
Installment of taxes⁽ⁱⁱ⁾		95.5		164.8
IRRF (Income tax withholding income tax)		20.4		20.3
PIS and COFINS⁽ⁱⁱⁱ⁾		9.8		6.4
FGTS (Government Employee Severance Indemnity Fund)		6.8		7.1
IPI (Manufacturing tax)		2.6		13.0
Income tax and social contribution^(iv)		—		4.1
Others		10.8		10.4

		269.7		348.7

Current portion		125.6		133.1
Non-current portion		144.1		215.6

(i)

This refers to the increase in the work-related accident insurance (“SAT”) rate. The Company is challenging the legality of the levy and absence of technical criteria for such rates since 1995, the liability for which is suspended following a lower court decision in a civil suit. In November 2013 was judged the action in the Federal Court of the 1st Region, where the Company obtained a favorable decision at second instance and awaits judgment of the appeal filed by the Treasury. The amount involved is US$ 72.4 on December 31, 2014 (US$ 78.3 on December 31, 2013).

The Company has also filed a declaratory action in ordinary proceedings, applying for advance relief, claiming waiver of the standards that govern the Accident Prevention Factor (FAP) based on direct violation of article 10 of Law nº 10666/2003, which establishes the tax calculation methodology.

The advance relief was granted in March 2011, suspending the liability for the tax credit, and revoked in September 2012. The Company made the court-mandated escrow deposit, in the terms of article 151 sub-item II, of the National Tax Code, maintaining the suspension of the FAP tax credit liability for 2010 and 2011 of US$ 10.2. In September 2014, was granted to anticipate the effects of protection in judgment of first instance, suspend the payment of FAP. The Company is awaiting judgment of the appeal filed by the Treasury.

With regard to 2013 and 2012, the amounts involved are still suspended due to filing of an administrative appeal disputing the indices used in the Accident Prevention Factor. The amount involved on December 31, 2014, is US$ 29.3, for which a provision has been recorded.

On February, 2009, the Company filed a suit contesting the payment of social security on paid notice of dismissal. As a result of a lower court decision, the amounts relating to paid notices were excluded from the calculation base for the employer’s social security contribution and a provision was recorded, pending a final successful outcome of the court case. One of the processes is in the Federal Regional Court of the 3rd Region and is awaiting judgment of the appeal, the other remains in the Supreme Court to review the extraordinary appeal filed by the Union. The amount involved in the process is US$ 11.9 ont December 31, 2014 (US$ 12.4 on December 31, 2013).

F-51

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

(ii)

The Company judicially and administratively discussed the recognition of the constitutional immunity of social contribution tax on exports as well as the tax basis and tax rates on certain specific and remittances abroad. With the reopening of installments program established by Law 11.941/2009, the Company decided to include these debts in this program.

The total amount of net debt included the value of the escrow deposit in December 2013 was US$ 169.6, paid in 30 months related to the consolidation in November 2009, plus Selic period. The remaining amount on December 31, 2013 was US$ 93.6.

(iii)

This refers to contributions to the PIS/PASEP fund (Social Integration Program/Public Servant Fund). The dispute, involving the calculation base for the non-cumulative system, was included under the terms of Law nº 11941/09, and the suit was withdrawn. The Company continues to contest criteria for application of the benefits of refinancing in the ambit of the legal dispute. The other suit disputes the inclusion of the foreign exchange variation in the PASEP calculation base. The amount involved in the suit is US$ 3.8.

(iv)

The Company was seeking recognition of the constitutional immunity of social contribution on exports. Regarding social contribution on exports, the case was in the Supreme Court, awaiting the judgment of Extraordinary Appeal, which was awarded suspensive effect in favor on the Company.

In October 2013, the tax installment plan of Law 11.941/2009, was reopened, and after evaluating the impact of amnesty on the values discussed, as well as considering the low chance of success, the Company joined in December 2013 the special stimulus installment program, sanctioned by Law 12.865/2013.

The total amount of debt, net of the judicial deposit in December 2013 was US$ 136.6, replacing the value of US$ 106.7, after application of the listed tax stimulus in Article 3 of PGFN/RFB 07 of 10/15/2013, which was divided in 30 installments. The value on December 31, 2014 was US$ 58.9, plus the period of the Selic.

With respect to the litigation issues mentioned above, the remaining provisions will be kept until there is a final outcome and no legal actions are applicable anymore.

24.

Income Taxes

As the tax basis for the majority of the Company’s assets and liabilities are maintained in Real and the accounting basis are measured in US dollars (functional currency), the fluctuation in the exchange rate significantly impacts the tax basis and, in turn, the deferred income tax expense (benefit).

Based on expectation of future taxable income, the Company recorded deferred tax assets based on tax losses carryforward.

Credits relating to temporary differences on non-deductible provisions, represented by labor contingencies, provisions and disputed taxes will be realized as such proceedings are concluded.

24.1.

Deferred taxes

The components of deferred tax assets and liabilities are as follows:


	12.31.2014			12.31.2013			12.31.2012
Temporarily non-deductible provisions		(114.1	)		(117.9	)		(46.9	)
Tax loss carryforwards		17.9			22.3			31.0
Differences between basis: account x tax
Difference between tax basis (Real) and functional currency measurement basis (US dollar)		(204.7	)		(123.7	)		(32.6	)
Finance guarantee provision gain not realized and Health Insurance Provision		89.3			90.7			57.7
Effect of differences by fixed asset		(31.0	)		(29.7	)		(25.8	)
Other tax differences		(19.7	)		(42.4	)		3.0

Deferred tax assets (liabilities), net		(262.3	)		(200.7	)		(13.6	)

Total deferred tax asset		8.1			8.5			12.9
Total deferred tax liability		(270.4	)		(209.2	)		(26.5	)

F-52

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

The change of deferred income tax that affected profit and loss was as follows:


	From the statement of income			Other comprehensive income			Total
At December 31, 2011		53.0			(10.1	)		42.9

Temporarily non-deductible provisions		(119.6	)		—			(119.6	)
Tax loss carryforwards		25.9			—			25.9
Differences between basis: account x tax
Difference between tax basis (Real) and functional currency measurement basis (US dollar)		(62.5	)		—			(62.5	)
Finance Guarantee Provision Gain not realized and Health Insurance Provision		21.5			—			21.5
Effect of differences by fixed asset		(3.3	)		—			(3.3	)
Other accounting differences		62.7			18.8			81.5

At December 31, 2012		(22.3	)		8.7			(13.6	)

Temporarily non-deductible provisions		(77.0	)		—			(77.0	)
Tax loss carryforwards		(4.7	)		—			(4.7	)
Differences between basis: account x tax
Difference between tax basis (Real) and functional currency measurement basis (US dollar)		(91.1	)		—			(91.1	)
Finance Guarantee Provision Gain not realized and Health Insurance Provision		36.0			4.4			40.4
Effect of differences by fixed asset		(7.2	)		—			(7.2	)
Other accounting differences		(48.6	)		1.1			(47.5	)

At December 31, 2013		(214.9	)		14.2			(200.7	)

Temporarily non-deductible provisions		(10.1	)		—			(10.1	)
Tax loss carryforwards		(1.7	)		—			(1.7	)
Differences between basis: account x tax
Difference between tax basis (Real) and functional currency measurement basis (US dollar)		(81.0	)		—			(81.0	)
Finance guarantee provision gain not realized and Post retirement benefits		13.1			(3.7	)		9.4
Effect of differences by fixed asset		(4.8	)		—			(4.8	)
Other accounting differences		5.4			21.2			26.6

At December 31, 2014		(294.0	)		31.7			(262.3	)

24.2.

Reconciliation of income tax expense


	12.31.2014			12.31.2013			12.31.2012
Profit before taxation		503.9			602.4			613.8

Income tax and social contribution expense at the nominal Brazilian composite tax rate—34%		(171.3	)		(204.8	)		(208.7	)

Tax on profits of overseas subsidiaries		(6.3	)		(8.5	)		18.9
Difference between tax basis (Real) and functional currency measurement basis (US dollar)		(81.0	)		(91.1	)		(62.5	)
Research and development tax incentives		78.3			80.2			49.3
Interest on own capital		28.1			23.6			26.3
Gain or Loss in Subsidiary Equity		—			—			(0.5	)
Fiscal credits (recognized and non recognized) and tax rate		4.6			(63.6	)		(60.2	)
Other difference between IFRS and fiscal basis		(1.3	)		6.7			(22.0	)
Other		(7.3	)		1.1			(5.8	)

Income tax and social contribution income (expense) benefit as reported		(156.2	)		(256.4	)		(265.2	)

Income tax and social contribution current expense as reported		(77.1	)		(63.8	)		(189.9	)
Income tax and social contribution deferred expense benefit as reported		(79.1	)		(192.6	)		(75.3	)

F-53

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

The recognition of the values mentioned above resulted in an effective tax rate of 35.6% for December 31, 2014, (42.6% on December 31, 2013 and 43.2% on December 31, 2012).

25.

Financial Guarantees and Residual Value Guarantees


	12.31.2014		12.31.2013
Financial guarantee of residual value		94.4		81.6
Accounts payable⁽ⁱ⁾		81.8		138.2
Financial guarantee		61.8		73.7

		238.0		293.5

Current portion		29.5		90.0
Non-current portion		208.5		203.5

Below is the activity of the financial guarantees and residual guarantees:


	Financial guarantee			Financial guarantee of residual value			Accounts payable⁽ⁱ⁾			Additional provision⁽ⁱ⁾			Total
At December 31, 2011		75.7			45.5			56.2			317.5			494.9

Additions		—			—			211.4			6.0			217.4
Disposals		—			—			(9.1	)		(59.6	)		(68.7	)
Reversals		—			—			—			(52.0	)		(52.0	)
Market value		—			14.0			—			—			14.0
Guarantee amortization		(21.2	)		—			—			—			(21.2	)

At December 31, 2012		54.5			59.5			258.5			211.9			584.4

Additions		30.6			0.8			3.8			6.7			41.9
Disposals		—			—			(121.4	)		(66.4	)		(187.8	)
Reversals		—			—			(2.7	)		(170.5	)		(173.2	)
Market value		—			21.3			—			18.3			39.6
Guarantee amortization		(11.4	)		—			—			—			(11.4	)

At December 31, 2013		73.7			81.6			138.2			—			293.5

Additions		1.2			—			4.0			—			5.2
Disposals		—			(6.3	)		(60.4	)		—			(66.7	)
Market value		—			19.1			—			—			19.1
Guarantee amortization		(13.1	)		—			—			—			(13.1	)

At December 31, 2014		61.8			94.4			81.8			—			238.0

(i)

Accounts payable and additional provision:

•

American Airlines—Refers to liabilities assumed as a result of the acquisition of certain assets of American Airlines in 2012. At December 31, 2014 the obligation assumed in accounts payable was US$ 81.0 (December 31, 2013 – US$ 82.5)

•

Chautauqua—Refers to the negotiation realized in 2012 with Chautauqua Airlines Inc., a subsidiary of Republic Airways Holdings Inc., for restructuring of its financial operations. At December 31, 2014 the obligation assumed was US$0.8 (December 31, 2013 – US$ 55.7).

F-54

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

26.

Provisions and contingent liabilities

26.1.

Provisions


	12.31.2014		12.31.2013
Product warranties⁽ⁱ⁾		87.3		103.9
Provisions for labor, taxes and civil⁽ⁱⁱ⁾		80.4		68.9
Post retirement benefits (Note 27)		41.2		71.0
Taxes		25.3		7.3
Environmental provision⁽ⁱⁱⁱ⁾		4.3		5.3
Other^(iv)		10.0		7.8

		248.5		264.2

Current portion		95.4		98.5
Non-current portion		153.1		165.7

(i)

Recorded to cover product-related expenditure, including warranties and contractual obligations to implement improvements to aircraft delivered in order to meet performance targets. In 2014, the Company reviewed the estimated basis for the establishment of product warranty provisions related to commercial aviation programs.

The review took place, considering historical data of E-jets and expectations of future expenses and as a result of this review, the aircraft to be delivered beginning on 2015 to have an acknowledgment less than would be recognized if it had kept criteria previous estimates.

(ii)

Provisions for labor, tax or civil contingencies, as follows in the chart below Note 26.1.1.

(iii)

The Company maintains allowances for spending on research of soil and potential environmental recovery services.

(iv)

Refers mainly to a contingent liability recognized in 2011 when the Company, through its subsidiary, Embraer Defesa & Segurança Participações, acquired the jointly controlled entity Atech and the subsidiary Bradar. This contingent liability at the time of the acquisition represented a present obligation and whose fair value was reliably measurable. On December 31, 2014, the remaining balance for the contingent liability was US$ 3.5 and December 31, 2013 US$ 4.3.

F-55

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

26.1.1 Provision labor, tax and civil


	12.31.2014		12.31.2013
Tax related
PIS and COFINS⁽ⁱ⁾		12.7		14.0
Social security contributions⁽ⁱⁱ⁾		9.9		10.8
FUNDAF⁽ⁱⁱⁱ⁾		4.6		5.1
ICMS^(iv)		4.6		4.8
Import taxes^(v)		2.2		2.4
Third party contributions^(vi)		—		8.7
CIDE		—		1.7
Others		0.7		0.6
		34.7		48.1
Labor related
Plurim as 461/1379^(vii)		9.8		9.7
Indemnity^(viii)		3.4		1.6
Reintegration^(ix)		2.7		2.3
Third parties		0.3		0.2
Others		27.4		4.8
		43.6		18.6
Civil related
Indemnity^(x)		2.1		2.2
		2.1		2.2

		80.4		68.9

Current portion		17.5		27.2
Non-current portion		62.9		41.7

(i)

The Company calculated credits on the corresponding contributions in certain operations and is awaiting the conclusion of the administrative suit to assess the appropriate legal measures.

(ii)

The Company was notified by the authorities for failing to withhold social security contributions from service providers. These lawsuits are at the 2nd court level. In additiont these processes, the Company was notified for additional gathering of environmental risks of the work, the discussion resulted in the favorable decision to the Company pending the manifestation of Finance.

(iii)

In March 2005, an Assessment and Penalty Notice (AIIM) was filed against the Company, demanding payment of this contribution Fundo de Modernização da Administração Fazendária (FUNDAF). As a result of this notification, the Company filed a tax debt annulment lawsuit at the 1st court level, which was partially judged in the Company’s favor. The lawsuit is at the 2nd court level, for consideration of the Appeal and the Voluntary Appeal.

(iv)

The Company is discussing administratively the Infraction and Imposition of Penalty (Auto de Infração e Imposição de Multa—AIIM) issued by the State of São Paulo for the collection of ICMS (Imposto sobre Circulação de Mercadorias e Serviços) on telecommunication services, understanding that the services referred to the AIIM are not taxed by the ICMS. The tax authorities have not yet decided on the appeal until this moment.

(v)

It is two Notices of Violation and Imposition of Penalty issued against the Company involving the drawback regime. The first was issued due to alleged violation of the deadline for compliance with the drawback and the second discusses possible differences regarding the tax classification of certain products. Both discussions run the judiciary and is, respectively, in Special Appeal analysis phase in STJ (Supremo Tribunal de Justiça) and awaiting an appeal judgment by the TRF (Tribunal Regional Federal).

F-56

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

(vi)

The Company is challenging the Social Security and Assistance Fund (Fundo da Previdência e Assistência Social—FPAS) classification, amended by a regulatory ruling, which resulted in an increase in taxes on payroll. In May 2014, the period of Law 11.941/2009 was reopened, and after evaluating the impacts of amnesty on the values discussed, as well as consider the low possibility of success, the Company adhered to the special installment program encouraged, sanctioned by Law 12.996/2014.

(vii)

Refers to claims for backdated salary increases and productivity payments, brought by former employees.

(viii)

Suits brought by former employees claiming reinstatement with the Company for various reasons.

(ix)

Indemnity claims in connection with alleged work-related accidents, pain and suffering, etc.

(x)

Other indemnity claims brought by parties that had any kind of legal relationship with the Company.

The tax, labor and civil provisions are recorded in accordance with the Company’s accounting policy (see note 2.2.25 of the December 31, 2014 consolidated financial statements), and the amounts shown here represent the estimated amounts that the Company’s legal department and its external counsel expect the Company to have to disburse to settle the lawsuits. The “Others” line in each of the categories is generally comprised of individual lawsuits and operations that differ from the main categories and are sufficiently different and insignificant not to warrant individual categories.

Change in provision:


	Product warranties			Post retirement benefits			Provisions Labor, Taxes and Civil			Taxes			Environmental provision
At December 31, 2011		115.8			4.4			72.7			1.0			—

Additions		86.2			57.0			21.0			3.0			—
Interest		—			—			3.4			—			—
Reclassifications		—			—			—			—			—
Used/payments		(69.3	)		—			(12.1	)		—			—
Reversals		(21.7	)		—			(16.4	)		—			—
Translation adjustments		(0.4	)		—			(5.8	)		0.2			—

At December 31, 2012		110.6			61.4			62.8			4.2			—

Additions		98.0			15.0			21.0			4.0			5.8
Interest		—			4.7			4.1			—			—
Used/payments		(68.5	)		(3.1	)		(2.0	)		—			—
Reversals		(35.1	)		—			(9.6	)		(1.0	)		—
Translation adjustments		(1.1	)		(7.0	)		(7.4	)		0.1			(0.5	)

At December 31, 2013		103.9			71.0			68.9			7.3			5.3

Additions		89.2			3.0			31.2			18.0			2.1
Interest		—			4.8			5.0			—			—
Used/payments		(64.1	)		(0.7	)		(9.8	)		—			(2.5	)
Reversals		(38.9	)		(30.0	)		(7.2	)		—			—
Translation adjustments		(2.8	)		(6.9	)		(7.7	)		—			(0.6	)

At December 31, 2014		87.3			41.2			80.4			25.3			4.3

F-57

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

26.2.

Contingent liabilities

Contingent liabilities are amounts classified as possible losses, in accordance with the Company’s accounting policy, in the opinion of the Company’s legal department, supported by its external counsel. When the contingent asset arises from the same set of circumstances as an existing provision, the type of the corresponding provision is indicated at the end of the description. Below is the description of all contingent liability that the Company has:

•

In response to tax assessment notices filed by the Brazilian Federal Revenue Authorities in December 2010 and September 2011, the Company is contesting the calculation base and the rates of taxes charged on certain remittances abroad and also the accounting and recognition of an indemnity received in a contractual dissolution.

With the reopening of encouraged installments, debts were included in the Company challenged the tax base and tax rate levied on certain remittances abroad. The total value of the tax assessment included in December 2013 was US$ 103.3, paid in 30 months, the final amount after discount, the value subsisting US$ 62.9, related to the consolidation in December 2013, plus Selic period. The total amount on December 31, 2014 is US$ 34.7.

The administrative discussion regarding the tax assessment which addresses the accounting and recognition of compensation in the Administrative Appeals Council goes on. The total amount on December 31, 2014 is US$ 37.9.

•

The Company received in September, 2010 a subpoena from the SEC and associated inquiries from the U.S. Department of Justice, or DOJ, concerning possible non-compliance with the U.S. Foreign Corrupt Practices Act in relation to certain aircraft sales outside of Brazil. In response, the Company retained outside counsel to conduct an internal investigation of sales in three countries.

In light of additional information, the Company voluntarily expanded the scope of the internal investigation to include sales in other countries, reported on these matters to the SEC and the DOJ and otherwise cooperated with them. The U.S. government inquiries, related inquiries and developments in other countries and the Company’s internal investigation are continuing. Any action in these or related inquiries, proceedings or other developments, or any agreement the Company enters into to settle the same, may result in substantial fines and other sanctions and adverse consequences. Based upon the opinion of its outside counsel, the Company believes that there is no adequate basis at this time for estimating accruals or quantifying any contingency with respect to these matters.

In light of the above, we embarked on a comprehensive effort to improve and expand our compliance program worldwide. This multi-year task involved reexamining every aspect of our compliance systems, and where appropriate, redesigning or adding to them. Some of the key enhancements include the creation of a Compliance Department, the appointment of a Chief Compliance Officer reporting directly to the Risk and Audit Committee of the Board of Directors, the development of a program to monitor engagement of and payments to third parties, improvements to compliance policies, procedure and controls, the enhancement of anonymous and other reporting channels, and the development of a comprehensive training and education program designed to maintain and reinforce a strong compliance culture at all levels of Embraer globally. The Company will continue to promote enhancements and update its compliance program.

•

The Company has contingent liabilities amounting to US$ 15.3 related to labor suits.

27.

Post-retirement benefits


	12.31.2014		12.31.2013
Medical benefits plan Brazil		36.8		68.5
Medical benefits plan subsidiaries abroad		4.4		2.5

Post-retirement benefits		41.2		71.0

F-58

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

27.1. Post-retirement healthcare benefits provided by the Company in Brazil

The Company amended its healthcare plan for retired employees, considered as a post-employment benefit. Under this healthcare plan, employees who retire from the Company have the option of remaining in the plan, contributing the full amount charged by the insurance company. However, due to certain rules for increases under Brazilian law, there could be times at which the contribution made by the retired employees is insufficient to cover the medical plan expenses, which would represent exposure for the Company.

In 2014 the Company announced changes in employee participation in their health care plan regarding the contribution table. These changes have been challenged by the Union that an injunction suspending the change in the amounts charged of eligible employees, but for employees assisted by the benefit, the change was applied. Because it is a change in the health care plan the effects of this change were recorded in statement of income in the line of other operating income (expense), net. For other plan participants the Company has not reviewed its exposure, and is awaiting a legal decision to proceed with a possible change of employee participation policy in the health care plan. The rational of this recognition is described in the accounting policy (Note 2.2.26—b).

The amounts recognized in the statement of financial position were:


	12.31.2014			12.31.2013
Benefit obligation—beginning of year		68.5			57.0
Cost of service		0.7			1.2
Interest on the value of the obligation		4.5			4.7
Actuarial gains (losses) from demographic assumptions		(0.1	)		59.6
Actuarial gains (losses) from financial assumptions		1.7			(45.9	)
Benefits paid directly by the company		(0.5	)		(0.9	)
Cust incurred service—plan amendments		(30.0	)		—
Translation adjustments		(8.0	)		(7.2	)

Benefit obligation—end of year		36.8			68.5

The main actuarial assumptions were as follows:


	12.31.2014			12.31.2013
Discount rate		11.8	%		11.5	%
Inflation		5.2	%		4.8	%
Growth rate of medical costs (next year)		11.2	%		11.0	%
Growth of (long term) medical cost rate		6.2	%		5.8	%

27.2. Post-retirement healthcare benefits provided by subsidiaries abroad

Embraer Aircraft Holding sponsors a post-retirement healthcare plan, which was amended in 2007. The expected costs of pension and provision of post-employment medical benefit for beneficiaries employees and their dependents are provided on an accrual basis based on actuarial studies and the calculation is reviewed annually.

The change in the post-retirement benefits is summarized as follows:


	Other Post retirement Benefits
	12.31.2014			12.31.2013			12.31.2012
Benefits Obligations—beginning of the year		4.0			4.9			4.9
Interest cost		0.3			0.3			0.3
Actuarial loss		0.7			(1.0	)		(0.1	)
Benefits paid to participants		(0.2	)		(0.2	)		(0.2	)

Benefits Obligations—end of year		4.8			4.0			4.9

F-59

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

The changes in plan assets for the years ended were as follows:


	Other Post retirement Benefits
	12.31.2014			12.31.2013			12.31.2012
Fair value of plan assets—beginning of the year		1.2			1.1			1.1
Actual return on plan assets		0.1			0.3			0.1
Benefits paid to participants		(0.2	)		(0.2	)		(0.1	)

Fair value of plan assets—end of year		1.1			1.2			1.1

The fair value of the plan assets is measured based on Level 1 inputs in accordance with the accounting standard for fair value measurements. There has been no change since the prior year in the valuation techniques and level of inputs. The net prepaid (accrued) benefit cost are summarized as follows:


	Other Post retirement Benefits
	12.31.2014			12.31.2013			12.31.2012
Accrued cost—Unfunded status		(4.4	)		(2.5	)		(4.4	)

		(4.4	)		(2.5	)		(4.4	)

The principal actuarial assumptions utilized was as follows:


	Other Post retirement Benefits
	%			%			%
	12.31.2014			12.31.2013			12.31.2012
Average discount rate		4.75	%		3.75	%		4.50	%
Net periodic benefit cost		4.00	%		4.75	%		3.75	%
Expected return on plan assets		N/A			N/A			7.75	%
Rate of compensation increase		5.50	%		5.50	%		5.50	%

The components of net periodic benefit cost were as follows:


	12.31.2014			12.31.2013			12.31.2012
Service cost		(0.1	)		(0.1	)		(0.1	)
Interest cost		(0.2	)		(0.2	)		(0.2	)
Expected return on plan assets		0.1			0.1			0.1

Net periodic cost		(0.2	)		(0.2	)		(0.2	)

Net cost		(0.2	)		(0.2	)		(0.2	)

The net benefit cost (benefit) is included in selling expenses and in administrative expenses.

The composition of plan assets, was as follows:


	12.31.2014			12.31.2013			12.31.2012
Mutual funds invested primarily in stocks		98	%		98	%		80	%
Mutual funds invested primarily in bonds		1	%		1	%		19	%
Other—cash		1	%		1	%		1	%

		100	%		100	%		100	%

F-60

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

The benefit payments, which reflect expected future service, are expected to be paid to participants under the post-retirement medical plan as follows:


Year	Other benefits post retirement
2015		0.2
2016		0.2
2017		0.2
2018		0.2
2019		0.2
2020—2024		1.2

		2.2

For measurement purposes, an annual rate of increase in the per capita cost of covered health and dental care benefits of 7% was assumed. The rate is expected to decrease to 5% in 2015. Assumed healthcare cost trend rates have a significant effect on the amounts reported for the postretirement healthcare plan. A one percentage point change in assumed healthcare cost trend rates would not have material effects on the post-retirement benefit.

27.3.

Defined contribution pension plan

The Company and certain subsidiaries sponsor a defined contribution pension plan for their employees, in which participation is optional. Contributions by the Company and certain subsidiaries to the plan for the years ended December 31, 2014, 2013 and 2012 were US$ 28.4, US$ 28.1 and US$ 27.8, respectively.

28.

Financial Instruments

28.1.

Financial instruments by category


			12.31.2014
	Note		Loans and receivables		Measured at fair value through profit or loss		Available for sale		Investments held to maturity		Liabilities measured at amortised cost		Total
Assets
Cash and cash equivalents		5		—		1,713.0		—		—		—		1,713.0
Financial investments		6		—		709.6		2.6		44.2		—		756.4
Collateralized accounts receivable		10		425.6		—		—		—		—		425.6
Trade accounts receivable, net		7		703.8		—		—		—		—		703.8
Customer and commercial financing		9		68.6		—		—		—		—		68.6
Derivative financial instruments		8		—		17.9		—		—		—		17.9

				1,198.0		2,440.5		2.6		44.2		—		3,685.3

Liabilities
Loans and financing		20		—		—		—		—		2,507.9		2,507.9
Trade accounts payable and others liabilities				—		4.0		—		—		1,788.7		1,792.7
Financial guarantee of residual value		25		—		94.4		—		—		143.6		238.0
Capital lease		20		—		—		—		—		0.2		0.2
Derivative financial instruments		8		—		15.4		—		—		—		15.4

				—		113.8		—		—		4,440.4		4,554.2

F-61

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated


			12.31.2013
	Note		Loans and receivables		Measured at fair value through profit or loss		Available for sale		Investments held to maturity		Liabilities measured at amortised cost		Total
Assets
Cash and cash equivalents		5		—		1,683.7		—		—		—		1,683.7
Financial investments		6		—		912.6		27.7		45.0		—		985.3
Collateralized accounts receivable		10		425.9		—		—		—		—		425.9
Trade accounts receivable, net		7		578.7		—		—		—		—		578.7
Customer and commercial financing		9		73.7		—		—		—		—		73.7
Derivative financial instruments		8		—		30.4		—		—		—		30.4

				1,078.3		2,626.7		27.7		45.0		—		3,777.7

Liabilities
Loans and financing		20		—		—		—		—		2,193.6		2,193.6
Trade accounts payable and others liabilities				—		—		—		—		1,806.9		1,806.9
Financial guarantee of residual value		25		—		81.6		—		—		211.9		293.5
Capital lease		20		—		—		—		—		0.7		0.7
Derivative financial instruments		8		—		13.7		—		—		—		13.7

				—		95.3		—		—		4,213.1		4,308.4

28.2.

Fair value of financial instruments

The fair value of the Company’s financial assets and liabilities were determined using available market information and appropriate valuation methodologies. However, considerable judgment was required in interpreting market data to generate estimates of fair values. As a consequence, the estimates presented below are not necessarily indicative of the amounts that might be realized in a current market exchange. The use of different assumptions and/or methodologies could have a material effect on the estimated realizable values.

The following methods were used to estimate the fair value of each category of financial instrument for which it is possible to estimate the fair value.

F-62

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

The book values of cash, cash equivalents, financial investments, accounts receivable, other financial assets and current liabilities are approximately their fair values. The fair value of securities held to maturity is estimated by the discounted cash flow methodology. The fair value of non-current loans is based on the discounted value of the contractual cash flows. The discount rate used, when applicable, is based on the future market yield curve for the cash flows of each liability.

The Company considers “fair value” to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. The Company primarily applies the market approach for recurring fair value measurements and endeavors to utilize the best available information. Accordingly, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The Company is able to classify fair value balances based on the observable inputs. A fair value hierarchy is used to prioritize the inputs used to measure fair value. The three Levels of the fair value hierarchy are as follows:

•

Level 1—quoted prices are available in active markets for identical assets or liabilities at the reporting period. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives and listed equities.

•

Level 2—pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date. However, they can be directly or indirectly observable at the statement of financial position date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category include non-exchange traded derivatives such as over-the-counter forwards and options.

•

Level 3—pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in Management’s best estimate of fair value. At each balance sheet date, the Company performs an analysis of all instruments and includes in Level 3 all of those whose fair value is based on significant unobservable inputs.

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2014. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.


	12.31.2014
			Fair value of financial instruments measured at fair value through profit or loss
	Note		Level 1		Level 2		Level 3		Total		Fair value of the other financial instruments		Fair value		Book value
Assets
Cash and cash equivalents		5		232.2		1,480.8		—		1,713.0		—		1,713.0		1,713.0
Financial investments		6		0.8		708.8		—		709.6		46.8		756.4		756.4
Collateralized accounts receivable				—		—		—		—		425.6		425.6		425.6
Trade accounts receivable, net		7		—		—		—		—		703.8		703.8		703.8
Customer and commercial financing		9		—		—		—		—		68.6		68.6		68.6
Derivative financial instruments		8		—		17.9		—		17.9		—		17.9		17.9

				233.0		2,207.5		—		2,440.5		1,244.8		3,685.3		3,685.3

Liabilities
Loans and financing		20		—		—		—		—		2,507.9		2,661.5		2,507.9
Trade accounts payable and others liabilities				4.0		—		—		4.0		1,788.7		1,792.7		1,792.7
Financial guarantee and of residual value		25		—		—		94.4		94.4		143.6		238.0		238.0
Capital lease		20		—		—		—		—		0.2		0.2		0.2
Derivative financial instruments		8		—		15.4		—		15.4		—		15.4		15.4

				4.0		15.4		94.4		113.8		4,440.4		4,707.8		4,554.2

F-63

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated


	12.31.2013
		Fair value of financial instruments measured at fair value through profit or loss
	Note	Level 1		Level 2		Level 3		Total		Fair value of the other financial instruments		Fair value		Book value
Assets
Cash and cash equivalents	5		261.6		1,422.1		—		1,683.7		—		1,683.7		1,683.7
Financial investments	6		140.7		771.9		—		912.6		72.7		985.3		985.3
Collateralized accounts receivable			—		—		—		—		425.9		425.9		425.9
Trade accounts receivable, net	7		—		—		—		—		578.6		578.7		578.7
Customer and commercial financing	9		—		—		—		—		73.7		73.7		73.7
Derivative financial instruments	8		—		30.4		—		30.4		—		30.4		30.4

			402.3		2,224.4		—		2,626.7		1,150.9		3,777.7		3,777.7

Liabilities
Loans and financing	20		—		—		—		—		2,193.6		2,299.3		2,193.6
Trade accounts payable and others liabilities			—		—		—		—		1,806.9		1,806.9		1,806.9
Financial guarantee and of residual value	25		—		—		81.6		81.6		211.9		293.5		293.5
Capital lease	20		—		—		—		—		0.7		0.7		0.7
Derivative financial instruments	8		—		13.7		—		13.7		—		13.7		13.7

			—		13.7		81.6		95.3		4,213.1		4,414.1		4,308.4


	Fair value of liabilities measurement using significant unobservable inputs (level 3)
At December 31, 2012		99.7

Profits (losses) unrealized		1.2
Market value		39.3
Reversal		(58.6	)

At December 31, 2013		81.6

Disposal		(6.3	)
Market value		19.1

At December 31, 2014 (Unaudited)		94.4

28.3.

Financial risk management policy

The Company has and follows a risk management policy to direct transactions, which involves the diversification of transactions and counterparties. This policy provides for regular monitoring and management of the nature and general situation of the financial risks in order to assess the results and the financial impact on cash flows. The credit limits and risk rating of the counterparties are also reviewed periodically.

The Company’s risk management policy was established by the Executive Directors and submitted by to the Board of Directors, and provides for a Financial Management Committee. Under this policy, the market risks are mitigated when there is no counterparty in the Company’s operations and when it is considered necessary to support the corporate strategy. The Company’s internal control procedures provide for a consolidated monitoring and supervision of the financial results and of the impact on cash flows.

The Financial Management Committee assists the Financial Department in examining and reviewing information in relation to the economic scenario and its potential impact on the Company’s operations, including significant risk management policies, procedures and practices.

F-64

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

The financial risk management policy includes the use of derivative financial instruments to mitigate the effects of interest rate fluctuations and to reduce the exposure to exchange rate risk. The use of these instruments for speculative purposes is forbidden.

28.3.1 Capital risk management

The Company uses capital management to ensure the continuity of its investment program and offer a return to its shareholders and benefits to its stakeholders and also to maintain an optimized capital structure in order to reduce costs.

The Company may review its dividends payment policy, pay back capital to the shareholders, issue new shares or sell assets in order to maintain or adjust its capital structure (to reduce the financial indebtedness, for instance).

Liquidity and the leverage level are constantly monitored in order to mitigate refinance risk and to maximize the return to the shareholders. The ratio between the liquidity and the return to the shareholders may be changed pursuant to the assessment of Management.

The capital management may be changed due to economy scenario alterations or to strategic repositioning of the Company.

On December 31, 2014, cash and cash equivalents was lower than the Company’s financial indebtedness by US$84.5 and December 31, 2013 cash and cash equivalents exceeded the Company’s financial indebtedness by US$429.3.

Of the total financial indebtedness as of December 31, 2014, 3.6% was short-term (3.6% on December 31, 2012) and the average weighted term was equivalent to 5.4 years (6.3 years as of December 31, 2012). The Company’s own capital accounted for 37.1% as of December 31, 2014 and 35.8% of the total liabilities as of December 31, 2013.

28.3.2 Credit risk

Credit risk is the risk of unfulfillment, by the counterparty, of an obligation due to the Company represented in financial instruments, or receivables due from sales to customers, which leads to a financial loss. The Company is exposed to credit risk with respect to its operational activities, cash held in banks and financial investments held in other institutions.

•

Financial investment

The credit risk of cash and financial investment, which is managed by the Financial Department, is managed according to the defined policy. The credit limit of the counterparties is reviewed on a daily basis in order to minimize the concentration risk and mitigate financial losses due to bankruptcy of the counterparties. The Financial Management Committee assists the Financial Department in examining and reviewing operations done with counterparties.

•

Accounts receivable

The Company may incur losses on amounts receivable from sales of spare parts and services. To reduce this risk, customer credit analyses are made continuously. In relation to accounts receivable from aircraft sales, the Company may have credit risks until the financing structure has been completed. To minimize this credit risk, the Company operates with financial institutions to facilitate structuring of the financing.

To cover risk of loss from doubtful accounts, the Company has recorded an allowance in an amount considered sufficient by management to cover expected losses on realization of the receivables.

The following tables present the credit risk classification of the respective counterparty of the financial investment (including cash) and other financial assets held by the Company.

F-65

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

a) Credit risk for counterparty with external assessment


	12.31.2014		12.31.2013
Cash and cash equivalents		1,713.0		1,683.7
Financial investments		756.4		985.3
Derivative financial instruments		17.9		30.4

Total		2,487.3		2,699.4

Based on external appraisal:
AAA		1,598.9		1,344.6
AA		49.0		123.4
A		60.0		115.2
BBB		779.1		1,082.4
N/A		0.3		33.8

Total		2,487.3		2,699.4

N/A	– Not available: no observable input to credit assessment

b) Credit risk for counterparties without external evaluation


	12.31.2014		12.31.2013
Collateralized accounts receivable		425.6		425.9
Trade accounts receivable, net		703.8		578.7
Customer and commercial financing		68.6		73.7

Total		1,198.0		1,078.3

Based on internal appraisal:
Group 1		1.7		9.8
Group 2		90.5		79.5
Group 3		1,105.8		989.0

Total		1,198.0		1,078.3

Group

1: New customers (less than one year)

Group

2: Customers (more than one year) impaired

Group

3: Customers (more than one year) not impaired

28.3.3 Liquidity risk

This is the risk of the Company not having sufficient liquid funds to honor its financial commitments as a result of a mismatch of terms or volumes of estimated receipts and payments.

To manage the liquidity of cash in dollars and reais, Management has established projections and assumptions based on contracts for future disbursements and receipts, which are monitored daily by the Company. Accordingly, possible mismatches are detected well in advance allowing the Company to adopt mitigation measures in advance, reducing the risk and financial cost.

The following table provides additional information related to undiscounted contractual obligations and commercial commitments and their respective maturities:

F-66

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated


	Cash Flow		Less than one year		One to three years		Three to five years		More than five years
At December 31, 2014
Loans and financing		3,279.9		195.0		1,079.0		320.5		1,685.4
Suppliers		980.6		980.6		—		—		—
Recourse and non recourse debt		400.0		10.3		328.8		32.1		28.8
Financial guarantees		238.0		29.5		42.1		14.8		151.6
Other liabilities		386.1		85.5		118.4		111.4		70.8
Capital lease		0.3		0.2		0.1		—		—

Total		5,284.9		1,301.1		1,568.4		478.8		1,936.6

At December 31, 2013
Loans and financing		3,003.8		176.6		1,167.4		182.9		1,476.9
Suppliers		1,013.6		1,013.6		—		—		—
Recourse and non recourse debt		400.2		12.1		317.3		27.5		43.3
Financial guarantees		293.5		35.1		26.2		23.2		209.0
Other liabilities		355.2		19.3		105.7		149.8		80.4
Capital lease		0.8		0.5		0.3		—		—

Total		5,067.1		1,257.2		1,616.9		383.4		1,809.6

The above table shows the outstanding principal and anticipated interest due at maturity date. For the fixed rate liabilities, the interest expenses were calculated based on the rate established in each debt contract. For the floating rate liabilities, the interest expenses were calculated based on a market forecast for each period (e.g. LIBOR 6m—12m).

28.3.4

Market risk

Interest rate risk

This risk arises from the possibility that the Company might incur losses on account of interest rate fluctuations that increase the financial expense of liabilities and related to floating interest rates that reduce the assets income subject to floating interest rates and/or when the fluctuation in the determination of fair value price of assets or liabilities that are marked to market by fixed rates.

•

Cash, cash equivalents and financial investments—Company policy for managing the risk of fluctuations in interest rates on financial investments is to measure market risk by the Value-At-Risk—VAR methodology, analyzing a variety of risk factors that might affect the return on the investments. The financial income determined in the period already reflects the effects of marking the assets in the Brazilian and foreign investment portfolios to market.

•

Loans and financing—the Company uses derivative contracts to hedge against the risk of fluctuations in interest rates on certain transactions, and also continuously monitors market interest rates to evaluate the potential need to contract new derivative transactions to protect against the risk of volatility in these rates.

On December 31, 2014, the Company’s cash, cash equivalents, financial investments and loans and financing were indexed as follows:


Without derivative effect	Pre-fixed					Post-fixed					Total
	Amount		%			Amount		%			Amount		%
Cash, cash equivalents and financial investments		853.8		34.58	%		1,615.6		65.42	%		2,469.4		100.00	%
Loans and financing		2,287.0		91.18	%		221.1		8.82	%		2,508.1		100.00	%

With derivative effect	Pre-fixed					Post-fixed					Total
	Amount		%			Amount%		%			Amount		%
Cash, cash equivalents and financial investments		853.7		34.57	%		1,615.7		65.43	%		2,469.4		100.00	%
Loans and financing		1,617.0		64.47	%		891.1		35.53	%		2,508.1		100.00	%

F-67

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

On December 31, 2014, the Company’s cash, cash equivalents, financial investments and loans and financing post-fixed were indexed as follows:


	Without derivative effect					With derivative effect
	Amount		%			Amount		%
Cash equivalents and financial investments		1,615.6		100.00	%		1,615.6		100.00	%
CDI		1,386.0		85.79	%		1,386.0		85.79	%
Libor		229.6		14.21	%		229.6		14.21	%
Loans and financing		221.1		100.00	%		891.1		100.00	%
TJLP		44.0		19.90	%		44.0		4.94	%
Libor		177.0		80.05	%		160.4		18.00	%
CDI		0.1		0.05	%		686.7		77.06	%

Foreign exchange rate risk

The Company’s functional currency is the US dollar.

Consequently, the Company’s operations which are most exposed to foreign exchange gains/losses are those denominated in Real (labor costs, local expenses, financial investments and loans and financing) as well as investments in subsidiaries in currencies other than the US dollar.

Company policy for protection against foreign exchange risks on assets and liabilities is mainly based on seeking to maintain a balance between assets and liabilities indexed in each currency and daily management of foreign currency purchases and sales to ensure that, on realization of the transactions contracted, this natural hedge will occur. This policy minimizes the effect of exchange rate changes on assets and liabilities already contracted, but does not protect against the risk of fluctuations in future results due to the appreciation or depreciation of the Real that can, when measured in dollars, show an increase or reduction of the share of costs when Real denominated.

The Company, in certain market conditions, may protect itself against future expenses and revenues, denominated in foreign currency, to minimize future mismatches which lead to foreign currency gains/losses in the results.

Efforts to minimize the foreign exchange risk for rights and liabilities denominated in currencies other than the functional currency may involve transactions with derivatives, such as swaps, exchange options and Non-Deliverable Forwards (“NDF”) (Note 8).

F-68

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated


	Without the effect of derivative transactions						With the effect of derivative transactions
	12.31.2014			12.31.2013			12.31.2014			12.31.2013
Loans and financing
Brazilian reais		838.7			660.3			838.7			660.3
U.S. dollars		1,587.0			1,457.5			1,587.0			1,457.5
Euro		82.4			76.5			82.4			76.5

		2,508.1			2,194.3			2,508.1			2,194.3

Trade accounts payable
Brazilian reais		114.7			84.2			114.7			84.2
U.S. dollars		770.1			815.5			770.1			815.5
Euro		95.2			110.6			95.2			110.6
Other currencies		0.6			3.3			0.6			3.3

		980.6			1,013.6			980.6			1,013.6

Total (1)		3,488.7			3,207.9			3,488.7			3,207.9

Cash and cash equivalents and financial investments
Brazilian reais		1,392.3			1,269.7			1,392.3			1,269.7
U.S. dollars		1,011.8			1,339.3			1,011.8			1,339.3
Euro		11.0			21.4			11.0			21.4
Other currencies		54.3			38.6			54.3			38.6

		2,469.4			2,669.0			2,469.4			2,669.0

Trade accounts receivable:
Brazilian reais		78.0			43.1			78.0			43.1
U.S. dollars		508.0			390.3			508.0			390.3
Euro		116.8			144.3			116.8			144.3
Other currencies		1.0			1.0			1.0			1.0

		703.8			578.7			703.8			578.7

Total (2)		3,173.2			3,247.7			3,173.2			3,247.7

Net exposure (1—2):
Brazilian reais		(516.9	)		(568.3	)		(516.9	)		(568.3	)
U.S. dollars		837.3			543.4			837.3			543.4
Euro		49.8			21.4			49.8			21.4
Other currencies		(54.7	)		(36.3	)		(54.7	)		(36.3	)

The Company also has other financial assets and liabilities that are influenced by the foreign exchange variations and were not included in the table above. They are used to minimize the exposure in the presented currencies.

28.4 Sensitivity analysis

In order to present positive and negative variations of 25% and 50% in the risk variable considered, a sensitivity analysis of the financial instruments is presented below, including derivatives, describing the effects on the monetary and foreign exchange variations on the financial income and expense determined on the balances recorded on December 31, 2014, in the event of the occurrence of such variations in the risk component.

However, statistical simplifications were made in isolating the variability of the risk factors in question. Consequently, the following estimates do not necessarily represent the amounts that might be determined in future financial statements. The use of different hypotheses and/or methodologies could have a material effect on the estimates presented below.

F-69

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

28.4.1 Methodology

Assuming that the balances remain constant, the Company calculated the interest and exchange variation differential for each of the projected scenarios.

In the evaluation of the amounts exposed to interest rate risk, only the financial statement risks were considered. The operations subject to prefixed interest rates were not included.

The probable scenario is based on the Company’s estimates for each of the variables indicated, and positive and negative variations of 25% and 50% were applied to the rates in force as of statement of financial position date.

In the sensitivity analysis of derivative contracts, positive and negative variations of 25% and 50% were applied to the market yield curve (BM&FBOVESPA) as of the statement of financial position date.

28.4.2 Interest risk factor


					*Additional variations in book balances^()**
	Risk factor	Amounts exposed			-50%			-25%			Probable scenario			+25%			+50%
Cash equivalents and financial investments	CDI		1,386.0			(80.2	)		(40.1	)		11.5			40.1			80.2
Loans and financing	CDI		0.1			—			—			—			—			—

Net impact	CDI		1,385.9			(80.2	)		(40.1	)		11.5			40.1			80.2
Cash equivalents and financial investments	LIBOR		229.6			(0.3	)		(0.1	)		0.1			0.1			0.3
Loans and financing	LIBOR		177.0			0.2			0.1			(0.1	)		(0.1	)		(0.2	)

Net impact	LIBOR		52.6			(0.1	)		—			—			—			0.1
Loans and financing	TJLP		44.0			1.1			0.6			(0.2	)		(0.6	)		(1.1	)

Net impact	TJLP		(44.0	)		1.1			0.6			(0.2	)		(0.6	)		(1.1	)
Rates considered	CDI		11.57%			5.79%			8.68%			12.40%			14.46%			17.36%
Rates considered	LIBOR		0.26%			0.09%			0.19%			0.31%			0.32%			0.38%
Rates considered	TJLP		5.00%			2.50%			3.75%			5.50%			6.25%			7.50%

(*)	The positive and negative variations of 25% and 50% were applied on the rates in effect at 12.31.2014

28.4.3 Foreign exchange risk factor


				*Additional variations in book balances ^()**
	Risk factor	Amounts exposed		-50%			-25%			Probable scenario			+25%			+50%
Assets			1,695.5		847.7			423.9			(15.2	)		(423.9	)		(847.7	)
Cash, cash equivalents and financial investments	BRL		1,392.3		696.1			348.1			(12.5	)		(348.1	)		(696.1	)
Other assets	BRL		303.2		151.6			75.8			(2.7	)		(75.8	)		(151.6	)
Liabilities			1,659.1		(829.5	)		(414.8	)		14.9			414.8			829.5
Loans and financing	BRL		838.7		(419.3	)		(209.7	)		7.5			209.7			419.3
Other liabilities	BRL		820.4		(410.2	)		(205.1	)		7.4			205.1			410.2

Net impact			36.4		1,677.2			838.7			(30.1	)		(838.7	)		(1,677.2	)
Exchange rate considered			2.6562		1.3281			1.9922			2.6800			3.3203			3.9843

(*)	The positive and negative variations of 25% and 50% were applied on the rates in effect at 12.31.2014

F-70

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

28.4.4

Derivative contracts


					*Additional variations in book balances ^()**
	Risk factor	Amounts exposed			-50%		-25%		Probable scenario			+25%			+50%
Interest swap	LIBOR		17.4			3.2		1.6		(1.3	)		(1.5	)		(3.0	)
Interest swap—fair value hedge	CDI		(1.8	)		12.6		5.9		(1.6	)		(5.3	)		(10.1	)
Interest swap	CDI		(8.1	)		18.6		8.9		(2.4	)		(8.3	)		(16.0	)
Hedge desifnated as cash flow	US$/R$		(3.6	)		148.7		38.6		(0.4	)		(36.8	)		(132.4	)
Foreign Exchange option	Object-price		(1.1	)		64.2		20.1		(0.2	)		(13.0	)		(48.4	)
Other derivatives	Preço-objeto		(0.3	)		4.3		1.7		0.4			(0.4	)		(1.0	)

Total			2.5			251.6		76.8		(5.5	)		(65.3	)		(210.9	)
Rate considered	LIBOR		0.26%			0.13%		0.19%		0.31%			0.32%			0.38%
Rate considered	CDI		11.57%			5.79%		8.68%		12.40%			14.46%			17.36%
Rate considered	US$/R$		2.6562			1.3281		1.9922		2.6800			3.3203			3.9843
Object-price considered	Object-price		1.21			0.60		0.91		1.20			1.51			1.81

(*)	The positive and negative variations of 25% and 50% were applied on the rates in effect at 12.31.2014

28.4.5

Residual Value Guarantees

The residual value guarantees are reported in a manner similar to financial derivative instruments.

Based on residual value guarantee contracts in force, the Company ascertains any changes in values based on third party appraisals. The probable scenario is based on the Company’s expectation of recording the provisions on a statistical basis, and the positive and negative variations of 25% and 50% have been applied to the third party appraisals at the balance sheet date.


			Additional variations in book balances
	Amounts exposed		-50%			-25%			Probable scenario			+25%		+50%
Financial guarantee of residual value		94.4		(163.2	)		(89.6	)		(0.8	)		60.1		84.9

Total		94.4		(163.2	)		(89.6	)		(0.8	)		60.1		84.9

If a provision is considered to be insufficient to cover the probable execution of the guarantees, it is increased to adjust it to the Company’s exposure at the reporting period.

29.

Shareholders’ equity

29.1

Capital

The authorized capital is divided into 1,000,000,000 common shares. The Company’s subscribed and paid up capital on December 31, 2014 was US$ 1,438.0 and was comprised of 740,465,044 common shares, without par value, of which 5,494,583 shares were held in Treasury.

F-71

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

29.2 Brazilian Government Golden Share

The Federal Government holds one “golden share” with the same voting rights as other holders of common shares but which grants it certain additional rights as established in article 9 of the Company’s bylaws, including veto rights over decisions pertaining to the following matters:

I - Change of the Company’s name or its corporate objective;

II - Alteration and/or application of the Company’s logo;

III - Creation and/or modification of military programs (whether or not the Federal Republic of Brazil is involved);

IV - Training third parties in technology for military programs;

V - Interruption of the supply of maintenance and spare parts for military aircraft;

VI - Transfer of control of the Company’s stock control; and

VII - Any changes in (i) article 9 of the Company’s bylaws, article 4, the main clause of art. 10, articles 11, 14 e 15, sub-item III of art. 18, paragraphs 1 and 2 of art. 27, sub-item X of art. 33, sub-item XII of art. 39 or Chapter VII of the Company’s bylaws, or (ii) the rights attributed by the bylaws to the special class share.

29.3 Treasury Shares

Common shares acquired by April 4, 2008, using the sources from the investment reserve and working capital. This operation was conducted in accordance with rules approved by the Statutory Board of Director’s in a meeting held on December 7, 2007 and corresponds to 5,494,583 common shares and US$60.1 as of December 31, 2014. These shares lose voting and economic rights during the period in which they are held in Treasury.


	USD			Quantity			Share value (USD)
In the beggining of the year		103.8			9,496,000			10.94
Used for share based compensation⁽ⁱ⁾		(43.7	)		(4,001,417	)		10.94

At December 31, 2014		60.1			5,494,583			10.94

(i)	The beneficiaries of the shares used in the share-based compensation plan include the Statutory Board of Directors, Executive Directors and certain employees.

On December 31, 2014, the market value of the shares held in Treasury was US$50.6 (December 31, 2013 — US$76.4).

29.4 Investment subsidy reserve

This reserve was formed pursuant to article 195-A of Brazilian Corporate Law (as amended by Law 11,638, of 2007) and corresponds to the appropriation of part of the retained earnings derived from government subsidies received by the Company and is recognized in the statements of income in the same line item of the realized investments.

These subsidies are not included in the calculation of the minimum mandatory dividends.

29.5 Statutory reserve

The statutory reserve is recorded annually as an appropriation of 5% of the net income for the year. The reserve may not exceed 20% of capital, or 30% of capital and capital reserves.

F-72

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

29.6 Interest on own capital

Interest on capital is allocated to dividends and are approved by the Statutory Board of Directors as follows. Interest on capital approved or paid during the quarterly periods are treated as an anticipation of the mandatory dividends, adjusted in the last quarter of the year to total a distribution of 25% of annual income as provided in its statutes.

•

In meetings held on March 13, 2014, the Statutory Board of Directors approved the distribution of interest on own capital for the first quarter of 2014 in the amount of US$16.2, corresponding to US$0.02 per share. The interest on own capital payment is subject to 15% of income tax. The payment was made on April 09, 2014.

•

In meetings held on June 10, 2014, the Statutory Board of Directors approved the distribution of interest on own capital for the second quarter of 2014 in the amount of US$16.7, corresponding to US$0.02 per share. The interest on own capital payment is subject to 15% of income tax. The payment was made on July 17, 2014.

•

In meetings held on September 11, 2014, the Statutory Board of Directors approved the distribution of interest on own capital for the fourth quarter of 2014 in the amount of US$14.9, corresponding to US$0.02 per share. The interest on own capital payment is subject to 15% of income tax. The payment was made on October 10, 2014.

•

In meetings held on December 4, 2014, the Statutory Board of Directors approved the distribution of interest on own capital for the fourth quarter of 2014 in the amount of US$33.1, corresponding to US$0.05 per share. The interest on own capital payment is subject to 15% of income tax. The payment was made on January 09, 2015.

29.7 Proposed dividends

The determination of the annual dividends, subject to the approval of the shareholders at the Annual General Meeting, is presented in reais as Brazilian Corporate Law establishes that all dividends are determined and paid based on real amounts in the legal books, as shown below:


Brazilian million Reais	12.31.2014			12.31.2013			12.31.2012
Net income for the year		796.1			777.7			697.8
Investment Subsidy		(1.6	)		(6.2	)		(8.0	)
Legal Reserve		(39.8	)		(38.9	)		(34.9	)

		754.7			732.6			654.9

Minimun mandatory dividend (25%)		188.7			183.2			163.7

Dividends:
Interest on own capital, net of tax		172.6			134.2			133.7
Proposed dividends		16.1			49.0			30.1

Total stockholder remuneration		188.7			183.2			163.7
Payments of the year		(95.8	)		(76.6	)		(101.8	)
Total shareholders remuneration of period		92.9			106.6			61.9
Total shareholders remuneration of previous period		0.1			0.1			0.2

Total shareholders remuneration — in millions of Brazilian reais		92.9			106.7			62.2

Total shareholders remuneration — in millions of US$		35.0			45.5			30.4

29.7.1 Investment and working capital reserve

The purpose of this reserve is to shield funds which might otherwise be subject to distribution and are earmarked for: (i) investments in property, plant and equipment, without detriment to retained earnings, pursuant to art. 196 of Law 6,404/76; and (ii) the Company’s working capital. The reserve may also be used to (i) redeem, reimburse or purchase shares of the Company and (ii) be distributed to the shareholders.

F-73

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

29.7.2

Other Comprehensive Income

Consists of the following adjustments:

•

Cumulative translation adjustment: foreign exchange gains/losses resulting from translation of the consolidated financial statements in the functional currency to the presentation currency (Real) and foreign exchange gains/losses resulting from translation of the foreign subsidiaries’ financial statements, measured in the functional currency other than of the Company (dollar), to the functional currency; and

•

Other comprehensive income: unrealized actuarial gains (losses) resulting from the healthcare plans sponsored by the Company and to fair value variation of financial instruments available for sale.

30.

Share-based compensation

In February 2014, the Board of Directors approved the revision of Executive Remuneration Policy (ERP), applies to all executive officers and other Company executives. Among the elements of executive compensation is the Long Term Incentive (LTI) whose main objectives (i) to maintain and attract highly qualified personnel for the Company, (ii) assure people that can contribute to the improved performance of Company the right to participate in the result of their contribution, (iii) in addition to ensuring the continuity of the Company’s management by aligning the interests of executives with those of shareholders. The Company currently has two ILP modes: stock options and virtual shares.

30.1.

Stock Option

Program for the granting of stock options, for the executives of the Company or its subsidiaries whose right to exercise the options is given in two ways: outorgagas granted until 2011: I) 20% after 1 year, II) 30% after year 2 and III) 50% after 3 years, and grants awarded from 2012: I) 33% after 3 years, II) 33% after the 4th year and III) 34% after 5 years, all over to the grant date of each option.The exercise price of each option is set on the day of the weighted average stock option the price of the last sixty trading days, may be adjusted by up to 30% to cancel any speculation. The participant will have a maximum exercise period of five years for option grants awarded by 2011 and seven years for the others, started from the date of grant. In either situation

Follows the composition of grants awarded:


	in thousands of options
	Grants		Exercised			Canceled⁽ⁱ⁾			Outstanding		Exercible		Weighted average exercise Price (R$)		Weighted average exercise Price (US$)
Grants on April 30, 2010		6.510.000		(5.907.000	)		(528.000	)		75.000		75.000		10,19		5,89
Grants on January 18, 2011		6.345.000		(5.118.418	)		(796.000	)		430.582		430.582		12,05		7,20
Grants on March 16, 2011		150.000		(150.000	)		—			—		—		12,89		7,73
Grants on January 23, 2012		4.860.000		(130.000	)		(630.000	)		4.100.000		—		11,50		6,56
Grants on March 20, 2013		4.494.000		—			(549.000	)		3.945.000		—		15,71		7,91
Grants on April 25, 2013		584.400		—			(584.400	)		—		—		16,81		7,93

As of December 31, 2014		22.943.400		(11.305.418	)		(3.087.400	)		8.550.582		505.582

(i)

The cancellations refer to shares granted to members of the Board of Directors and employees who no longer work for the Company. Additionally On April 16, 2014, there was a cancellation of the grants awarded to members of the Board of Directors, with payment of compensation to be made to plan participants.

F-74

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

30.2.

Phantom shares plan

The new model is based on the granting of virtual shares to directors and managers and the main objective is to attract and keep in the Company and its subsidiaries, highly qualified staff to ensure continuity of management and align the interests of directors and key personnel of the Company and controlled entities to the Company’s shareholders.

The value of the LTI will be converted at the average price of the Company’s shares considering the last 30 trading days by determining the of quantity virtual shares allocated to each participant divided into two classes, with 50% in the form of restricted virtual shares and 50% in the form of perfornance virtual shares. The Company will pay the amount of LTI converting the quantity of virtual into real actions by the average price of the Company shares of the last 10 trading as follows:

•

restricted virtual shares: (i) 33% on the third anniversary of the Grant Date; (ii) 33% on the fourth anniversary of the Grant Date, and (iii) 34% on the fifth anniversary of the Grant Date; and

•

performance Virtual AP: 100% on the third anniversary of the Date Grant, considering that the economic value added (Economic Value Added—EVA) accumulated in the three preceding fiscal years is positive.

The values resulting from conversion of virtual shares, are summed to the values equivalent to dividends and interest on own capital effectively paid by the Company during the vesting period.

The fair value of virtual shares is determined based on the average price (weighted by trading volume) of the shares of the Company for the last 10 trading days prior to the close of the period, applied to the amount of virtual actions assigned to each participant in proportion to the period of acquisition incurred.

•

On February 25, 2014, the Company granted a total value of LTI of US$ 13.0, equivalent to 1,570,698 virtual shares, whose fair value on December 31, 2014 totaled US$ 4.0, equivalent to 170,486 virtual shares.

31.

Earnings per Share

31.1.

Basic

Basic earnings per common share were computed by dividing net income attributable to Embraer available to shareholders by the weighted average number of shares during the period, excluding shares held in Treasury.


	12.31.2014		12.31.2013		12.31.2012
Net income attributable to owners of Embraer		334.7		342.0		347.8
Weighted average number of shares (in thousands)		733,677		729,001		725,023

Basic earnings per share—U.S. dollars		0.4562		0.4691		0.4797

F-75

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

31.2. Diluted

Diluted earnings per share is calculated by adjusting the weighted average number of shares outstanding to assume conversion of all potentially dilutive shares. The Company has only one category of potentially dilutive shares, with options to purchase shares for which a calculation is made to determine the number of shares that could be acquired at fair value (determined as the average market price of the Company’s share), based on the monetary value of subscription rights attached options to purchase shares in circulation. The number of shares calculated as described above is compared with the number of shares issued assuming the exercise of options to purchase shares.


	12.31.2014		12.31.2013		12.31.2012
Net income attributable to owners of Embraer		334.7		342.0		347.8
Weighted average number of shares (in thousands)—diluted		733,677		729,001		725,023

Dilution for the issuance of stock options (in thousands)⁽ⁱ⁾		3,786		4,795		2,708
Weighted average number of shares (in thousands)—diluted		737,463		733,796		727,731
Diluted earnings per share—U.S. dollars		0.4538		0.4661		0.4780

(i)	Refers to the effect of potentially dilutive shares for December 31, 2014.

On December 31, 2014, there were no anti-dilutive effects.

32. Revenue and (expenses) by nature

The Company opted to present the statements of income by function. The table below shows the detailed costs and expenses by nature:


	12.31.2014			12.31.2013			12.31.2012
As presented as statements of Income:
Revenue		6,288.8			6,235.0			6,167.0
Cost of sales and services		(5,038.3	)		(4,818.9	)		(4,676.6	)
Administrative		(207.5	)		(210.5	)		(279.2	)
Selling		(419.9	)		(454.4	)		(480.4	)
Research		(47.1	)		(74.7	)		(77.3	)
Other income (expenses), net		(32.6	)		36.9			(42.8	)
Equity in losses on associates		(0.1	)		—			1.2

Operating profit before financial income		543.3			713.4			611.9

Revenue (expenses) by nature:
Revenue from sales of goods		5,310.1			5,399.7			5,435.1
Revenue from sales of services		1,102.4			955.4			799.8
Sales deductions and tax on revenue		(123.7	)		(120.1	)		(67.9	)
Material cost		(4,752.0	)		(4,528.3	)		(4,397.8	)
Depreciation		(168.9	)		(145.8	)		(139.9	)
Amortization		(117.4	)		(144.8	)		(138.9	)
Personnel expenses		(320.3	)		(340.0	)		(369.4	)
Selling expenses		(82.2	)		(113.3	)		(138.3	)
Other operating (expense) income		(304.7	)		(249.4	)		(370.8	)

Operating profit before financial income		543.3			713.4			611.9

F-76

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

33.

Other operating income (expense), net


	12.31.2014			12.31.2013			12.31.2012
Post-retirement benefits ⁽ⁱ⁾		29.1			—			—
Financial guarantee ⁽ⁱⁱ⁾		28.2			152.7			(24.7	)
Contractual fines ⁽ⁱⁱⁱ⁾		14.5			38.0			32.0
Royalties		12.3			11.5			8.9
Recovery of expenses		12.1			11.0			10.8
Other sales		7.3			6.4			7.3
Aircraft maintenance third parties		—			(1.0	)		—
Gain on disposal of assets		—			(3.5	)		—
Refis Installments (tax recovery program)		—			(37.0	)		—
Pre operating expenses		(0.2	)		(1.4	)		(11.5	)
Environmental provision		(2.1	)		(5.3	)		—
Provision for contingencies		(4.0	)		(14.9	)		12.0
Aircraft maintenance and flights costs—fleet		(4.6	)		(2.9	)		(4.7	)
Product modifications		(4.6	)		(3.7	)		(4.4	)
Flight safety standards		(5.2	)		(3.8	)		(3.8	)
Impairment of aircraft		(10.4	)		(14.2	)		(9.5	)
Training and development		(12.1	)		(14.1	)		(4.0	)
Expenses system project		(16.8	)		(17.6	)		(13.9	)
Corporate Projects		(21.4	)		(11.4	)		(0.7	)
Taxes on other outputs		(37.6	)		(30.8	)		(20.9	)
Others		(17.1	)		(21.1	)		(15.7	)

		(32.6	)		36.9			(42.8	)

(i)	Refers to the recognition of changes made in the health care plan of employees covered by benefit of the Company (Note 27.1).

(ii)	Receipt referring to the reminiscent balance of the value paid as financial guarantee anticipation on the negotiation with American Airlines to the operation financing agent.

(iii)

Substantially composed by fines charged from the clients because of sales contract cancelling, mainly on the executive segment, according to the contractual clauses prevision.

34.

Financial income (expense), net


	12.31.2014			12.31.2013			12.31.2012
Financial income:
Interest on cash and cash equivalents and financial investments		145.9			106.1			93.2
Interest on receivables		29.1			31.9			26.6
Residual value guarantee		—			—			19.1
Other		2.6			19.8			0.2

Total financial income		177.6			157.8			139.1

Financial expenses:
Financial restructuring costs		(1.0	)		(1.9	)		(1.9	)
IOF—(Tax on financial transactions )		(3.1	)		(3.5	)		(5.3	)
Residual value guarantee		(19.1	)		(79.7	)		—
Interest on taxes, social charges and contributions		(30.1	)		(34.9	)		(10.8	)
Interest on loans and financing		(133.0	)		(128.3	)		(113.3	)
Other		(7.0	)		(11.2	)		(14.6	)

Total financial expenses		(193.3	)		(259.5	)		(145.9	)

Derivative instruments		(8.8	)		5.3			—

Financial income (expenses), net		(24.5	)		(96.4	)		(6.8	)

F-77

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

35.

Foreign exchange gains (losses), net


	12.31.2014			12.31.2013			12.31.2012
Monetary and foreign exchange variations
Assets:
Advances to suppliers		—			—			(0.3	)
Tax credits		(24.9	)		(24.2	)		(16.6	)
Trade accounts receivable		(28.5	)		(8.0	)		(7.5	)
Cash and cash equivalents and financial investments		(164.6	)		(189.4	)		(84.8	)
Other		(26.5	)		(30.4	)		(21.7	)

		(244.5	)		(252.0	)		(130.9	)

Liabilities:
Loans and financing		106.8			109.9			53.2
Accounts payable		33.4			(1.0	)		5.9
Taxes and charges payable		37.2			52.5			31.8
Provisions		34.4			27.5			13.8
Advances from customers		10.8			48.6			20.2
Provisions for contingencies		5.6			4.6			2.9
Suppliers		5.6			6.6			—
Translation losses on conversion of foreign subsidiaries		—			—			0.1
Other		(1.2	)		1.4			(1.5	)

		232.6			250.1			126.4

Net monetary and foreign exchange variations		(11.9	)		(1.9	)		(4.5	)

Derivative instruments		(3.0	)		(12.7	)		13.2

Foreign exchange gain (loss), net		(14.9	)		(14.6	)		8.7

36.

Responsibilities and Commitments

36.1

Trade-ins

The Company has offered 12 trade-in aircraft options. Trade-in transactions are directly tied to contractual obligations with the customer and the purchase of new aircraft. The exercise of the trade-in option is dependent on the customer complying with all the contractual clauses. These options establish that the price of the asset given in payment may be put towards the purchase price of a new and more up-to-date aircraft model produced by the Company. The Company continuously monitors all trade-in commitments in order to anticipate any adverse economic impact. Based on the current evaluation of the Company and third-party independent appraisals, the Company believes that any aircraft accepted under trade-in may be sold or leased in the market without significant losses.

36.2

Leases

In the Parent Company the operating leases refer to telephone and computer equipment and in the subsidiaries include operating leases of of buildings and land, machinery, vehicles and computer equipment. On December 31, 2014 the amounts recognized as expenses totaled US$ 15.9, December 31, 2013 US$ 19.4 and December 31, 2012 US$ 16.5. These leases expire at various dates through 2038.

F-78

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

On December 31, 2014, the Company has operating leases with payments scheduled as follows:


Year
2015			17.8
2016			14.0
2017			9.0
2018			6.1
After 2018			30.0

Total			76.9

36.3

Financial Guarantees

The table below provides quantitative data on the Company’s financial guarantees provided to third parties. The maximum potential payments (off balance sheet exposure) represent the worst-case scenario and do not necessarily reflect the results expected 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.


	12.31.2014			12.31.2013
Maximum financial guarantees		487.6			545.5
Maximum residual value guarantees		307.5			359.9
Mutually exclusive exposure⁽ⁱ⁾		(107.4	)		(94.7	)
Provisions and liabilities recorded (Note 25)		(156.2	)		(155.3	)

Off-balance sheet exposure		531.5			655.4

Estimated proceeds from financial guarantees and underlying assets		725.2			907.8

(i)

This exposure is reduced by the fact that, to benefit from the guarantee, the counterparty must ensure that the aircraft complies with rigid conditions for its return.

36.4

Insurance cover

The Company contracts different types of insurance policies to protect assets in the event of any accident which may cause significant damage. Policies are also contracted to the risks subject to compulsory insurance, either legally or contractually.

The Company and its subsidiaries have liability insurance for its operations in Brazil and abroad, with toppings and conditions that management considers these appropriate to the risks involved.

To cover material damage for the assets and loss of earnings of its operations in Brazil and abroad, the Company has ensured an amount of US$ 6.5 billion.

F-79

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

37.

Supplemental Cash Flow information

37.1

Payments made during the year and transactions not affecting cash and cash equivalents


	12.31.2014			12.31.2013			12.31.2012
Payments made during the year:
Interest		114.9			130.9			122.2
Income tax and social contribution		56.2			68.3			56.7
Non-cash financing and investing transactions
Disposals property, plant and equipment for providing for the sale of inventory		(56.6	)		(42.1	)		(52.5	)
Additions to property, plant and equipment, with transfer to inventory-aircrafr		9.1			—			—
Transfer of inventory to fixed assets		—			39.9			49.8

38.

Segment information

Management defined the Company’s operating segments based on the reports used for strategic decision reviewed by the chief operating decision-maker.

The chief operating decision-maker analyzed the business, dividing it geographically and in terms of markets for specific products. From a geographic perspective, Management considers the performance of the operations in Brazil, North America, Latin America, Asia Pacific, Europe and Others.

From a product perspective, the analysis considers the following market segments:

38.1

Commercial aviation business

The Commercial Aviation business mainly involves the development, production and sale of commercial jets and rendering of support services, particularly in the regional aviation segment and operating leasing of aircraft.

•

ERJ 145 family, comprising the ERJ 135, ERJ 140 and ERJ 145 jets, certified to operate with 37, 44 and 50 seats, respectively.

•

EMBRAER 170/190 family, comprising the EMBRAER 170, a 70-seat jet, EMBRAER 175, a 76-seat jet, EMBRAER 190, a 100-seat jet and the EMBRAER 195, a 108-seat jet. The EMBRAER 170 model has been operating commercially since 2004, the EMBRAER 175 and EMBRAER 190 models started commercial operations in 2006, and the EMBRAER 195 model in 2007.

•

E-Jets E2, the second generation of the E-Jets family of commercial aircraft consists of three new aircraft—E175-E2 with capacity up to 88 seats, E190-E2 with seats up to 106 and E195-E2 reaching up to 132 seats. The E190-E2 will enter service in the first half of 2018. The E195-E2 is scheduled to enter service in 2019 and E175-E2 in 2020.

38.2

Defense and security business

The defense and security business operations mainly involve research, development, production, modification and support for military defense and security aircraft, as well as a wide range of products and integrated solutions that include state-of-the-art radars, special space systems (satellites) and advanced information and communications systems, such as Command, Control, Communications, Computer, Intelligence, Surveillance and Reconnaissance, or C4ISR systems.

The expansion and diversification of the portfolio, previously focused on military aircraft, was made possible by a strategy of partnerships and acquisitions. One result of this diversification was the signing of an agreement for implementation of the first phase of the Integrated Frontier Monitoring System (SISFRON—Sistema Integrado de Monitoramento de Fronteiras)—by the Tepro Consortium (set up by the subsidiaries Savis Tecnologia e Sistemas S.A. and Bradar Indústria S.A the new name of OrbiSat Indústria S.A.), which will involve, in this first phase, monitoring of approximately 650 kilometers of the border between Mato Grosso do Sul, Paraguay and Bolivia. As one of the largest enterprise of its kind running on the planet, the goal is SISFRON extend along the full extent of land borders that unite Brazil to neighboring nations.

F-80

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

The Company’s principal customer is currently the Brazilian Defense Ministry and, in particular, the Brazilian Air Force, although the diversification of the portfolio has resulted in a corresponding diversification of customers: the Brazilian Army and Navy and the Communications Ministry, as well as a growing international presence of our products and solutions.

The main products of the portfolio of Defense and Security are the following:

•

Light Attack and Advanced Training Aircraft (Super Tucano)—a light attack aircraft, specially developed to operate in severe climates, be subjected to extremes of temperature and humidity, and equipped with sophisticated navigation and attack, training and flight simulation systems. The aircraft which the construction was contracted by the US Air Force (USAF) in partnership with Sierra Nevada Corporation (SNC) are being produced on Jacksonville, Florida.

•

Aircraft Modernization—The Company offers modernization services and actually have five programs contracted. The first one, known as F-5BR, focus on structural and electronic update of the F-5 fighter AC of the Brazilian Air Force. The second program, A-1M, consists on modernization of the AMX, ground attack advanced aircraft, developed and produced by the cooperation between Brazil and Italy to Brazilian Air Force. The third one, contracted by the Brazilian Navy, is related of new avionics technologies incorporation, radars, power generation system, among others, on the aircraft A-4 Skyhawk (denominated AF-1 by the client). On the fourth program, signed with Brazilian Air Force, the Company was contracted to modernize the EMB-145 AEW&C Aircraft. And yet, the Company were contracted by the Colombian Air Force to realize the modernization of the EMB 312 Tucano Aircraft, the fifth program ongoing.

•

The ISR family (Intelligence, Surveillance and Reconnaissance), based on the ERJ 145 platform, includes the EMB 145 AEW&C—Airborne Early Warning and Control, EMB 145 AGS—Remote Sensing and Air to Ground Surveillance and P-99—Maritime Patrol and Anti-submarine Warfare models. Originally developed for the SIVAM program, different versions were ordered by the Greek, Mexican and, more recently, the Indian governments.

•

KC-390—the scope of the KC-390 Program is to develop and produce two prototype aircraft for military transport and in-flight refueling. In 2014, the FAB contracted the purchase of 28 more units of the cargo aircraft along with the logistical support and the training of the officers which will operate the aircrafts.

•

Military Transport and Transportation of Authorities – based on the aircraft of the Commercial Aviation and Executive Jets platforms, the best example of which is the 190PR – based on the EMBRAER 170/190 platform, the objective is transportation of the President of the Republic of Brazil and members of his staff. On 2014 Embraer was contracted to adapt its Legacy 500 Aircraft for flight test execution.

•

Radars – Trough Bradar, technologic basis industry, specialized on developing and produce radars to Remote Sensor and Defense, solutions are offered as the anti-air armillary radar SABER M-60 for low heights and SABER M-200 for higher heights, the land surveillance SENTIR M-20 to big portion of land, the secondary radar SABER S-200 to civil and military air traffic, the intelligence communication system OMT-1 on HF and VUHF to be used on frontier and the SAR radar aero transported synthetic opening radar BradarSAR, to cartography and precision monitoring services.

•

Command and Control – a combination of the expertise of Atech – Negócios em Tecnologias S.A. and Embraer’s investments in system development and integration, enables the Company to offer a suite of Command and Control products, such as Air Traffic Control systems, simulators, avionics, etc.

F-81

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

•

Land Defense Systems—Based on its experience on integrating systems with Embraer by its subsidiary Savis, it’s responsible for developing, project, certificate, integrate and implements systems and services for monitoring and controlling frontiers and critical infrastructure.

•

Unmanned aircraft—Harpia Sistemas, a Company controlled by Embraer with participation of AEL Sistemas (a subsidiary of the Israeli group Elbit) and Avibrás, is involved in the marketing, development, systems integration, manufacture and after-sale support of unmanned systems.

•

Satellites—Visiona Space Technology—Joint venture between Embraer and Telebras—was hired in 2013 to build and integrate the Brazilian Geostationary Defense and Communication Satellite System (SGDC) system. And to absorb this kind of technology consolidating Embraer’s presence on this market segment.

•

Support Services—in addition to its experience on proposing support solution to client on the products developed by Embraer, Ogma (Embraer’s subsidiary on Portugal) offers MRO services (Maintenance, Repair and Overhaul) to diversified clients on commercial, executive and defense aircraft, helicopters and engines. It also produce and assemble several components and aeronautic metallic and composite structures, to several aircraft manufacturers.

38.3

Executive Jets business

The Executive Aviation market operations is constituted by development, production and sale of executive jets as well as by providing support services and aircraft operational leasing to the following product lines:

•

Legacy 600 and Legacy 650—executive jets in the Super Midsize and Large categories which started to be delivered in 2002 and 2010, respectively.

•

Legacy 450 and Legacy 500- executive jets in the Midsize and Midlight categories, respectively. Both models were launched in April 2008 and are currently in development.

•

Phenom—executive jets in the Entry Jet and Light Jet categories, respectivel. The first deliveries of Phenom 100 were made in 2008, and deliveries of Phenom 300, started in 2009.

•

Lineage 1000—an ultra-large executive jet. Deliveries of this model started in 2009.

38.4

Other

Operations in this segment relate to supply of structural parts and mechanical and hydraulic systems, and production of agricultural crop-spraying aircraft.

•

Statement of income data by operating segment— year ended December 31, 2014:


	Commercial Aviation			Defense and Security			Executive Aviation			Other			Unallocated			Total
Revenue		3,163.3			1,456.4			1,591.5			77.6			—			6,288.8
Cost of sales and services		(2,542.2	)		(1,158.9	)		(1,299.6	)		(37.6	)		—			(5,038.3	)
Gross profit		621.1			297.5			291.9			40.0			—			1,250.5
Gross profit %		19.6	%		20.4	%		18.3	%		51.5	%					19.9	%
Operating income (expense)		(321.2	)		(148.0	)		(229.6	)		(8.4	)		—			(707.2	)
Operating profit before financial income (expense)		299.9			149.5			62.3			31.6			—			543.3
Financial income (expense), net														(24.5	)		(24.5	)
Foreign exchange gain (loss), net														(14.9	)		(14.9	)
Profit before taxes on income																	503.9
Income tax expense														(156.2	)		(156.2	)

Net income																	347.7

F-82

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

•

Revenue by geographic area—year ended December 31,2014:


	Commercial Aviation		Defense and Security		Executive Aviation		Other		Total
North America		2,065.0		199.5		739.3		53.6		3,057.4
Europe		624.7		100.0		168.4		3.9		897.0
Asia Pacific		155.4		78.5		353.3		0.1		587.3
Latin America, except Brazil		64.7		47.3		110.7		—		222.7
Brazil		73.9		1,004.5		207.1		20.0		1,305.5
Other		179.6		26.6		12.7		—		218.9

Total		3,163.3		1,456.4		1,591.5		77.6		6,288.8

•

Assets by operating segment—year ended December 31, 2014:


	Commercial Aviation		Defense and Security		Executive Aviation		Other		Unallocated		Total
Trade accounts receivable		145.3		515.8		28.7		14.0		—		703.8
Property, plant and equipment		893.8		382.2		747.1		2.7		—		2,025.8
Intangible assets		242.0		—		836.3		89.6		93.0		1,260.9

Total		1,281.1		898.0		1,612.1		106.3		93.0		3,990.5

•

Assets by geographic area—year ended December 31, 2014:


	North America		Europe		Asia Pacific		Brazil		Total
Trade accounts receivable		78.1		384.5		8.8		232.4		703.8
Property, plant and equipment		352.8		665.9		55.6		951.5		2,025.8
Intangible assets		12.7		3.0		0.1		1,245.1		1,260.9

Total		443.6		1,053.4		64.5		2,429.0		3,990.5

•

Statement of income data by operating segment—year ended December 31, 2013:


	Commercial Aviation			Defense and Security			Executive Aviation			Other			Unallocated			Total
Revenue		3,307.0			1,196.9			1,644.5			86.6			—			6,235.0
Cost of sales and services		(2,532.6	)		(951.2	)		(1,284.7	)		(50.4	)		—			(4,818.9	)
Gross profit		774.4			245.7			359.8			36.2			—			1,416.1
Gross profit %		23.4%			20.5%			21.9%			41.8%						22.7%
Operating income (expense)		(272.3	)		(154.1	)		(262.8	)		(13.5	)		—			(702.7	)
Operating profit before financial income (expense)		502.1			91.6			97.0			22.7			—			713.4
Financial income (expense), net		—			—			—			—			(96.4	)		(96.4	)
Foreign exchange gain (loss), net		—			—			—			—			(14.6	)		(14.6	)
Profit before taxes on income																	602.4
Income tax expense		—			—			—			—			(256.4	)		(256.4	)

Net income											—						346.0

F-83

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

•

Revenue by geographic area—year ended December 31, 2013:


	Commercial Aviation		Defense and Security		Executive Aviation		Other		Total
North America		1,089.4		26.4		632.2		59.7		1,807.7
Europe		916.4		166.9		290.6		—		1,373.9
Asia Pacific		546.3		71.0		336.6		—		953.9
Latin America, except Brazil		457.9		16.3		6.3		—		480.5
Brazil		103.5		848.5		357.7		26.9		1,336.6
Other		193.5		67.8		21.1		—		282.4

Total		3,307.0		1,196.9		1,644.5		86.6		6,235.0

•

Assets by operating segment—year ended December 31, 2013:


	Commercial Aviation		Defense and Security		Executive Aviation		Other		Unallocated		Total
Trade accounts receivable		142.0		384.8		33.0		18.9		—		578.7
Property, plant and equipment		885.5		353.4		718.5		35.9		—		1,993.3
Intangible assets		218.2		0.8		731.4		80.5		78.2		1,109.1

Total		1,245.7		739.0		1,482.9		135.3		78.2		3,681.1

•

Assets by geographic area — year ended December 31, 2013:


	North America		Europe		Asia Pacific		Bra z il		Tota l
Trade accounts receivable		62.6		341.1		7.4		167.6		578.7
Property, plant and equipment		335.6		732.1		58.2		867.4		1,993.3
Intangible assets		10.9		4.1		0.2		1,093.9		1,109.1

Tota l		409.1		1,077.3		65.8		2,128.9		3,681.1

F-84

Embraer S.A.

Notes to the Consolidated Financial Statements

In millions of U.S. dollars, unless otherwise stated

•

Statement of income data by operating segment—year ended December 31, 2012:


	Commercial Aviation			Defense and Security			Executive Aviation			Other			Unallocated			Total
Revenue		3,755.4			1,045.2			1,292.0			74.4			—			6,167.0
Cost of sales and services		(2,809.3	)		(785.5	)		(1,035.8	)		(46.0	)		—			(4,676.6	)
Gross profit		946.1			259.7			256.2			28.4			—			1,490.4
Gross profit %		25.2%			24.8%			19.8%			38.2%						24.2%
Operating income (expense)		(507.7	)		(144.9	)		(216.7	)		(9.2	)		—			(878.5	)
Operating profit before financial income (expense)		438.4			114.8			39.5			19.2			—			611.9
Financial income (expense), net		—			—			—			—			(6.8	)		(6.8	)
Foreign exchange gain (loss), net		—			—			—			—			8.7			8.7
Profit before taxes on income																	613.8
Income tax expense		—			—			—			—			(265.2	)		(265.2	)

Net income																	348.6

•

Revenue by geographic area—year ended December 31, 2012:


	Commercial Aviation		Defense and Security		Executive Aviation		Other		Total
North America		875.3		20.0		505.9		47.4		1,448.6
Europe		1,510.8		178.4		254.6		—		1,943.8
Asia Pacific		920.8		79.5		327.4		—		1,327.7
Latin America, except Brazil		144.6		21.7		43.3		0.4		210.0
Brazil		46.0		648.5		136.8		26.6		857.9
Other		257.9		97.1		24.0		—		379.0

Total		3,755.4		1,045.2		1,292.0		74.4		6,167.0

39.

Subsequent events

The Company, by its wholly owned subsidiary ECC Leasing Co. Ltd. has concluded on February, 2015 a monetization operation for 12 aircrafts which were leased on December 31, 2014 and were presented on the Company’s fixed asset by the value of US$ 50.3. The operation is a realization of assets on the financial market by the selling of the financial inflow and transfer of the aircraft to the buyer, with an estimated loss of US$ 14.3.

F-85

EXHIBIT 8.1

List of Subsidiaries of Embraer S.A.


Name		Jurisdiction of Incorporation
Embraer Aircraft Holding, Inc – EAH		Delaware, U.S.A.
Embraer Aircraft Customer Services, Inc. – EACS		Florida, U.S.A.
Embraer Aircraft Maintenance Services, Inc. – EAMS		Delaware, U.S.A.
Embraer Services, Inc. – ESI		Delaware, U.S.A.
Embraer Executive Jet Services, LLC – EEJS		Delaware, U.S.A.
Embraer Executive Aircraft, Inc. – EEA		Delaware, U.S.A.
Embraer Training Services, LLC – ETS		Delaware, U.S.A.
Aero Seating Technologies, LLC – AST		Georgia, U.S.A.
Embraer CAE Training Services, LLC – ECTS		Delaware, U.S.A.
Embraer Engineering & Technology Center USA, Inc. – EETC		Delaware, U.S.A.
Embraer Credit Ltd. – ECL		Delaware, U.S.A.
Embraer Representations, LLC – ERL		Delaware, U.S.A.
Embraer Defense and Security, Inc – EDSI		Delaware, U.S.A.
Indústria Aeronáutica Neiva Ltda.		Brazil
ELEB Equipamentos Ltda.		Brazil
Embraer GPX Ltda		Brazil
ECC do Brasil Participações S.A.		Brazil
Embraer Defesa e Segurança Participações S.A. – EDSP		Brazil
Atech Negócios em Tecnologia S.A.		Brazil
Bradar Indústria S.A.		Brazil
Harpia Sistemas S.A.		Brazil
Savis Tecnologia e Sistemas S.A.		Brazil
Visiona Tecnologia Espacial S.A.		Brazil
Embraer Aviation Europe SAS – EAE		France
Embraer Aviation International SAS – EAI		France
Embraer Europe SARL – EES		France
Embraer Australia Pty Ltd. – EAL		Australia
EZ Air Interior Limited – EZ		Ireland
Harbin Embraer Aircraft Industry Company, Ltd. – HEAI		China
Embraer (China) Aicraft Technical Services Co., Ltd – ECA		China
Embraer Spain Holding Co., SL – ESH		Spain
ECC Investment Switzerland AG		Switzerland
ECC Insurance & Financial Company Ltd.		Cayman Islands, BWI
Embraer Finance Ltd. – EFL		Cayman Islands, BWI
Embraer Overseas Limited		Cayman Islands, BWI
Embraer Portugal – SGPS, S.A.		Portugal
Embraer Portugal Estruturas Metálicas S.A.		Portugal
Embraer Portugal Estruturas em Compósito S.A.		Portugal
Air Holding SGPS, S.A.		Portugal
OGMA – Ind. Aeronáutica de Portugal S.A.		Portugal
ECC Leasing Company Ltd.		Ireland
Embraer Asia Pacific Pte-Limited – EAP		Singapore
Embraer CAE Training Services (UK) Ltd. – ECUK		United Kingdom
Visiona International BV		Netherlands
Embraer Netherlands B.V. – ENL		Netherlands

EXHIBIT 11.1

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Code of Ethics and Conduct
EMBRAER

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SUMMARY
01. Joint message from the Chairman of the Board and the Chief Executive officer of Embraer - p.03
02. Embraer Values - p.03
03. EECP - Embraer Enhanced Compliance Program - p.04
04. Committment to the UN global compact - p.04
05. Responsibilities with the Code - p.05
06. Working environment - p.06
07. Company assets, resources and information - p.06
08. Relationship with business partners and third parties - p.07
09. Supervision of the Code - p.09

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Código de Ética e Conduta 3
Joint message from the Chairman of the Board and the Chief Executive officer of Embraer
The Embraer Code of Ethics and Conduct reflects our commitment to meeting our
business objectives ethically and transparently, developing internal and external
relationships based on integrity, preserving the environment and contributing to the well-
being of the communities where we operate.
The Code is based on the Embraer Corporate Values, on the United Nations Global
Compact principals and on best practices in corporate and accounting governance, with
its fundamental aim being full compliance with laws and regulations applicable to the
Company’s operations, and must be observed by all its employees.
Embraer’s good reputation and credibility are built by all its people, through their acts
and attitudes day after day. We thank everyone for their dedication and commitment
to fully appreciating and observing this Code, and to protecting the integrity of the
Company.
Alexandre Gonçalves Silva
Chairman of the Board
Frederico Fleury Curado
President & CEO

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Embraer Values
Our values unite us, influence our behavior, leverage our results and ensure the perpetuity of our company.
Our people are what make us fly
Our people are happy, competent, valued, fulfilled, and committed to what they do. Their teamwork demonstrates integrity, coherence, respect, and mutual trust.
We are here to serve our customers
Customer loyalty is earned by ensuring total satisfaction and by building strong and enduring relationships. Partnerships are based on real commitment and flexibility.
We strive for company excellence
Company actions are oriented towards simplicity, agility, flexibility, and safety, with ongoing pursuit of continuous improvement and excellence. An entrepreneurial outlook based on integrated planning, responsible delegation and disciplined execution.
Boldness and innovation are our hallmarks
State-of-the-art technology, an innovative and learning organization capable of transforming from within and being influential in our markets. Strategic vision and ability to overcome challenges creatively and courageously.
Global presence is our frontier
Global presence and mindset, acting locally to leverage competitiveness, using the best of each location. A vision of a world without borders, one that values diversity.
We build a sustainable future
Constantly striving to build the foundation for the company’s longevity, considering stockholders profitability, respect for quality of life, environment and society.

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Código de Ética e Conduta 5
EECP - Embraer Enhanced Compliance Program
Embraer seeks to guarantee the highest level of ethics and integrity in its activities. To this end, it has established an Ethics and Compliance Program in order to promote and support all actions aimed at adhering to laws and regulations applicable to the business and internal policies of the Company.
Embraer’s Ethics and Compliance Program is based on fundamental elements, such as the maintenance of a responsible organization and structure through its leadership, constant risk management, the establishment of adequate policies and internal control standards, training and communication with the public, as well as the processes of monitoring, auditing and reporting channels for the evaluation and assessment of potential deviance from established conduct or procedures.
The Program is coordinated by the Embraer Compliance Office, which reports to the Audit and Risk Committee Board.

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Committment to the UN global compact
In 2008, Embraer joined the UN Global Compact, systematically integrating its ten principals into the Company’s processes:
HUMAN RIGHTS, derived from the Universal Declaration of Human Rights:
1. The Company must respect and support the protection of internationally proclaimed human rights;
2. The Company must ensure that it is not complicit in human right abuses;
LABOR, derived from the Declaration of the ILO - International Labor Organization - on Fundamental
Principles and Rights at Work:
3. The Company must uphold the freedom of association and the effective recognition of the right to
collective bargaining;
4. The Company must support the elimination of all forms of forced and compulsory labor;
5. The Company must support the effective abolition of child labor;
6. The Company must support the elimination of discrimination in respect of employment and
occupation;
ENVIRONMENT, derived from the Rio Declaration on Environment and Development:
7. The Company must support a precautionary approach to environmental challenges;
8. The Company must undertake initiatives to promote greater environmental responsibility;
9. The Company must encourage the development and diffusion of environmentally friendly
technologies;
ANTI-CORRUPTION, derived from the UN Convention against Corruption:
10. The Company must work against corruption in all its forms, including extortion and bribery.

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Código de Ética e Conduta 7
Responsibilities With The Code
Adhering to the Code
All board members, directors and employees of Embraer, of its units and subsidiaries, as well as third parties that represent the Company, must adhere to the principles outlined in this Code. Companies in which Embraer has majority control must adopt the principles of this Code and those in which Embraer has minority control must be encouraged to do so as well.
Responsibility of Employees
• To meet and ensure adherence to all principles in this code, as well as to observe the policies and internal procedures of the Company;
• To understand and be conscious of all laws and regulations associated with Company activities;
• To seek, whenever necessary, support and guidance from immediate leaders, as well as from the corporate areas of Embraer, such as legal, compliance and human resources, to find solutions to queries and to understand the laws that must be adhered to;
• To report any concerns in relation to potential violation of the law, of this Code, or of the internal policies of the Company.
Responsibility of Leaders
• To meet and ensure adherence to all principles in this code, as well as to observe the policies and internal procedures of Embraer;
• To promote a working environment that values an ethical attitude and the highest level of integrity in all activities;
• To have an in-depth knowledge of this Code, of internal policies and of the regulatory environment under their authority;

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• To understand and introduce, when applicable, the requirements of laws and regulations, via the policies and internal procedures of Embraer, in all daily activities;
• To supervise internal processes under their responsibility, including support with internal auditing, when necessary, in order to ensure compliance with the policies and requirements of the law;
• To act immediately when violations of this Code are identified, and to adopt preventive measures for the detection and solution of any failure or deviance in conduct;
• To seek, whenever necessary, corporate support and guidance from Embraer, such as the legal, compliance and human resources departments, to find solutions to queries and to understand the laws that must be adhered to;
• To report any concerns in relation to potential violations of the law, of this Code, or of the internal policies of Embraer.

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Working environment
All laws and regulations that guarantee freedom of association, privacy, collective agreements, immigration rights, working hours and remuneration are respected. Embraer does not tolerate any form of forced, compulsory or child labor, nor discrimination, harassment, protectionism, conflict of interests or a hostile working environment.
All are treated with respect, dignity and opportunities for professional growth. Learning and satisfaction are promoted. Embraer promotes a safe and healthy working environment and adopts systems and measures, via its policies and procedures, to prevent its employees from risks at work. At Embraer, it is expected that all employees report any concern in relation to safety rules and report violations of such rules or incidents.

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Company assets, resources and information
Embraer’s assets, resources and information must be protected and used for the negotiations and benefit of the Company, and never for personal interests or gains. It is forbidden to disclose information of any kind openly within the Company and to third parties, including customers and suppliers, which is not classified as public.
Intellectual property
Intellectual property consists of patents, trademarks, copyrights, trade secrets, domain names, industrial designs, logos, market data and customer lists, and all information classified as confidential. Embraer’s intellectual property must be protected from misuse, deviance or use for personal gain. The same care and respect must be practiced in relation to the intellectual property of third parties
Internet, email and social media
Internet and email are provided by Embraer for working communications. It is not permitted to use electronic systems, Internet, email or social media to transmit, receive or download content that may impair the performance of Embraer’s work activities or interests. Social media, at work or in any other place, must not be used to expose the Company’s private or confidential information. It is also forbidden to upload content that exposes the image of the Company, its products or its employees. Computers and servers, including emails sent or received, are the property of Embraer and shall not be considered private content, except when required by specific legislation.
Accounting ledgers and records
Embraer seeks to adhere to all laws and accounting standards applicable to its ledgers, accounting records and financial statements, undertaking to record all financial transactions with accuracy and reliability.
Disclosure of information to the public
Embraer, its officers and employees shall comply with the principles of transparency and truthfulness in order to ensure that shareholders, investors, governmental agencies and the general public have access to, in a timely, efficient and reasonable manner, the information necessary for their investment decisions, as determined by applicable legislation.
All disclosure of information to the public must be made by the directors or employees specifically authorized for this purpose, and must be made in accordance with the laws, regulations and internal policies of the Company.

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For further information, please consult Embraer’s Policy on Relevant Information Disclosure and Confidentiality Preservation.
Securities trading and insider information
Embraer’s officers, employees and service providers should observe the rules and procedures for the trading of securities issued by the Company, refraining from trading such securities in the periods of restriction or from the possession of material information undisclosed to the market under the regulations.
For further information, please consult Embraer’s Policy on Securities Trading.

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Relationship with business partners and third parties
Customers - Suppliers - Government - Competitors - Shareholders and Investor
Conflict of interests
A conflict of interest occurs when an individual’s interest in personal gain or advantage interferes in Embraer’s business decisions. Situations that may create, or appear to create, a conflict between personal interests and those of the Company shall be avoided. Examples of potential conflicts of interest are, among others:
• Deciding upon deals with suppliers, customers, competitors, business partners or third parties in general, when these deals involve companies or any other entity owned or managed or which belong to or are operated by relatives or close friends;
• Requesting presents, gifts, favors or any other benefit, whether professional or personal, for oneself, ones relatives, close friends or any third parties;
• Performing services or works other than those set out by the Company, whether internal or external, paid or unpaid, that may result in competition or conflict with the activities and negotiations of Embraer;
• Using Embraer’s resources, working hours, equipment or materials to perform services that impair the performance of Embraer’s work activities or interests;
• Using one’s position or influence at Embraer to provide unfair advantage in hiring people, supervising or unduly benefiting family members, relatives or acquaintances, or even using one’s position to improperly benefit external activities not related to the Company
When faced with a situation that poses or may pose a potential conflict of interest, you must inform your immediate leader or the Company’s compliance department, as necessary.
Gifts and hospitality (entertainment, travel expenses, accommodation and other benefits)
The offering and receiving of gifts, presents and hospitality such as entertainment, travel expenses, accommodations or other advantages or benefits that create the impression of impropriety, or which allow you or anyone else to act to obtain an undue advantage, must be avoided. Any negotiation, relationship, offer or promise to public or private authorities must be in

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Código de Ética e Conduta 13
strict compliance with the laws and internal policies of Embraer.
Gifts and hospitality must be modest and reasonable in value, not extravagant. Gifts should only be offered or accepted in connection with the promotion, demonstration or explanation of Embraer products and services. Gifts and entertainment must never be offered or accepted (a) in money, (b) if there is any intention to obtain an undue advantage or (c) when prohibited by law or regulations applicable to the parties involved.
Donations and sponsorship
As part of its corporate responsibility, Embraer may donate goods or funds in order to support scientific research activities, arts and culture, social and educational projects. As a principle, all donations must meet the requirements of transparency, with clear aims and objectives, without expectation of return or exchange, and must be substantiated by appropriate documentation, with appropriate accounting records and in accordance with relevant laws and regulations.
Sponsorships are allowed and used in brand promotion, advertising, or opportunities for Embraer to demonstrate or promote its products and services, or in the exercise of its corporate responsibility. Sponsorships must never be used to gain undue advantages, directly or indirectly, whether for the Company or for individuals.
Political contributions
Political contributions are subject to the specific approval of Embraer’s Board of Directors. Embraer respects and complies with all laws and regulations applicable to political contributions.
Illegal or improper payments
Embraer prohibits its board members, directors, employees, suppliers, business partners or other third parties that represent the Company from authorizing or effecting, directly or indirectly, any improper or illegal payments to obtain business advantages. Improper payments such as money, assets, resources, private benefits, favors, gifts, entertainment and hospitality, among others, may be characterized as anything of value to obtain business or improper advantage.
When it is necessary to hire third parties or other providers to act on behalf of Embraer, such as consultants or suppliers, it is compulsory to observe the internal policies and procedures of the Company in the selection, choice and monitoring of the activities thereof, including risk analysis, due diligence and internal approvals.

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Anti-corruption
Embraer has a firm commitment to fight corruption in all its forms, including extortion and bribery. To this end, the Company complies with the anti-corruption laws and regulations in all places where it operates.
Embraer shall not tolerate any form of active or passive corruption, such as extortion or bribery, in the attempt to influence negotiations, or to obtain any undue advantage.
For further information, please consult the Anti-Corruption Policy and its associated procedures.
Prevention of money laundering and financing of terrorism
Embraer complies with all requirements of laws preventing money laundering and financing of terrorism and provides procedures to this end. The Company aims to conduct business exclusively with clients and partners involved in legitimate and lawful business.
Any suspicious activities must be reported in a timely fashion to the compliance or legal department.
For further information, please consult Embraer’s Procedure for Prevention of Money Laundering and Financing of Terrorism.
International trade - complying with import and export control laws
Embraer is subject to the laws of trade and meets all regulations relating to the import and export of products, services, technology, information and financial operations.
Consistent with applicable laws, Embraer observes all import and export restrictions when dealing with countries, organizations and individuals, such as economic sanctions and trade embargoes imposed by countries and nations where the Company operates. Accordingly, the Company considers the requirements for import and export control when obtaining licenses, permits, product classification, or when obtaining special permits, and implements the necessary controls for this purpose.
In case of doubt in relation to import and export controls, the compliance or legal departments of the Company must be

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Código de Ética e Conduta 15
consulted. For further information, please consult the Embraer Policy on Export Control and its associated procedures.
Privacy
When dealing with employees, suppliers, customers and other business partners, the Company may receive, send and manage private information. In this context, the Company observes its contractual obligations and the laws and regulations in the countries where it operates in relation to the protection and confidentiality of such information, which it uses, collects, stores and manages solely for legitimate purposes in the conduct of its business. Only authorized employees may maintain and control such data and information, applying appropriate mechanisms for the safety and protection of access from non-authorized persons
Antitrust and competition laws
Embraer complies with competition laws and regulations in all countries where it trades, respecting competitors and customers, always competing based on the quality and differentiation of its products and services, and for the purpose of providing the best and most attractive options for the market.
Embraer does not practice or condone negotiations or agreements, formal or informal, with competitors in the discussion of pricing, territories, bids, costs, profit margins, splitting or slicing of markets (“market share”), allocation of customers, presentation of proposals in bids, or any other matter related to the conditions of sale.
All information on competitors must be obtained by legitimately acceptable sources, also respecting the highest standard of ethical conduct in the pursuit of market intelligence.
Integrity in proceedings of purchase and sale
At Embraer, purchase and supply processes are based on integrity and competitive equality to ensure the best quality and cost-benefit ratio in the supply of materials and services. It is expected that suppliers are committed to the policies and procedures of the Company in competitive processes, and that they respect this Code of Ethics and Conduct, acting in accordance with legal requirements for health, safety and working environment, respect for privacy, the treatment of confidential information, competition law, anti-corruption, import and export control and the prevention of money laundering.
Similarly, in sales processes, Embraer must comply with all laws, rules and procedures, operating with the highest level of integrity, ethics and transparency. In the case of sales to governmental agencies, employees of Embraer must know and observe the laws

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In case of doubt, consult the internal policies and procedures, such as Embraer’s Policy on Anti-Corruption, or contact the compliance department for clarification.
and the specific, applicable procedures, with guidance from the legal and compliance departments, as appropriate.
The Company is intolerant to any form of corruption in the buying and selling process. For further information, please consult the Anti-Corruption Policy and its associated procedures.
Relationship with the community and the environment
As part of the sustainability process, Embraer seeks to have positive impact on the communities where it operates, through educational, social, cultural and environmental projects.
Embraer is conscious of the environmental challenges in its industry and is committed to adopting continuous improvement processes and investing in new technologies that reduce potential impacts on the environment, while requiring the same commitment from its suppliers, providers and business partners.

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Supervision of the Code
The Board of Directors, through its Audit and Risk Committee, oversees the Executive Board in implementing the Code, the responsibility for dissemination and execution of which lies with Embraer’s Compliance Office.
Reporting violations
All Embraer stakeholders, including but not limited to employees, suppliers, customers, shareholders and business partners, among others, must report any concern in relation to the potential violation of the principles and values of this Code.
Embraer provides various channels for reporting concerns or violations of this Code. Any person may report a concern or violation through the following channels:
• The Board of Directions and its Audit and Risk Committee;
• The leader or manager, in the case of employees;
• The compliance department or designated compliance representative in the various departments of the Company;
• Internal auditing;
• The legal department; or
• Te Helpline (via our website www.embraer.com.br)
The Helpline is a confidential channel for employees and stakeholders to report or seek support for ethical conduct concerns related to the potential violations of Embraer policies, of this Code, or of any law or regulation.
Embraer does not tolerate any retaliation, veiled or otherwise, against any person who reports a concern in good faith through the channels made available by the Company. Additionally, all reported issues, concerns, complaints or violations directed to the Helpline will be treated with confidentiality and respect for anonymity.

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N.B.: The laws of some countries do not allow anonymous reporting, in which case the Company will inform the complainant of this condition.
Penalties for violations
Board Members, directors, employees and all individuals or legal entities that carry out activities for or on behalf of Embraer are subject to administrative or legal disciplinary measures in the event of violation of the principles and values established by this Code, including termination of employment or the contractual business relationship, as appropriate.

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How do I submit a complaint or concern?
By telephone
Brasil: 0800-721-5968 | Portugal: 800-180-118
United States: 1-877-900-8779 | Singapur: 800-130-2122
China: 400-120-4946 | France: 0805-080608
Via the website:
www.embraerhelpline.com
This channel must be used exclusively for reporting concerns in relation to ethical conduct and compliance with laws, regulations and the internal procedures of the Company.
Should you require further information, please contact Embraer’s compliance department at: compliance@embraer.com.br.
Embraer S.A.
Avenida Brigadeiro Faria Lima 2170
12227-901 - São José dos Campos - Brasil
www.embraer.com.br
Editions of this Code of Ethics and Conduct
1st Edition - 03.12.2004
2nd Edition - 12.11.2009
3rd Edition - 04.26.2012
4th Edition - 09.11.2014

EXHIBIT 12.1

CERTIFICATION

I, Frederico Pinheiro Fleury Curado, certify that:

I have reviewed this annual report on Form 20-F of Embraer S.A.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and to the audit committee of the company’s board of directors (or persons performing the equivalent functions):

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: March 27, 2015


By:		/s/ Frederico Pinheiro Fleury Curado
Name:		Frederico Pinheiro Fleury Curado
Title:		President and Chief Executive Officer

EXHIBIT 12.2

CERTIFICATION

I, José Antonio de Almeida Filippo, certify that:

I have reviewed this annual report on Form 20-F of Embraer S.A.;

any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: March 27, 2015


By:		/s/ José Antonio de Almeida Filippo
Name:		José Antonio de Almeida Filippo
Title:		Executive Vice – President and Chief Financial Officer

EXHIBIT 13.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Embraer S.A. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2014, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Frederico Pinheiro Fleury Curado, Chairman, President and Chief Executive Officer, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the U.S. Sarbanes Oxley Act of 2002, that to the best of my knowledge:

(i)

the Report fully complies with the requirements of section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934; and

(ii)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 27, 2015


By:		/s/ Frederico Pinheiro Fleury Curado
Name:		Frederico Pinheiro Fleury Curado
Title:		President and Chief Executive Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the company and will be retained by the company and furnished to the Securities and Exchange Commission or its staff upon request.

EXHIBIT 13.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Embraer S.A. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2014, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, José Antonio de Almeida Filippo, Executive Vice – President and Chief Financial Officer, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the U.S. Sarbanes Oxley Act of 2002, that to the best of my knowledge:

(i)

the Report fully complies with the requirements of section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934; and

(ii)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 27, 2015