Notes to the Consolidated Financial Statements
In millions of U.S. dollars, unless otherwise stated

39. FINANCIAL INSTRUMENTS


a) 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 produce the most adequate estimates of the fair value. Accordingly, 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.

The book values of cash, cash equivalents, and commercial papers debt securities, accounts receivable and current liabilities are approximately the fair values. The fair value of securities held to maturity is estimated by the discounted cash flow methodology. The fair value of noncurrent debts is based on the discounted value of their contractual cash flows. The discount rate used is based on the future market curve for the cash flow of each liability.

The fair value of financial instruments is as follows:

  12.31.2010 12.31.2009 01.01.2009
Carrying Amounts Fair value Carrying Amounts Fair value Carrying Amounts Fair value
Financial assets
Cash and cash equivalents
1,393.1 1,393.1 1,592.4 1,592.4 1,820.7 1,820.7
Financial assets
785.6 785.6 978.7 978.7 449.1 449.1
Trade accounts receivable, net
349.3 349.3 407.4 407.4 454.7 454.7
Customer and commercial financing
70.5 70.5 52.7 52.7 121.8 121.8
Collateralized accounts receivable
538.2 538.2 486.0 486.0 478.6 478.6
Derivative financial instruments
22.3 22.3 24.6 24.6 29.9 29.9
 
Financial liabilities
Loans and financing
1,434.8 1,485.2 2,058.3 2,332.9 1,839.8 1,697.1
Derivative financial instruments
2.2 2.2 4.6 4.6 166.5 166.5
Financial guarantee of residual value
11.1 11.1 8.4 8.4 9.5 9.5
Financial guarantee
132.3 132.3 145.7 145.7 163.5 163.5
Trade accounts payable and others liabilities
1,332.5 1,332.5 1,236.9 1,236.9 1,669.1 1,669.1

b) Classification

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 a mid-market pricing convention (the mid-point price between bid and ask prices) as a practical expedient for valuing the majority of its assets and liabilities measured and reported at fair value. 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. These inputs can be readily observable, market corroborated, or generally unobservable. 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 observability of those inputs. A fair value hierarchy is used to prioritize the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:

(i) Level 1 – quoted prices are available in active markets for identical assets or liabilities as of the reporting date. 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;

(ii) 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. 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;

(iii) 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, 2010. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. 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.


  Fair value measurements at December 31, 2010
Quoted prices in active markets for identical assets (level 1) Significant other observable inputs (level 2) Significant unobservable inputs (level 3) Total
Assets
Held for trading 402.0 219.2 103.4 724.6
Derivative financial instruments - 22.3 - 22.3
 
Liabilities
Derivative financial instruments - 2.2 - 2.2

  Fair value measurements at December 31, 2009
Quoted prices in active markets for identical assets (level 1) Significant other observable inputs (level 2) Significant unobservable inputs (level 3) Total
Assets
Held for trading 419.7 377.6 138.0 935.3
Derivative financial instruments - 24.6 - 24.6
 
Liabilities
Derivative financial instruments - 4.6 - 4.6


  Fair value measurements at January 1st, 2009
Quoted prices in active markets for identical assets (level 1) Significant other observable inputs (level 2) Significant unobservable inputs (level 3) Total
Assets
Held for trading 165.4 131.9 109.7 407.0
Derivative financial instruments - 29.9 - 29.9
 
Liabilities
Derivative financial instruments - 166.5 - 166.5

The table below presents a reconciliation for the assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

  Fair value measurements using significant unobservable inputs (level 3) at December 31, 2010
Beginning balance 138.0
Purchases (sales) (37.3)
Profits (losses) unrealized 2.7
Ending balance 103.4

  Fair value measurements using significant unobservable inputs (level 3) at December 31, 2009
Beginning balance 109.7
Purchases (sales) 25.5
Profits (losses) unrealized 2.8
Ending balance 138.0

  Fair value measurements using significant unobservable inputs (level 3) at January 1st, 2009
Beginning balance -
Purchases (sales) 120.0
Profits (losses) unrealized (10.3)
Ending balance 109.7


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 Board and submitted to the Board of Directors, and provides for the existence of a Financial Management Committee. Under this policy, the market risks are protected 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.

The financial risk management policy may also include the use of derivative financial instruments to mitigate the effects of interest rate fluctuations and to reduce the exposure to exchange rate risk.

a) Capital risk management

The Company uses capital management to maintain adequate liquidity levels to ensure the continuity of its investment program and offer a return to its shareholders, in line with the practices of the Aerospace sector, in which companies general have low levels of financial leverage.

The Company accordingly seeks to keep cash levels higher than the balance of financial indebtedness, and to maintain access to liquidity by establishing and maintaining a standby credit line, as described in Note 20.

In the period ended December 31, 2010, the consolidated position of cash and cash equivalents exceeded the Company's financial indebtedness by US$691.8 million (US$487.9 million in 2009) resulting, in liquid terms, in a leverage-free capital structure.

Of the total financial indebtedness at December 31, 2010, only 5.1% was short-term (28.8% in 2009) and the average weighted term was equivalent to 6.3 years at the same date ( 4.9 years in 2009). Own capital accounted for 37.3% and 32.4% of the total liabilities at the end of 2010 and 2009, respectively.

b) Credit risk

The Company may incur losses on amounts receivable for 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 possible losses on doubtful accounts, the Company has recorded a provision in an amount considered sufficient by management to cover losses on realization of the receivables.

The financial management policy establishes that assets in the investment portfolios in Brazil and overseas should have a minimum risk classification in proportion to the investment grade, and also establishes a maximum exposure level of 15% of the shareholders' equity of the issuing financial. Institution and, in the case of a non financial institution, a maximum of 5% of the total amount of the issue.

Counterparty risks in derivative transactions are managed by contracting transactions through premier financial institutions and registration with the Clearing House for the Custody and Financial Settlement of Securities (CETIP).

c) 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.

Assumptions for future disbursements and receipts are determined in order to manage cash liquidity in Reais and U.S. dollars, and these are monitored daily by the Treasury department.


The following table provides additional information related to contractual obligation and commercial commitments.

Total Less than one year One to three years Three to five years More than five years
At December 31, 2010
Loans 1,947.7 131.8 546.7 136.1 1,133.1
Capital Lease 4.3 1.7 2.6 - -
Suppliers 750.2 750.2 - - -
Recourse and Nonrecourse Debt 470.2 111.8 219.0 21.3 118.1
Financial Guarantees 219.5 95.0 36.7 43.1 44.7
Other Liabilities 114.6 20.8 40.4 23.8 29.6
Total 3,506.5 1,111.3 845.4 224.3 1,325.5
At December 31, 2009
Loans 2,575.0 619.5 676.2 140.0 1,139.3
Capital Lease 20.0 5.2 8.1 5.8 0.9
Suppliers 596.3 596.3 - - -
Recourse and Nonrecourse Debt 507.5 135.9 21.8 222.7 127.1
Financial Guarantees 257.1 120.5 35.0 42.0 59.6
Other Liabilities 1,031.7 276.5 327.2 195.8 232.2
Total 4,987.6 1,753.9 1,068.3 606.3 1,559.1
At January 1st, 2009
Loans 2,155.4 590.8 791.4 226.5 546.6
Capital Lease 19.6 4.9 7.4 4.9 2.4
Suppliers 1,072.4 1,072.4 - - -
Recourse and Nonrecourse Debt 504.6 137.7 17.1 212.9 136.9
Financial Guarantees 173.0 17.5 35.1 36.8 83.5
Other Liabilities 672.5 253.1 243.3 112.5 63.7
Total 4,597.4 2,076.4 1,094.3 593.7 833.1

The above table shows 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, 2010.

d) Market risk

(i) 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 loans and financing rose in the market or reduce the return on financial investments.

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.
At December 31, 2010, the Company's consolidated financial assets and loans and financing, without taking the effects of the current swap operations into account, are indexed as follows:


  Pre-fixed Post-fixed Total
Amount % Amount % Amount %
Financial assets 642.3 30.33% 1,475.4 69.67% 2,117.7 100.00%
. In reais
- 0.00% 1,049.5 49.55% 1,049.5 49.55%
. In US dollars
554.6 26.19% 425.9 20.11% 980.5 46.31%
. In other currencies
87.7 4.14% - 0.00% 87.7 4.14%
 
Loans 1,270.5 88.55% 164.3 11.45% 1,434.8 100.00%
. In reais
331.2 23.09% 69.3 4.83% 400.5 27.91%
. In US dollars
936.2 62.25% 88.0 6.13% 1,024.2 71.38%
. In other currencies
3.1 0.22% 7.0 0.49% 10.1 0.71%

   Pre-fixed Post-fixed Total
Amount % Amount % Amount %
Financial assets 642.3 30.33% 1,475.4 69.67% 2,117.7 100.00%
. In reais
- 0.00% 1,049.5 49.55% 1,049.5 49.55%
. In US dollars
554.6 26.19% 425.9 20.11% 980.5 46.31%
. In other currencies
87.7 4.14% - 0.00% 87.7 4.14%
 
Loans 1,276.7 88.99% 158.1 11.01% 1,434.8 100.00%
. In reais
331.2 23.09% 69.3 4.83% 400.5 27.91%
. In US dollars
942.4 65.68% 81.8 5.70% 1,024.2 71.38%
. In other currencies
3.1 0.22% 7.0 0.49% 10.1 0.71%

  Without derivative effect With derivative effect
Amount % Amount %
Financial assets 1,475.4 100.00% 1,475.4 100.00%
. CDI 1,049.5 71.13% 1,049.5 71.13%
. LIBOR 425.9 28.87% 425.9 28.87%
 
Loans 164.3 100.00% 158.1 100.00%
. TJLP 67.8 41.26% 67.8 42.88%
. LIBOR 88.0 53.56% 81.8 51.73%
. CDI 1.5 0.91% 1.5 0.94%
. Euro 7.0 4.28% 7.0 4.44%


(ii) Foreign exchange rate risk
The Company adopts the U.S. dollar as functional currency of its business.

Consequently, the Company's operations most exposed to exchange variation risks are those denominated in Reais (labor costs, local expenses, financial investments and loans and financing denominated in Reais) as well as investments in subsidiaries in currencies other than the U.S. dollar.

Company policy for protection against foreign exchange risks 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 actually occur.

Rights and obligations denominated in currencies other than the functional currency may require derivative transactions, such as Non Deliverable Forward ("NDF") transactions, to balance the portion of the Company's rights and obligations denominated in Reais.

At December 31, 2010 and December 31, 2009, the Company's assets and liabilities, denominated by currency, were as follows:

  Without the effect of derivative transactions With the effect of
derivative transactions
12.31.2010 12.31.2009 01.01.2009 12.31.2010 12.31.2009 01.01.2009
Loans
Brazilian reais
400.5 719.1 629.1 400.5 719.1 629.1
U.S. dollars
1,024.2 1,301.9 1,142.1 1,024.2 1,301.9 1,142.1
Euro
10.1 37.3 46.5 10.1 37.3 46.5
Other currencies
- - 22.1 - - 22.1
1,434.8 2,058.3 1,839.8 1,434.8 2,058.3 1,839.8
Trade accounts payable
Brazilian reais
38.2 24.8 31.5 38.2 24.8 31.5
U.S. dollars
668.0 536.6 999.8 668.0 536.6 999.8
Euro
41.4 29.0 39.1 41.4 29.0 39.1
Other currencies
2.6 5.9 2.0 2.6 5.9 2.0
750.2 596.3 1,072.4 750.2 596.3 1,072.4
Total (1) 2,185.0 2,654.6 2,912.2 2,185.0 2,654.6 2,912.2
 
Cash and cash equivalents and financial investments
Brazilian reais
1,051.9 1,224.4 782.1 1,051.9 1,224.4 782.1
U.S. dollars
1,039.1 1,287.4 1,433.6 1,039.1 1,287.4 1,433.6
Euro
20.6 37.2 38.0 20.6 37.2 38.0
Other currencies
67.1 22.1 16.1 67.1 22.1 16.1
2,178.7 2,571.1 2,269.8 2,178.7 2,571.1 2,269.8
 
Trade accounts receivable:
Brazilian reais
44.7 108.2 52.0 44.7 108.2 52.0
U.S. dollars
252.7 208.3 297.0 252.7 208.3 297.0
Euro
51.5 90.7 105.5 51.5 90.7 105.5
Other currencies
0.4 0.2 0.2 0.4 0.2 0.2
349.3 407.4 454.7 349.3 407.4 454.7
Total (2) 2,528.0 2,978.5 2,724.5 2,528.0 2,978.5 2,724.5
 
Net exposure (1 - 2):
Brazilian reais

 (657.9) (588.7) (173.5) (657.9)

(588.7)

(173.5)
U.S. dollars

 400.4 342.8 411.3 400.4

342.8

411.3

Euro

 (20.6) (61.6) (57.9) (20.6)

(61.6)

(57.9)
Other currencies

 (64.9) (16.4) 7.8 (64.9)

(16.4)

7.8


The Company has other financial assets and liabilities that are also subject to exchange variation, not included in the previous note; however, they are used to minimize exposure in the currencies reported.

(iii) Derivatives
The Company uses derivatives 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 income, taking into account the realizable value of these instruments. The provision for unearned gains and losses is recorded in the balance sheet under Derivative Financial Instruments, and the contra-item under foreing exchange gain (loss), net.

Swap contracts

These are contracted with the main objective of exchanging the debt at floating rates for fixed interest rates, and exchanging U.S. dollars for Reais or vice-versa, as applicable. At December 31, 2010, the Company had no contracts subject to margin calls.

At December 31, 2010, the Company had swap contracts by which it effectively converted liabilities of US$168.8 with and without recourse from a fixed interest rate of 5.98% p.a. to a floating rate of LIBOR plus 1.21% p.a., and through a subsidiary has hired a swap transaction in the amount of US$6.2 converting financing transactions subject to floating interest rate of LIBOR + 1 month plus 2.44% p.a. at fixed rates of 5.23% p.a., as shown below:

The following table provides additional information related to the Swap contracts.

Gain (loss) Gain (loss)
Underlying Transactions Type Original currency Present currency Notional amount (in thousands) Average rate agreed – % Book value 12.31.2010 Book value 12.31.2010 Book value 12.31.2009 Book value 12.31.2009
Recourse and
non recourse debt
Company asset “Swap” US$ US$ 281.3 5.97% p.a. 20.9 20.9 14.5 14.5
Company liability “Swap” 281.3 Libor + 1,21% p.a. - - - -
Counterparty
Natixis 20.9 20.9 14.5 14.5
Export
financing
Company asset “Swap” R$ R$ 104.0 4.50% p.a. - - (0.5) (0.5)
Company liability “Swap” 104.0 42.33% CDI p.a. - - (0.5) (0.5)
Counterparty
ItaúBBA - - (0.5) (0.5)
Acquisition property,
plant and equuipment
Company asset “Swap” US$ US$ 10.3 Libor 1M + 2.44% p.a. (0.4) (0.4) - -
Company liability “Swap” 10.3 5.23% p.a. - - - -
Counterparty
Compass Bank   (0.4) (0.4) - -
  Total 20.5 20.5 14.0 14.0

Swaps – these are valued at present value, at the market rate on the base date, of the future flows determined by applying the contractual rates up to maturity and discounting to present value on the date of the financial statements at the current market rates.

Exchange swap contracts

At December 31, 2010, the Company had no foreign exchange swap contracts recorded in its financial statements.

Others derivatives

At December 31, 2010, the Company has agreed swaps, equivalent to US$25.0 through which now has an asset linked to Exchange Coupon and a liability at a pre-fixed interest rate, as shown below:


  Gain (loss) Gain (loss)
Underlying transactions Type Original currency Present currency Notional amount (in thousands) Average rate agreed – % Book value 12.31.2010 Book value 12.31.2010 Book value 12.31.2009 Book value 12.31.2009
Others
Company asset “Swap” US$ US$ 25.0 5.97% p.a. Libor + 1.21% p.a. (0.4) (0.4) - -
Company liability “Swap” 25.0
Counterparty
JP Morgan   (0.4) (0.4) - -
  Total (0.4) (0.4) - -

These swap contracts are subject to Brazilian sovereign risk, and in case of an event that limits the convertibility of the Brazilian reais and or change the taxes, could result in the redemption of the operation in Brazil in the form of bonds issued by the Brazilian Government (LTN's – National Treasury Bills) with a swap transaction into dollar for such securities.

Gain (loss)
Underlying transactions Type Original currency Present currency Notional amount (in thousands) Average rate agreed – % Book value 12.31.2010 Book value 12.31.2010
Others
Company asset “Swap” US$ US$ 25.0 5.97% p.a.. Libor + 1.21% p.a. (0.4) (0.4)
Company liability “Swap” 25.0
Counterparty
JP Morgan   (0.4) (0.4)
Total (0.4) (0.4)

Sensitivity analysis

In order to present a positive and negative variation 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 at December 31, 2010, 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 factor 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.

Methodology

Based on the balances shown in the tables in item (c) above, and assuming that these 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 the interest rate risk, only the risks for the financial statements were considered, that is, 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 on the rates in force at the date of the financial statements.

In the sensitivity analysis of derivative contracts, positive and negative variations of 25% and 50% were applied on the market curve (BM&F) at the date of the financial statements.

Interest risk factor:


  Additional variations in book balances (*)
Risk
factor 		Amounts exposed at 12.31.2010 -50% -25% Probable scenario – % 25% 50%
Financial investments CDI 1,049.1 (55.8) (27.9) 6.4 27.9 55.8
Loans CDI 1.5 0.1 - - - (0.1)
Net impact CDI 1,047.6 (55.7) (27.9) 6.4 27.9 55.7
 
Financial investments LIBOR 425.9 (0.7) (0.4) 0.2 0.4 0.7
Loans LIBOR 88.0 0.2 0.1 - (0.1) (0.2)
Net impact LIBOR 337.9 (0.5) (0.3) 0.2 0.3 0.5
 
Financial investments TJLP - - - - - -
Loans TJLP 67.8 2.0 1.0 - (1.0) (2.0)
Net impact TJLP (67.8) 2.0 1.0 - (1.0) (2.0)
 
Rates considered – % CDI 10.64% 5.32% 7.98% 11.25% 13.30% 15.96%
Rates considered – % LIBOR 0.34% 0.17% 0.26% 0.38% 0.43% 0.52%
Rates considered – % TJLP 6.00% 3.00% 4.50% 6.00% 7.50% 9.00%
(*) The positive and negative variations of 25% and 50% were applied on the rates in effect at 12.31.2010.

Foreign exchange risk factor:
   Additional variations in book balances (*)
Risk
factor 		Amounts exposed at 12.31.2010 -50% -25% Probable scenario – % 25% 50%
Assets 1,484.2 742.0 371.1 (56.9) (371.1) (742.0)
Financial investments BRL 1,049.1 524.5 262.3 (40.2) (262.3) (524.5)
Other assets BRL 435.1 217.5 108.8 (16.7) (108.8) (217.5)
Liabilities 1,444.5 (722.2) (361.1) 55.3 361.1 722.2
Loans and financing BRL 400.5 (200.2) (100.1) 15.3 100.1 200.2
Other liabilities BRL 1,044.0 (522.0) (261.0) 40.0 261.0 522.0
Net impact 39.7 19.8 10.0 (1.6) (10.0) (19.8)
 
Exchange rate considered   1.6662 0.8331 1.2497 1.7300 2.0826 2.4993
(*) The positive and negative variations of 25% and 50% were applied on the rates in effect at 12.31.2010.

Derivative contracts:

  Additional variations in book balances (*)
Risk
factor 		Amounts exposed at 12.31.2010 -50% -25% Probable scenario – % 25% 50%
Interest swap LIBOR 20.5 13.8 6.8 (3.0) (6.2) (12.2)
Others derivatives Exchange coupon (0.4) 0.4 0.2 - (0.1) (0.2)
Total 20.1 14.2 7.0 (3.0) (6.3) (12.4)
LIBOR rate considered – % 0.34% 0.17% 0.26% 0.38% 0.43% 0.52%
Exchange coupon rate considered – %   2.53% 1.26% 1.90% 2.83% 3.16% 3.79%
(*) The positive and negative variations of 25% and 50% were applied on the rates in effect at 12.31.2010.

Residual Value Guarantees

The residual value guarantees are reported in a similar manner as for financial derivative instruments (Note 2.2 i).

Methodology:

Based on residual value guarantee contracts in force, the Company ascertains any differences in values with those of third party evaluations. The probable scenario is based on the Company's expectation to record the provisions in statistical bases, and the positive and negative variations of 25% and 50% have been applied to the evaluations of third parties on the date of the financial statements.


  Additional variations in book balances
Amounts exposed at 12.31.2010 -50% -25% Probable scenario – % 25% 50%
Financial guarantee of residual value 11.1 (88.8) (16.0) (2.6) 1.9 5.3
Total 11.1 (88.8) (16.0) (2.6) 1.9 5.3

Investments Funds

The Company maintains a structure of exclusive funds, which are consolidated in the financial statements, as the Company controls these funds.

These funds were set up with the objective of outsourcing management of the Company's short-term financial investments and the managers contracted have discretion, while respecting the restrictions established in the investment policy, to select the assets that will comprise the investment portfolio.

All the funds are classified as multimarket and may hold derivatives in their portfolio as a means of attaining the proposed profit objective. These derivatives relate exclusively to the positions taken by the funds themselves and are in no way connected with the derivatives contracted by the Company as a hedge against the cash and balance sheet risks of its operations.

The following tables show the derivatives held by the funds in the year ended December 31, 2010, and the sensitivity analysis of the main risk factor to which the instruments are exposed.

Statistical simplifications were made in isolating the risk variables in question and 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.

a) Description of the contracts

Type Nº of contracts Due date Unit market price Reference value at 12.31.2010
Purchase – Forward DI 36 January-11 60.0 2.2
Purchase – Forward DI 1,438 July-11 56.8 81.7
Purchase – Forward DI 44 October-11 55.1 2.4
Purchase – Forward DI 196 January-12 53.6 10.5
Purchase – Forward DI 982 July-12 50.5 49.6
Sales – Forward DI 160 January-13 47.6 7.6
Purchase – Forward DI 98 January-14 42.5 4.2
Purchase – Forward DI 2 January-17 30.6 0.1
Purchase – Forward DI 324 January-21 19.6 6.3
Swap 1 January-11 439.0 -
  164,6

b) Sensitivity analysis

Additional variations in the return of the fund
Risk factor Reference
value
12.31.2010 		-50% -25% Probable Scenario 25% 50%
CDI 164.6 (11.7) (5.3) - 35.0 39.3
Total 164.6 (11.7) (5.3) - 35.0 39.3
 
Rates used
CDI 10.64% 5.32% 7.98% 10.75% 13.30% 15.96%


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