Embraer (NYSE: ERJ), the world’s fourth-biggest plane manufacturer, fell the most in six weeks after thecompany said it is being investigated by the U.S. Securities andExchange Commission and reported a third-quarter loss.
The SEC is investigating Embraer for possible violation ofthe U.S. Foreign Corrupt Practices Act, the Sao Jose dos Campos,Brazil-based company said late yesterday in a regulatory filing.Banco BTG Pactual SA, in an e-mail to clients today, called thedisclosure a “yellow flag” amid “good operating results.”
The Foreign Corrupt Practices Act prohibits companieslisted in the U.S. from bribing foreign government officials ormaking other illegal payments to obtain or retain business,according to the Justice Department’s website. If criminallysanctioned, companies may be barred from doing business with theU.S. government and fined as much as twice the value of thebenefit they sought through the improper payments. Convictedexecutives may be sentenced to five years in prison.
3Q Earnings (Loss) Report: Higher Taxes
Embraer reported a loss of 200,000 Brazilian reais ($115.606), compared with a profit of BRL220 million a year earlier. “The company’s result was largely impacted by the appreciation of the U.S. dollar against the Brazilian real during the period, which appreciated approximately 18% over the last two weeks of the quarter, and consequently increased Embraer’s non-cash taxes for the period,” the company said.
“Embraer is required to record taxes resulting from unrealized gains or losses due to the impact of the changes in the real-to-U.S. dollar exchange rate over non-monetary assets (primarily inventory and intangibles) and such appreciation of the U.S. dollar during the third quarter increased the company’s deferred taxes for the quarter, which totaled BRL213 million,” it added.
Full earnings report can be found here.