Demonstrações Financeiras

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Demonstrações Financeiras
(A free translation of the original in Portuguese)
Votorantim Participações S.A.
Consolidated Interim Financial Statements at
June 30, 2011 and Independent
Auditor's Report
(A free translation of the original in Portuguese)
Report on Review of Condensed Consolidated
Interim Financial Statements
To the Board of Directors and Shareholders
Votorantim Participações S.A.
Introduction
We have reviewed the accompanying consolidated balance sheet of Votorantim Participações S.A. (the
"Company") and its subsidiaries as at June 30, 2011 and the related consolidated statements of income,
comprehensive income, changes in stockholders' equity and cash flows for the six-month period then
ended.
Management is responsible for the preparation and fair presentation of the condensed consolidated
interim financial statements in accordance with the accounting standard CPC 21, Interim Financial
Reporting issued by the Brazilian Accounting Pronouncements Committee (CPC), and International
Accounting Standard (IAS) 34 - Interim Financial Reporting issued by the International Accounting
Standards Board (IASB). Our responsibility is to express a conclusion on these condensed interim
financial statements based on our review.
Scope of Review
We conducted our review in accordance with Brazilian and International Standards on Reviews of Interim
Financial Information (NBC TR 2410 - Review of Interim Financial Information Performed by the
Independent Auditor of the Entity and ISRE 2410 - Review of Interim Financial Information Performed by
the Independent Auditor of the Entity, respectively). A review of interim information consists of making
inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical
and other review procedures. A review is substantially less in scope than an audit conducted in accordance
with Brazilian and International Standards on Auditing and consequently does not enable us to obtain
assurance that we would become aware of all significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying
condensed consolidated interim financial statements referred to above have not been prepared, in all
material respects, in accordance with the accounting standard CPC 21 - Interim Financial Reporting, of the
Brazilian Accounting Pronouncements Committee (CPC), and International Accounting Standard (IAS 34
- Interim Financial Reporting issued by the International Accounting Standards Board (IASB).
PricewaterhouseCoopers, Av. Francisco Matarazzo 1400, Torre Torino, São Paulo, SP, Brasil 05001-903, Caixa Postal 61005
T: (11) 3674-2000, F: (11) 3674-2000, www.pwc.com/br
Votorantim Participações S.A.
Other Matters
Supplemental Information - Statement of Value Added
We have also reviewed the consolidated interim statement of value added for the six-month period ended
June 30, 2011, presented as supplemental information. This statement has been submitted to the same
review procedures described above and, based on our review, nothing has come to our attention that
causes us to believe that it has not been prepared, in all material respects, in relation to the condensed
consolidated interim financial statements taken as a whole.
Supplemental Information - Information by Industrial
and Financial Segment and by Business Unit
We have also reviewed the supplemental information by industrial and financial segment, as well as by
business unit, presented to provide additional information on Votorantim Participações S.A. and its
subsidiaries which are neither intended to comply with or are required by IFRS or accounting practices
adopted in Brazil. This information has been submitted to the same review procedures described above
and, based on our review, nothing has come to our attention that causes us to believe that it has not been
prepared, in all material respects, in relation to the condensed consolidated interim financial statements
taken as a whole.
Review of Comparative Information for the
Six-month Period Ended June 30, 2010
The comparative information for the six-month period ended June 30, 2010 was previously reviewed by us
in accordance with the auditing standards in effect at the time we issued our unqualified report on
August 16, 2010. As these auditing standards permitted division of responsibility, the review of the
financial statements at and for the six-month period ended June 30, 2010 of the jointly-controlled entity
Votorantim Finanças S.A. was conducted by other auditors and our report thereon, in so far as it refers to
the income from these entities for the six-month period ended June 30, 2010, of R$ 395 million, is based
solely on the reports of those other auditors.
São Paulo, August 23, 2011
PricewaterhouseCoopers
Auditores Independentes
CRC 2SP000160/O-5
Marcelo Orlando
Contador CRC 1SP217518/O-7
Index
Consolidated Interim Financial Statements
Balance Sheets ..........................................................................................................4
Income Statements ....................................................................................................7
Statements of Comprehensive Income ......................................................................8
Statements of Changes in Stockholders’ Equity ..........................................................9
Statements of Cash Flows .......................................................................................11
Statements of Value Added ......................................................................................13
Notes to the Consolidated Interim Financial Statements
1
General Information ..................................................................................................14
2
Presentation of Consolidated Interim Financial Statements ......................................15
2.1
Basis of presentation .....................................................................................16
2.2
Derivative financial instruments and hedging activities ..................................18
3
Standards, Amendments and Interpretations of Existing Standards that are not yet
effective................................................................................................................................19
4
Critical Accounting Estimates and Assumptions ........................................................20
5
Financial Risk Management ......................................................................................20
5.1
Industrial Segment.........................................................................................20
5.2
Financial Segment .........................................................................................31
6
Credit Quality of Financial Assets – Industrial Segment ............................................31
7
Cash and Cash Equivalents ......................................................................................32
8
Financial Investments ...............................................................................................33
9
Trade Accounts Receivable ......................................................................................36
10
Loans and Receivables .............................................................................................36
11
Inventories ................................................................................................................37
12
Taxes Recoverable ...................................................................................................38
13
Related Parties .........................................................................................................39
14
Investments ..............................................................................................................41
15
Property, Plant and Equipment .................................................................................43
16
Biological Assets .......................................................................................................45
17
Intangible Assets.......................................................................................................45
18
Loans and Financing .................................................................................................46
19
Accounts Payable - Trading ......................................................................................50
20
Deferred Income Tax and Social Contribution ...........................................................51
21
Provisions .................................................................................................................53
22
Tax Amnesty and Refinancing Program (Refis) ........................................................56
23
Stockholders’ Equity – Parent Company Votorantim Participações S.A. ...................57
24
Net Revenue .............................................................................................................59
25
Other Operating Income (Expense), Net ...................................................................59
26
Financial Results, Net ...............................................................................................60
27
Insurance ..................................................................................................................60
28
Costs and expenses breakdown ...............................................................................61
29
Employee Benefit Expense .......................................................................................61
30
Subsequent Event.....................................................................................................62
31
Supplemental Information - BU .................................................................................62
3
Votorantim Participações S.A.
Consolidate Interim Balance Sheets
In millions of reais
(A free translation of the original in Portuguese)
4
Votorantim Participações S.A.
Consolidated Interim Balance Sheets
In millions of reais
(continued)
5
Votorantim Participações S.A.
Consolidated Interim Balance Sheets
In millions of reais
(continued)
The accompanying notes are an integral part of these consolidated interim financial statements and supplemental information.
6
Votorantim Participações S.A.
Consolidated Interim Income Statements
Six-month Periods Ended June 30
(A free translation of the original in Portuguese)
In millons of reais
The accompanying notes are an integral part of these consolidated interim financial statements and supplemental information.
7
Votorantim Participações S.A.
Consolidated Interim Statements of Comprehensive Income
Six-month Periods Ended June 30
(A free translation of the original in Portuguese)
In millions of reais
The accompanying notes are an integral part of these consolidated interim financial statements and supplemental information.
8
Votorantim Participações S.A.
Statements of Changes in Stockholders’ Equity
(A free translation of the original in Portuguese)
In millions of reais, unless otherwise indicated
9
Votorantim Participações S.A.
Statements of Changes in Stockholders’ Equity
In millions of reais, unless otherwise indicated
(continued)
The accompanying notes are an integral part of these consolidated interim financial statements and supplemental information.
10
Votorantim Participações S.A.
Consolidated Interim Statements of Cash Flows
Six-month Periods Ended June 30
In millions of reais
11
(A free translation of the original in Portuguese)
Votorantim Participações S.A.
Consolidated Interim Statements of Cash Flows
Six-month Periods Ended June 30
In millions of reais
The accompanying notes are an integral part of these consolidated interim financial statements and supplemental
information.
12
(continued)
Votorantim Participações S.A.
Consolidated Interim Statements of Value Added
Six-month Periods Ended June 30
In millions of reais
(A free translation of the original in Portuguese)
The accompanying notes are an integral part of these consolidated interim financial statements and supplemental
information.
13
(A free translation of the original in Portuguese)
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
1
General Information
Votorantim Participações S.A. ("Company", "Parent company" or "VPAR") is a privately-held
company controlled by the Ermírio de Moraes family and is the holding of Votorantim companies
("Votorantim"), with headquarters in the city of São Paulo, Brazil. Together with its subsidiaries,
jointly controlled and associated companies, the Company is organized into two business
segments, as described below:
Industrial Segment
Includes the companies which operate in capital-intensive base industries: cement and concrete,
metals (aluminum, zinc and nickel), steel, pulp and paper, generation of electric power and
agribusiness (frozen concentrated orange juice).
This segment also includes the "private equity" and "venture capital" portfolios which further
diversify Votorantim’s businesses. Currently, these portfolios comprise mainly investments in the
mineral prospection and chemical (nitrocellulose) industries.
Votorantim Finanças ("VF" or “Financial Segment”)
Votorantim Finanças operates in the wholesale, retail, treasury and asset management financial
services segments through various institutions rendering: (i) consumer finance services (especially
vehicle financing), (ii) investment banking services and treasury products for corporate customers;
(iii) asset management services; (iv) brokerage services; and (v) lease transactions for both
corporate clients and individuals.
(a)
Significant acquisitions and disposals of businesses in 2010 (there were no significant
transactions in 2011):
Sale of ownership interest in Banco Votorantim S.A.
On September 28, 2009, the sale of 50.00% of Banco Votorantim S.A. (“BV”) to Banco do Brasil
S.A. was concluded.
This transaction was carried out through the sale of BV shares for R$ 2,970, followed by a
subscription by Banco do Brasil S.A. of new preferred shares issued by BV for R$ 1,200 (of which
R$ 750 settled on the transaction date and R$ 450 on March 29, 2010).
(b)
Acquisition of interest in Cimpor
On February 3, 2010, VPAR's subsidiary Votorantim Cimentos S.A. ("VCSA") and Companhia
Nacional de Cimento Portland ("Lafarge Brasil") entered into a Share Exchange Agreement
whereby Lafarge Brasil transferred to VCSA shares of Cimpor Cimentos de Portugal SGPS S.A.
("Cimpor"), representing 17.28% of the capital of this Portuguese-domiciled company, in exchange
for all shares in a Special Purpose Entity ("SPE") constituted by VCSA which held certain of
VPAR's cement businesses in the Northeastern and Southeastern regions of Brazil. The assets,
rights and obligations of the SPE included a cement plant, transferred by Votorantim Cimentos
14
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
Brasil S.A. - and two cement factories transferred by Votorantim Cimentos N/NE S.A., both VCSA
direct and indirect subsidiaries.
The transaction was recorded based on the fair values of transferred assets, and the gain of
R$1,672, represented by the difference between the cost of assets derecognized and their fair
values, was recorded in "Other operating income (expense), net".
On February 11, 2010, VCSA acquired from third parties an additional 3.93% participation in
Cimpor for R$ 390, now holding 21.21% of Cimpor.
(c)
Acquisition of control of Compañía Minera Milpo (“Milpo”)
On August 3, 2010, the Company, through its subsidiary Votorantim Metais Cajamarquilla S.A.,
concluded a Public Offering, acquiring a further 16.40% interest in Milpo’s capital for R$ 739
(equivalent to US$ 420). Upon concluding this acquisition, the Company acquired the control of
Milpo, and now holds a 50.02% interest. Milpo is now fully consolidated in the Company’s financial
statements.
The Company remeasured its prior 33.62% interest in Milpo at fair value at the acquisition date and
in 2010 recognized a gain of R$ 840 in "Other operating income (expense), net".
(d)
Association between Citrovita and Citrosuco
On May 14, 2010, Votorantim and Fischer Group entered into an agreement to combine their
respective orange juice businesses, currently operated through their subsidiaries Citrovita
Agroindustrial Ltda. (“Citrovita”) and Fischer S.A. - Comércio, Indústria e Agricultura ("Citrosuco"),
respectively, both in Brazil and abroad. The proposed association will be implemented through a
corporate reorganization of Citrovita and Citrosuco and will also depend on the compliance with
certain contractual conditions, such as approvals by government authorities, fulfillment of
obligations and obtaining statements and guarantees. In May 2011, the European Union antitrust
authority approved the merger. Although the final ruling is still pending in Brazil, the anti-trust
division of Brazil’s finance ministry has recommended to Cade the approval with no restrictions.
(e)
Increase of interest in Acerbrag S.A.
On July 16, 2010, through its subsidiary Votorantim Siderurgia S.A., the Company purchased 80%
of Acerholding S.A.’s capital for R$ 125.
Together with its 99.60% interest in Acergroup S.A. and its 80% interest in Acerholding S.A., the
Company holds 99.75% of Acerbrag S.A., a steel business headquartered in Argentina.
2
Presentation of Consolidated Interim Financial Statements
These consolidated condensed interim financial statements were approved for release on August
18, 2011 by the Company’s Board of Directors, and include information on subsequent events
through such date that had an impact on the financial statements.
15
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
2.1
Basis of presentation
The consolidated condensed interim financial statements for June 30, 2011 have been prepared in
accordance with Pronouncement CPC 21 – Interim Financial Reporting (individual and
consolidated) and International Accounting Standard (IAS) 34 - Interim Financial Reporting issued
by the International Accounting Standards Board (IASB), and present selected notes
supplementing the full note disclosures in the Annual Financial Statements.
The interim financial statements for the six-month period ended June 30, 2011, therefore, do not
incorporate all notes and disclosures required by the CPC ("Accounting Pronouncements
Committee") for annual financial statements and, as a result, they should be read together with the
consolidated financial statements prepared according to the CPCs and IFRS for the year ended
December 31, 2010.
Consolidated financial statements
These consolidated interim financial statements have been prepared on a basis consistent with the
consolidation criteria described in Note 2 to the Company’s consolidated financial statements for
the year ended December 31, 2010.
(a)
Companies included in the consolidated financial statements
The main subsidiaries and jointly-controlled companies included in the consolidation are as follows:
Industrial Segment
Cement
Acariúba Mineração e Participação Ltda.
Interávia Transportes Ltda.
Prairie Material Sales Inc. (United States)
Silcar Empreendimentos, Comércio e Participações S.A.
St. Barbara Cement Inc. (Canada)
St. Marys Cement Inc. (Canada and United States)
Sumter Cement Co. LLC (United States)
Suwannee American Cement, LLC (United States)
Trinity Materials LLC (United States)
Votorantim Cement North America Inc. (Canada) – “VCNA”
Votorantim Cimentos N/NE S.A.
Votorantim Cimentos S.A.
Metals
Campos Novos Energia S.A.
Companhia Brasileira de Alumínio
Compañía Minera Milpo S.A.(Peru) – “Milpo”
Indústria e Comércio Metalúrgica Atlas S.A.
Rio Verdinho Energia S.A.
US Zinc Corporation (United States) – “USZinc”
Votorantim Metais - Cajamarquilla S.A. (Peru)
Votorantim Metais Ltda.
16
Percentage of total capital
June 30,
December
2011
31, 2010
100.00
100.00
100.00
99.98
100.00
100.00
50.00
50.00
50.00
100.00
96.06
100.00
100.00
100.00
100.00
99.98
100.00
100.00
50.00
50.00
50.00
100.00
96.06
100.00
100.00
99.77
50.02
99.86
100.00
100.00
99.06
100.00
100.00
99.77
50.02
99.86
100.00
100.00
99.06
100.00
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
Votorantim Metais Níquel S.A.
Votorantim Metais Zinco S.A.
Steel
Acerbrag S.A. (Argentina)
Acerías Paz del Río S.A. - "APDR" (Colombia)
Usinas Siderúrgicas de Minas Gerais S.A. - Usiminas
Votorantim Siderurgia S.A.
Pulp and Paper
Fibria Celulose S.A.
Agribusiness
Citrovita Agro Industrial Ltda.
Citrovita Agro Pecuária Ltda.
Holding and trading companies
Hailstone Limited (British Virgin Islands)
Santa Cruz Geração de Energia S.A.
The Bulk Service Corporation (Cayman Islands)
Votorantim Energia Ltda.
Votorantim GmbH. (Austria)
Votorantim Industrial S.A.
Votorantim Investimentos Latino-Americanos S.A.
Voto - Votorantim Overseas Trading Operations III Ltd.
(Cayman Islands)
Voto - Votorantim Overseas Trading Operations IV Ltd.
(Cayman Islands)
Voto - Votorantim Overseas Trading Operations V Ltd.
(Cayman Islands)
Voto Votorantim Ltd. (Cayman Islands)
Exclusive funds
Clarion Multimercado Crédito Privado - Fundo de
Investimento
Fundo de Investimento Pentágono Multimercado – Crédito
Privado
Odessa Multimercado Crédito Privado
New Businesses
Companhia Nitro Química Brasileira
Votorantim Novos Negócios Ltda.
Financial Segment
Banco Votorantim S.A.
BV Participações S.A.
BV Trading S.A.
BV Empreendimentos e Participações Ltda.
Banco Votorantim Securities, Inc.
BV Financeira S.A.
BV Leasing e Arrendamento Mercantil S.A.
BV Sistemas de Tecnologia e Informação Ltda.
CP Promotora de Vendas Ltda.
Raltic S.A.
Votorantim Finanças S.A.
17
Percentage of total capital
June 30,
December
2011
31, 2010
100.00
100.00
99.92
99.92
99.75
72.57
6.47
100.00
99.75
72.57
6.47
100.00
29.34
29.34
99.99
99.99
99.99
99.99
100.00
100.00
75.00
100.00
100.00
100.00
93.45
100.00
100.00
75.00
100.00
100.00
100.00
93.45
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
99.98
99.99
99.98
99.99
50.00
50.00
99.99
99.99
50.00
50.00
50.00
50.00
50.00
100.00
100.00
50.00
50.00
99.99
99.99
50.00
50.00
50.00
50.00
50.00
100.00
100.00
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
Votorantim International Business Limited
Votorantim Asset Management D.T.V.M. Ltda.
Votorantim Bank Limited
Votorantim C.T.V.M. Ltda.
Votorantim Corretora de Seguros Ltda.
Votorantim Investment Overseas Ltd.
VSP Participações S.A.
Percentage of total capital
June 30,
December
2011
31, 2010
100.00
100.00
50.00
50.00
50.00
50.00
50.00
50.00
50.00
50.00
100.00
100.00
99.99
99.99
The consolidated financial statements also include the investments funds in which VF and its
subsidiaries hold most of the risks and rewards as listed below:
Ownership percentage on
total quotas
BV Financeira FIDC I
BV Financeira FIDC II
BV Financeira FIDC III
BV Financeira FIDC IV
BV Financeira FIDC V
Fundo de Invest. Sedna Ref. DI
Votorantim G&K FIP
June 30,
2011
December
31,
2010
47.22
25.66
22.67
20.77
36.94
100.00
100.00
47.22
25.66
22.67
20.77
36.94
100.00
100.00
VF holds 100% of the subordinated quotas of the related Credit Rights Investment Funds
described above.
An analysis of the combined assets, liabilities, income and expenses, cash flows and value added
is presented as supplemental information, segregating the Company’s activities between the
Industrial Segment and the Financial Segment, as well as the balance sheet and statement of
income of the Company’s main Business Units (“BU") (Note 31).
In the preparation of the financial information by BU (supplemental information), balances and
transactions between the Industrial Segment and the Financial Segment were not eliminated.
These eliminations were made only in the consolidated financial statements.
2.2
Derivative financial instruments and hedging activities
At June 30, 2011, the accounting practices for hedge accounting and for the derivative financial
instruments used by the Company are the same as those described in Note 2.6. of the Company’s
annual financial statements at December 31, 2010, except for derivatives contracted to hedge the
interest risk on loans subject to LIBOR rate, for which the Company started adopting the cash flow
hedge as from January 1, 2011.
18
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
3
Standards, Amendments and Interpretations of Existing Standards that are not yet effective
The following standards and amendments to existing standards have been published and are
mandatory for subsequent accounting periods, but the Company has not early adopted them.
.
IAS 28 – “Investments in Associates and Joint Ventures”, IFRS 11 – “Joint Arrangements”
and IFRS 12 – “Disclosure of Interests in Other Entities”, all issued in May 2011. The main
amendment introduced by these standards is prohibition of proportionally consolidating entities
whose control is shared through an agreement between two or more parties and that is classified
as a “Joint venture”.
IFRS 11 defines two types of classification for arrangements:
(i) "Joint operations" - when the parties jointly control assets and liabilities, regardless of the
fact that these assets are in a separate vehicle, in accordance with the provisions in the
agreements and the essence of the transaction. In this type of arrangement, assets, liabilities,
income and expenses are recorded in the entity that participates in the "Joint operator"
arrangement in the proportion of its rights and obligations;
(ii) "Joint ventures"- when the parties jointly control the net assets of an arrangement
structured through a separate vehicle and the respective results are divided by the participants. In
this type of arrangement, the participation of the entity must be recorded on the equity method of
accounting and presented in line item "Investments".
Additionally, IFRS 12 prescribes qualitative disclosures that should be made by the entity in
relation to interests in subsidiaries, joint arrangements or unconsolidated entities, which include
significant judgments and assumptions to determine whether their interests exercise control,
significant influence or the classification of joint arrangements in "Joint operations" or "Joint
ventures", as well as other information on the nature and extent of significant restrictions and
related risks. These standards are not applicable until January 1, 2013 but are available for early
adoption. Management is evaluating the impacts of these standards on the existing joint
arrangements.
.
IFRS 7, "Financial instruments - Disclosure", issued in October 2010. The amendment to
the standard for disclosure of financial instruments seeks to achieve transparency in the disclosure
of transactions involving transfer of financial assets, a better understanding by the user of the
exposure to risk in these transfers, and the effect of these risks on the balance sheet, mainly those
involving securitization of financial assets. The standard is applicable for years beginning on or
after July 1, 2011.
.
IFRS 9, "Financial instruments", issued in November 2009. IFRS 9 is the first standard
issued as part of a wider project to replace IAS 39. IFRS 9 retains but simplifies the mixed
measurement model and establishes two primary measurement categories for financial assets:
amortized cost and fair value. The basis of classification depends on the entity’s business model
and the contractual cash flow characteristics of the financial asset. The guidance in IAS 39 on
impairment of financial assets and hedge accounting continues to be applied. Prior periods need
not be restated if an entity adopts the standard for reporting periods beginning before January 1,
2012. The standard is applicable from January 1, 2013. It is not expected to have material impacts
on the Company’s financial statements.
19
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
.
IFRS 10, "Consolidated financial statements", issued in May 2011. This standard is based
on existing principles by identifying the concept of control as the determining factor as to when an
entity should be included within the consolidated financial statements of the parent company. The
standard provides additional guidance to assist in the determination of control when this is difficult
to assess. The standard is applicable from January 1, 2013. It is not expected to have material
impacts on the Company’s financial statements.
.
IFRS 13, "Fair Value Measurement", issued in May 2011. This standard intends to improve
consistency and reduce complexity in the disclosures required by IFRSs. The requirements do not
increase the use of fair value accounting, however, they provide guidance on how it must be used
when required or permitted by another standard. The standard is applicable from January 1, 2013,
and there is an exemption for application of the new disclosure requirements for comparative
periods. It is not expected to have material impacts on the Company’s financial statements.
.
IAS 19 "Employee Benefits", issued in June 2011. The amendment to the standard will
mainly affect the recognition and measurement of defined benefit pension plans, and the
disclosure of employee benefits. The standard is applicable from January 1, 2013. These
amendments will affect the accounting for liabilities, however no material effects are expected by
the Company's management.
4
Critical Accounting Estimates and Assumptions
The critical accounting estimates and assumptions used in the preparation of these interim
financial statements are the same as those described in Note 4 to the Company’s financial
statements for the year ended December 31, 2010.
5
Financial Risk Management
For a better understanding of the Company’s financial risk management, the management policies
used by the Industrial and Financial Segments are presented separately below.
5.1
Industrial Segment
5.1.1
Financial risk factors
The Company’s activities expose it to a number of financial risks, namely: (a) market risk
(currency, commodity price and interest rate); (b) credit risk; and (c) liquidity risk.
Many of the products sold by the Company, such as aluminum, nickel, zinc and orange juice are
commodities, with prices established in reference to international prices and denominated in U.S.
dollars. For example, aluminum, nickel and zinc are sold in a global active market and traded on
stock exchanges, such as the London Metal Exchange (LME) and the New York Mercantile
Exchange. The orange juice is traded on the Intercontinental Exchange (previously known as New
York Board of Trade). The Company’s costs, however, are mainly denominated in reais. Therefore,
there is a natural mismatch of currencies and prices between the Company’s costs and revenues.
Additionally, the Company has debts linked to distinct indices and currencies, which may impact its
cash flows.
The Market Risk Management Policy is complemented by other policies that establish guidelines
20
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
and rules for: (i) Foreign Exchange Exposure Management, (ii) Interest Rate Exposure
Management, (iii) Commodity Price Exposure Management, (iv) Issuers and Counterparties Risk
Management, and (v) Financial Indebtedness and Liquidity Management.
The governance structure includes the Finance, Risk Management and Internal Audit Committee
(referred to as the "Finance Committee” in this Note) and Treasury Committee. All proposals made
to comply with each of the policies are discussed with the Treasury Committee and subsequently
submitted for approval of the Finance Committee.
The following derivative instruments may be used in the management of foreign exchange
exposure, interest rate exposure and commodity price exposure: conventional swaps, purchase of
call options, purchase of put options, collars, currency futures contracts, and NDF – NonDeliverable Forward. Strategies that include simultaneous purchases and sales of options are
authorized only when they do not result in a net short position in volatility of the underlying asset.
The Company does not enter into transactions involving financial instruments for speculative
purposes.
(a)
Market risk
The market risk management process is intended to mitigate risks to the Company’s cash flow
against adverse market events, such as fluctuations in exchange rates, commodity prices and
interest rates. The governance and macroguidelines of this process are defined in the Market Risk
Management Policy.
(i)
Foreign exchange risk
The Company operates internationally and is exposed to foreign exchange risk arising from various
currency exposures, primarily with respect to the US dollar.
The Foreign Exchange Exposure Management Policy establishes guidelines and standards to
mitigate risks from volatility of foreign currencies that impact the Company’s cash flow of the
Industrial Segment. The proposals for entering into hedge transactions are prepared by the
Treasury Committee for approval of the Finance Committee and are based on the foreign
exchange exposure projected through the end of the year subsequent to the benchmark date.
Additionally, during the budget preparation, hedging programs may be defined to hedge the
Business Units’ cash flows. In these cases, the Treasury Committee prepares a proposal in
coordination with the Business Unit in question, for subsequent approval of the Finance
Committee.
The Brazilian Real (R$) is the Company’s functional currency, and all market risk management
process efforts are intended to mitigate risks to the cash flow in this currency, to maintain the ability
to pay financial obligations, and to comply with liquidity and indebtedness levels defined by
management.
The Company has certain investments in foreign operations, the net assets of which are exposed
to foreign exchange risk. The foreign exchange exposure arising from participation in foreign
operations is mainly hedged by loans in the same currency of these investments, which are
classified as a Hedge of a Net Investment in Foreign Operations, as described in the accounting
policies.
(ii)
Cash flow and fair value risk associated with interest rate
21
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
The Company’s income and operating cash flows are substantially independent of changes in the
market interest rates.
The Company’s interest rate risk arises from long-term loans. Loans issued at variable rates
expose the Company to cash flow interest rate risk. Loans issued at fixed rates expose the
Company to fair value risk associated with interest rate.
The Interest Rate Exposure Management Policy establishes guidelines and rules for hedging
against fluctuations of interest rates that impact the cash flow of the Company and its Business
Units. Exposures to each interest rate index (mainly CDI, LIBOR and TJLP) are projected through
the end of the effective period of the assets and liabilities linked to such indices. Based on these
exposures, the Treasury Committee prepares proposals for entering into hedge transactions and
submits them for the approval of the Finance Committee.
(iii)
Commodity price risk
This risk is related to the volatility in the price of the Company’s commodities, such as aluminum,
nickel, zinc, orange juice and pulp. Prices fluctuate depending on demand, production capacity,
producer inventory levels, commercial strategies adopted by large producers, and availability of
substitutes for these products in the global market.
The Commodity Price Exposure Management Policy establishes guidelines for hedging against
fluctuations of commodity prices that impact the cash flows of the BUs.
The exposure to each commodity considers the monthly projections of production, purchases of
inputs and flows of maturities of hedges associated to them. Hedges contracted are classified into
the following types:
(iii.1)
Fixed price commercial transactions - hedge transactions that exchange risk from fixed to floating,
the price contracted in commercial transactions with customers interested in purchasing products
at a fixed price;
(iii.2)
Hedge for "quotation periods" - hedge that sets a price for the different "quotation periods" between
the purchases of certain inputs and the sales of products arising from the processing of such
inputs;
(iii.3)
Hedge for costs of inputs - intended to assure protection against volatility in prices/costs of the BUs
in commodities such as oil, natural gas, for example; and
(iii.4)
Hedge of operating margin - intended to fixate the operating margin for part of the production of
certain BUs.
(b)
Credit risk
The derivative financial instruments, time deposits, Bank Deposit Certificates (CDB), and
repurchase agreements backed by debentures and federal government securities, create exposure
to credit risk of counterparties and issuers.
The credit quality of financial assets is disclosed in Note 6.
22
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
The Company’s risk management practice assesses the risks of counterparties in derivative
transactions using the pre-settlement risk methodology, which consists in determining the
probability (by means of Monte Carlo simulations) of the counterparty not honoring the financial
commitments defined in contract. The use of such methodology was approved by the Finance
Committee.
The table below shows the distribution of counterparties’ risks in the related ratings using this
methodology:
Rating (*)
AAA
AA
A
BBB
Local
Rating
06/30/2011
Global
Rating
06/30/2011
349
22
227
179
79
371
485
* Or equivalent to the above described
rating
In the case of credit risk arising from customer credit exposure, the Company assesses the credit
quality of the customer, taking into account mainly the history of the relationship and financial
indicators defining individual credit limits, which are continuously monitored. The Company
recognizes an allowance for doubtful accounts, when necessary.
The allowance for doubtful accounts is recorded at an amount sufficient to cover expected losses
on the collection of trade accounts receivable and is charged to "Selling expenses”.
Initial customer credit analyses are performed and, when necessary, guarantees or letters of credit
are obtained to protect the Company’s interests. Also, most sales for export, to the United States,
Europe and Asia, are protected by letters of credit and credit insurance.
With respect to the credit risk resulting from the allocation of financial investments, the Company
policy establishes that issuers must be rated by one of the following agencies: Fitch, Moody's or
Standard & Poor's. The minimum rating required for the counterparties is "A+" (Brazilian scale) or
BBB-" (international scale), or equivalent, except in countries where issuers do not meet the
minimum credit risk ratings. In these cases, alternative criteria proposed by the Treasury
Committee and approved by the Finance Committee are applied, such as: global positioning of
banks, relationship with the group and number and distribution of local branches.
(c)
Liquidity risk
This risk is monitored by means of the Liquidity and Financial Indebtedness Management Policy,
aimed at ensuring sufficient net funds to meet the financial commitments with no additional cost. The
main liquidity measurement and monitoring instrument is the cash flow projection, observing a
minimum projection period of 12 months from the benchmark date.
For liquidity and indebtedness management adopts comparable metrics provided by global risk
23
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
rating agencies for credit risk BBB stable or equivalent.
The table below analyzes the Company’s non-derivative financial liabilities and derivative financial
assets and liabilities to be settled by the Company by maturity, corresponding to the remaining
period in the balance sheet up to the contractual maturity date. Derivative financial liabilities are
included in the analysis if their contractual maturities are required to analyze the temporary cash
flows. The amounts disclosed in the table are undiscounted contractual future cash flows (*).
Industrial segment
Up to one
year
At June 30, 2011
Loans and financing
Accounts payable - Trading
Accounts payable on acquisitions of shares
Suppliers
at December 31, 2010
Loans and financing
Accounts payable - Trading
Accounts payable on acquisitions of shares
Suppliers
Between
one and two
years
Between
Between two Five and ten
and five years
years
Over ten
years
(1.425)
(100)
(184)
(2.394)
(2.386)
(8.048)
(12.826)
(4.487)
(4.103)
(2.386)
(8.048)
(12.826)
(4.487)
(2.658)
(395)
(423)
(2.705)
(2.546)
(7.035)
(10.353)
(1.441)
(6.181)
(2.546)
(7.035)
(10.353)
(1.441)
(*) These amounts cannot be directly reconciled to the amounts disclosed in the balance sheet for
loans and derivative financial instruments.
5.1.2
Derivatives contracted
The derivate instruments contracted by the Company are described below. All derivative
transactions were executed in the over-the-counter market.
Hedging program for interest rate in U.S. dollar - derivative financial instruments contracted in
order to match LIBOR exposure (arising from debt in US dollars indexed to LIBOR floating rates) to
the parameters established by the policy. Mitigation of risks is carried out by means of swaps and
collars.
Hedging program for agribusiness operating margin - derivative financial instruments
contracted to mitigate the volatility of cash flows from orange juice operations. This hedge aims at
locking in the operating margin for a part of the production, and is achieved by selling U.S. dollar
forward contracts.
Hedging program for the sale of nickel, zinc and aluminum at a fixed price – this hedge
program aims to convert sales at fixed prices to floating prices in commercial transactions with
customers interested in purchasing products at fixed prices. The purpose of this strategy is to
maintain the revenue flow of the Business Unit linked to the LME prices. This strategy is achieved
by purchasing nickel, zinc and aluminum futures traded on the LME or on over-the-counter market.
Hedging program for fuel oil cost - derivatives contracted in order to reduce the volatility of the
cash flows of nickel operation, resulting from volatility in oil prices. This hedge is realized by
means of the purchase of WTI collars (sales of oil put options and purchase of oil call options).
24
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
Hedging program for the operating margin of metals - derivative financial instruments
contracted in order to reduce the volatility of the cash flows related to zinc, nickel and aluminum.
With the purpose of ensuring a fixed operating margin in Reais for a part of the production of
metals, this hedge is attained by means of selling forward contracts for each commodity, combined
with selling U.S. dollar forward contracts.
Hedging program for foreign exchange exposure – hedging instruments entered into for
adjusting the foreign exchange exposure, according to the limits defined by the Treasury
Committee. This hedge is attained by means of buying US dollar and euro forward contracts.
Instruments to hedge U.S. dollar-denominated debt – swap transactions contracted in 2007
and 2008 aiming at reducing the cost of debt incurred on the acquisition of foreign investments. In
2009, the contracting of these transactions was discontinued. The risk associated to financing
strikes was neutralized by means of the partial repurchase of positions and contracting of reverse
transactions for the remaining position in the fourth quarter of 2009. In June 2011 the Company
started to settle the remaining swap position, which was concluded in July 2011.
Balance sheet hedging instruments - derivatives contracted in order to mitigate balance sheet
foreign exchange exposure of the Industrial Segment. Throughout 2007 and 2008, cross currency
interest rate swap transactions of USD fixed vs. CDI floating rate were carried out. These
transactions were no longer contracted as from April 2009. In June 2011 the Company started to
settle the remaining position, which was concluded in July 2011.
The table below summarizes the derivative instruments and the underlying hedged item:
25
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
(*) Oil barrel
26
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
5.1.3
Fair value estimates
The carrying amounts of trade accounts receivable, less allowance for doubtful accounts, and of
trade accounts payable, approximate their fair values.
The main financial instruments and the assumptions for their valuation are described below:
Cash and cash equivalents, financial investments, trade accounts receivable and other current
assets - considering the nature and the terms, the amounts recorded approximate their realizable
values.
Financial liabilities - these instruments are subject to usual market interest rates. Market value was
based on the present value of expected future cash disbursement, at interest rates currently
available for issuance of debts with similar maturity and terms. In relation to carrying amounts, these
liabilities totaled a gain of R$ 1,295 for loans and financing in the Industrial Segment, at June 30,
2011 (Note 18(f)).
The methods for determining the fair value of derivative instruments used by the Company for
hedge transactions were based on the use of well seasoned market methodologies. A summary of
the methodologies used for fair value determination purposes by instrument is presented below.
(a)
Non-Deliverable Forwards (NDF)
A projection of the future exchange rate is made using the exchange coupon for fixed yields in
Reais for each maturity date, then the difference between such quotation and the rate that was
contracted is calculated. This difference is multiplied by the principal amount of each contract and
discounted to present value using the fixed yields in Reais.
(b)
Swap contracts
The present value of both the asset and liability elements is estimated through the discounting of
forecast cash flows using the market interest rate for the currency in which the swap is
denominated. The contracted fair value is the difference between the asset and liability elements.
(c)
Stock options
Stock options are measured at their fair values, applying the Black-Scholes method.
Fair value hierarchy
The Company adopted CPC 40/IFRS 7 for financial instruments that are measured on the balance
sheet at fair value; this requires disclosure of fair value measurements by Level based on the
following fair value measurement hierarchy:
• Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).
• Inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2).
27
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
• Inputs for the asset or liability that are not based on observable market data (that is,
unobservable inputs) (Level 3).
At June 30, 2011 and December 31, 2010, all financial instruments measured at fair value were
classified into Level 2 of the fair value hierarchy.
5.1.4
Sensitivity analysis
The table below presents a simulation analysis of hypothetical income for the period and the
stockholders’ equity to show how these would have been affected by changes in the more
significant risk factors to which the Company is exposed at the end of the reporting period: dollar,
euro and commodity prices, based on the following scenarios:



5.1.5
Scenario I: probable - based on market forward yield curves and quotations that
represent a scenario of probable occurrence for management.
Scenario II: considers a stress factor of + or - 25% applied to the market forward yield
curves and quotations at June 30, 2011 used for pricing the financial instruments listed.
Scenario III: considers a stress factor of + or - 50% applied to the market forward yield
curves and quotations at June 30, 2011 used for pricing the financial instruments listed.
Main transactions and future commitments
subject to cash flow and fair value hedges
The Company executes hedge accounting transactions which affect the operating margin of
metals, designating the contracted derivatives as cash flow hedges. As a consequence of the
adoption of hedge accounting, the changes in fair value of derivatives contracted for this program
are recorded in stockholders’ equity, when the sales of the products subject to the hedge are
realized, the fair value of these derivatives is reclassified to the income statement.
For the hedge program for the sale of nickel, zinc and aluminum at fixed price, the Company
adopts hedge accounting designating derivatives contracted as fair value hedge of the firm
commitment. The changes in the fair value of derivatives contracted for this program are
recognized in operating income (expenses). The change in the fair value of the hedged item, in this
case, the fixed price firm commitment sale to the customer, is recorded in operating income
28
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
(expense) as well. For the aluminum hedge program at fixed price, this type of hedge accounting
includes the changes in the fair value from December 1, 2010.
The Company also adopts hedge accounting for a portion of swap transactions entered into for the
purpose of adjusting to the LIBOR exposure.
The table below shows a summary of the derivatives classified under these criteria.
29
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
30
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
5.1.6
Margins pledged in guarantee
Derivative transactions contracted by the Company are not subject to collateral deposits, margin
calls or any other type of guarantee or similar mechanism.
5.2
Financial Segment
The risk management policies and controls used by the Financial Segment are the same as those
described in Note 5.2 to the Company's financial statements for the year ended December 31,
2010.
6
Credit Quality of Financial Assets – Industrial Segment
The following table reflects the credit quality of issuers and counterparties in transactions involving
cash, cash equivalents, financial instruments and derivatives:
31
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
7
Cash and Cash Equivalents
The consolidated balance at December 31, 2010 includes elimination adjustments between the Industrial Segment and the Financial Segment of R$
180.
Financial Segment
Banco Votorantim S/A concentrates its daily liquidity in interbank investments. The period of June 2011 compared with December 2010 shows an
increase at the end of the period of R$ 557 (June 2011 R$ 1,238 – December 2010 R$ 681). All this movement is related to the institution’s market
behavior.
32
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
8
Financial Investments
Include financial assets classified as financial assets held for trading and available-for-sale, as follows:
33
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
The consolidated short-term balances as of June 30, 2011 include elimination adjustments of R$ 781 (December 31, 2010 - R$ 766) between the
Industrial Segment and the Financial Segment.
VF manages various fixed and variable income funds with total net assets of R$ 17,416 (December 31, 2010 - R$ 15,936). Of the total financial
investments in "investment fund quotas" held by the Industrial Segment, R$ 2,452 (December 31, 2010 - R$ 2,695) was invested in funds managed
by VF.
The financial investments are also included in the context of the investment of the institution’s free cash, or cash to be used for onlending in more
profitable transactions, at a proper time. It is important to point out that the increase in Trading and available for sale lines, showing that VF managed
34
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
to increase its funding and part of it was passed on to the securities segment. Another point to be emphasized is the increase in cash due to prior
profitability. These transactions yielded on average the CDI/Selic for the period, which is another reason for the portfolio growth.
35
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
9
Trade Accounts Receivable
10
Loans and Receivables
For the six-month period, VF had an increase of 9% in the portfolios of loans and receivables
comparing June 2011 with December 2010. The leasing portfolio decreased in the average volume
of new transactions and in the rates charged. These effects resulted in a 10.3% decrease in the
portfolio. The portfolios of Loans and financing increased by 9.9%, and the highlight is the
increase in the average volumes of new transactions and reduction in rates. Another important
factor is the level of transactions indexed to the dollar, which depreciated by 6.3%. The increase in
the provision for loan losses is mainly due to default in the retail financing segment (CDC, Leasing
and Payroll Loans), which had a 123.9% increase when comparing June 2011 to December 2010.
In the wholesale segment, the provision for loan losses increased by 12.8%, and the total
consolidated portfolio increased by 96.6%.
36
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
11
Inventories
At the above dates, the Company had no inventories pledged as collateral for liabilities.
37
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
12
Taxes Recoverable
The credits for State Value-added Tax on Sales and Services (ICMS) arise from the purchase of property, plant and equipment
items (recoverable in 48 monthly installments) and consumables. Their realization is based on the subsidiaries’ operations. The
credits related to Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL) refer to prepayments that will be
offset against the same taxes and contributions levied on future taxable income within five years.
38
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
13
Related Parties
(a)
Balances and transactions with related parties (assets)
39
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
(b)
Balances and transactions with related parties (liabilities and income)
In connection to the proposed dividend at December 31, 2010, the Company paid R$ 194 million and R$ 298 million, in January 2011 and in July
2011,respectively.
40
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
14
Investments
(a)
Investment information
41
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
(b)
Changes in investments
The main acquisitions and disposals are described in Note 1.
42
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
(c)
Unconsolidated investments on listed companies
(*) Calculated proportionally to the shares held by the Company
15
Property, Plant and Equipment
(a)
Composition
43
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
(b)
Changes
(c)
Construction in progress
The construction in progress balance comprises mainly projects for expansion and optimization of
the industrial units, as follows:
(d)
Goodwill allocated to property, plant and equipment
The amounts related to goodwill allocated to property, plant and equipment from business
combinations totaling R$ 1,718 (December 31, 2010 - R$ 1,718) are depreciated over their useful
lives.
44
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
16
Biological Assets
The assumptions used to record biological assets are the same as those used at December 31,
2010.
17
Intangible Assets
(a)
Composition
(*)Intangible asset generated upon the dilution of the interest in BV, arising from the fair value
remeasurement of the remaining part (Note 1(b)).
(b)
Changes
45
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
18
Loans and Financing
(a)
Composition – Industrial Segment
46
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
LIBOR - London Interbank Offered Rate
US dollar
BNDES – National Bank for Economic and Social Development
Finame
- Government Agency for Machinery and Equipment Financing
UMBNDES - Monetary unit of the BNDES, which is a basket of currencies representing the composition of debt obligations in foreign currency. At June 30, 2011, the basket comprised 96%.of US dollars.
TJLP - Long-term Interest Rate set by the National Monetary Council, the TJLP is the basic cost of financing of the BNDES.
CDI - Interbank Deposit Certificate
FX – Foreign exchange rate
The maturity profile of the long term debt balance at June 30, 2011 is as follows:
47
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
(b)
Changes
(c)
Collateral
At June 30, 2011, R$ 10,699 of the loans and financing are collateralized by promissory notes and
sureties from the Company or its subsidiaries, while R$ 121 of the property, plant and equipment
items are collateralized by liens on the financed assets.
The jointly-controlled entity Fibria has R$ 4,855 of the property, plant and equipment offered as
collateral for loans and financing agreements.
(d)
Covenants/Financial ratios
Certain loans and financing agreements are subject to financial ratios (“covenants”), including (i)
Financial Leverage (Net Debt / EBITDA), (ii) Capitalization ratio (Total Debt / Total Debt +
Stockholders' Equity or Stockholders' Equity / Total Assets), (iii) Interest coverage ratio (Cash +
EBITDA / Interest + Short Term Debt). To the extent possible, such obligations are standardized
for all loans and financing agreements.
The Company and its subsidiaries were in compliance with all covenants.
(e)
New loans
Since 2009, the Company has adopted a liability management strategy, aimed at lengthening the
debt profile and reducing financial leverage. The amounts related to jointly-owned companies are
not described in this Note.
The main borrowing agreements executed were as follows:
(i)
In April 2010, VOTO-Votorantim Ltd. issued a U$ 750 million bond maturing in 11 years paying a
coupon of 6.75% p.a., payable semiannually. The issue is rated “BBB” by Standard & Poor’s,
“Baa3” by Moody’s, and “BBB-“ by Fitch Ratings. The proceeds were used for the early repayment
of loans maturing in 2011 and 2012. In October 2010, the subsidiary Companhia Brasileira de
Alumínio replaced VOTO-Votorantim Ltd. and became the new issuer. The guarantors remain
unchanged.
48
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
(ii)
In April 2010, VOTO-Votorantim Ltd. issued a € 750 million bond maturing in 7 years. This bond
pays a coupon of 5.25% p.a. The issue is rated “BBB” by Standard & Poor’s, “Baa3” by Moody’s,
and “BBB-“ by Fitch Ratings. The proceeds were used for the early repayment of loans maturing in
2011 and 2012. In October 2010, the subsidiary Votorantim Cimentos S.A. replaced VOTOVotorantim Ltd. and became the new issuer. The guarantors remain unchanged.
(iii)
In June 2010, Votorantim GMBH raised US$ 1,040 million export pre-payment. The transaction
was structured in two tranches, US$ 620 million and $ 420 million, maturing in eight years and
seven years and interest of LIBOR + 2.25% p.a. and LIBOR + 2.10%p.a., respectively. The
proceeds raised were used mainly for the early repayment of loans maturing in the next three
years.
(iv)
In September 2010, Votorantim GMBH raised a U$ 250 million export prepayment. The transaction
matures in ten years and is subject to LIBOR + 2.60% per year. The proceeds raised were mainly
used for the early repayment of loans.
(v)
In October 2010, Votorantim Cimentos S.A. issued its second public non-convertible and
unsecured debentures. Debentures were distributed under restricted placement efforts and exempt
from listing with the Brazilian Securities Commission ("CVM"), pursuant to article 6 of CVM
Instruction 476, of January 16, 2009. The issue of R$ 1,000, with maturity in October 2020, has a
single series and pays 113.95% of CDI.
(vi)
In October 2010, Votorantim Cement North America (VCNA) contracted a US$ 325 million
syndicated loan with maturity in 2014, the proceeds from which were used for early repayments of
the loan with maturity in 2011.
(vii)
Throughout 2010, the subsidiaries of the Company received R$ 755 from BNDES to finance
expansion and modernization projects. Funding average cost is TJLP + 2.65% p.a.
(viii)
In the six-month period of 2011, the subsidiaries of the Company received R$ 457 from BNDES to
finance expansion and modernization projects. Funding average cost is TJLP + 2.63% p.a.
(ix)
In February 2011, Votorantim Cimentos S.A. issued its third public non-convertible and unsecured
debentures. Debentures were distributed under restricted placement efforts and exempt from
listing with the Brazilian Securities Commission ("CVM"), pursuant to article 6 of CVM Instruction
476, of January 16, 2009. The issue amounts R$ 600, with maturity in February 2021 and pays
113.9% of CDI.
(x)
In March 2011, Votorantim Cimentos S.A. contracted a loan of US$ 34 with the participation of the
Danish export credit agency “EKF” to fund equipment imports to expansion projects. The total
finance term is 12 years, at a cost of LIBOR + 1,375% p.a.
(xi)
On April 4, 2011, Votorantim Cimentos S.A. issued a bond in the international capital market
amounting US$750 million, due in April 2041. The issue is rated “BBB” by Standard & Poor’s,
“Baa3” by Moody’s and “BBB-“ by Fitch Ratings. This transaction is guaranteed by Votorantim
Industrial S.A. and Votorantim Participações S.A., and the latter will cease to be one of the
guarantors after the fulfillment of certain requirements. The bond was issued with a coupon of
7.25% per annum, payable semiannually. The proceeds from the issue were used for early
repayment of loans, thus extending the debt profile.
49
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
(f)
Fair value of loans and financing
The amounts below were calculated according to the criteria of Note 5.1.3.
19
Accounts Payable - Trading
Accounts Payable – Trading refer to purchases of raw materials through trading companies. The
payment terms are up to 360 days with fees calculated over the total purchase value, and agreed
between the parties, before or at the time of each commercial transaction.
50
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
20
Deferred Income Tax and Social Contribution
(a)
Reconciliation of income tax and social contribution expense
Amounts are calculated based on the current rates levied on taxable net income, increased or
decreased its respective its additions and eliminations.
The income tax and social contribution amounts presented in the income statement for the sixmonth period ended at June 30 are reconciled to their standard rates as follows:
51
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
(b)
Composition of deferred tax balances
Deferred income tax and social contribution arise as follows:
52
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
21
Provisions
Provision for contingencies, tax liabilities, judicial deposits
VPAR and its investees are parties to labor, civil, tax and other ongoing lawsuits. They are
defending their positions in both the administrative and judicial courts. Some of these lawsuits are
backed by judicial escrow deposits.
The provision for contingencies and the corresponding judicial deposits are as follows:
53
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
The changes in the provision for contingencies during the six-month period are as follows:
The main lawsuits in which the Company is the defendant at June 30, 2011 are as follows:
(i)
(ii)
Tax lawsuits
.
Summer Plan ("Plano Verão") - claim to deduct indexation adjustment corresponding to the
variation of the Consumer Price Index ("IPC") in January 1989, of 70.28%.
.
Tax on Bank Account Outflows ("CPMF") - the indirectly-held subsidiary BV Leasing Arrendamento Mercantil S.A. is claiming the right to receive the same tax treatment given to other
financial institutions.
.
Value-added Tax on Sales and Services ("ICMS") - challenge of the constitutionality of the
inclusion of ICMS in the basis of calculation of COFINS.
.
Income tax and social contribution - VF is claiming its entitlement to the difference in income tax
rate used for tax incentive investments, as well as the income tax deduction of the price-level
adjustment difference between the Consumer Price Index ("IPC") and Daily Federal Treasury
Bonds ("BTNF") indices in January 1989, on income tax and social contribution calculations.
.
Income tax and social contribution – tax assessment on income tax on income earned abroad.
Fibria filed an administrative appeal, for which the likelihood of loss is not probable, since the tax
assessment ignores the double tax treaty between Brazil and Hungary. Accordingly, Fibria has not
recorded a provision as the risk of loss is considered to be remote.
.
ADENE – The subsidiary Fibria has tax incentives related to the reduction of the income tax
calculation base, which were subject to tax deficiency notice in 2005 and contested by the Parent
Company; to date there has been no court decision on the merit of this case. The likelihood of an
unfavorable outcome for the tax benefits used until 2003 is considered as remote by the
Company's management and external legal counsel. As regards the tax benefits already used in
2004 and those still pending use as from 2005, the likelihood of an unfavorable outcome is
considered as possible, and no provision has, therefore, been constituted.
Labor and civil lawsuits
These refer mainly to lawsuits filed by former employees and outsourced employees claiming the
54
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
payment of indemnity on dismissals, health and safety hazard bonus, risk premium, overtime,
commuting hours as well as civil lawsuits referring to indemnity claims by former employees or
employees from outsourced companies based on alleged occupational illnesses, work accidents,
property and personal damages.
The Secretariat of Economic Law (SDE) initiated in 2003 an administrative proceeding involving
the Group’s cement companies. The proceeding investigates the claim of some concrete
producers that cement companies violated competition rules. At present there is no indication that
the SDE intends to submit any recommendation to the Anti Trust Agency (CADE) in regard to such
proceeding. Based on the position of its legal counsel, Votorantim Cimentos and its Brazilian
subsidiaries believe that they are not subject to any administrative and/or criminal penalties.
In November 2008, a collective action was filed against Aracruz and some of its executives, in the
name of possible ADR holders in the period from April 7 to October 2, 2008. This action alleges
violation of rules of the US securities legislations, claiming that Aracruz provided insufficient
information on losses on certain derivative transactions. The indemnity claimed by the plaintiffs has
not yet been specified and will depend, if the action continues, on expert proof and determination
of damages. As this lawsuit is in its preliminary stage, it is not possible to assess the likelihood of a
favorable outcome or the risk of an unfavorable outcome and no provision has been recognized.
(iii)
Lawsuits with likelihood of losses considered as possible
VPAR and its subsidiaries are parties to other tax, civil and labor lawsuits involving possible loss
risks, as detailed below:
(a)
Commitments
(i)
Votorantim Cimentos S.A. and St. Marys Cement Inc. have supply agreements with steel mills for
the purchase of slag, effective up to 2011 and 2023, respectively.
(ii)
Fibria has entered into long-term take-or-pay agreements with suppliers of electric energy,
transportation, diesel oil, chemical products and natural gas maturing up to 2028. These
agreements contain termination and supply interruption clauses in the event of default of certain
essential obligations. The contractual obligations assumed at June 30, 2011 represent R$ 73
(December 31, 2010 - R$ 80). In addition, a long-term take-or-pay agreement was signed in 2007
with International Paper for the supply of pulp for a 30-year period. The commitment established by
this agreement represents R$ 34 per year at June 30, 2011 (December 31, 2010 - R$ 30).
55
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
(iii)
VPAR and its subsidiaries have contracts for the purchase of electric energy of approximately 950
MW/year up to 2020.
(iv)
VPAR and its subsidiaries have commitments for the construction and purchase of equipment for
plants that generate electric energy, either independently or through consortia, for which the future
disbursement estimated by management is approximately R$ 1,800.
(v)
On July 10, 2008, Votorantim Metais entered into an agreement for the purchase of concentrated
nickel ore with Mirabela Mineração, part of the Australian group Mirabela Nickel, which started
operating its mine in the State of Bahia at the end of 2009. The five year agreement was
consummated for the purchase of US$ 1 billion of ore.
(vi)
The Company has, or participates in, companies that hold energy concession agreements. Most of
these contracts provide for annual payments from the beginning of operations and are adjusted by
IGPM, as Use of Public Asset ("UBP").
The contracts present average duration of 35 years and were as follows:
(*) Amounts calculated in relation to the Company’s stake in these contracts.
22
Tax Amnesty and Refinancing Program (Refis)
In November 2009, the Company and the Brazilian companies of the Industrial Segment area
applied to join for the Tax Amnesty and Refinancing Program, established by Law 11941/09 and
Provisional Measure 470/2009, to finance their tax liabilities through installments for tax and social
security obligations.
The debt included in the installment program mainly arose from:
Interest on own Capital: Discussion regarding the non-applicability of PIS/COFINS on Interest on
own Capital;
COFINS: Increase in the COFINS from 2% to 3% established by Law 9718/98.
The restated debt divided into installments amounts to R$ 779, and is partially covered by judicial
deposits totaling R$ 310. The impact in the income statement, recognized during 2010, is related
to the recognition of payables totaling R$ 136, for which no provisions had previously been
recorded, and the recognition of credits from the benefit of reduced fines and interest of R$ 88.
56
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
The Company has complied with all its obligations under the Program, such as monthly payments
of minimum installments and, more recently, has requested the inclusion in full or in part of
amounts due to the Brazilian Federal Revenue Office and Treasury Attorney-General pursuant to
Joint Ordinance PGGN/RFB 3/2010.
23
Stockholders’ Equity – Parent Company Votorantim Participações S.A.
(a)
Capital
On April 30, 2010, the Company's capital was increased by R$ 7,620 by means of capitalization of
the revenue reserve, totaling R$ 20,000.
(b)
Dividends
Dividends are calculated in accordance with the Company's bylaws and the Brazilian Corporation
Law, art. 202, § 3 and Law 10303/2001, which provides that a general meeting may decide to
distribute dividends lower than the mandatory minimum dividend, as long as there is no opposition
from any shareholder present.
On December 21, 2010, based on the expected profit for 2010, the Company's management
proposed dividends amounting to R$ 600, which were ratified by the shareholders on the same
date.
Thus, the calculation of dividends, at December 31, 2010, is as follows:
In January 2011, the Company paid R$ 194 million of the December 31, 2010 proposed dividends.
(c)
Revenue reserves
The legal reserve is credited annually with 5% of net income for the year or remaining balance,
which cannot exceed 20% of the capital, and can be used only to increase capital or absorb
accumulated losses.
The profit retention reserve includes the balance of retained earnings, segregated to fund
expansion projects pursuant to the Company's investment plan.
57
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
(d)
Other comprehensive income
The Company recognizes under this line the effects of exchange rate changes on foreign
subsidiaries directly or indirectly held by the Company. This accumulated effect will be reversed
to income for the year as a gain or loss in the event of disposal or write-off of the investment.
Foreign exchange gains/losses on loans and derivatives designated are also considered to
mitigate risks related to foreign exchange, prices of commodities charges rates (hedge accounting)
and the amount relating to the fair value of available-for-sale financial assets.
(e)
Adjustment to stockholders’ equity
58
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
24
Net Revenue
25
Other Operating Income (Expense), Net
.
(i) Refers to the option to acquire shares of Fibria. Pursuant to Fibria's Investment and Shareholders Agreement, VID has
the right to acquire up to 11.04% of Fibria's common shares before October 29, 2014. The fair value of the "Call Option"
at June 30, 2011 is R$ 134 (December 31, 2010 - R$ 451), recognized in “Stock option" under non-current receivables.
The change in the fair value of this transaction has been recognized in the income statement.
59
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
26
Financial Results, Net
The consolidated balances at June 30, 2011 include eliminations in “income from financial
investments” of R$ 53 (2010 - R$ 10).
The variations in the first six-month periods of 2010 and 2011 are basically due to: (i) increase in
interest in view of the change in the CDI rate (9.0% p.a. in the first half of 2010 to 11.50% p.a. in
the first half of 2011), (ii) the effects of the REFIS program in the first quarter of 2010 - PIS and
Cofins taxes of R$ 195, levied on interest on capital, and (iii) devaluation of the Real against the
dollar in the first half of 2010 (BRL 1.74 to 1.80) and appreciation in the same period of 2011 (BRL
1.67 to 1.56).
27
Insurance
Pursuant to the Corporate Insurance Management Policy of the Company and its subsidiaries,
different types of insurance policies are contracted, such as operational risk and civil liability
insurance, to protect against possible losses with production interruption, property damages and
damages to third parties.
The Company and its subsidiaries have civil liability insurance for its operations and officers, with
coverage and terms and conditions considered by Management adequate to inherent risks.
60
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
The operational insurance coverage at June 30, 2011 is as follows:
Assets
Facilities, equipment and
products in inventory
28
Type of coverage
Property damages
Loss of profits
Insured amount
42,579
9,270
Costs and expenses breakdown
The Company follows the guidelines of the CPC 21 / IAS 34 that determine the entities that classify
expenses by function also disclose additional information about the nature of expenses, including
depreciation and amortization expenses and employee benefits.
The Company's management chose to disclose expenses by function in the Income Statement and
provides below the nature of such expenses.
The cost of goods sold, selling and administrative expenses for the six-month periods ended June
30, 2011 and 2010 are as follows:
29
Employee Benefit Expense
61
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
30
Subsequent Event
The share tender offer ("Offering") had resulted in Votorantim Metais Cajamarquilla ("VM-CJM")
acquiring direct control of Milpo and indirect control of Compañía Minera Atacocha S.A.A.
("Atacocha"). As a result of the change of control of Atacocha, VM-CJM was required to launch a
tender offer for the outstanding Class A shares of Atacocha and acquired 104,292,650 Class A
shares of Atacocha for $ 54.3 million on August 1, 2011.
In August 2011, Votorantim entered into two distinct transactions totaling US$2,650. The first is a
revolving line of credit with a five-year term of US$1,500, which is available for immediate use by
the Company and may be drawn down by certain subsidiaries in Brazil and offshore. The other
transaction is a pre-payment export facility of US$1,150, contracted by Votorantim GMBH which is
divided into two tranches, one maturing in seven years and another in eight years and bearing
interest of LIBOR + 1.35% to LIBOR+ 1.50% per annum respectively. The proceeds from the prepayment of export facility will be used for the prepayment of loans.
31
Supplemental Information - BU
The following information refers to the analysis of Industrial Segment by BU and considers: (i) the
eliminations among BU; (ii) the eliminations of investments held by the holding companies,
including the investment held in Votorantim Finanças; and (iii) the inclusion of all balance sheet
and income statement accounts of Votorantim G.M.B.H. (trading company) related to each BU.
Additionally, the eliminations and reclassifications among the companies are presented so that the
net result corresponds to the consolidated accounting information of Industrial disclosed as
supplemental information. In order to provide a more detailed level of information, the Company
also elected to disclose information by BU.
62
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
Balance Sheet
(i)
Assets
63
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
(ii)
Liabilities and Stockholders’ Equity
64
Votorantim Participações S.A.
Notes to the Consolidated Interim Financial Statements
at June 30, 2011
All amounts in millions of reais, unless otherwise indicated
(iii)
Income Statements
***
65

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