MINERVA S.A. Individual (Company) and consolidated Quarterly Information (ITR) for...
Transcript of MINERVA S.A. Individual (Company) and consolidated Quarterly Information (ITR) for...
(Convenience translation into English from the original previously issued in Portuguese) MINERVA S.A. Individual (Company) and consolidated Quarterly Information (ITR) for the quarter ended March 31, 2012
FPRJ/SYI/NLM 1354i/12
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MINERVA S.A. Individual (Company) and consolidated Quarterly Information (ITR) for the quarter ended March 31, 2012 Contents Independent auditors’ report on the interim financial information Balance sheets Income statement Comprehensive income statement Statement of changes in shareholders’ equity Statement of cash flows – indirect method Added-value statement Notes to the Quarterly Information (ITR)
Tel.: +55 11 3848 5880 Rua Major Quedinho 90 Fax: + 55 11 3045 7363 Consolação – São Paulo, SP - Brasil www.bdobrazilrcs.com.br 01050-030
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(Convenience translation into English from the original previously issued in Portuguese)
INDEPENDENT AUDITORS’ REPORT ON THE INTERIM FINANCIAL INFORMATION
To The Board of Directors and Shareholders of Minerva S.A. Barretos - SP Introduction
We have reviewed the individual and consolidated interim financial information of Minerva S.A. (“Company”), included in the Quarterly Information Form (ITR) related to the quarter ended as of March 31, 2012, which include the balance sheet as of March 31, 2012 and respective statements of income and comprehensive income as well as statements of changes in shareholders’ equity and cash flows for the three-month period closed on that date, including the explanatory notes.
The management of the Company is responsible for the preparation of the individual interim financial information in accordance with Technical Pronouncement CPC 21 (R1) – Interim Statement, and for the consolidated interim financial information in accordance with CPC 21 (R1) and the International Accounting Standards IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), as well as for the presentation of these information according to the standards established by the Securities Commission (CVM), applicable to the preparation of the Quarterly Information (ITR). Our responsibility is to express a conclusion on that interim financial information based on our review
Scope of the review
Our review was conducted according to the Brazilian and international standards for review of interim financial information (NBC TR 2410 – Review of Interim Information performed by the Entity´s Auditor and ISRE 2410 – Review of Interim Financial Information performed by the Independent Auditor of the Entity, respectively). A review of interim financial information consists of making inquiries mainly to the people responsible for the financial and accounting matters and of applying analytical procedures and other review procedures.
It is substantially less in scope than an audit conducted in accordance with the audit standards and therefore it didn’t enable us to obtain assurance that we had known all the significant matters that could be identified with an audit. Therefore we are not expressing an audit opinion.
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Conclusion on the individual interim financial information
Based on our review, we are not aware of any fact that leads us to believe that the individual interim financial information, included in the above-mentioned quarterly information, were not prepared, in all relevant aspects, in accordance with the CPC 21 (R1) applicable to the preparation of the Quarterly Information (ITR) and presented according to the standards established by Securities Commission (CVM) Conclusion on the consolidated interim financial information Based on our review, we are not aware of any fact that leads us to believe that the consolidated interim financial information, included in the above-mentioned quarterly information, were not prepared, in all relevant aspects, in accordance with CPC 21 (R1) and IAS 34, applicable to the preparation of the Quarterly Information (ITR) and presented according to the standards established by Securities Commission (CVM). Other matters Added value interim statement
We have also reviewed the added value statement (DVA), prepared under the responsibility of the Company’s management, both individual and consolidated, related to the 3-month period ended as of March, 31, 2012, which presentation in the interim financial information is required according to the standards established by Securities Commission (CVM) applicable to the preparation of the Quarterly Information (ITR), and considered supplementary information by IFRS, which do not require the DVA presentation. These statements were submitted to the same review procedures described before and, based on our review, we are not aware of any fact that leads us to believe that they were not appropriately prepared, in all their relevant aspects, regarding the individual and consolidated interim financial information as a whole.
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Restatement of financial information due to the reclassification of debentures mandatorily convertible into shares As described in Note 3(f), the financial statements as of December 31, 2011 were restated on November 21, 2012, and our opinion on those financial statements reissued on the same date. Also, aiming to comply with Official Letter CVM/SEP/GEA-5 No. 058/2013, of February 25, 2013, the Company’s Management reclassified the accounting of the Indenture for the 2nd Issue of Debentures Convertible into Shares amounting to R$ 178,631 thousand and R$ 183,796 thousand as of March 31, 2012 and December 31, 2011, respectively (net of transaction costs), formerly classified in Shareholders’ Equity, in the caption “convertible debentures” in current liabilities (annual interest) and non-current liabilities (principal, less transaction costs). This financial information was amended and is being restated as provided for in Technical Pronouncement CPC 23 – Accounting Practices, Changes in Estimates and Correction of Errors. In our opinion such restatements and reclassifications of the financial statements referred to above are adequate and were properly made. The accompanying financial statements have been translated into English for the convenience of readers outside Brazil.
São Paulo, March 18, 2013.
BDO RCS Auditores Independentes SS CRC 2 SP013846/O-1 Francisco de Paula dos Reis Junior Accountant CRC 1SP 139268/O-6
(Convenience translation into English from the original previously issued in Portuguese)
Balance sheets as of March 31, 2012 and December 31, 2011
(In thousand Reais)
Note 03/31/2012 12/31/2011 03/31/2012 12/31/2011
Assets
Cash and cash equivalents 5 469,191 694,875 846,276 746,382
Accounts receivable from clients 6 88,209 153,169 130,070 207,402
Inventory 7 138,957 110,784 200,275 168,423
Biological assets 8 36,895 47,680 36,895 47,680
Recoverable taxes 9 428,504 406,733 455,909 432,832
Other receivables - 78,807 79,677 99,279 100,648
Total current assets 1,240,563 1,492,918 1,768,704 1,703,367
Other receivables - 28,690 15,396 33,211 16,640
Related parties 11 477,589 94,160 7,483 597
Recoverable taxes 9 98,886 98,886 108,744 108,897
Deferred tax assets 10 170,835 168,911 207,351 205,500
Judicial deposits - 9,725 9,629 10,082 9,943
Investments 12 388,378 391,266 - -
Fixed assets 13 844,830 828,670 1,127,838 1,114,584
Intangible assets 14 4,183 3,583 340,294 339,663
Total non-current assets 2,023,116 1,610,501 1,835,003 1,795,824
Total assets 3,263,679 3,103,419 3,603,707 3,499,191
The accompanying notes are an integral part of these financial statements.
MINERVA S.A.
Controller Consolidated
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(Convenience translation into English from the original previously issued in Portuguese)
Balance sheets as of March 31, 2012 and December 31, 2011
(In thousand Reais)
Note 03/31/2012 12/31/2011 03/31/2012 12/31/2011
(Restated) (Restated) (Restated) (Restated)
Liabilities
Loans and financings 15 341,852 403,968 276,908 540,665
Convertible debentures 19 5,761 903 5,761 903
Suppliers 16 236,008 285,032 264,471 311,117
Labor and tax liabilities 17 44,208 44,153 55,606 54,463
Other accounts payable - 42,331 48,448 68,565 73,744
Total current liabilities 670,160 782,504 671,311 980,892
Loans and financings 15 1,730,068 1,381,261 1,995,122 1,494,475
Convertible debentures 19 178,631 183,796 178,631 183,796
Labor and tax liabilities 17 43,846 46,365 44,358 46,437
Provisions for contingencies 20 19,282 19,282 19,285 19,286
Provision for investment loss 12 52,235 45,329 - -
Related parties 11 50,827 44,784 71,003 66,606
Accounts payable - - - 29,759 30,893
Deferred tax liabilities 18 58,601 64,136 58,601 64,136
Total non-current liabilities 2,133,490 1,784,953 2,396,759 1,905,629
Shareholders' Equity
Capital stock - 257,885 252,251 257,885 252,251
Capital reserves 190,042 190,042 190,042 190,042
Revaluation reserves - 75,085 75,724 75,085 75,724
Profits reserves - 48,366 48,366 48,366 48,366
Accumulated losses - (64,776) - (64,776) -
Shares in treasury - (20,883) (7,482) (20,883) (7,482)
Asset and liabilities valuation adjustments - (25,690) (22,939) (25,690) (22,939)
Total shareholders' equity attributable to controllers 21 460,029 535,962 460,029 535,962
Non-controllers interest - - - 75,608 76,708
Total shareholders' equity 460,029 535,962 535,637 612,670
Total liabilities and shareholders' equity 3,263,679 3,103,419 3,603,707 3,499,191
- - - -
The accompanying notes are an integral part of these financial statements.
Controller Consolidated
MINERVA S.A.
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(Convenience translation into English from the original previously issued in Portuguese)
Income statement of the periods ended as of March 31, 2012 and 2011
(In thousand Reais)
Note 2012 2011 2012 2011
Products sales income - domestic market - 332,640 388,289 346,012 423,433
Products sales income - foreign market - 521,757 428,633 659,875 515,173
Income deductions - applied taxes and others - (55,284) (53,343) (61,823) (58,223)
Net operating income 24 799,113 763,579 944,064 880,383
Cost of sold products - (632,514) (647,533) (759,744) (758,636)
Gross profit 166,599 116,046 184,320 121,747
Operating income (expenses)
Sales expenses - (78,463) (53,070) (90,726) (61,321)
Administrative and general expenses - (22,296) (19,205) (27,984) (24,480)
Other operating income - (871) 3,504 (233) 8,029
Result before net financial income (expenses), equity
equivalence and taxes 64,969 47,275 65,377 43,975
Financial expenses - (133,675) (74,872) (141,145) (94,947)
Interest on equity capital - - - - -
Financial income - 12,582 9,793 14,335 17,999
Net exchange variance - (9,708) 9,210 (11,608) 10,153
Net financial income (expenses) (130,801) (55,869) (138,418) (66,795)
Equity in earnings (loss) of controlled companies - (7,042) 11,350 - -
Income before taxes (72,874) 2,756 (73,041) (22,820)
Current income tax and social contribution - - (829) -
Deferred income tax and social contribution 18 7,131 10,515 7,131 37,424
Result of the period before the non-controllers shareholders participation
(65,743) 13,271 (66,739) 14,604
Result attributable to
Controller shareholders - (65,743) 13,271 (65,743) 13,271
Non-controller shareholders - - - (996) 1,333
Income for the period (65,743) 13,271 (66,739) 14,604
The accompanying notes are an integral part of these financial statements.
Controller Consolidated
MINERVA S.A.
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(Convenience translation into English from the original previously issued in Portuguese)
Statement of changes in shareholders' equity - Controller and consolidated
for the periods ended as of March 31, 2012
(In thousand Reais)Asset and liability Total equity
Capital Revaluation Legal Retention Accumulated Shares in valuation attributed to Non-controllers Total
Capital Reserve Reserve Reserve Reserve Losses Treasury Adjustments controllers Interest equity
Balances as of December 31, 2011 (restated) 252,251 190,042 75,724 3,413 44,953 - (7,482) (22,939) 535,962 76,708 612,670
Capital increase 5,634 - - - - - - - 5,634 - 5,634
Shares in treasury - - - - - - (13,401) - (13,401) - (13,401)
Revaluation reserve realization - - (639) - - 967 - - 328 - 328
Capital reserve (Increase / Decrease) - - - - - - - - - - -
Assets and liabilities valuation adjustment - - - - - - - (2,751) (2,751) (104) (2,855)
Net loss of the period - - - - - (65,743) - - (65,743) - (65,743)
Non-controllers interest - - - - - - - - - (996) (996)
Balances as of March 31, 2012 (restated) 257,885 190,042 75,085 3,413 44,953 (64,776) (20,883) (25,690) 460,029 75,608 535,637
Profits reserve
The accompanying notes are an integral part of these financial statements.
MINERVA S.A.
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(Convenience translation into English from the original previously issued in Portuguese)
Statement of changes in shareholders' equity - Controller and consolidated
for the periods ended as of March 31, 2011
(In thousand Reais)Asset and liability Total equity
Capital Revaluation Legal Retention Accumulated Shares in valuation attributed to Non-controllers Total
Capital Reserve Reserve Reserve Reserve Profits Treasury Adjustments controllers Interest equity
Balances as of December 31, 2010 251,642 184,367 78,335 1,145 30,230 - (10,132) (29,093) 506,494 33,779 540,273
Capital increase 3 - - - - - - - 3 - 3
Shares in treasury - - - - - - (12,996) - (12,996) - (12,996)
Revaluation reserve realization - - (693) - - 1,045 - - 352 - 352
Capital reserve (Increase / Decrease) - 52 - - - - - - 52 - 52
Asset and liability valuation adjustment - - - - - - - (502) (502) - (502)
Net profit of the period - - - - - 13,271 - - 13,271 - 13,271
Non-controllers interest - - - - - - - - - 1,434 1,434
Balances as of March 31, 2011 (restated) 251,645 184,419 77,642 1,145 30,230 14,316 (23,128) (29,595) 506,674 35,213 541,887
The accompanying notes are an integral part of these financial statements.
Profits reserve
MINERVA S.A.
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(Convenience translation into English from the original previously issued in Portuguese)
Statement of cash flows for the periods ended
as of March 31, 2012 and 2011
(In thousand Reais)
Operating activities cash flow
Result of the period - (65,743) 13,271 (66,739) 14,604
Adjustment to reconciliate net profit
from operating activities:
Depreciations and amortizations - 8,926 8,603 11,812 11,892
Results attributed to non-controllers - - - 996 (1,333)
Fair value of biological assets - 3,501 (367) 3,501 (367)
Deferred taxes realization - temporary differences - (7,131) (10,515) (7,131) (36,496)
Net revaluation reserve realization - 967 - 967 -
Equity in earnings (losses) of controlled companies - (7,042) (11,350) - -
Financial charges - 71,584 39,160 75,018 44,663
Non-realized exchange variance - (6,723) (16,727) (10,129) (33,807)
Provision for contingencies - - (1,930) (1) (1,932)
Accounts receivable from clients and other receivables - 52,537 (21,872) 62,131 (11,851)
Inventory - (28,173) 18,109 (31,852) 16,721
Biological assets - 7,284 3,392 7,284 3,392
Recoverable taxes - (21,771) (21,594) (22,924) (34,791)
Accounts receivable from related parties - (377,386) (13,568) (2,489) 32,129
Judicial deposits - (96) (1,552) (139) (1,728)
Suppliers - (49,024) (6,380) (46,646) (23,173)
Labor and tax obligations - (2,464) 4,941 (936) 4,938
Provision for investment loss - 6,906 - - -
Other accounts payable - 22,826 16,031 19,952 (13,767)
- (391,022) (2,348) (7,325) (30,906)
Juros pagos de empréstimos e financiamentos - -
Cash flow deriving from operating activities (391,022) (2,348) (7,325) (30,906)
Investment activities cash flow
Acquisition of controlled company less available funds at the acquisition - - - - (12,055)
Investments acquisition - 7,179 (86,643) - -
Intangible assets acquisition - (815) (37) (846) (61,693)
Fixed assets acquisition - (24,871) (26,721) (24,851) (34,832)
Cash flow deriving from investment activities (18,507) (113,401) (25,697) (108,580)
Financing activities cash flow
Obtained loans and financings - 802,678 130,699 799,559 187,954
Liquidated loans and financings - (575,990) (47,794) (622,700) (68,960)
Debentures convertible into shares - (5,634) - (5,634) -
Variance in non-controllers participation - - - (1,100) -
Capital payment in cash - 5,634 3 5,634 3
Interests on own capital - (17,680) - (17,680) -
Dividends - (11,762) - (11,762) -
Shares in treasury - (13,401) (12,944) (13,401) (12,944)
Ajustes de avaliação patrimonial - - -
Partes relacionadas liquido - -
Cash flow deriving from financing activities 183,845 69,964 132,916 106,053
Ações em tesouraria - - - -
Realização da reserva de reavaliação - - - -
Caixa líquido utilizado pelas atividades de financiamento com acionistas - - - -
Net decrease in cash and cash equivalents (225,684) (45,785) 99,894 (33,433)
Cash and cash equivalents
At the beginning of the period 694,875 430,959 746,382 576,464
At the end of the period 469,191 385,174 846,276 543,031
Net decrease in cash and cash equivalents (225,684) (45,785) 99,894 (33,433)
The accompanying notes are an integral part of these financial statements. - - - -
MINERVA S.A.
Controller Consolidated
2012 2011 2012 2011Note
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(Convenience translation into English from the original previously issued in Portuguese)
Statement of added-value for the periods ended
as of March 31, 2012 and 2011
(In thousand Reais)
Income 809,754 810,952 944,064 946,616
Goods, products and services sales 803,319 805,016 937,218 938,606
Other income 6,435 5,936 6,846 8,010
Inputs acquired from third parties (721,618) (734,093) (841,197) (844,437)
(Include the ICMS, IPI, PIS and COFINS taxes values)
Cost of sold products, goods and services (668,351) (675,420) (756,663) (758,636)
Materials, energy supply, third parties´ services and others (53,267) (58,673) (84,534) (85,801)
Others (specify)
Gross added value 88,136 76,859 102,867 102,179
Depreciation, amortization and exhaustion (8,926) (8,598) (11,812) (12,397)
Net added value produced by the company 79,210 68,261 91,055 89,782
Added value received in transfers 19,624 30,353 14,335 17,999
Equity equivalence result 7,042 11,350 - -
Financial income 12,582 19,003 14,335 17,999
Others - - - -
Total added value to be distributed (5+6) 98,834 98,614 105,390 107,781
Added value distribution 98,834 98,614 105,390 107,781
Personnel 33,457 32,257 44,239 41,196
Taxes, fees and contributions (13,853) (12,919) (27,432) (25,638)
-
Return on debt capital 144,973 77,484 155,322 82,885
Interests 143,383 76,034 152,753 81,213
Lease 1,590 1,450 2,569 1,672
(65,743) 1,792 (66,739) 9,338
Return on equity capital
Retained profits / losses of the period (65,743) 1,792 (65,743) 9,338
Non-controllers interest in the retained profits (only consolidation) - - (996) -
MINERVA S.A.
Controller Consolidated
The accompanying notes are an integral part of these financial statements.
2012 2011 2012 2011
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(Convenience translation into English from the original previously issued in Portuguese)
Comprehensive income statement for the periods ended
as of March 31, 2012 and 2011
(In thousand Reais)
Income of the period 28 (65,743) 13,271 (66,739) 14,604
Other comprehensive income
Asset and liability valuation adjustment - (2,751) (502) (2,855) (502)
Other comprehensive income, net of income tax and social contribution - (2,751) (502) (2,855) (502)
Total comprehensive income (68,494) 12,769 (69,594) 14,102
Comprehensive income attributable to :
Controller shareholders - (68,494) 12,769 (68,494) 12,769
Non-controller shareholders - - - (1,100) 1,333
Total comprehensive income (68,494) 12,769 (69,594) 14,102
0.85884 0.87480 0.14116 0.12520
MINERVA S.A.
The accompanying notes are an integral part of these financial statements.
2012 2011
ConsolidatedController
20112012Note
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MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
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1. Operational context Minerva S.A. (“Company”) is an open corporation, listed at the level “New Market” of corporate governance and its stocks are traded at São Paulo stock, commodities and futures exchange (BM&FBovespa). The main activities of the Company include cattle slaughter and meat processing, sale and export of refrigerated, frozen and processed "in natura" meat and export of live cattle. The Company’s stocks are traded on the São Paulo stock, commodities and futures exchange (BM&FBovespa) under the stock ticker symbol “Beef3”. On February 21, 2011 Minerva approved the launching of the Program of American Depositary Receipts – ADRs level I (“ADRs Program”). With this ADRs program the objectives of the Company are to increase liquidity of Minerva stocks, both in the United States of America and Brazil, have easier access to North-American investors, valorize the Company’s stocks and increase Minerva´s visibility worldwide. Controller Company The Company is headquartered in Barretos (SP) and has production units in the cities José Bonifácio (SP), Palmeiras de Goiás (GO), Batayporã (MS), Araguaína (TO), Goianésia (GO), Barretos (SP) and Campina Verde (MG). The distribution centers to domestic market are located in the cities Palmeiras (GO), Brasília (DF), Viana (ES), Itajaí (SC), São Paulo (SP), Araraquara (SP), Bauru (SP), Araguaína (TO), Belo Horizonte (MG) and Fortaleza (CE), supplying the states of Goiás, Espírito Santo, Santa Catarina, São Paulo, Minas Gerais, Tocantins, Ceará and Paraná. On March 31, 2012 the Company’s industrial park had a daily slaughter capacity of 10,480 bovine heads and boning capacity of 2,040 tons (considering the controlled companies: Pul S/A; Minerva Alimentos S/A; and Friasa S/A), and is in compliance with the sanitary requirements for export to several countries in 5 Continents. All its facilities are approved for export operations. The Barretos unit counts with a meat industrialization line (cubed beef e roast beef), mainly for exportation.
Controlled companies Minerva Indústria e Comércio de Alimentos S.A.: located in Rolim de Moura
(RO), it has meat processing operations and in July 2010 started bovine slaughter;
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
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Minerva Dawn Farms S.A.: located in Barretos (SP), it produces and commercializes products based on bovine, swine and chicken meat. It has several scales production aiming to supply the domestic and foreign demand for products to the Food Services segment. The controlled company started operations in 2009 and currently about 80% of its sales are made to domestic market;
PUL S/A: acquired in January 2011, it is located in the Cerro Largo Province, close to the capital Melo, in Uruguay. It operates with cold-storage, slaughter and boning and 85% of its sales are dedicated to foreign markets, mainly to the American and European markets;
Friasa S.A.: located in Asunción – Paraguay, it operates with cold-storage, slaughter and meat processing for domestic and foreign markets;
Minerva Overseas I: located in Cayman Islands, it is a controlled company established in 2006 for receipt of the “Bonds” in the amount of US$200,000, which was effective in January 2007. The company was established with the specific purpose (EPE) of issue of the mentioned “Bonds”, not having any other operations;
Minerva Overseas II: located in the Cayman Islands, it is a controlled company established in 2010, for the receipt of the “Bonds” in the amount of US$250,000, which was effective January 2010. The Company was established with the specific purpose (EPE) of issue of the mentioned “Bonds”, not having any other operations;
Minerva Luxembourg S.A: located in Luxemburg, it is a controlled company established in the 4th. Quarter 2011, for receipt of the “Bonds” in the amount of US$350,000 and further “Retap” of US$100,000, issued in February and March 2012, respectively. The Company was established with the purpose of issue of the mentioned “Bonds”, not having until now any other operations that are not connected to the Company’s indebtedness;
Eurominerva Comércio e Exportação Ltda: located in Barretos (SP), it is a joint venture, established to export live cattle to foreign market. It is a “joint venture” on which the Company, in compliance with CPC 26, applies the equity equivalence method and proportional consolidation. The accounting practices and estimates adopted for this jointly controlled company are identical to the ones used by the Company;
Minerva Beef: it is a controlled company established with the funds raising purpose;
Minerva Middle East: it is an office located in Lebanon for purposes of commercialization and sales of the Company’s products;
Transminerva Ltda: located in Barretos (SP), it is the transportation company established to serve the Company and reduce freight costs in the country;
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
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Brascasing Comercial Ltda.: located in José Bonifácio (SP), it operates in the natural casing processing segment, for domestic and foreign markets. Until the closing of the 3rd. quarter 2011, it was a “joint venture”, on which the Company, in compliance with CPC 26, applied the equity equivalence method and proportional consolidation, based on its participation. In December 2011, the Company acquired 5% of the Company’s shares, thus holding 55% of the capital and consequently the control on its operations. In compliance with Deliberation CVM No. 580/09 - CPC – 15 (Business Combination), on December 31, 2011 the Company recorded the transaction considering it as a “business combination in phases” (Explanatory Note No. 2 – Acquisition of interest in controlled companies – Business Combination);
Minerva Colombia S.A.S: located in Barranquilla - Colombia, the company was established with the objective of exporting live cattle to foreign markets;
The other controlled companies - Loin Investments, Minerva Log and Livestock - were established or acquired with the objective of developing new markets for Minerva products and for funds raising, and are in pre-operating phase on March 31, 2012.
The consolidated information includes the following controlled companies:
The issue of the financial information was authorized by the Executive Director and Administration Council on May 10, 2012.
03/31/12 12/31/11
Minerva Industria e Comércio de Alimentos S/A 98.00% 98.00%
Minerva Dawn Farms S/A 80.00% 80.00%
Friasa S/A 92.00% 92.00%
Minerva Overseas I 100.00% 100.00%
Minerva Overseas II 100.00% 100.00%
Eurominerva Comércio e Exportação Ltda 50.00% 50.00%
Minerva Beef 100.00% 100.00%
Minerva Middle East 100.00% 100.00%
Transminerva Ltda 100.00% 100.00%
Brascasing Comercial Ltda 55.00% 55.00%
Minerva Itália 100.00% 100.00%
Loin Investments 100.00% 100.00%
Minerva Log 100.00% 100.00%
Livestock 42.00% 42.00%
Pulsa S.A. 100.00% 100.00%
Minerva Colômbia S.A.S 100.00% 100.00%
Ownership interest %
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
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2. Acquisitions of interests in controlled companies – Business combination Minerva dawn farms On October 1st, 2010, the Company obtained control on Minerva Dawn Farms, when acquiring the subscription right of 18,000 thousand new voting shares of the mentioned company. As result of this operation, the shareholder participation of the Company in Minerva Dawn Farms increased from 50% to 80% of the capital with voting right. Until that date, Minerva Dawn Farms was a joint venture. The acquisition of control on Minerva Dawn Farms will enable the company to have administrative and commercial synergies with the Controller, reducing operating expenses, besides increasing sales to domestic market by using the Company’s already existing sales distribution channels, as well as will provide more autonomy and agility in decision-makings. The business value that generated control on Minerva Dawn Farms by the Company, was in the amount of R$60,000, corresponding to subscription of 18,000 thousand new shares. The amount paid for subscription of the new shares is based on the projected economic value of Minerva Dawn Farms, on the base date of the operation, generating a surplus value to the share nominal of R$ 42,000. Acquired identifiable assets and assumed liabilities
Net fixed assets Fair value Surplus value
Net fixed assets 85,432 87,862 2,430
85,432 87,862 2,430
The following fair values were determined on a temporary basis, preliminary evaluated by an independent specialized company and revised by the Company on the date of the acquisition balance sheet (December 31, 2010) and were of object of adjustments, in a period not longer than one year, according to CVM Deliberation No. 580/09 - CPC 15: Fixed assets: Fixed assets fair value was determined based on a report
prepared by an independent appraisal expert;
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
18
Goodwill determination: As defined in CPC 15 (IFRS 3), the transaction for acquisition of more than 30% of equity holding in the up to then joint venture, represents a “business combination in phases”. As determined in the mentioned norm, at the realization time of a business combination made in phases, the purchaser has to revaluate its previous participation in the acquired company at fair value on the acquisition date and has to recognize in the result of the period the “gain” or “loss” generated in this “business combination made in phases”. Additionally, as recommended in the mentioned norms, the Company has opted to record the “non-controllers participation” in the acquired company, at fair value or according to their part in the fair value of the net identifiable assets of the acquired company.
Goodwill and surplus value of the identifiable assets of the pre-existing participation and acquisition of 30% more in participation were recognized in the period ended as of December 31, 2010, as shown below:
In thousand reais 12/31/2010
Goodwill - pre-existing participation of the acquirer 130,946
Surplus value of the pre-existing identifiable assets of the acquirer 1,944
132,890
As foreseen in Deliberation CVM No. 580/09 - CPC 15 and mentioned before, the Company has made a review on the temporary values adopted for register of the “business combination in phases” operation, made on December 31, 2010, reviewing the acquired assets and assumed liabilities values, in compliance with the CPC Pronouncements, Interpretations and Orientations, when applicable Based on this review, it was identified that a big part of the surplus value calculated as goodwill in the existing and acquired participation on December 31, 2010, in the amount of R$130.946, is related to a portfolio of customers that have a lasting relationship with the company, mainly due to specificities and need of scale production for these clients. As they fit in the basic characteristics for record in intangible assets (identification, control and generation of future economic benefits), according to CVM Deliberation No. 644/10 – CPC 04 and, as determined by CVM Deliberation No. 580/09 - CPC 15, the Company has reviewed the projections that defined the goodwill value temporarily adopted in the acquisition of the additional equity interest, redefining the distribution between goodwill and customers portfolio, as shown below:
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
19
In thousand reais 12/31/2011
Goodwill expectation 43,213
Customers portfolio 87,733
Surplus value of the pre-existing identifiable assets of the acquirer 1,944
132,890
The customers portfolio that made part of the assumed assets of Minerva Dawn Farms, in the amount of R$87,733, is basically represented by the Minerva Dawn Farms relationship with a large fast food network, which has significant annual increase in its stores in Brazil, what consequently leverages the Minerva Dawn Farms businesses.
In the individual balance sheet of the Company, goodwill is classified as part of the cost of the investments in invested companies and is presented as intangible assets in the consolidated statements. For compliance with CPC 01 and IAS 36 and 38, this goodwill is subject to annual recoverability test. PULSA S/A On January 18, 2011, the Company has signed “a promise for agreement subject to conditions” with Frigorífico PULSA S/A (“PUL”), a limited liability corporation headquartered in Uruguay, holder of a production unit located in the Cerro Largo province, close to the capital Melo. On March 22, 2011, the Company signed an “Agreement of Purchase and Sale of shares”, representing 100% of the nominal shares of the company Ana Paula Black Angus Quality in Beef LLC, a company located in the United States of America, full controller of the Frigorífico PUL, at the amount of US$52,000 (R$86.643, on that date), value which will be liquidated as follows: The amount of US$20,000, liquidated on the date the “Agreement of
Purchase and Sale of Shares” was signed by the parties; The amount of US$14,000, through delivery of 2,704,000 ordinary shares of
Minerva S/A, valued at the unitary price of R$8.75 per share. On November 8, 2011, the Securities Commission - CVM approved the delivery of 2,704,000 ordinary shares of the Company for liquidation of the mentioned payment of US$14,000. The Company has used shares in treasury for liquidation of this obligation, which were valued at the average unitary value of R$6.65, and were converted for purposes of this negotiation at the unitary value of R$8.75 per share, what generated a gain for the Company, recorded in counterpart of the account "capital reserve” in equity, at the amount of R$5,675;
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
20
The amount of US$13,000, which payment was made on March 21, 2012, in the amount of R$23,717; and
The amount of US$5,000, foreseen for payment on March 20, 2013, which on March 31, 2012 is equivalent to R$9,100.
Frigorífico “PUL” has a total slaughter capacity of 1,400 heads per day. It is among the three biggest cold-storage companies in Uruguay, with a billing in 2011 of US$120.0 million and a projected billing for 2012 in the amount of US$140.0 million, being 85% of the sales dedicated for export to more than 40 markets. Continuous strategies of approach and fidelity of the cattle raisers assure stability in raw material supply, one of the main differentials in the Company’s management. Frigorífico PUL is located in a privileged region in Uruguay, with access to a breeding stock of more than 2 million cattle heads in a range of 200 km, in the major part “Hereford” and “Angus”. They have ISO 9000, ISO 22000 certificates, approval for commercialization of organic meat to the European Union and United States and authorization for use of the USDA label for the United States. According to USDA, Uruguay represents today the 15th. largest global producer and the 7th. biggest exporter of bovine meat in the world, exporting to more than 40 markets and to regions which today Brazil does not cover, as the United States and Canada. Its cattle herd is estimated in approximately 11 million heads. We are presenting below the condensed Quarterly Information (ITR) on January 1st. 2011, date on which the acquisition/control of PULSA S/A by Minerva S/A become effective, considering the fair value of the acquired assets and assumed liabilities. The values below were determined on a temporary basis, preliminary evaluated by an independent specialized company and revised by the Company on the date of the acquisition balance sheet, and will be subject to occasional adjustments in period not longer than one year, according to CVM Deliberation No. 580/09 - CPC 15.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
21
Balance sheet - fair valu
ASSETS 01/01/2011
Current assets
Cash and cash equivalents 12,945
Accounts receivable 17,683
Inventory 15,806
Other accounts receivable 14,596
Non-current assets
Investments 443
Fixed assets 56,378
Total assets 117,851
Balance sheet fair value
LIABILITIES 01/01/2011
Current liabilities
Suppliers 11,014
Loans and financings 16,190
Other obligations 11,034
Non-current liabilities
Loans and financings 20,218
Deferred taxes 1,181
Provision for contingencies 33,214
Total liabilities 92,851
Shareholders' equity 25,000
Liabilities and shareholders' equity 117,851
The Company has revised, within the time period established in CVM Deliberation 580/09 – CPC 15, of 01 (one) year, the values of the acquired assets and assumed liabilities at the time of the mentioned acquisition (Business combination), not identifying values to be rectified in relation to the acquired assets and assumed liabilities originally considered on the acquisition date (01/01/2011). We present below the evaluation of the identifiable assets and assumed liabilities, acquired in the business combination:
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
22
IDENTIFIABLE ASSETS
In thousand reais
01/01/2011
Inventory - accounting value 16,206
Adjustment - fair value (400)
Inventory - fair value 15,806
Fixed assets - accounting value 56,867
Adjustment - fair value (488)
Fixed assets - fair value 56,379
ASSUMED LIABILITIES
In thousand reais
Provision for contingencies - accounting value -
Adjustment - fair value 33,214
Provision for contingencies - fair value 33,214
As established in CPC 15, the Company together with an independent specialized company has evaluated the contingent liabilities that were assumed in the business combination. Such liabilities refer mainly to contractual obligations, labor and environment contingencies.
Goodwill determination We are showing below the goodwill corresponding to the difference between the value transferred for acquisition of control on the acquired company in relation to the reference equity, which was determined based on the identified assets and assumed liabilities in the business combination, which control was acquired by Minerva S/A on January 1st. 2011, as follows:
In thousand reais
Equity (fair value) - 01/01/2011 25,000
Goodwill - (Note 12) 61,643
Transferred Consideration 86,643
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
23
In the Company’s individual balance sheet, the above goodwill is classified as investments and in the consolidated balance sheet they are classified as intangible assets and their amortization is not made. Goodwill is subject to the annual recoverability test for compliance with CPC 01 and IAS 36 e 38. Brascasing Comercial Ltda. In December 2011, the Company obtained the control of Brascasing Comercial Ltda, by acquiring 5% of the capital shares of the mentioned company thus holding 55% of the Company’s capital and consequently the control on its operations. The business value of the operation for obtaining the control of Brascasing Comercial Ltda by the Company, was of R$3,000, corresponding to acquisition of 5,000 shares of the Company’s capital. Acquired identifiable assets and assumed liabilities The following fair values were determined on a temporary basis, preliminary evaluated by an independent specialized company and revised by the Company on the date of the acquisition balance sheet (December 31, 2011) and will be subject to eventual adjustments in a period not longer than 01 (one) year, in accordance with CVM Deliberation No. 580/09 - CPC 15.
Goodwill determination: According to CPC 15 (IFRS 3), the transaction for acquisition of 5% more in the interest equity of the joint venture, represents a “combination of businesses made in phases”. As determined in the mentioned norm, when making a business combination made in phases, the acquirer will have to revaluate its previous participation in the acquired company at fair value on the acquisition date and will recognize in result of period the “gain” or “loss” generated by this “business combination made in phases”. Additionally, as recommended by the mentioned norms, the Company has opted to record the “non-controllers participation” in the acquired company, at fair value or at their part in the fair value of the net identifiable assets of the acquired company.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
24
Goodwill and surplus value of the pre-existing identifiable assets of the participation were recognized in the period ended as of December 31, 2011, as shown below:
In thousand reais 12/31/2011
Pre-existing goodwill of the acquirer 49,909
Goodwill participation of non-controllers 43,271
93,180
3. Basis for preparation of the financial information
Statement of compliance and preparation basis: The interim financial information of the Company, included in the Quarterly Information Form (ITR) related to the quarter ended as of March 31, 2012, comprehends: The consolidated interim financial information prepared according to CPC
21 – Interim Statement and IAS 34 – Interim Financial Reporting, issued by IASB and presented according to the norms established by the Securities Commission– CVM, applicable to the preparation of the Quarterly Information (ITR); and
The individual interim financial information of the Company, prepared according to CPC 21 – Interim Statements, and presented according to the norms issued by the Securities Commission – CVM, applicable to the preparation of the Quarterly Information – ITR.
The individual financial information of the controller were prepared according to the pronouncements, interpretations and orientations of CPC and, in the case of the Company, these practices differ from the IFRS applicable to consolidated financial information, due to evaluation of the investments in controlled and jointly controlled, according to the equity equivalence method in CPC, while for IFRS purposes it would be at cost or fair value. We point out that there is no difference between equity and the consolidated result presented by the Company in its individual and consolidated financial information.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
25
In 2009, the Accounting Pronouncements Committee (CPC) issued several pronouncements, orientations and interpretations, with mandatory application for the periods closed as of December 31, 2010, with the objective of converging to the international accounting standards issued by IASB. These pronouncements, orientations and interpretations were fully adopted by the Company and its controlled in the individual and consolidated Quarterly Information (ITR) of the period ended as of December 31, 2010, in a comparison way with December 31, 2009 and equity balances on January 1st. 2009, which were approved by its Administration Council on March 02, 2011. Therefore, the accounting policies described in the Quarterly Information (ITR) ended as of December 31, 2011, are in accordance with the accounting policies applied on the Quarterly Information (ITR) on March 31, 2012. On May 10, 2012 the Company’s management authorized the issue of the financial information related to December 31, 2012. a. Measurement basis
The Quarterly Information (ITR) was prepared using as base value the historic cost, except the valuation of certain assets and liabilities, as financial instruments, which are measured at fair value.
b. Functional currency and presentation currency
The financial information of each controlled included in the consolidation of the Company and those used as evaluation basis of the investments through the equity equivalence method, are prepared at the functional currency of each company. The functional currency of a company is the currency of the economic environment in which it operates. When defining the functional currency of each one of its controlled companies, the management has considered what are the currency that significantly affects the sale price of its products and services, and the currency in which the major part of its production inputs costs is paid or incurred. The consolidated Quarterly Information (ITR) are presented in Reais (R$), which is the functional and presentation currency of the controller company.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
26
c. Operations abroad
The Quarterly Information (ITR) of December 31, 2011 and the Quarterly Information (ITR) of the controlled companies abroad (Friasa S/A, which functional currency is Guarani and Pulsa S/A, which functional currency is dollar) were adapted to the accounting practices adopted in Brazil, when applicable, and are converted to reais through the following procedures:
(a) Assets and liabilities are converted by using the closing rate of the
respective currency to Real, on the date of the respective balance sheets; (b) The initial equity of each balance sheet corresponds to the final equity of
previous period, as converted at the time; changes in the initial equity during the current period are converted at the transactions rates on their respective dates;
(c) Income, costs and expenses are converted according to the average monthly exchange rate; and
(d) The exchange variances resulting from the above items (a), (b) and (c), are recognized in the specific equity account “Accumulated Conversion Adjustments”.
In consolidation, the balances of investments, assets and liabilities, income and expenses deriving from the transactions between the companies were eliminated.
d. Transactions and balances in foreign currency
According to CPC 02 – Effects in Exchange Rates Changes and Conversion of Financial Statements, the transactions and balances in foreign currency, i.e., all those that are not made in the functional currency, are converted by the exchange rate on the dates of each transaction. Assets and liabilities subjects to exchange variance are updated by the current rates of the respective currencies on the last working day of each presented period or periods. Gains and losses deriving from variances in investments abroad are directly recognized in equity under the account “accumulated conversion adjustments” and recognized in income statement when these investments are totally or partially disposed.
The non-monetary items measured at historic cost in foreign currency are converted at the calculated exchange rate on the transaction date.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
27
e. Use of estimates and judgment
The preparation of the individual and consolidated Quarterly Information according to the IFRS and CPC standards, require the management to make judgments, estimates and premises that affect the application of the accounting policies and the reported values of assets, liabilities, income and expenses. The actual results may differ from these estimates.
Estimates and premises are continuously reviewed. The reviews related to the accounting estimates are recognized in the period in which the estimates are reviewed and in any future affected periods.
f. Spontaneous republishing of interim financial statements
Statement of requirements – CVM Process No. RJ-2012-13360 The Company's management, in response to the “statement of requirements” - CVM Process RJ-2012-13360, dated November 16, 2012, made adjustments in the accounting information contained in the notes to the financial statements of March 31, 2012, as listed below: Rectification, in the DFP (Standardized Financial Statements - CVM System –
NET Companies), of the statement of cash flows, which were originally published in a synthetic manner in the DFP and, due to this CVM requirement, republished with analytical disclosure of all lines from operating, investing and financing activities; and
Reclassification of the accounting information contained in Notes 10
(Deferred tax assets) and 18 (Income and social contribution taxes), pertinent to the presentation and disclosure of deferred taxes, carrying out the reclassification of R$ 28,261 from non-current assets to non-current liabilities as of March 31, 2012 and December 31, 2011.
The interim financial statements (ITR) as of March 31, 2012 were originally presented on the system and web site of the Brazilian Securities and Exchange Commission (CVM) on May 31, 2012 and are republished on November 21, 2012, for compliance with this “Statement of requirements" of CVM.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
28
OFFICIAL LETTER/CVM/SEP/GEA-5/No. 058/2013 In compliance with the Official Letter/CVM/SEP/GEA-5/No. 058/2013, of February 25, 2013, the Company is restating the Quarterly Information as of March 31, 2012, according to CVM in regard to the following issues: (i) reclassification of the initial record of the operations with debentures mandatorily convertible into Company’s shares, in the amount of R$ 200,000 thousand; and (ii) need for restating and republishing the financial statements as of December 31, 2011, in comparison with the financial statements of December 31, 2012; and restatement of the Quarterly Information of 2012. As a result of this CVM decision, the Company reclassified in the interim financial statements as of March 31, 2012, the initial record of the debentures convertible into shares, in the amount of R$ 184,392, net of transaction costs, from shareholders' equity (Capital reserve) to current liabilities (annual interest) and non-current liabilities (principal, less transaction costs). We point out that the initial record of the transaction under shareholders’ equity (Capital reserve) was supported by studies conducted by the Company’s management and accounting opinions from experienced accountants. The reclassification made as determined by CVM does not affect in any way the terms and/or conditions of the instrument of issue of the debentures convertible into shares and, accordingly, has no impact on the Company’s current indebtedness, its debt service and financial covenants. As a result of this transaction, in any possible events there will be no cash disbursement to the Company, but actually a conversion of the debentures into shares (equity instrument). This reclassification did not affect the statements of income, cash flows and value added for the year ended March 31, 2012 and 2011.
4. Summary of the main accounting practices a. Consolidation basis
Business combinations
Acquisitions made on January 1st, 2009 or after this date
For acquisitions made as of January 1st., 2009, the Company has measured
goodwill as the fair value of the transferred, including the recognized value of any non-controller participation in the acquired Company, deducting the net recognized value of the identifiable assets and assumed liabilities, all measured at the acquisition date.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
29
For each business combination the Company chooses if it will measure the non-controller participation at fair value or according to the proportional participation of the non-controller on the identifiable net assets verified on the acquisition date.
The transaction costs that are not associated with the issue of debt securities or
shareholders equity, in which the Company and its controlled incur with relation to a business combination, are recognized as expenses as they occur.
Acquisitions before January 1st., 2009
As part of the transition to IFRS and CPC, the Company has opted for not presenting again the business combinations before January 1st. 2009. Regarding the acquisitions before January 1st. 2009, the goodwill represents the amount recognized according to the previously adopted accounting practices. This goodwill is annually tested regarding its recoverability according to CPC 01.
(i) Controlled and jointly controlled companies
The controlled and jointly controlled (joint venture) financial information are included in the consolidated financial information as of the date in which the control and/or shared control begins until the date in which the control and/or shared control ceases to exist.
(ii) Transactions eliminated in consolidation
Balances and transactions between the companies of the “Group” and any income or expenses deriving from intra-group transactions, are eliminated in the preparation of the consolidated financial information. Non-realized gains from transactions with invested companies, recorded according to equity equivalence, are eliminated against the investment in the proportion of the Company’s participation in the invested companies. Non-realized losses are eliminated in the same way as the non-realized gains, but only to the point in which there are no evidence of impairment loss.
b. Result determination
The operations result (income, costs and expenses) is determined according to the accrual basis of accounting. Products sales income is recognized when its value can be reliably measured and all the risks and benefits are transferred to the purchaser.
c. Cash and cash equivalents
Cash and cash equivalents include cash, bank deposits and immediate liquidity financial applications. See explanatory note No. 5 for more details on cash and cash equivalents of the Company and of its controlled companies.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
30
d. Financial instruments
According to “Ofício Circular” of CVM 03/2009, the financial instruments of the Company and of its controlled companies were classified under the following categories: Non-derivative financial assets
Measured at fair value through result: financial assets kept for
negotiation, i.e., acquired or originated mainly with the purpose of sale or repurchase at short-term and derivatives. The fair value variances are recorded in result and the balances are shown at fair value;
Kept until maturity: These are non-derivative financial assets with fixed or determinable payments and defined maturity dates, which the Company has positive intention and capacity to keep until maturity. The obtained yields are recorded in result and the balances are shown at acquisition costs plus obtained yields;
Available for sale: non-derivative financial assets designated as available for sale or that were not classified under other categories. The obtained yields are recorded in result. Gains and losses recorded in equity are realized to result in case its early liquidation occurs;
Loans and receivables: Non-derivative financial assets with fixed or determinable payments, not quoted in active markets except: (i) the ones the Company has intention of selling immediately or at short-term and the ones the Company classifies as measured at fair value through result; (ii) the ones classified as available for sale; or (iii) those which the holder may not substantially recuperate its initial investment due to reason other than credit deterioration. The obtained yields are recorded in result and the balances are shown at acquisition cost plus obtained yields.
Non-derivative liabilities
Initially, the Company recognizes issued debt securities and subordinated liabilities on the date they are originated. All other financial liabilities (including liabilities designated at fair value recorded in result) are initially recognized on the negotiation date in which the Company becomes party of the contractual provisions of the instrument. The Company writes-off a financial liability when their contractual obligations are withdrawn, cancelled or expired.
Financial assets and liabilities are compensated and the net value is presented in the balance sheet when, and only when the Company has the legal right of compensating the values and has intention of liquidating on a net basis or realize the asset and liquidate liability simultaneously. The Company and its controlled have the following non-derivative financial liabilities: loans, financings, debentures, suppliers and accounts payable.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
31
Such financial liabilities are initially recognized at fair value plus any attributable transaction costs. After the initial recognition these financial liabilities are measured at the amortized cost through the effective interest rate method.
Social capital
Ordinary shares
Ordinary shares are classified as equity. Additional costs directly attributable to issue of shares and shares options are recognized as equity deduction, net of any tax effects.
Repurchase of shares (shares in treasury)
When the capital recognized as equity is repurchased, the value of the paid remuneration, which includes costs directly attributable, net of any tax effects, it is recognized as a deduction of equity. The repurchased shares are classified as shares in treasury and are presented as deduction of the total equity. When the shares in treasury are sold or re-issued subsequently the received amount is recognized as equity increase, and the resulting surplus or deficit is transferred to capital reserve.
Derivative financial instruments The fair value of the derivative financial instruments is calculated by the Company’s treasury based on information of each contracted operation and its respective market information on the closing date of the financial information such as interests’ rates and exchange coupon. When applicable this information is compared to the positions informed by the prop desks of each involved financial institution.
Operations with derivative financial instruments, contracted by the Company and its controlled companies are: cattle future contracts, options on cattle contracts and Non Deliverable Forward - NDF, which aim exclusively to minimize the impacts of the fluctuation of the meat price in result and the protection against exchange risks associated to positions in the balance sheet plus the projected cash flows in foreign currencies. Financial instruments and hedge contracts
Derivatives are initially recognized at fair value on the date the derivative contracts are made and are subsequently re-measured at their fair value, being these variances recorded against result. Although the Company uses derivatives for protection purposes, there is no hedge accounting.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
32
e. Accounts receivable from clients
They are presented at present and realization values and the accounts receivable from clients in foreign markets are updated based on the exchange rate in effect on the Quarterly Information (ITR) date. A provision is made at an amount considered sufficient by the Management for the credits which recovery is considered doubtful.
f. Inventory
Inventory is measured at the lower value between cost and the net realizable value, adjusted to market value, and by the eventual losses, when applicable. It includes expenses incurred in inventory acquisition, production and transformation costs and other costs incurred in taking them to their existing locations and conditions.
g. Biological assets
Biological assets are measured at fair value. Changes in fair value are recognized in result. Agricultural activities, such as herd increase (cattle confinement operations or pasture-grazed cattle), and different agricultures are subject to assets evaluations in order to determined their fair value, based on the concept of Mark to market - MtM.
h. Fixed assets
Recognition and measurement
Fixed assets items are measured at the historic acquisition or construction cost, deducting accumulated depreciation and accumulated impairment losses. The cost of certain fixed assets items was calculated considering the revaluation made on date before the promulgation of Law 11.638/2007, in effect since January 1st 2008. The Company has opted for not revaluating fixed assets at deemed cost on the opening date of the 2009 period. We point out that the Company and its controlled companies have contracted specialized appraisal experts for verification of the deemed cost of their assets, for comparison with the values recorded in accounting, not having identified significant variances that would justify the record and control of this surplus value, what was essential for the decision of the Management in not recording deemed cost.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
33
The cost includes expenditures that are directly attributable to assets acquisition. The cost of assets built by the Company itself and its controlled includes the cost of materials and direct labor, any other costs to place the asset in the place and conditions necessary for them to operate as intended by the management. The costs of loans on qualifiable assets are being capitalized since January 1st. 2009.
The rights, which objects are tangible goods for maintenance of the activities of the Company and its controlled companies, deriving from financial lease operations, are recorded as if it were a financed purchase, recognizing at the beginning of each operation a fixed asset and a financing liability, being the assets also submitted to depreciation, calculated according to the estimated useful lives of the respective assets. Gains and losses in fixed assets disposal are calculated through comparison of the funds obtained with the disposal with the net accounting value, and are recognized net under “other income/expense”, in result.
Depreciation
Depreciation is recognized in result according to the straight-line method and based on the estimated useful life of each part of a fixed assets item, since this method is the one that closest reflect the consumption pattern of the future economic benefits incorporated to assets. The estimated useful lives (average) for the current and comparison periods are the following:
Controller Consolidated
Buildings 2.96% 2.61%
Machinery and equipment 8.33% 8.05%
Furniture and fixtures 18.83% 16.54%
Vehicles 9.13% 9.13%
Hardware 24.27% 26.66%
03/31/2012
Depreciation methods, useful lives and residual values are updated and revised at each closing of period and eventual adjustments are recognized as change in accounting estimates.
The revaluation reserve balance, as authorized by Law No. 11.638/07 and mentioned in explanatory note No. 21, will be kept until its total amortization through total depreciation or assets disposal.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
34
i. Financial Lease
Financial lease contracts are recognized in fixed assets and in liabilities under loans and financings, at the present value of the minimum mandatory installments of the contract or at fair value of the asset, the lowest of them, plus, when applicable, of the initial direct costs incurred in the transaction, and are depreciated according to the estimated economical useful life of the asset. The operating lease contracts are recognized as expense on a system base that represents the period in which the benefit of the lease asset is obtained even when such payments are not made on this basis.
j. Intangible assets
Intangible assets acquired separately are measured in the initial recognition at the acquisition cost and, later, deducting accumulated amortization and impairment losses when applicable
Intangible assets with defined useful life are amortized according to its estimated economic useful life and when impairment losses are identified, submitted to evaluation test on the recoverable value. Intangible assets with undefined useful life are not amortized, but are submitted to an annual impairment test.
Goodwill
Goodwill resulting from acquisition of controlled companies is included in intangible assets. Regarding the acquisitions made before January 1st. 2009, the goodwill is included based on its deemed cost, which represents the value recorded according to the previously adopted accounting practices.
k. Impairment test
Financial assets
The Company annually evaluates if there is any objective evidence determining if the financial assets or group of financial assets is not recoverable. A financial asset or group of financial assets is considered non-recoverable if, and only is, there is objective evidence of non-recovery as result of one or more events that have occurred after the initial asset recognition (an incurred loss event) and this loss event has impact on the estimated cash flow of the financial asset or group of financial assets that can be reasonably estimated.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
35
Non-financial assets
The management periodically reviews the net accounting value of assets with the objective of evaluating events or changes in economic, operating or technological circumstances that may indicate deterioration or impairment loss. When such evidences are identified and it is verified that the net accounting value exceeds the recoverable value, a provision for devaluation is immediately made, adjusting the net accounting value to its recoverable value. The recoverable value of one asset, or of a certain Cash Generating Unit (UCG), is defined as being the higher between the in-use value and the net sale value. In estimate of the in-use value of the asset, the estimated future cash flows are discounted to its present value, using a discount rate before taxes that reflects the weighted average cost of capital for the industry in which the cash generating unit operates. The net sale value is determined, always when possible, based on based on a binding sale agreement conducted on an arm’s length basis, between known and interested parties, adjusted according to the expenses attributable to the asset sale or, when there isn’t a sale contract, based on the market price, defined in an active market, or on the most recent transaction price with similar assets. The following criteria are also applied to evaluate impairment loss of specific assets: Goodwill Goodwill impairment loss test is made at least annually or when circumstances indicate loss due to accounting value devaluation.
Intangible assets
Intangible assets with undefined useful life are tested in relation to impairment loss, at least annually, individually or at the level of Cash Generating Unit (UCG), according to the case or when circumstances indicate loss due to accounting value devaluation
l. Other assets and liabilities (current and non-current)
An asset is recognized in balance sheet when it is probable that its future economic benefits will be generated in favor of the Company and of its controlled companies and its cost or value can be reliably measured.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
36
A liability is recognized in balance sheet when the Company has a legal or established obligation as result of a past event and it is probable the need of economic resources to liquidate it. When applicable, they are increased by the corresponding incurred charges, monetary or exchange variances and by adjustments to present value. Provisions are recorded based on the best estimates of the involved risk. Assets and liabilities are classified as current when their realization or liquidation is likely to occur within the following 12 months. If not, they are shown as non-current assets and liabilities.
m. Assets and liabilities Adjustment to present value
Non-current monetary assets and liabilities are adjusted, when relevant, to its present value and the short-term ones when the effect is considered relevant in relation to the Quarterly Information (ITR).
For calculation of adjustment to present value, the Company and its controlled consider the amount to be discounted, the realization and liquidation dates based on discount rates that reflect the cost of money borne by the Company and its controlled companies over time, which was around a discount rate of 12 % p.a., calculated based on the weighted average cost of the Company and its controlled companies´ capital, as well as the specific risks related to cash flows scheduled for the financial flows in question.
The terms for receipts and payments of accounts receivable and payable deriving from operating activities of the Company and its controlled are short and so they result in a discount amount considered irrelevant for record and divulgement because the cost of information generation exceeds its benefit. For non-current assets and liabilities, when applicable and relevant, they are calculated and recorded.
The calculations and analyses are quarterly reviewed.
n. Income tax and social contribution
Current and deferred Income Tax and Social Contribution are calculated based on the 15% aliquot plus additional 10% on the taxable profit exceeding R$240 for income tax and 9% on the taxable profit for social contribution on net profit, and consider the offset of fiscal losses and negative basis of social contribution, limited to 30% of the annual actual profit
Income tax and social contribution expense includes current and deferred income taxes. Current and deferred taxes are recognized in result unless they are related to business combination or items directly recognized in equity or in other comprehensive results.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
37
The deferred tax is recognized in relation to the temporary differences between the accounting values of assets and liabilities for accounting purposes and the corresponding values used for taxation purposes. The deferred tax is not recognized for the following temporary differences: the initial recognition of assets and liabilities in a transaction that is not business combination and that does not affect the accounting and profit or loss, and the differences related to investment in subsidiary and controlled entities when it is likely that they will not revert in a foreseeable future.
Deferred tax assets and liabilities are compensated in case there is a legal right to offset current tax assets and liabilities, and they are related to income tax applied by the same tax authority on the same entity subject to taxation. A deferred income tax and social contribution asset is recognized by tax losses, tax credits, differences due to adoption of accounting practices (IFRS) and non-used temporary deductible differences, when it is likely that future profits subject to taxation will be available and against which they will be used. Deferred income tax and social contribution assets are reviewed at every report date and are reduced as their realization is no longer probable.
o. Contingent assets and liabilities and legal obligations
The accounting practices adopted in the recognition and disclosure of contingent assets and liabilities and legal obligations are the following: (i) contingent assets are recognized only when there is collateral security or favorable court decision. Contingent assets with probable success are only disclosed in explanatory note; (ii) contingent liabilities are provisioned when the losses are evaluated as probable and the involved amounts are measurable with sufficient reliability. Contingent liabilities evaluated as possible losses are only disclosed in explanatory notes and the contingent liabilities evaluated as remote losses are not provisioned or disclosed; and (iii) legal obligations are recorded as liabilities, regardless the evaluation on the probabilities of success in claims in which the Company objects the taxes unconstitutionality.
p. Benefits to employees
The Company does not have post-employment benefits such as contribution plans and/or defined benefits. We point out that all benefits and short-term remunerated leaves, as well as participation in profits and gratifications are in accordance with the requirements of the pronouncement.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
38
q. Sales income recognition
Sales income is presented net of taxes and granted discounts. Taxes on sales are recognized when the sales are invoiced and discount on sales when they are known. Product sales income is recognized when the sales value is reliably measurable and the Company and its controlled have no longer control on the sold good or any other responsibility related to its ownership, the incurred or to be incurred costs regarding the transaction can be reliably measurable, it is likely that the economic benefits will be received by the Company and the risks and benefits of the products were fully transferred to the purchaser.
r. Remuneration plan based on shares
The calculation of the effects of the remuneration plan based on shares is based on the fair value and recognized in balance sheet and income statement as the contractual conditions are fulfilled and according to the comments made in explanatory note No. 26.
s. Result per share
The basic result per share is calculated according to the result of the period attributable to the controller and non-controller shareholders of the Company and the weighted average of the ordinary and preferential shares in circulation in the respective period. The diluted result per share is calculated through the mentioned average of shares in circulation, adjusted by the instruments potentially convertible into shares, with diluting effect, in the presented periods.
t. Information by segment
The report by operational segments is presented in a consistent way with the internal report provided to Executive Directors of the Company, responsible for allocation of resources and by the performance appraisal by operational segment and by strategic decision-makings.
u. New standards and interpretations not adopted yet
During the 2011 period and the quarter ended as of March 31, 2012, the following standards issued by IASB were into effect, but have not impacted the Quarterly Information (ITR) of the Company:
Revised version of IAS 24 - “Related Party Disclosures”. IFRIC 19 - “Extinguishing Financial Liabilities with Equity Instruments”. Amendment of IFRIC 14 - “Prepayments of a Minimum Funding
Requirement”. Amendment of IAS 32 - “Classification of Rights Issues”.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
39
The standards issued by IASB, which are not in effect yet and were not pre-adopted by the Company until December 31, 2011 are the following:
Norm: Amendment to IFRS 7 Description: “Disclosures: Transfers of Financial Assets”. Norm: Amendment to IAS 12 Description: “Deferred Tax: Recovery of Underlying Assets“. It established criteria for determination of the tax base of an asset.
Norm: IFRS 10 Description: “Consolidated Financial Statements”. It establishes the principles for preparation and presentation of the consolidated financial statements when a company controls one or more companies. Norm: IFRS 11 Description: “Joint Arrangements”. It establishes the principles for disclosure of the financial statements of the companies that are parties in joint arrangements. Norm: IFRS 12 Description: “Disclosure of Interests in Other Entities. It consolidates all the requirements of the disclosures a company has to make when it has interests in one or more companies.
Norm: IFRS 13 Description: “Fair Value Measurement”. It defines fair value, explains how to measure it and determines what has to be divulged about this way of measuring. Norm: Amendment to IAS 1 Description: “Presentation of Other Comprehensive Income items. The groups in Other Comprehensive Results are the items that may be reclassified to profits or losses in the income statement of the period. Norm: Amendment to IAS 19 Description: “Employee Benefits”. It eliminates the corridor method for recognition of actuary gains or losses, simplifies the presentation of the variance assets and liabilities of defined benefit plans and increases the disclosing requirements.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
40
Norm: Amendment to IFRS 7 Description: “Disclosures– Offsetting Financial Assets and Financial Liabilities. It establishes requirements for divulgement of financial assets and liabilities compensation agreements. Norm: Amendment to IFRS 9 Description: Mandatory Effective Date of IFRS 9 and Transition Disclosures. They delay the date for IFRS 9 to be effective to 2015. They also eliminate the mandatory re-disclosure of comparative information and require additional disclosures in the transition to IFRS 9. The Company is evaluating the impact of these new norms on its Quarterly Information (ITR).However, it is estimated that their adoption will not have significant impact on its Quarterly Information (ITR).
v. Fair value determination
Several accounting policies and disclosures of the Company require the determination of air value, both for financial assets and liabilities and non financial. Fair values have been calculated for purposes of measurement and/or disclosures, based on the methods described in explanatory note of financial instruments. When applicable, the additional information on the premises adopted in the calculation of fair values is disclosed in specific notes to those assets and liabilities.
x. Added value statements
The Company has prepared individual and consolidated Added-Value statements, according to the technical pronouncement CPC 09 - Statement of added-value, which is presented as inclusive part of the Quarterly Information (ITR) according to BRGAAP applicable to open corporations, while for the IFRS they represent additional financial information because they are not required as part of the Quarterly Information (ITR) as a whole.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
41
5. Cash and cash equivalents
03.31.12 12.31.11 03.31.12 12.31.11
Cash 160 158 319 375
Bank current accounts 11,061 5,374 362,601 17,013
Available funds in foreign currencies 175,705 198,308 192,389 212,089
186,926 203,840 555,309 229,477
Financial apllications
In domestic currency:
Bank deposit certificate - CDB 148,029 279,529 156,099 300,740
Debentures 7,074 62,734 7,575 62,734
Capitalization securities 1,047 1,047 1,047 1,047
Investment fund 7,546 7,402 7,677 7,402
LCA 118,569 140,323 118,569 140,424
In foreign currency:
Bank deposit certificate - CDB - - - 4,558
282,265 491,035 290,967 516,905
469,191 694,875 846,276 746,382
Controller Consolidated
The financial assets of the Company and of its controlled companies were classified according to their characteristics and the Company’s intentions, as (i) measured at fair value through result and (ii) kept until maturity, according to the table below:
03.31.12 12.31.11 03.31.12 12.31.11
Measured at fair value through result 281,218 489,988 289,920 515,858
Ketp until maturity 1,047 1,047 1,047 1,047
282,265 491,035 290,967 516,905
Controller Consolidated
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
42
6. Accounts receivable
03.31.12 12.31.11 03.31.12 12.31.11
Trade notes receivable - domestic market 36,926 50,979 52,710 73,288
Trade notes receivable - foreign market 44,101 99,697 82,096 138,850
Trade notes receivable - related parties 10,711 6,022 - -
91,738 156,698 134,806 212,138
(-) Allowance for doubtful accounts (3,529) (3,529) (4,736) (4,736)
88,209 153,169 130,070 207,402
Controller Consolidated
The Company has sale contracts of exports receivables without right of subrogation, having as cost Libor + Spread. Accounts receivable by maturity
03.31.12 12.31.11 03.31.12 12.31.11
Falling due: 67,171 135,520 97,436 174,660
Overdue:
Up to 30 days 6,280 4,963 11,016 14,062
From 31 to 60 days 634 9,435 3,086 11,192
From 61 to 90 days 5,119 - 6,202 1,333
From 91 to 180 days 12,534 6,780 17,066 10,891
91,738 156,698 134,806 212,138
Controller Consolidated
During the quarter ended as of March 31, 2012 there were no significant changes in provision for estimated doubtful credits losses.
The maximum exposure of the Company to credit risk is the value of the above-mentioned accounts receivable. The effective risk value of eventual losses is presented as provision for estimated doubtful credits losses. In order to minimize this risk, these operations have credit insurance contracted with insurance companies, covering 90% of the sold receivables values. The beneficiaries of the insurance policies are the financial institutions. We point out that the Company has a very strict policy for granting credits, what causes low default levels, which are verified by the low value of provisioned credits when compared to income from sales made by the Company and its controlled companies. The Company does not have any guarantee for trade notes in delay.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
43
7. Inventory
31.03.12 31.12.11 31.03.12 31.12.11
Finished products 180,171 148,624 227,417 189,779
Raw materials 6,628 10,092
Warehouse and secondary materials 13,084 16,458 20,528 22,850
Provision for inventory obsolescence(b) (54,298) (54,298) (54,298) (54,298)
138,957 110,784 200,275 168,423
Controller Consolidated
(i) The provision was made on December 31, 2010 to face possible obsolescence
of warehouse stock items and secondary materials and, for some stocks linked to sales orders to foreign countries, which remained in warehouses in hub ports and later returned to Brazil and are on date close to its validity time, having been recognized by the Company in a conservative way, provision for obsolescence of these inventory. As the Company identifies that the mentioned provisioned stocks will not be recoverable, they are written-off.
8. Biological assets
The companies that have agricultural activities related to increase of herd (operations of cattle confinement or grazing), are subject to valuation of their assets in order to determine their fair values, based on the “Mark to Market - MtM” concept, at least during the quarters closing, recognizing the effects of these valuations directly in the result of the periods. Operations related to biological assets of the Company are totally represented by cattle under pasture (extensive), which market valuation is reliably measured due to the existence of active markets for this evaluation, and are represented as below:
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
44
Herd
Controller and Consolidated
Balance as of December 31, 2011 47,680
Increase due to acquisitions 48,074
Decrease due to sales (57,666)
Change in the fair value less estimated sales expenses (1,193)
Balance as of March 31, 2012 36,895
As of March 31, 2012, the farm cattle kept for sale included: 20,465 cattle for slaughtering (as of December 31, 2011 – 25,162 cattle for slaughtering).
9. Recoverable taxes
03.31.12 12.31.11 03.31.12 12.31.11
PIS - Employees' Profit Participation Program 54,777 51,731 57,259 58,802
COFINS - Tax for Social Security Financing 257,253 246,901 268,739 251,784
ICMS - Value-added Tax on Sales and Services 156,831 155,800 170,217 169,749
Income tax and CSLL 58,529 51,187 67,720 60,872
IVA - Added Value Index - - 718 522
527,390 505,619 564,653 541,729
Current 428,504 406,733 455,909 432,832
Non-current 98,886 98,886 108,744 108,897
Controller Consolidated
PIS and COFINS Cofins and PIS credits are deriving from the change in tax legislation, according to Laws No. 10.637/02 and No. 10.833/03, which established about the non-accumulation of these taxes, generating credit to the export companies.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
45
Currently, the Company and its controlled await the end of the inspection for homologation by the Federal Revenue of Brazil - RFB, of the requests for repayment of these credits, duly formalized by the Company and its controlled companies, what may occur during the 2012 period and will cause a significant amount of restitution of these credits during the mentioned period. PIS and Cofins exemption since the end of the 2010 period for sales to domestic market and the change in the system for request of repayment of the Federal Revenue of Brazil, which obliged the Company and its controlled to adequate their internal data processing system for transmission of the repayment requests and of all the data necessary for their homologation, has caused an unusual slowness in the recovery of such credits, which was already regularized in the 2011 period, with the total adequacy of the system of the Company and its controlled companies. Based on studies made by the Company’s management in relation to the expectation of repayment of the mentioned tax credits, part of these current assets credits was segregated to non-current assets, in the amount of R$55,185 in the controller and R$61,148 in the consolidated. The estimates for realization of tax credits of the Company and its controlled are quarterly reviewed.
ICMS ICMS credits are caused by the fact that the exports of the Company have reached values higher than sales to domestic market, generating credits which after homologated by the State Revenue Secretariats, are used for the purchase of production inputs, and can also be sold to third parties, as foreseen in the current legislation. From the mentioned creditor balance, substantial part is in process of inspection and homologation by the Revenue Secretariat of the São Paulo State, and the Company’s management has expectation of recovering a significant portion of these credits during the 2012 period. Based on studies made by the Company’s management, current assets were segregated to non-current assets, in a percentage considered sufficient to represent slower processes, which totals the amount of R$43,701 in the controller and R$47,943 in the consolidated information of the referred credits. The estimates for realization of the tax credits of the Company and of its controlled are quarterly reviewed. The Company’s management, based on technical studies and supported by opinion from its tax advisors, understand that the PIS, COFINS and ICMS tax credits, recorded in non-current assets, shall be realized until the closing of the 2014 period.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
46
10. Deferred tax assets We are presenting below the changes in deferred tax assets in the period, considering the deferred tax assets on fiscal loss and negative social contribution basis and on temporary differences:
Company
Balance as of December 31,
2011
Recognized in income
(loss)
Deferred taxes
realization Balance as of
March 31, 2012
Reclassified Reclassified
Deferred IR/CS on tax losses 164,831 - - 164,831
Other deferred taxes 4,080 12,949 (11,025) 6,004
Total deferred tax assets 168,911 12,949 (11,025) 170,835
Consolidated
Balance as ofDecember
31, 2011
Recognized in income
(loss)
Deferred taxes
realization
Balance as of March 31,
2012
Deferred IR/CS on tax losses 201,347 - - 201,347
Other deferred taxes 4,153 12,849 (10,998) 6,004
Total deferred tax assets 205,500 12,849 (10,998) 207,351
Deferred tax assets related to fiscal losses and negative basis of social contribution were recognized on December 31, 2011, September 30, 2011 and December 31, 2010 in the controller, in the accumulated amount on December 31, 2011, of R$164,831 (R$16,523 on December 31, 2011, R$89,201 on September 30, 2011 and R$59,107 on December 31, 2010) and, on December 31, 2011 and March 31, 2011 in the controlled Minerva Dawn Farms and Minerva Alimentos S/A, in the amount of R$36,516 (R$10,836 on December 31, 2011 and R$25,680 on March 31, 2011), what represents a consolidated balance on December 31, 2011 of R$201,347. The recognition is based on the fact that the Management understands that probable taxable profits will be obtained so that the Company can use the mentioned fiscal benefit in the future. The decision of the management of the Company and it controlled to record the mentioned deferred tax assets on fiscal losses and negative basis for social contribution was based on the business plan and on the budgetary and financial projections, both internal and prepared by independent consultants.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
47
These projections have adopted the following main assumptions during their preparation: Increase in net sales based on historic growth data; Growing demand for animal proteins, especially in the countries under
development; Improvement in the cattle raising cycle, with reduction of raw material
costs and consequent improvement of the margins; Optimization of the installed capacity of the industrial units of the
Company resulting in higher dilution of the installed fixed costs; Favorable economic perspectives; and Reduction of the Company’s financial leverage with consequent reduction
of financial expenses.
Based on the mentioned projections, the Company’s management estimates that the tax credits deriving from fiscal losses and negative social contribution basis will be realized as follows:
Controller Consolidated
03.31.2012 12.31.2011
2012 11,392 12,940
2013 13,826 20,503
2014 15,724 22,352
2015 onward 123,889 145,552
164,831 201,347
(*) The Company has expectation of realizing the temporary IR/CS differences in the maximum period of 4 years.
The technical studies that were basis for the decision of recording deferred tax assets on fiscal losses and negative social contribution basis, were duly reviewed and approved in the Administration Council Meeting, held on February 21, 2011, October 24, 2011 and March 5, 2012 for the controller and April 25, 2011 and March 5, 2012 for the controlled companies.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
48
11. Related parties
Transactions with related parties, made under the following conditions, are summarized in table below and include:
03.31.12 12.31.11 03.31.12 12.31.11
Brascasing (a) 3,812 3,812 371 -
VDQ Holdings S.A.(b) - - - -
Transportadora Minerva Ltda.(c) 445 445 445 445
Minerva Indústria e Comércio de Alimentos S.A. (d) 53,774 67,800 - -
Minerva Overseas Ltd (e) - - - -
Minerva Overseas II Ltd (e) - - - -
Minerva Dawn Farms S.A. (f) 63,768 6,658 - -
Lord Meat (h) - - - -
Minerva Beef Ltd (i) - - - -
Friasa S.A. (g) 7,037 7,069 1,930 152
Transminerva Ltda (h) 8,858 7,273 - -
Pul S/a Ltda (i) - - 4,737 -
Minerva Itália SRL (j) 914 916 - -
Minerva Colombia (k) - 187 - -
Minerva Luxembugo (l) 338,981 - - -
477,589 94,160 7,483 597
Loans receivable
Controller Consolidated
(a) Loan to the company Brascasing Comercial Ltda. to be reimbursed; (b) Loan to the company VDQ Holdings S.A to be reimbursed; (c) Expenses of the controller Transportadora Minerva Ltda. to be reimbursed; (d) Loan made to Minerva Indústria e Comércio de Alimentos S.A., for construction works of
the new plant and working capital; (e) Loan made to Minerva Overseas II LTD at the time of the Notes issue. The amount will be
reimbursed; (f) Loan made to Minerva Dawn Farms S.A for working capital; (g) Loan made to Friasa S.A for working capital; (h) Expenses of the controlled Transminerva, to be reimbursed; (i) Loan made to Pul S/A (j) Expenses of the controlled Minerva Italy SRL for start-up of the sales office, to be
reimbursed, and (k) Expenses of the controlled Minerva Colombia for the company operations, to be
reimbursed. (l) Values receivable from Minerva Luxembourg, related to the Notes.
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
49
03.31.12 12.31.11 03.31.12 12.31.11
Eurominerva Comércio e Exportação Ltda. (a) 636 - 318 -
Minerva Overseas I Ltd (b) 27,097 24,241 - -
Minerva Dawn Farms (c) - - 23,376 22,303
Minerva Overseas II Ltd (d) 15,440 15,895 39,655 39,655
Others (e) 7,654 4,648 7,654 4,648
50,827 44,784 71,003 66,606
Loans payable
Controller Consolidated
(a) Accounts payable to Eurominerva Comércio e Exportação Ltda (b) Accounts payable to Minerva Overseas I; (c) Loan made by Dawn Farms (Ireland) to Minerva Dawn Farms; (d) Loan made by Minerva Overseas II to the controller; and (e) Sundry loans to be reimbursed.
Under the understanding of full integration of its operations with its controlled companies, the Company makes transaction of cash remittances to its controlled, as part of the business plan of the Minerva group, always aiming to minimize funds raising cost.
Other balances and transactions with related parties are shown below:
03.31.12 12.31.11 03.31.12 12.31.11
Brascasing Comercial Ltda. 1,679 2,261 - -
Minerva Dawn Farms S.A. 2,053 2,192 - -
Minerva Indústria e Comércio de Alimentos S.A. 7,379 11,498 - -
Friasa S/A 1,055 - - -
Transminerva Ltda - 2 - -
Others 2,683 2,418 2,683 2,418
14,849 18,371 2,683 2,418
03.31.12 12.31.11 03.31.12 12.31.11
Brascasing Comercial Ltda. 1,115 1,538 - -
Minerva Dawn Farms S.A. 9,195 4,068 - -
Minerva Ind. e Com. de Alimentos S.A. 401 416 - -
10,711 6,022 - -
Accounts payable - Suppliers
Controller Consolidated
Accounts receivable - clients
Controller Consolidated
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
50
The Company and its controlled have commercial transactions among themselves, mainly sales commercial operations, made at usual prices and conditions of the market, when existing. During the quarter ended as of March 31, 2012 and the period ended as of December 31, 2011, it wasn´t recorded any provisions for doubtful credits as well as it wasn’t recognized any uncollectable debts expenses related to transactions with related parties. Remuneration of the key management professionals The key Management professionals include the Executive Directory and the Administration Council. The aggregated value of the remunerations received by these administrators of the Company and its controlled companies, for their services in the respective areas, in the periods ended as of December 31, 2011 and 2010, are summarized below:
Members 03.31.12 12.31.11
Executive Directory and Board of directors 9 510 468
The substitute members of the Administration Council are remunerated by each Council meeting they attend.
12. Investments
The investments change in controlled companies is shown below:
MINERVA S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian Reais)
51
Ownership interest
Balance at 12/31/11 Transfers
Conversion adjustment
Equity in earnings (losses) in controlled companies
Balance at 03/31/12
Goodwill 261,606 - - - 261,606
Minerva Indústria e Comércio de Alimentos Ltda. 98.00% 27,552 - - 1,097 28,649
Eurominerva Indústria e Comércio de Alimentos Ltda. 50.00% 321 - - 5 326
Minerva Overseas Ltd 100.00% 66,228 - - 703 66,931
Minerva Middle East 100.00% 37 - - - 37
Brascasing Comercial Ltda. 55.00% 6,718 - - 417 7,135
Minerva Beef Ltd 100.00% 557 - - (17) 540
Minerva Luxemburgo 100.00% 67 (67) - - -
Friasa Ltd 92.00% 13,581 - (1,197) 2,411 14,795
Loin Investments 100.00% 46 - - - 46
Minerva Log S.A 100.00% 231 - - 6 237
Livestock 42.00% 2,828 - - - 2,828
Minerva Dawn Farms S.A. 80.00% (21,462) - - (6,281) (27,743)
Pulsa S.A 100.00% 32,350 - (1,563) 1,285 32,072
Minerva Colombia 100.00% 606 - 9 304 919
Investments 391,266 (67) (2,751) (70) 388,378
Minerva Itália 100.00% (847) - - (63) (910)
Transminerva 100.00% (1,347) - - (1,617) (2,964)
Minerva Overseas Ltd II 100.00% (43,135) - - (4,368) (47,503)
Minerva Luxemburgo 100.00% - 67 - (925) (858)
Provision for investments losses (45,329) 67 - (6,973) (52,235)
Investments, net 345,937 - (2,751) (7,043) 336,143
(*) The negative investment balance in Minerva Daw Farms, does not consider goodwill in the amount of R$92,834, allocated in specific line.
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
52
As mentioned in explanatory note No. 2, on March 22, 2011, the Company acquired 100% of the voting shares of Empresa Pulsa S/A, acquired from the controller of the mentioned company, in the amount of US$52,000. The details of the “business combination” originated from this operation are described in the mentioned explanatory note. In December 2011, the Company acquired 5% of the capital share of its previous joint venture until the operation date, Brascasing Comercial Ltda. After this acquisition the Company holds 55% of the shareholders’ capital and its control. The mentioned operation was classified as “business combination made in phases”, which is duly detailed in explanatory note No. 2. Summary of the financial information of the controlled and jointly controlled companies on December 31, 2011:
Ownership interest (%) Current assets
Non-current assets
Current liabilities
Minerva Alimentos S/A 98.00% 45,270 114,529 22,955
Eurominerva Comércio 50.00% 14 638 -
Minerva Overseas I 100.00% 6,580 121,545 -
Minerva Overseas II 100.00% 15 718,993 -
Minerva Middle East 100.00% 37 - -
Brascasing Ltda 55.00% 19,515 1,900 4,577
Minerva Dawn Farms S/A 80.00% 40,787 136,684 79,353
Minerva Beef 100.00% 540 - -
Minerva Luxemburgo 100.00% 514,099 1,409,009 40,388
Friasa Ltd 92.00% 52,364 17,126 46,215
Transminerva Ltda 100.00% 4,788 1,602 498
Loin Investments 99.00% 46 - -
Minerva Log S/A 100.00% 236 - -
Livestock 42.00% 2,828 - -
Minerva Itália 100.00% 4 - -
Pulsa S.A. 100.00% 44,016 69,032 46,684
Minerva Colombia 100.00% 1,864 99 592
Total 733,003 2,591,157 241,262
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
53
We are showing below the result of the controlled companies that had changes during the quarters ended as of March 31, 2012 and 2011:
Minerva Alimentos 64,849 1,098 22,454 5,237
Eurominerva Comércio - 9 - 12
Minerva Overseas - 703 - 3,468
Minerva Overseas II - (4,368) - (5,787)
Brascasing 4,054 417 3,394 (426)
Minerva Dawn Farms 25,103 (6,282) 25,632 15,094
Minerva Beef - (16) - (958)
Minerva Luxemburgo - (925) - -
Friasa 39,166 2,411 51,007 (3,518)
Transminerva 287 (1,616) - (154)
Loin Investments - (1) - (4)
Minerva Log - 5 - -
Minerva Itália 72 (64) 202 (61)
Pulsa S.A. 57,891 1,285 54,397 7,120
Minerva Colombia 17,303 304 - -
03.31.12 03.31.11
Net income Profit / Loss of the period Net income
Profit / Loss in the period
All the values are expressed at 100% of the controlled companies´ results.
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
54
13. Fixed assets
a. Fixed assets composition
Controller 03.31.12 12.31.11
Buildings 2.96% 478,602 (56,986) 421,616 410,805
Machinery and equipment 8.30% 241,321 (34,807) 206,514 202,898
Furniture and fixtures 18.78% 2,918 (1,039) 1,879 2,010
Vehicles 9.13% 13,782 (2,873) 10,909 11,216
Hardware 23.88% 3,571 (2,083) 1,488 1,604
Lands 47,110 - 47,110 42,807
Fixed assets in process 155,314 - 155,314 157,330
942,618 (97,788) 844,830 828,670
Consolidated 03.31.12 12.31.11
Buildings 2.56% 598,732 (63,846) 534,886 526,553
Machinery and equipment 8.09% 336,132 (57,901) 278,231 275,653
Furniture and fixtures 17.71% 5,248 (1,643) 3,605 3,789
Vehicles 10.25% 14,223 (3,042) 11,181 11,616
Hardware 23.06% 5,434 (2,857) 2,577 2,772
Lands 55,368 - 55,368 51,176
Fixed assets in process 241,990 - 241,990 243,025
1,257,127 (129,289) 1,127,838 1,114,584
Description% - Depreciation
rate Historic costAccumulated depreciation Net Net
Description% - Depreciation
rate Historic costAccumulated depreciation Net Net
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
55
b. Summarized fixed assets changes
Controller Buildings
Machinery and equip.
Furniture and fixtures Vehicles Hardware Lands
On-going construc. Total
Balance as of December 31, 2011 410,805 202,898 2,010 11,216 1,604 42,807 157,330 828,670
Additions - - - - - - 24,930 24,930
Transfers 14,172 8,424 1 - 46 4,303 (26,946) -
Disposals - (60) - - - - - (60)
Depreciation (3,361) (4,748) (132) (307) (162) - - (8,710)
Balance as of March 31, 2012 421,616 206,514 1,879 10,909 1,488 47,110 155,314 844,830
Consolidated Buildings
Machinery and equip.
Furniture and fixtures Vehicles Hardware Lands
Ongoing construc. Total
Balance as of December 31, 2011 526,553 275,653 3,789 11,616 2,772 51,176 243,025 1,114,584
Additions 7 587 2 - 33 - 26,209 26,838
Transfers 14,172 8,721 1 - 46 4,303 (27,243) -
Disposals - (60) (2) (25) (7) - (1) (95)
Depreciation (4,500) (6,247) (184) (399) (264) - - (11,594)
Others (Conversion adjustment) (1,346) (423) (1) (11) (3) (111) - (1,895)
Balance as of March 31, 2012 534,886 278,231 3,605 11,181 2,577 55,368 241,990 1,127,838
c. Constructions and installations in progress
On March 31, 2012, the balances of constructions and installations in progress refer to the following main projects: Conclusion of the Rolim de Moura (RO) plant construction, expansion of the Campina Verde plant and construction of the plant in the city Redenção (PA).
On March 31, 2012 and December 31, 2011, the costs of capitalized loans related to acquisition of machinery, expansions and constructions of industrial plants totaled R$821 and R$2.682, in the controller and R$825 and R$2,741 in the consolidated, respectively, with average capitalization rate of 120 % CDI.
d. Collaterals
Fixed assets were offered as collaterals for loans and financings in the amount of R$173,359 as of March 31, 2012.
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
56
e. Deemed Cost
In compliance with ICPC 10 recommendation, regarding the record of fixed assets deemed cost, the Company and its controlled companies have contracted a specialized company for this evaluation, identifying that there were not significant differences between the assets deemed cost and the balances recorded in accounting. Considering this scenario the Management opted for not recording and controlling these effects.
14. Intangible assets
03.31.12 12.31.11 03.31.12 12.31.11
Goodwill - - 247,931 247,929
Clients portfolio - - 87,733 87,733
Software 4,183 3,583 4,630 4,001
4,183 3,583 340,294 339,663
Controller Consolidated
Intangible assets changes during the quarter ended as of March 31, 2012 are shown below:
Goodwill paid Acquired
in acquisitions Software Total
Balance as of December 31, 2011 - - 3,583 3,583
Acquisition - - 815 815
Amortization - - (215) (215)
Balance as of March 31, 2012 - - 4,183 4,183
Goodwill paid Acquired
in acquisitions Software Total
Balance as of December 31, 2011 247,929 87,733 4,001 339,663
Acquisition 2 847 849
Amortization - - (218) (218)
Balance as of March 31, 2012 247,931 87,733 4,630 340,294
Controller
Consolidated
Clients portfolio
Clients portfolio
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
57
(i) During the period ended as of December 31, 2011, the Company acquired 100% of the voting shares of Frigorífico Pulsa S/A, occurred on March 22, 2011, what generated a goodwill record in the amount of R$61,643. Additionally, in December 2011, the Company acquired 5% of the shareholders capital of the previous joint venture until the date of the mentioned transaction, Brascasing Comercial Ltda, then holding 55% of the shareholders capital of the mentioned company and consequently its control. As it is an operation classified as a “business combination in phases”, the Company has recorded its participation and the non-controller participation at fair value, what caused a surplus value record (goodwill) of de R$93,180 mil (R$49,909 – Company’s participation and R$43.271 – non-controllers participation).
(ii) As described in explanatory note No. 2, for compliance with CVM Deliberation No. 580/09 – CPC 15, the Company has revised the calculations of the acquired assets and assumed profits at the time of the record at fair value of the acquisition of 30% more of the shareholder equity of the controlled MDF, which was classified as a “business combination in phases”, verifying the need of segregating the goodwill determined in the temporary record at fair value of the Company’s participation in the mentioned operation, in the total amount of R$132.890, segregating in goodwill – R$43,213, clients portfolio – R$87,733 and assets surplus value of R$1,944, in compliance with other pronouncements, instructions and orientations of CPC. The non-controllers participation, in the amount of R$33,223, as they do not belong to the Company, remained recorded as the initial record of the operation.
In compliance with CPC 1 (IAS 36), at least once a year, the Company evaluates impairment of its intangible assets, which useful life is not estimated, not identifying until December 31, 2011, any evidence of possible assets without economic recoverability.
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
58
15. Loans and financings
Types Applied financial charges 03.31.12 12.31.11 03.31.12 12.31.11
Debentures (1) 127% of CDI 176,871 184,078 176,871 184,078
BNDES (2) TJLP + Currency basket BNDES+Spread 59,935 62,840 59,935 62,840
BNDES - Revitaliza (1) 9% p.a. 30,390 30,130 30,390 30,130
FINEP (3) TJLP + Spread 3,685 5,383 31,668 34,486
Lease (1) TJLP + 3.5% p.a. 10,333 11,775 10,333 11,775
Banking Credit Notes (1) Rate 8.5% p.a. 18,413 53,939 18,413 130,388
Banking Credit Notes (1) CDI + spread 215,443 227,975 98,359 227,975
NCE (1) CDI + spread 51,868 143,936 75,584 203,650
Other types (1) 10% p.a. 735 831 12,208 13,324
567,673 720,887 513,761 898,646
Foreign currency (US dollar)
ACCs (1)Interest from 2.5% to 6% p.a.+ Exchange rate gains
(losses)36,886 216,408 64,063 244,251
Senior Unsecured Notes - I and II (5) Exchange rate gains (losses) + Interest 1,418,962 786,929 1,584,985 764,456
PPE (4) Interest from 2.8% to 5.5% p.a + Libor 191,393 204,676 221,336 241,160
Other types (1) Interest at 2.95% p.a. + Libor - 32,777 31,688
Hedging financial instruments - derivatives (142,994) (143,671) (144,892) (145,061)
1,504,247 1,064,342 1,758,269 1,136,494
Total Loans 2,071,920 1,785,229 2,272,030 2,035,140
Current 341,852 403,968 276,908 540,665
Non-current 1,730,068 1,381,261 1,995,122 1,494,475
Controller Consolidated
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
59
The Company has offered the following guarantees to the obtained loans:
(1) Surety of the controller VDQ Holdings S.A and/or surety of the VDQ Holdings S.A.
shareholders; (2) Mortgage of the plant in Palmeiras de Goiás and the agricultural and cattle raising
companies of the shareholders of the controller VDQ Holdings S.A.; (3) Mortgage of the Barretos plant; (4) Specifically for the operation of “PPE” of the controlled Minerva Dawn Farms, the following
guarantees were offered to Rabobank:
50% surety of the Company and 50% surety of the partner Dawn Farms Foods; Collaterals of the financed company equipment; Mortgage in 1st. grade of the plant of the controlled Minerva Dawn Farms; 99.99% collaterals of the shares of the controlled Minerva Dawn Farms.
(5) Surety of the Company for the Senior Unsecured Notes issued by the controlled Minerva
Overseas Ltd and Minerva Overseas II Ltd. The installments of the long-term loans and financings of the Company (controller) on March 31, 2012 are composed by maturity years as follows:
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total
Lease 2,423 1,479 911 - - - - - - - 4,813
BNDES 21,890 11,414 11,414 11,414 3,805 - - - - - 59,937
BNDES EXIM 30,000 - - - - - - - - - 30,000
CCB 6,875 8,985 8,400 8,400 2,444 1,902 1,902 1,902 1,744 - 42,554
CCI 288 96 - - - - - - - - 384
Debentures 57,155 57,155 57,155 - - - - - - - 171,465
FINEP 222 - - - - - - - - - 222
NCE 2,466 33,170 - - - - - - - - 35,636
Pre-shipment 58,990 61,951 21,865 - 64,080 - 681,894 - - 637,735 1,526,515
Financial instruments for protection (37,348) (59,598) (31,440) - (13,072) - - - - - (141,458)
142,961 114,652 68,305 19,814 57,257 1,902 683,796 1,902 1,744 637,735 1,730,068
Controller
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
60
The long-term loans and financings installments (consolidated) are composed by maturity year as of March 31, 2012 as follows:
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total
Lease 2,423 1,479 911 - - - - - - - 4,813
BNDES 21,890 11,414 11,414 11,414 3,805 - - - - - 59,937
BNDES Revitaliza 30,000 - - - - - - - - - 30,000
CCB 9,337 13,909 17,857 13,324 7,367 6,826 6,826 6,826 6,667 4,924 93,863
CCI 288 96 - - - - - - - - 384
Debentures 57,155 57,155 57,155 - - - - - - - 171,465
FINAME 2,649 3,108 1,448 - - - - - - - 7,205
FINEP 3,573 4,469 4,469 4,469 4,469 2,234 - - - - 23,683
NCE 4,466 33,170 - - - - - - - - 37,636
Other modalities 255 - - - - - - - - - 255
Pre-shipment 63,955 71,879 26,907 - - - - - - - 162,741
Senior Unsecured Notes - - - - 60,207 - 670,733 - - 813,658 1,544,598
Financial instruments for protect (37,348) (59,598) (31,440) - (13,072) - - - - - (141,458)
158,643 137,081 88,721 29,207 62,776 9,060 677,559 6,826 6,667 818,582 1,995,122
Consolidated
We are detailing below the main loans and financings of the Company and its controlled on December 31, 2011: Debentures On July 7, 2010, Minerva S.A. made an offer of debentures not convertible into shares in the total amount of R$ 200,000, with maturity on July 10, 2015. The debentures were offered by making restricted efforts (CVM Instruction 476). The principal total amount is R$ 200,000 and its remuneration corresponds to the accumulated variance (effective rate) of 127% of the daily average rates of the Interbank Investments (DI) calculated and disclosed daily by CETIP in the Daily Bulletin. The funds were destined to the enlargement of the Company’s debts profile and reinforcement of its working capital. The debentures are secured by personal obligations and have as guarantor VDQ Holdings S.A. Besides, there are financial covenants linked to the indenture, for which the ratio net debt/ EBITDA cannot be higher than 3.5 times. The debentures maturity term is 5 years as of the issue date, therefore on July 10, 2015, but there's amortization per year from July 10, 2013.
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
61
In the process of issuing the mentioned debentures, the Company incurred in transaction costs of R$3,114, which balance will be fully amortized on the maturity of the operation, in 2015, recorded in the Quarterly Information (ITR) as reduction of this liability.
Net equity related to the debentures on March 31, 2012, in the consolidated financial information, was R$182,632 (R$ 184.981 on December 31, 2011). There are no obtained premiums, as well as clause of renegotiation during the issuance process of the mentioned debentures. Debt Notes/Securities abroad The Company, through its subsidiaries Minerva Overseas Ltd. and Minerva Overseas Ltd II, has issued debt securities abroad in the amount of US$200,000 and US$250,000, respectively. The Notes are guaranteed by Minerva S.A. and their maturity years are 2017 and 2019, respectively. Additionally, in February 2012, the Company made effective the issue of US$350,000 in “Notes” in the international market, with maturity in February 2022, through its integral subsidiary Minerva Luxembourg S.A. (“Issuer”). Also related to this operation, the Company has concluded in March 2012 the Re-Tap of the notes operation with maturity in February 2022, in the amount of US$100,000, with the same maturity in February 2012. The Notes issued by Minerva Overseas I and II (Bonds 2017 e 2019, respectively), pay half-yearly coupons at a rate of 9.50% p.a. and 10.875%, respectively, and the operations of Notes issued by Minerva Luxembourg (Bonds 2022 e Re-Tap) will pay half-yearly coupons at a rate of 12.25% p.a. The Company will guarantee all the obligations of the issuer regarding the mentioned issue. The Notes (Bond 2022 and Re-Tap) were not recorded according to the U.S. Securities Act of 1933, as modified (“Securities Act”), and cannot be offered or sold in the United States, except in operations registered according to the Securities Act, or exempted of register requirements. The main clauses of anticipated maturity of the Notes are: (i) the non-compliance with the obligations foreseen in the confidential offering circular, also regarding the limitation of dividends division and change in shareholders' equity control, as mentioned in item (iv) below; and (ii) the non-payment of any note when it is past-due.
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
62
Notes and debentures include provision for keeping a financial covenant through which it is measured the capacity of debt coverage in relation to EBITDA (net profit before interests, taxes, depreciation and amortization). The contractual index of both instruments indicates that the debt coverage level cannot exceed 3.5 times the EBITDA of the last 12 months. For these purposes it is considered: (I) “Net Debt” – it means the sum of the loans and financings balance, not considering exchange variances occurred in the period since the debt raising, less the sum of (i) available funds (as defined below) and (ii) purges (as defined below); (II) “Available funds” – means the sum of the balances of the following accounts of the Company’s balance sheet: “Cash and cash equivalents” and “Securities”; (III) Purges – means a series of exceptions or permitted debts related to specific transactions. Summarizing, these exceptions include re-financing of existing debts considering some circumstances and currencies raising for several applications, some of them for specific purposes, at the total amount of US$141,000 (equivalent to approximately R$258,000); (IV) “EBITDA” – means the value calculated according to the accrual basis of accounting during the last 12 (twelve) months, equal to the sum of the net income less: (i) rendered services cost, (ii) administrative expenses plus (a) depreciation and amortization expenses, (b) net financial result, (c) result with equity equivalence and (d) direct taxes. The covenants are calculated based on the consolidated Quarterly Information (ITR). In the issue process of the mentioned Notes (2022 and Re-Tap), the Company has incurred in transaction costs in the amount of R$25,735, balance which will be fully amortized in the maturity of the operations, in 2022, recorded in its Quarterly Information (ITR) as reduction of this liability. On March 31, 2012, the liabilities related to the Notes, in the consolidated financial information were in the amount of R$1,418,962 (R$764,456 on December 31, 2011).
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
63
FINEP On January 18, 2010, a Financing Agreement (Code 0210000300) was signed between the “Financiadora de Estudos e Projetos” – FINEP (a BNDES division) and Minerva Dawn Farms Indústria e Comércio de Proteínas S.A., which total amount was R$57,208. The balance of the consolidated debt on March 31, 2012 was R$27,984, and the applied interests at the 4.5% rate p.a. The debt is due on June 15, 2018, but can have its maturity anticipated if among other hypothesis: (i) the financed company apply the financing fund on purposes different than the agreed one or not in accordance with the disbursement chronogram; (ii) there is faulty stop of the project object of the financing; or (iii) other circumstances occur that, according to FINEP judgment, make not assured or impossible the compliance by the financed company, of the obligations assumed in contract or the realization of the objective for which the financing was granted. This contract is guaranteed by mortgage on certain real estates of the Company located in Barretos and Palmeiras de Goiás, besides having a guarantee from members of the family Vilela de Queiroz.
Equipment financing – BASA On December 21, 2007 it was made, between Minerva Indústria e Comércio de Alimentos S.A. and Banco da Amazônia S.A., the Private Agreement in the amount of R$53,793, which balance on March 31, 2012 represented R$48,906. Such debt is due on the maximum term of 144 months counted as of the formalization of the debentures indenture. The financial instrument foresees some restrictions to the financed entity, which are: (i) a Minerva Indústria e Comércio de Alimentos S.A. committed itself not to give preference to other credits, not amortizing shares, not issuing debentures or assuming new debts without previous authorization of the Superintendence for the Development of Amazon - SUDAM and Banco da Amazônia S.A., except (a) the loans to attend the ordinary management businesses of the financed, or with purpose of mere material replacement or substitution; and (b) the discounts of commercial effects of the financed, resulting from sale or services rendering; and (ii) Minerva Indústria e Comércio de Alimentos obliged itself to subordinate the changes in its shareholders composition to previous approval by SUDAM and Banco da Amazônia S.A. i. Subordination level
As of March 31, 2012, 7.61% of the total debt of the Company and its controlled was guaranteed by collaterals (9.24% as of December 31, 2011).
ii Eventual restrictions imposed to the issuer, especially in relation to indebtedness limits and contracts of new debts, to dividends distribution, to disposal of assets, to issue of new securities and disposal of shareholders equity control.
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
64
The Credit Note to Export No. 306703-7 in the amount of R$17,446, issued by the Company on April 27, 2010, limits the assignment, transfer or disposal, without expressed authorization by the creditor, of the shareholder control of the Company or of VDQ Holdings S.A. (in the quality of guarantor). The Notes also have clauses that limit to the Company (i) new indebtedness in case the ratio Net Debt /EBITDA is higher than 3.75/1.00 and 3.50/1.00, respectively; (ii) dividends distribution and in this sense Minerva commits itself not to make and not authorize its subsidiaries to make payments of any dividends distribution or make any distribution of its interests on invested capital maintained by others that are not the one of its subsidiaries except (a) dividends or distributions paid in qualified interests of Minerva; and (b) dividends or distributions owed by a subsidiary, on a pro-rata basis or basis more favorable to Minerva, (iii) change of the shareholders’ equity control; and (iv) disposal of assets, which can only be made according to observance of the established requirements, among them in case of assets sale it is necessary that the sale value is the market value. The CCB issued in favor of BNDES includes provision for anticipated maturity of the instrument in case there is inclusion in the corporate agreement, articles of association or social contract of the Company or the companies which control it, through which is required special quorum for deliberation or approval of subjects that limit or retrench the control of any of these companies by the respective controllers, or also the inclusion in those documents of provisions that result in: (i) restrictions to the growing capacity of the Company or its technological development; (ii) restrictions of Company’s access to new markets; or (iii) restrictions or loss to the capacity of payment of the financial obligations deriving from banking credit note.
The CCBs dated January 7 and October 2, 2009, issued by the Company at Banco da Amazônia S.A., include clauses of anticipated maturity of the debt in case there is transfer of the shareholders capital of the Company without the previous and express written authorization from the creditor.
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
65
The financings made with Rabobank foresees limitation regarding: (i) change in shareholders equity control; (ii) assets sale; (iii) realization of any type of merger, split-off, liquidation or sale of all or a relevant part of its property or assets; (iv) dividends distribution; (v) transactions with associated companies; (vi) change in accounting practices; (vii) change in the activities of Minerva Dawn Farms and of its subsidiaries. The contracts also foresees as breach of contract event, among others (a) the occurrence of judgments that are not subject to appeal, either to Minerva Dawn Farms as to the intervenient parties, at value above US$1,000, which remain in effect for a period longer than 30 days; and (b) change in the corporate control of Minerva Dawn Farms. Besides, they limit MDF in paying dividends and incurring in additional financings. According to the contractual clauses, MDF is obliged to comply with certain financial obligations including the keeping a ratio net debt / EBITDA, not higher than 3,00 and a ratio of service coverage of the debt not below 1,5.
The Credit Agreement in the amount of US$35,000, made between the Company and Banco Bradesco S.A. establishes the debt anticipated maturity in case there is control change without the previous written agreement by the creditor.
16. Suppliers
03.31.12 12.31.11 03.31.12 12.31.11
National suppliers 228,987 275,678 257,053 297,178 Foreign suppliers 7,021 9,354 7,418 13,939
236,008 285,032 264,471 311,117
Controller Consolidated
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
66
17. Labor and tax obligations
03.31.12 12.31.11 03.31.12 12.31.11
Labor
Salaries and pro-labore 3,206 3,515 3,892 4,579
Social charges – FGTS and INSS (employees and third parties) 5,431 5,939 6,143 6,780
Provision for vacation/13th.salary and charges 14,335 13,511 20,456 18,316
Other payments and charges 4,879 2,724 5,418 2,909
27,851 25,689 35,909 32,584
Tax
INSS divided in installments 45,056 46,808 45,634 47,577
ICMS payable 5,320 5,518 5,535 5,847
IRPJ - - 2,106 1,574
Other taxes and fees 9,827 12,503 10,523 13,164
60,203 64,829 64,055 68,316
88,054 90,518 99,964 100,900
Current 44,208 44,153 55,606 54,463
Non-current 43,846 46,365 44,358 46,437
Controller Consolidated
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
67
18. Income tax and social contribution on deferred net profit – provision, net value
Deferred tax debts are recorded to reflect the future tax effects attributable to temporary differences between the assets and liabilities tax basis and the respective accounting value, as well as to reflect the tax credits deriving from assets revaluation and are distributed as follows:
03.31.12 03.31.11 03.31.12 03.31.11
Temporary add-backs
Sundry provisions 25,302 78,327 25,302 78,327
Temporary deductions
Sundry provisions - (5,081) - (5,081)
Fair value of the Biological assets (4,328) (367) (4,328) (367)
Goodwill in business combination - (92,834) - (92,834)
Deferred taxes calculation basis 20,974 (19,955) 20,974 (19,955)
Deferred IR/CSs - temporary difference 7,131 (6,785) 7,131 (6,785)
Deferred IR/CS realization - temporary difference - 17,300 - 18,529
Deferred IR/CS on fiscal losses - - - 25,680
Total deferred IR/CS 7,131 10,515 7,131 37,424
Controller Consolidated
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
68
We present below the changes of deferred tax liabilities in the period, related to deferred taxes on revaluation reserve, temporary differences and differences deriving from the application of the international accounting standards - IFRS (RTT):
Balance as of January 1st,
2012 Recognized
in result
Deferred taxes
realization
Balance as of March 31,
2012
Taxes on revaluation reserve 37,187 - (329) 36,858
Taxes on adjustment of biological assets 2,471 1,471 (2,471) 1,471
Taxes on surplus value in controlled 48,532 - - 48,532
Other deferred taxes 4,207 4,347 (8,553) 1
Total deferred tax liabilities 92,397 5,818 (11,353) 86,862
Taxes on obsolete inventories (18,461) - - (18,461)
Other deferred taxes (9,800) - - (9,800)
(28,261) - - (28,261)
Total deferred tax liabilities 64,136 5,818 (11,353) 58,601
Controller and consolidated
Based on budget, business plan and budgetary projection, the Management of the Company estimates that the tax credits from the temporary differences are realized until the period closed in 2015. a. Current - Payable
Income tax and social contribution are calculated and recorded based on the taxable result, including tax incentives that are recognized as the payments of taxes are made and considering the aliquots established by current tax legislation.
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
69
Reconciliation of Income Tax and Social Contribution balances and expenses
The provisioned balance and the result of the taxes applied on profit are composed as follows:
03.31.12 03.31.11 03.31.12 03.31.11
Result before taxes (72,874) 2,756 (73,041) (22,820)
Add-backs
Temporary differences 1,687 78,327 1,687 78,327
Permanent differences 16,053 8,845 16,053 8,845
Temporary differences realization 143,762 - 143,762 -
Revaluatrion reserve realization 968 1,047 968 1,047
Effects of the initial adoption of IFRS 7,830 2,326 7,830 2,326
Deductions
Temporary differences (159,755) (6,027) (159,755) (6,027)
Permanent differences - (21,222) - (21,222)
Effects of the initial adoption of IFRS (4,328) (95,326) (4,328) (95,326)
Taxes calculation basis (66,657) (29,274) (66,824) (54,850)
Calculation basis after loss to be offset - - - -
Current income tax and CSLL - - (829) -
Controller Consolidated
Income tax and social contribution on profit were determined according to current legislation and in compliance with the Transition Tax Regime – RTT established by MP 449/2008. The calculations of income tax and social contribution on profit and their respective statements, when required, are subject to review by tax authorities during variable periods and terms in relation to the respective payment date or presentation of income tax return.
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
70
Based on studies and projections made for the following periods and considering the limits established by current legislation, the expectation of the Company’s management is that the existing tax credits are realized in the maximum period of five years.
The accounting net profit does not have direct relation with the taxable profit for income tax and social contribution due to the existing differences between the accounting criteria and the pertinent tax legislation. Therefore, we recommend that the evolution of the realization of tax credits deriving from tax losses, negative basis and temporary differences are not taken as indicator of future net profits.
19. Debentures mandatorily convertible into shares
03.31.12 12.31.11
Debentures mandatorily convertible into shares 200,127 200,903
(-) Transaction cost (*) (15,735) (16,204)
184,392 184,699
Non-current 5,761 903
Current 178,631 183,796
Controller and consolidated
(*) The transaction cost shall be amortized pro rata until the notes maturity on June 15, 2015.
As described in Note 3 (f), according to CVM, the Company reclassified the mandatorily convertible debentures into shares from shareholders’ equity (capital reserve) to liabilities, segregated into current (annual interest) and non-current (principal amount).
The main characteristics of this transaction are the following:
On May 11, 2011, the Board of Directors of Minerva S.A. approved the second public issue of debentures, mandatorily convertible into common shares of the Company's issue, of subordinated class and single series under firm settlement guarantee. After all legal formalities and filing of documentation with ANBIMA/CVM, the Company has successfully achieved price determination for this issue on July 27, 2011 through the Bookbuilding process, upon the following characteristics:
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
71
Issue value: R$ 200,000; Unit par value: R$ 1; Offer price: R$ 950.00 per debenture; Maturity: 4 years after the issue date, i.e., June 15, 2015; Remuneration: 100% of DI rate; Convertibility: Debentures will be mandatorily converted into shares to the
Company on maturity date, or, among other events, at any moment at the discretion of the Debenture Holders.
Conversion Price: subject to the maximum value of R$ 8.00 and the minimum of R$ 6.00;
Negotiation and distribution: through DDA and BOVESPAFIX system;
20. Commercial leasings
The Company is leaseholder in several contracts, which are classified as financial or operational leasing
a. Financial leasing
The financial leasing operations are recognized in current liabilities and non-current liabilities of the Company, having as counterpart the record of the acquired asset in fixed assets.
b. Operational leasing
Operational leasing continues with the accounting criteria required by the current Corporate Law, i.e., it is monthly recognized the expenses incurred with the payment of leasing, The Company has one only operational leasing contract of the Batayporã/MS plant, which has clause of automatic renewal and purchase preference option.
The commercial leasing statement is shown below:
Leased assetInterests weighted
average rateWeighted average
term of mat. (years)Expense amount as
of 03.31.2012Expense amount as
of 03.31.2011
Farms and industrial plants
IPCA + 11% @ cattle / IGPM dez/15 375 375
375 375
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
72
21. Contingencies
a. Summary of the recorded contingent liabilities
The Company and its controlled companies are parties in several judicial claims, which make part of the normal running of their business, for which provisions were made based on estimates made by their legal advisors and the best estimates of the Management. The main information on these proceedings is presented below:
03.31.12 12.31.11 03.31.12 12.31.11
Appeal judicial deposits related to labor claims 3,077 2,982 3,077 2,982
Appeal judicial deposits related to tax proceedings 1,890 1,890 1,890 1,890
Appeal judicial deposits related to civil proceedings 4,758 4,758 4,758 4,758
Tax (offset with non-homologated credits) 9,401 9,401 9,404 9,405
Contingencies for labor claims 156 251 156 251
19,282 19,282 19,285 19,286
Controller Consolidated
There were no significant changes in the balance of provision for contingencies, both in the controller and consolidated, in the quarter ended as of March 31, 2012.
Description of the contingent liabilities and credits by labor, civil and tax natures
a. Labor claims (probability of loss evaluated as probable)
The major part of these labor claims involves insalubrity claims and Article No. 253 of CLT. Based on the positioning of the legal advisors in charge of these judicial demands and based on the Management´s accumulate experience in similar cases, provision for labor claims were made in the amount of R$156 (R$251 in controlled and consolidated, on December 31, 2011).
b. Tax processes
Appropriated legal obligations deriving from the amortization of tax liability with assumed IPI credit (related to acquisition of bovine raw materials from individual cattle raisers) not judged yet.
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
73
On December 17, 2003, the Company registered a process to obtain IPI credits as reimbursement of the PIS and Cofins contributions from acquisition of raw materials for production of goods for exports. A judicial process was made regarding those exports and the Company obtained favorable decision in first instance.
Although this decision is not definitive (judged), offset was made with part of the total R$89.809 of the credit involved in this judicial process, in the amount of R$3,448. Based on external lawyer guidance the Management of the Company believes it is probable the success in 2nd. instance of the mentioned dispute in court. To prevent the use of appeals on this decision and an unfavorable decision against the Company, as well as for compliance with the accounting practices adopted in Brazil, a provision was made to face this possibility, in the amount of R$3,448, duly updated with fine and interests, representing the amount of R$5.918, corresponding to a total provision of R$9,366, as of March 31, 2012 and December 31, 2011, which values are totally provisioned.
The tax contingencies amount of R$9,401 on March 31, 2012 and December 31, 2011, is represented in its major part by PIS/Cofins tax processes, in the amount of R$9.366 and by disputes regarding PIS/Cofins calculation basis.
c. Other processes
On December 31, 2011, the Company and its controlled had other processes in progress of civil, labor and tax natures, in the approximate amount of R$3,717, which result, according to the legal advisors, is possible of loss, but not probable, and for which the Company’s management understand it is not necessary to establish provision for eventual loss. Based on the follow-up made by the internal legal department of the Company, it was verified that the same amount remains for March 31, 2012.
22. Shareholders’ Equity
a. Capital stock
The subscribed and paid-in capital of the Company as of March 31, 2012, is in the amount of R$257,885 (R$252,251 as of December 31, 2011), represented by 106,650,412 ordinary , book keep, without nominal value shares, all of them cleared of any charges or encumbrances. After homologation of the capital increase authorized by the Company’s Administration Council, changing the limit to up to 100,000,000 more ordinary shares, the authorized capital is of 175,000,000 ordinary shares.
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
74
On April 30, 2009, the Administration Council authorized a program for repurchase of shares issued by the Company, for keeping in treasury, cancellation or renegotiation in the market. During the quarter ended as of March 31, 2012 and as established in the instrument for issue of “debentures obligatorily convertible into shares”, the amount of 856,394 ordinary shares, which correspond to a capital increase of R$5,634. were converted into shares of the Company
b. Shares in treasury
According to provision of the paragraphs 1º and 2º of article 30 of Law No. 6.404/76 and CVM Instructions No. 10, No. 268 and No. 390, the Council has approved acquisitions of up to 3,451,371 ordinary, nominative, book keep and without nominal value shares, representing 10% of the 34,513,710 shares of the Company in the market.
During the quarter ended as of March 31, 2012, the Company negotiated purchase of 2,264,700 shares, at an average cost of R$5,92, in the São Paulo stock, commodities and futures exchange (BM&FBovespa).
On March 31, 2012, the Company had 3,442,500 thousand shares in treasury at an average cost of R$6.07. The negotiation was made in Bovespa at market price.
c. Revaluation reserve
The Company has evaluated its fixed assets in the 2003 and 2006 periods, being the remaining balance on March 31, 2012, in the amount of R$75,085 (R$75,724 on December 31, 2011), net of tax effects.
As mentioned before and in accordance with provisions of Law No. 11.638 of 2007, the Company made the option of keeping the revaluation reserve established until December 31, 2007, until its total realization, which may occur due to depreciation or disposal of the revaluated assets.
d. Legal reserve
It is established at 5% of the calculated net profit in each period, according to art. 193 of Law No. 6.404/76, up to the limit of 20% of the social capital. In the period in which the legal reserve balance, plus the amounts of the capital reserves mentioned in § 1º of art. 182 of Law No. 6.404/76 exceed 30% of the social capital, it will not be mandatory the destination of part of net profit of the period to legal reserve.
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
75
e. Profits reserve
This profits retention reserve was established for destination of part of the 2010 accumulated profits, in compliance to the capital budget approved by Ordinary General Meeting (AGO) held on April 30, 2010, which foresees continuity of the Company’s growth plan.
f. Stocks option plan
On October 1st. 2008, the Company’s Administration Council approved in Extraordinary General Meeting, the stocks option plan, which objective is to grant to Administrators and employees at management level, the option to purchase shares issued by the Company
The Administration Council may periodically create programs for purchase of shares (“programs”), in which will be defined the terms and conditions of each grant of options, observing the basic lines established in the Plan ;
All rules of each program shall be included in the Stock Options Contract (for Granting Share Purchase Options and Other Covenants) to be made with each participant of the each program.
The Plan will be limited to a maximum of options that result in a dilution of up to 3% of the Company’s capital on the establishment date of each program. The dilution corresponds to the percentage presented by the number of shares that support the options, considering all options granted in the plan by the total number of shares issued by the Company. The Company’s stocks option plan does not foresees eventual negotiations involving shares in treasury to make the redemption of shares.
The Company has been adopting as procedure the disclosure of information required by CVM in relation to its options plans and future programs.
On April 30, 2010 the Company’s Administration Council approved in Ordinary General Meeting an Option Plan for Purchase of Shares and Other Matters. This plan is limited to the maximum of 56,101 options, which were fully exercised in July de 2010. Considering this, as of December 31, 2011 there were no stock options and other matters to be exercised as part of this plan. For this reason it is not necessary the presentation of circulation and average price of the shares. In case these shares would be recognized, the impact on the Company’s equity would be of approximately R$350.
With the gradual adoption of the plan, the Management intends to offer to its participants a long-term incentive, aligned with the best remuneration practices, as a mere complement of the remuneration policy.
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
76
g. Dividends and Interests on Own Capital
The Company’s Articles of Association establishes the distribution of a minimum obligatory dividend of 25% of the result of the period, adjusted according to legislation. During the Administration Council meeting held on March 5, 2012, it was deliberated, as proposed by the Company’s Executive Directory, the anticipated distribution of the minimum obligatory dividends and interests on own capital, related to the period ended as of December 31, 2011, in the amounts of R$11,762 and R$20,560 (R$17,476, net of IR withholding), respectively.
We are presenting below the calculation memo of dividends and interests on own capital, to be distributed:
2011 2010
Controller's net profit in the period 45,364 22,898
Legal reserve (5%) (2,268) (1,145)
Net profit after legal reserve 43,096 21,753
Revaluation reserve realization 3,952 4,465
Adjusted net profit 47,048 26,218
Minimum obligatory dividends (25%) 11,762 6,555
Distribution of interests on own capital
Interests on own capital 20,560 -
Income tax withheld at source (15%) (3,084) -
Interests on own capital distributed to the ordinary sahres (R$) 17,476 -
Total distributed dividends and interests on own capital
Number of shares
Ordinary shares 105,909,718 105,794,018
Shares in treasury -3,392,500 -2,546,000
102,517,218 103,248,018
Distributed interests on own capital per share
Distributed value by ordinary shares 0.170471 -
Distributed dividends by share
Distributed value by ordinary shares 0.114732 0.063486 In compliance with the tax legislation, the mentioned interests are recorded as financial expenses.
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
77
To comply with the accounting policies adopted in Brazil and the Securities Commission – CVM instruction, these interests are presented as net profit distribution of the period. During the above-mentioned Administration Council Meeting (RCA), it was determined the anticipated payment of dividends and interests on own capital on March 15, 2012. These anticipated profits distribution will be duly confirmed (ad referendum) in Ordinary General Meeting – AGO, when they will also deliberate about destination of the excess profit of the period ended as of December 31, 2011.
On March 27, at the Ordinary General Meeting – AGO, the destination of the 2011 period profits were confirmed, as mentioned above
23. Remuneration to management
As of March 31, 2012, the Company recorded expenses related to remuneration to its key-personnel (Administration Council and Statutory Directors of the Company) in the amount of R$555 (R$468 as of March 31,). All remuneration is at short-term. In case of labor contract termination, there are no post-employment benefits.
24. Information by business segment
03.31.12 03.31.11 03.31.12 03.31.11 03.31.12 03.31.11
Net income 77,954 53,574 866,110 826,810 944,064 880,384
CPV (56,940) (39,555) (702,804) (719,081) (759,744) (758,636)
Operating expenses (14,641) (9,082) (104,302) (68,690) (118,943) (77,772)
Net financial result (12,333) (2,128) (126,085) (64,668) (138,418) (66,796)
Net profit before taxs (5,960) 2,809 (67,082) (25,629) (73,041) (22,820)
Business segments
Live cattle Beef Consolidated
In the presentation based on geographical segments, the segment income is based on the geographical location of the client. Assets of the segment are based on the assets geographical location.
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
78
There is no income from transactions with one only foreign client that represents 10% or more of total income. The main business segments of the Company and its controlled companies are production and commercialization of meat “in natura”, live cattle and their byproducts and the bovine, swine and chicken meat processing.
25. Income
03.31.12 03.31.11 03.31.12 03.31.11
Products sales income - Domestic market 332,640 388,289 346,012 423,433
Products sales income - Foreign market 521,757 428,633 659,875 515,173
Income deductions - taxes and others (55,284) (53,343) (61,823) (58,223)
Net operating income 799,113 763,579 944,064 880,383
Controller Consolidated
26. Net financial result
03.31.12 03.31.11 03.31.12 03.31.11
Financial income
Yield - financial applications 9,398 9,793 10,658 17,999
Other financial income 3,184 - 3,677 -
12,582 9,793 14,335 17,999
Financial expenses:
Interests on financings (66,189) (69,467) (79,268) (61,645)
Other financial expenses (67,486) (5,405) (61,877) (33,302)
(133,675) (74,872) (141,145) (94,947)
Net exchange variance (9,708) 9,210 (11,608) 10,153
Net financial result (130,801) (55,869) (138,418) (66,795)
Controller Consolidated
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
79
27. Profit per share a. Basic profit
The basic profit per share is calculated by dividing the profit attributable to the Company’s shareholders by the weighted average number of ordinary shares issued during the period, excluding the ordinary shares purchased by the Company and kept as shares in treasury:
Basic 03.31.12 03.31.11
Net profit attributable to the Company's shareholders (65,743) 13,271
Weighted average of the number of issued ordinary shares – thousand 106,650 105,794 Weighted average of the shares in treasury (3,443) (3,324)
Weighted average of the number of ordinary shares in circulation – thousands 103,207 102,470
Basic profit per share - R$ (0.63700) 0.12950
b. Diluted basic profit
The diluted profit per share is calculated by adjusting the weighted average of the number of ordinary shares in circulation, supposing the conversion of all potential ordinary shares that would cause dilution. The Company has only one category of potential ordinary shares that would cause dilution: subscription bonuses:
Diluted 03.31.12 03.31.11
Net profit attributable to the Company´s shareholders (65,743) 13,271
Weighted average of the number of ordinary shares in circulation - thousands 103,207 105,794 Adjustment due to conversion of convertible debentures 25,553 - Adjustment due to options of shares purchase - thousands - 29,262
Weighted average number of ordinary shares for the diluted profit per share - thousands 128,760 135,056
Diluted profit per share - R$ (0.51060) 0.09830
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
80
28. Risks management and financial instruments The Company’s operations are exposed to market risk, mainly related to exchange rate and interest rate variances, credit risks and prices in purchase of cattle. In its investments management policy the Company foresees the use of derivative financial instruments for its protection against these risk factors.
The management of market risks is made through application of the following two models: Value at Risk calculation (VaR) and calculation of the impacts from the application of stress scenarios. In case of VaR, the Management uses two distinct models: Parametric VaR and VaR Simulation of Monte Carlo. We point out that the monitoring of risks is continuous, being calculated at least twice a day.
The Company does not use exotic derivatives and does not have any instrument of this nature in its portfolio.
a. Treasury´s Policy for Hedge Operations
The Company’s hedge policy management is under the responsibility of the Treasury Director and follows the decisions taken by the Risks Committee, which is composed of members of the Company’s Executive Directory, employees and external consultants.
The supervision and monitoring of the compliance with the guidelines established by the hedge policy are under responsibility of the Executive Management of Risks, subordinated to the Presidency and to the Risks Committee.
The Company’s hedge policy is approved by its Administration Council and takes into consideration its two main risk factors: exchange rate and cattle for slaughter.
I. Policy for exchange hedge
The Exchange hedge policy aims to protect the Company against currencies fluctuations and is divided in two segments:
1. Flow
The flow hedge strategies are daily discussed in the Markets Committee.
The flow hedge has the objective of making use of the market fluctuations to improve the operating result of the Company and protect its currencies flow, different from Real, contemplating up to one year.
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
81
For realization of these hedges it can be used the financial instruments available in the market such as: operations of future dollar at BM&F, NDFs, funds in foreign currency, options (the Company is always purchased in options) and obtaining of funds in dollar (spot foreign exchange).
2. Balance sheet
The balance sheet hedge is monthly discussed at the administration council meeting.
The policy of balance sheet hedge has the objective of protecting the Company regarding its indebtedness in foreign currency.
The exposure of the balance sheet is the debt flow in North-American dollars with term longer than one year. It can be used financial instruments available in the market such as: cash retention in North-American dollars, NDFs, futures at BM&F, Swaps and options
II. Policy of cattle hedge
The policy of cattle hedge has the objective of minimizing the impacts of the cattle price fluctuation in the cattle price in the result of the Company. The policy is divided in two topics:
1. Forward contracts for cattle
With the objective of assuring raw material, mainly for the bovine intercrop period, the Company buys cattle for future delivery and uses the BM&F for sale of futures, minimizing the directional risk of the bovine arroba.
It can be used cattle for slaughter instruments available in the market such as: cattle for slaughter futures at BM&F and options for cattle for slaughter futures.
2. Hedging of meat sold
With the objective of guaranteeing the cost of raw material used in meat production, the Company uses BM&F for purchase of future contracts, minimizing the risk of price fluctuations per arroba of cattle beast and hedging its operating margins obtained at the time of selling the meat.
It can be used cattle for slaughter instruments available in the market such as: future cattle for slaughter contracts at BM&F e options for future cattle for slaughter contracts at BM&F.
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
82
b. Table of Positions in Derivatives
The tables showing the positions in derivative financial instruments were prepared in a way to present the ones contracted by the Company in the period ended March 31, 2012 and December 31, 2011, according to their purpose (equity protection and other purposes):
/ thousand
Futures contracts:
Purchase agreement
Foreign currency - - - - - Mini contract US dollar (dol x 0.10)
150 - 282 - 20
Other - - - - - BGI (arroba) 167 16,979 1,807 Corn (sacks) 49 92 1,292 2,427 10 Sales agreements
Foreign currencyDOL (US$) 75,250 59,000 138,220 110,922 1,809 23,649 Other - - - - - BGI (arroba) 530 - 53,167 - - -
Option contracts
Call holder
Foreign currencyDOL (US$) 2,836 Other - - - - - BGI (arroba) - - - 57 - Put holder
Foreign currencyDOL (US$) 50,000 50,000 1,050 1,050 3,964 - Other - - - - - BGI (arroba) 330 832 996 - Call seller
Foreign currencyDOL (US$) 2,240 Other - - - - - BGI (arroba) - - - - 48 Put holder
Foreign currencyDOL (US$) 50,000 50,000 50 50 - 876 Other - - - - 413 BGI (arroba) 330 703 - -
Forward contracts
Long position
Foreign currency - - - - - NDF (US dollar) 4,957 9,299 9,299 - Short position
Foreign currencyNDF (euro) 8,700 20,500 21,141 49,901 2,585 - NDF (US dollar) 28,739 - 52,366 - 621 -
03/31/2012Description
Fair value Accumulated effect
12/31/2011 03/31/2012 12/31/2011 Amount receivable/ Amount payable/
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
83
/ thousand R$ /
Futures contracts:
Purchase commitments
Other - - - - -
BGI (Notional in Arroba) - 42
Corn (sacks) 32 23 838 586 62 -
Soybean (sacks) - - - -
1 day DI (R$) - - - 250
Sale commitments
Foreign currency - - - - -
DOL (US$) 10,000 10,000 18,368 18,758 1,002 -
Option contracts
Call holder
Other - - - - -
BGI (arroba) 102
Corn (sacks) 90 90 169 169 66 -
Put holders
Foreign currency - - - - -
DOL (Notional in US$) 10,000 10,000 10 10 257 -
Other - - - - - BGI (arroba) - - - 12 - Corn (sacks) 10 23 8 18 84 - 1 day DI (R$) 18 - - - Call seller
Other - - - - - BGI (arroba) 80 Corn (sacks) 113 135 216 217 - 129 1 day DI (R$) 18 - - - Put holder
Foreign currency
DOL (Notional in US$) 10,000 10,000 10 10 - 293 Indices - - - - - Other - - - - - BGI (arroba) - - - - 8 Corn (sacks) 27 27 19 8 - 127
Other purposes
Accumulated effect
Amount payable / Description
Fair Value
03/31/2011 03/31/2011 31/12/11 Amount receivable / 31/12/11
The referential values are those that represent the base value, i.e. the initial value, contracting of the operation, for calculation of positions and market value.
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
84
Fair values were calculated as follows:
Future contracts traded in stock market: calculated according to market quotations divulged by BM&F;
Options contracts: for contracts negotiated and listed in stock market, the calculation was made according to the values divulged by BM&F (value of market quotation). For other option contracts (exchange without liquidity), it were used the models Black & Scholes models (Interbank Deposit and Cattle), Black 76 (Dollar) or Garch (fixed and Interbank Deposit rates), which considers fluctuation, exercise price, interest rate and maturity time;
Swap contracts: they are estimated based on the market quotations of similar contracts and on the adjustment of the variables that compose them. The effective financial liquidation of the swap contracts occurs only at the respective maturities. The Company does not intend to liquidate such contracts before maturity;
NDF (Non Deliverable Forward): it is estimated based on the use of market curves of similar instruments, on the respective determination dates and adjusted to present value.
Fair values were estimated on the closing date of the financial statements, based on “significant market information”. Changes in the premises and changes in financial market operations may significantly affect the presented estimates.
Derivatives are under daily liquidation of the financial adjustments at BM&F, except swap, options and NDF operation. The maturities for liquidation of the financial adjustments can be weekly, monthly or quarterly. Under this modality, realized and non-liquidated financial adjustments are recorded in balance sheet accounts as of March 31, 2012 and December 31, 2011 in the account “Treasury advances”. The payable and receivable balances compositions, included in the financial statements, are the following:
The mark-to- market operations of NDF, Swaps and Options at BM&F – Bovespa are recorded in balance sheet accounts on March 31, 2012 and December 31, 2011 in the accounts “NDF receivable/payable”, “Swap” and “Options receivable”, consecutively:
Financial instruments 03/31/2012 12/31/2011Receivable (payable) Receivable (payable)
Future contracts (D+1) -437 949Option contracts 0 0Swap 0 0NDF 0 0Shares 0 0
-437 949
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
85
c. Exchange Rate and Interest Rate Risks
The risks of exchange variance and interests rates on loans and financing, financial application, accounts receivable in foreign currency deriving from exports, investments in foreign currency and other obligations denominated in foreign currency are managed through the use of derivative financial instruments based on future contracts traded in stock market, change of rates transactions (swap) and NDFs (Non Deliverable Forwards), options and other instruments of stock market.
The table below shows the consolidated equity position of the Company, specifically in relation to its financial assets and liabilities, divided by currency and exchange exposure, enabling visualization of the net position of assets and liabilities by currency, compared to the net position of the derivative financial instruments for protection and administration of the exchange exposure risk:
Derivative financial instruments 03/31/2012 12/31/2011
Mark-to-market Mark-to-marketOptions 1,341 90Swap 133,284 133,483NDF (EUR+DOL) 9,745 10,188General total 144,370 143,762
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
86
Domestic Foreign Total
Assets
Cash 319 319
Banks current account 362,601 192,389 554,990
Financial investments 290,967 - 290,967
Accounts receivable 52,710 77,360 130,070
Total current 706,597 269,749 976,346
Total assets 706,597 269,749 976,346
Liabilities
Short-term financing 89,059 187,848 276,907
Total current 89,059 187,848 276,907
Long-term financing 424,708 1,570,415 1,995,123
Total non-current 424,708 1,570,415 1,995,123
Total liabilities 513,767 1,758,263 2,272,030
Net financial debt (192,830) 1,488,514 1,295,684
Currency hedging derivatives - Net position (144,892) (144,892)
Net exchange position - 1,343,622 1,150,792
Consolidated
03.31.2012
Currencies
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
87
Net position of the derivative financial instruments is composed as follows:
Financial assets and liabilities are represented in the financial statements on March 31, 2012 and December 31, 2011 at amounts close to the market ones, being appropriated the respective income and expenses, and are presented on these dates according to realization or liquidation expectation. We point out that the values related to exports orders (sales commitments) refer to approved but no invoiced yet orders from clients (and therefore not recorded), but that are already protected against the foreign currency variance risk (dollar or other foreign currency) by derivative financial instruments.
The company protects its long-term financial assets and liabilities subject to exchange variance, mainly American dollar. On March 31, 2012, the Company had PPEs (Pre-payment of exports) and Unsecured Senior Notes payable at long term and subject to exchange variance and during the 2011 period, the Company made use of the market opportunities and converted part of the resources in dollar to reais linked to CDI.
Financial instruments (net) Asset (liability) position net as of 03/31/2012
Asset (liability) position
net as of 12/31/2011
Future contracts - DOL (Dollar) (75,250) (110,640)Option contracts (Dollar,Cattle, Corn and IDI) 942 (2,295)Swaps contracts - (Dollar) 133,284 133,483 NDF (dollar + EURO) (89,805) (40,602)Net total (30,830) (20,054)
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
88
The NDFs contracts of the Company in effect on March 31, 2012 are listed below:
Credit risks
The Company is potentially subject to credit risks related to accounts receivable from clients, minimizing this with the pulverization of clients portfolio, considering that the Company does not have a client or business group that represents more than 10% of its billing, and grants credits to clients with good operation and financial indexes.
d. Price Risk in Cattle Purchase
The Company’s operation segment is exposed to fluctuation in cattle price, main raw material, which variance results from factors out of the Administration controls, as climate factors, offer volume, transportation costs, agricultural and cattle raising policies and others. According to its inventory policy, the Company keeps its management strategy for this risk, acting in the physical control, which includes anticipated purchases, cattle confinement and contracts of future liquidation, which guarantees its inventory realization at a certain prices level.
NDF SALE EURO 4/3/2012 (2,000,00) Banco Morgan Stanley S.A.
NDF SALE EURO 4/23/2012 (3.000,00) Itau BBA S.A. NDF SALE EURO 4/13/2012 (1,200,00) Banco Standard de Investimentos S.A.
NDF SALE EURO 4/3/2012 (1.000,00) Banco Barclays S.A.
NDF SALE EURO 4/13/2012 (1.500,00) Banco Rabobank S.A.
NDF SALE DOL 5/2/2012 (1.239,33) Banco Morgan Stanley S.A.
NDF SALE DOL 5/2/2012 (10.000,00) Itau BBA S.A. NDF SALE DOL 5/2/2012 (17.500,00) HSBC Bank Brasil S.A. – Banco Multiplo
NDF PURCHASE DOL 11/16/2015 50.000,00 Banco Standard de Investimentos S.A.
NDF SALE DOL 11/16/2015 (50.000,00) Banco Standard de Investimentos S.A.
NDF PURCHASE DOL 11/16/2015 50.000,00 Banco Standard de Investimentos S.A.
NDF SALE DOL 11/16/2015 (50.000,00) Banco Standard de Investimentos S.A.
NDF PURCHASE DOL 9/13/2015 100.000,00 Banco Morgan Stanley S.A.
NDF SALE DOL 9/13/2015 (100.000,00) Banco Morgan Stanley S.A.
CURRENCY MATURITYPOSITION NOTIONAL INSTITUTIONTYPE
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
89
Cash sensitivity statements
The tables including sensibility analysis have the objective of disclosing, in a segregate way, the derivative financial instruments that, according to the Company’s evaluation, have the objective of protection against exposure to these risks. These financial instruments are grouped according to the risk factor they are intended to protect (price risk, exchange rate risk, credit risk, etc.) The scenarios were calculated based on the following assumptions: Increase change: it characterizes increase in prices or risk factors on March 31, 2012;
Decrease change: it characterizes decrease in prices or risk factors on March 31, 2012;
Possible scenario: impact of 6%; Probable scenario: impact of 12%, Remote scenario: impact of 18%.
CattleFair value
Over-the-counter market 3/31/2012
Purchased forward contractsNotional amounts (@) 441,683 Futures contract price (R$/@) 95Total R$/1000 41,836
BM&F Stock & Exchange Market Fair value3/31/2012
Sold futures contractsNotional amounts (@) 428,670 Futures contract price (R$/@) 99Total R$/1000 42,351
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
90
The cash sensitivity tables were prepared in compliance with CVM deliberation No. 550/08, taking into consideration only, and just only the positions of derivative financial instruments and their impact on cash. We point out that such model does not consider positions related to hedge:
Transaction Movement Risk Probable scenario
Possible scenario Remote scenario
Hedge Upward Cattle 2,060 5,171 8,191
Cattle Upward Cattle (2,541) (5,082) (7,623)
Net (481) 89 568
Transaction Movement Risk Probable scenario Possible scenario Remote scenario
Hedge Upward US dollar (5,178) (10,330) (15,481)
Invoices+cash USD Upward US dollar 9,553 19,107 28,660
Net 4,375 8,777 13,179
Transaction Movement Risk Probable scenario Possible scenario Remote scenario
Hedge Upward Euro (1,268) (2,537) (3,805)
Invoices $EUR Upward Euro 835 1,671 2,506
Net (433) (866) (1,299)
Transaction Movement Risk Probable scenario Possible scenario Remote scenario
Hedge Upward US dollar 8,970 17,941 26,911
Fundraising in US$ Upward US dollar (2,582) (5,164) (7,746)
Net 6,388 12,777 19,165
Equity hedging
e. Guarantee Margins
A guarantee margin call is applied to exchange transactions, whereby in order to cover margin calls the Company uses public and private fixed income bonds, such as CDBs (bank deposit certificates) held in its portfolio, thus mitigating impacts on its cash flow.
As of March 31, 2012, the values deposited in margin represented R$ 23,691.
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
91
29. Comprehensive income statements
In compliance with CPC 26 (IAS 1) – Presentation of the Quarterly Information (ITR), the Company is presenting below the changes in comprehensive income for the periods ended as of December 31, 2011 and 2010:
03.31.12 03.31.11 03.31.12 03.31.11
Profit of the period (65,743) 13,271 (66,739) 14,604
Asset and liability valuation adjustments (2,751) (502) (2,855) (502)
Total comprehensive income (68,494) 12,769 (69,594) 14,102
Controller Consolidated
30. Insurance coverage
The Company and its controlled adopt an insurance policy that takes into consideration mainly the risks concentration, relevance and assets replacement value. The main information on the current insurance coverage as of March 31, 2012 can be shown as follows:
Type of coverageInsured amount
Buildings Fire and sundry risks 515,000 Facilities, equipment and products in stock Fire and sundry risks 46,000 Vehicles and airplanes Fire and sundry risks 27,620 Civil liabilities Operations risks 10,000
598,620
The Company and its controlled keep insurance coverage on all products transported in the country and abroad.
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
92
The adopted risk premises, considering their nature, are not included in the audit scope and therefore were not examined by the Company´s auditors. In 2010 the Company acquired patrimonial insurance on buildings for the plants located in Palmeiras de Goiás (GO), Barretos (SP), José Bonifácio (SP), Bataiporã (MS) and Araguaina (TO).
31. Subsequent events Swap contract During a meeting held on April 03, 2012, the Company’s Board of Directors approved the operation with the investment fund "Credit Suisse Próprio Fundo de Investimento Multimercado" (“Credit Suisse”), of contracts for exchanging results of future financial flows (swaps). The swap contracts establish that the Company’s return will be equivalent to the price variance of the shares issued by the Company (BEEF3) and the Credit Suisse return will be equivalent to 100% of the CDI variance in the adjusted term, plus a pre-determined spread. The contracts will be made within next ninety days and their initial date will be established by the Credit Suisse together with the Company and the maximum term for each contract will be two years. The operations, which results will be financially liquidated, do not change the actual percentage of Company’s shares in circulation and do not cause immediate cash disbursement.
Minerva S.A. Notes to the individual and consolidated interim financial information for the quarter ended March 31, 2012 (In thousands of Brazilian reais)
93
32. Statement of cash flows (consolidated) The statement of cash flow was prepared according to CVM 547/2008.
a. Acquisition of company
The controller Company has acquired the company Pulsa S/A, which data is shown below:
Pulsa S/A
Cash and cash equivalents 12,945
Accounts receivable from clients 17,683
Other receivables 16,205
Inventory 14,196
Fixed assets 56,820
Loans and financings (36,408)
Suppliers (11,014)
Other accounts payable (44,246)
Deferred tax liabilities (1,181)
Total sales price 25,000
Available funds of the controlled companies (12,945)
Acquisition cash flow
less available funds of the controlled 12,055
Barretos, May 15th, 2012 – Minerva S.A. (BOVESPA: BEEF3; Level 1 ADR: MRVSY; Bloomberg: BEEF3.BZ; Reuters:
BEEF3.SA), one of the leaders in Latin America in the production and sale of fresh beef, live cattle and cattle
byproducts, with operations also in the beef, pork and poultry processing segments, announces today its results for
the first quarter of 2012 (1Q12). The financial and operating information herein is presented in BRGAAP and Brazilian real
(R$), in accordance with International Financial Reporting Standards (IFRS).
� Minerva recorded operating cash flow of R$16.4 million in 1Q12. In addition, the
company’s cash conversion cycle was stable, despite the increased exposure to the
international market. The performance of these indicators confirms the positive industry
scenario and the right expansion strategy devised by Management.
� Gross Revenue in 1Q12 totaled R$1,005.9 million, 7.2% up on 1Q11. In the last
twelve-month period, gross revenue was a record R$4.3 billion, up 15.8% year-over-year.
Exports grew 28.4% over 1Q11, accounting for 65.6% of the company’s total sales in the
period, versus 54.9% in 1Q11. Additionally, Minerva’s market share of fresh beef exports
was 21.0% in 1Q12, up 1.6 p.p. from the same period in 1Q11.
� EBITDA totaled R$77.2 million in 1Q12 and R$364.2 million in the last twelve-
month period, 28.1% and 29.5% higher than in the same periods in the previous year,
respectively. EBITDA margin stood at 8.2% in 1Q12, 1.4 p.p. up on 1Q11 and the highest
first-quarter EBITDA margin in the past five years. Note that in Brazil, due to seasonal
reasons, first quarters usually register the lowest beef demand.
� The consistent improvement in our results came from our austere financial
policy, efficient working capital management, excellence in risk management, continued
maturation of our investments and a more favorable scenario for the cattle cycle.
� Average cattle arroba prices in 1Q12 declined by 7.3% and 5.8% from 1Q11 and
4Q11, respectively, and the trend should continue in 2Q12. Therefore, we believe we
have passed the inversion point of the cattle cycle curve with the beginning of a period of
higher cattle supply in the industry during the coming years, which should benefit the
operations of companies focused on South America.
� In the first quarter of 2012, we successfully concluded our US$450 million notes
issue in the international market, maturing in 2022, whose proceeds will be used to settle
short- and medium-term debt in order to reduce costs and lengthen our debt profile.
� In March, S&P upgraded the company’s risk rating to “B+” with a stable outlook,
one notch above last rating.
1Q12 Highlights
Minerva (BEEF3)
Stock quote on 14-Mar-12: R$7.97
Market Cap: R$834.6 million
104,719,799 Shares
Free Float – 37.1%
Conference Calls
Portuguese
Wednesday, May 16, 2012
10:00 a.m. (Brasília)
9:00 a.m. (US EST)
Phone: +55 (11) 3127-4971
Code: Minerva
Replay: +55 (11) 3127-4999
Code: 70807616
English
Wesnesday, May 16, 2012
12:00 p.m. (Brasília)
11:00 a.m. (US EST)
Phone: +1 (412) 317-6776
Code: Minerva
Replay: +1 (412) 317-0088
Code: 10013215
IR Contact:
Eduardo Puzziello
Francisco Assis
André Costa
Phone: +55 (17) 3321-3355
+55 (11) 3074-2444
1Q12 Earnings Release
2
Average cattle arroba prices in 2012, measured by the ESALQ/BM&FBovespa indicator, confirm the downward trend
that began at the end of 2011. Between January and April 2012, average arroba prices fell 8.2% compared with the
same period in 2011, confirming our perception of an inversion in the cattle cycle curve, with the beginning of a
period of higher cattle supply that should continue in the coming years.
In addition, the weakening of the real against the dollar, combined with the fact that Brazil’s main competitor
countries and blocs are undergoing difficulties in the sector, should further increase the presence of Brazilian beef in
the international market. That is why, since the second half of 2011, we have been intensifying our focus on exports,
using risk management tools to arrive at the best economically sound decision regarding the destination of our
products. One of the results was that our market share of fresh beef exports (US$ FOB) in the first quarter of 2012
stood at 21.0%, 1.6 p.p. higher than in the same period in 2011.
In this context, after the conclusion of the investments in expansion, Minerva started 2012 with excellent prospects
with regard to its quarterly results. In 1Q12, apart from the 7.4% growth in net revenue compared with 1Q11, the
Company recorded a significant increase in its operating margins (gross margin of 19.5% and EBITDA margin of 8.2%,
versus 13.8% and 6.8%, respectively, in 1Q11) and had a stable cash conversion cycle compared with the previous
quarters. Moreover, we once again recorded positive operating cash flow of R$16.4 million. The performance of
these indicators confirms the positive industry scenario and the right expansion strategy adopted by Management.
We believe this upward trend in the company’s operating margins should continue in the following quarters in year-
over-year comparisons, due to the factors mentioned above.
In the first quarter, the Company also concluded the US$450 million international placement of 10-year notes, in two
separated issues, one for US$350 million in February and the other, for US$100 million, in the end of March 2012.
Investor demand for both issues was heavy, more than six times the initial outlay, confirming the market’s
confidence in Minerva’s long-term fundamentals. The proceeds from the issue will be used to strengthen the
Company's capital structure by amortizing debt maturing in the short and medium terms in order to reduce
borrowing costs and lengthen the current debt profile.
R$ Million 1Q12 4Q11 Var.% 1Q11 Var.% LTM 1Q12 LTM 1Q11 Var.%
Slaughtering (1,000 heads) 396.2 405.8 -2.4% 408.6 -3.0% 1,681.3 1,469.2 14.4%
Sales Volume (1,000 tonnes) 86.5 101.4 -14.7% 94.3 -8.3% 404.1 358.3 12.8%
Gross Revenues 1,005.9 1,166.1 -13.7% 938.6 7.2% 4,324.4 3,733.1 15.8%
Domestic Market 346.0 451.4 -23.3% 423.4 -18.3% 1,762.4 1,379.8 27.7%
Export Market 659.9 714.7 -7.7% 515.2 28.1% 2,562.0 2,353.3 8.9%
Net Revenues 944.0 1,092.6 -13.6% 880.4 7.2% 4,040.7 3,544.2 14.0%
EBITDA 77.2 116.4 -33.8% 60.2 28.1% 364.2 281.3 29.5%
EBITDA Margin 8.2% 10.7% -2.5 p.p. 6.8% 1.4 p.p. 9.0% 7.9% 1.1 p.p.
Net Result (66.7) 15.1 -541.7% 14.6 -556.8% (39.6) 60.2 -165.8%
Net Margin -7.1% 1.4% -8.5 p.p. 1.6% -8.7 p.p. -0.9% 1.7% -2.6 p.p.
Net Debt/EBITDA 3.83x 3.65x 0.18x 4.01x -0.18x 3.83x 4.01x -0.18x
Key Indicators
Message from Management
1Q12 Earnings Release
3
We ended the quarter with only 12.4% the debt maturing in the short term. On March 31, 2012, Minerva had a cash
balance of R$846.2 million, which is sufficient to settle its debt contracted until 2019. The company’s current capital
structure is adequate to weather any adverse macroeconomic conditions and will allow Minerva to benefit from
industry distortions and take advantage of market opportunities.
In terms of corporate governance, Minerva is constantly seeking to improve its management. At the last Annual
Shareholders’ Meeting, the controlling shareholders and the majority of the representatives of minority shareholders
requested the installation of the Fiscal Council and elected the new Board of Directors. We believe these changes will
further contribute to improving the Company’s corporate governance and transparency.
Fernando Galletti de Queiroz, CEO
Cattle Supply
As expected, the first quarter of 2012 was characterized by a reversal
5.8% from 4Q11 and 7.3% in nominal terms
Brazil’s beef sector is going through a positive moment, as the country has been
advantage in production costs compared with
dollar, which further drives the competitive advantages
Source: CEPEA/ESALQ
The high slaughter volume in 1Q12 confirms the favorable moment the industry
growth in the volume of finished cattle compared with 1Q11
sustained the downward trend in cattle
Economics), the highlight of the quarter was
January 2012, the highest since 2007.
Source: Ministry of Agriculture, Livestock and Supply (MAPA) on May 2, 2012
In Uruguay, slaughter volume dropped by
stable in that country and are slightly higher than in Brazil.
In Paraguay, slaughter volume is returning to normal levels, after an
the country in 4Q11.
104.3
1Q11
Figure 1
5,096
1Q11
Figure 2
Industry Overview
1Q12 Earnings Release
As expected, the first quarter of 2012 was characterized by a reversal of the cattle cycle in Brazil.
% in nominal terms from 1Q11.
going through a positive moment, as the country has been
advantage in production costs compared with global competitors, combined with the recent appreciation of the
etitive advantages of local producers in the international market.
The high slaughter volume in 1Q12 confirms the favorable moment the industry is passing through
growth in the volume of finished cattle compared with 1Q11 (1.6% over 4Q11), the
cattle prices. According to data from IMEA (Mato Grosso I
of the quarter was the increase in the number of finished cows, which totaled 235,900 in
Ministry of Agriculture, Livestock and Supply (MAPA) on May 2, 2012
dropped by 7.9% from 4Q11 but remained stable in relation to
slightly higher than in Brazil.
In Paraguay, slaughter volume is returning to normal levels, after an isolated outbreak of the foot
100.5 99.7102.6
2Q11 3Q11 4Q11
Figure 1 – Finished Cattle Arroba Price Trends
5,184
5,063
5,316
5,401
2Q11 3Q11 4Q11 1Q12
Figure 2 – Cattle Slaughter Trends - Brazil
(thousand head)
1Q12 Earnings Release
4
the cattle cycle in Brazil. Cattle prices fell
going through a positive moment, as the country has been recovering its competitive
, combined with the recent appreciation of the
of local producers in the international market.
is passing through. Despite the 6.0%
, the high cattle supply strongly
According to data from IMEA (Mato Grosso Institute of Agribusiness
the increase in the number of finished cows, which totaled 235,900 in
stable in relation to 1Q11. Cattle prices remain
isolated outbreak of the foot-and-mouth disease in
96.7
1Q12
5,401
1Q12
Source: INAC
Export Market
In the export market, the highly competitive prices
compared with those of its competitors was the highlight of the quarter
prices of Brazilian beef remained stable at historical levels for the Brazilian industry
Source: CEPEA/WBR/Minerva’s Research team
The reduction in Brazilian beef exports to Iran
Independent States (CIS), which seasonally
increase in Brazilian exports to Middle East
from emerging countries has been increasing
the main factors behind the increased consumption of prime protein
that hinder the sustainable development of
514570
433
541
1Q11 2Q11 3Q11 4Q11
Figure 3 – Cattle Slaughter Trends -
(thousand head)
0
50
100
150
200
250
02/01/2008
02/03/2008
02/05/2008
02/07/2008
02/09/2008
02/11/2008
02/01/2009
02/03/2009
Figure 5 - Finished cattle prices in Brazil versus international peers*
1Q12 Earnings Release
Source: SENACSA
highly competitive prices of Brazilian cattle (the main raw material for the industry)
its competitors was the highlight of the quarter. In relation to 1Q11,
at historical levels for the Brazilian industry.
/Minerva’s Research team *competitors: 35% Arg 35% Uru 15% Aus and 15% USA
to Iran was offset by the strong recovery in exports to
seasonally steps up its imports in the first six months. Also
Middle East, South America and North of Africa. In recent years,
has been increasing, mainly due to the higher purchasing power
the increased consumption of prime protein - as well as weather and structural conditions
development of farming in these countries.
541498
4Q11 1Q12
- Uruguay
295319
277
1Q11 2Q11 3Q11
Figure 4 – Cattle Slaughter Trends
(thousand head)
02/05/2009
02/07/2009
02/09/2009
02/11/2009
02/01/2010
02/03/2010
02/05/2010
02/07/2010
02/09/2010
02/11/2010
02/01/2011
02/03/2011
02/05/2011
02/07/2011
02/09/2011
02/11/2011
02/01/2012
Finished cattle prices in Brazil versus international peers*
Brazil Competitors BRA/COMP
1Q12 Earnings Release
5
of Brazilian cattle (the main raw material for the industry)
In relation to 1Q11, average international
*competitors: 35% Arg 35% Uru 15% Aus and 15% USA
offset by the strong recovery in exports to the Commonwealth of
Also worth noting is the sharp
In recent years, demand for beef
power of the population - one of
as well as weather and structural conditions
277
126
221
3Q11 4Q11 1Q12
Cattle Slaughter Trends - Paraguay
(thousand head)
-30%
-20%
-10%
0%
10%
20%
30%
40%
02/01/2012
02/03/2012
02/05/2012
Finished cattle prices in Brazil versus international peers*
Charts 8 and 9 below show the monthly
Domestic Market
In Brazil, demand for beef is usually the lowest in the first quarter of the year
the impact on consumers’ budgets of the
domestic scenario was conducive for growth
income segments (increase in the monthly wage
negotiated in 1Q12 were below estimates.
10.7% from 4Q11) - given that poultry is
to the high inventory levels in the chicken industry in the beginning of the year.
the first two months of the year. However, demand for beef
currently lower chicken inventories.
Yet, the outlook for domestic market remains positive,
Brazilian Institute of Geography and Statistics
5.5%; (2) the consumer confidence index
Foundation (FGV); and (3) the monthly minimum wage
Trade Union Department of Statistics and Socio
minimum monthly wage and this wage raise
from the Brazilian Ministry of Labor and Employment (MTE), 1.4 million jobs were created in Brazil
2011 and February 2012.
67.163.9
77.7
62.8 65.974.2 74.7
72.663.1
ab
r/1
1
ma
i/1
1
jun
/11
jul/
11
ag
o/1
1
set/
11
ou
t/1
1
no
v/1
1
Figure 8 - Fresh beef sales volume
Volume ('000)
198 209 203 210
967 1,059 1,0551,088
4,878
5,071
5.1995,172
1Q11 2Q11 3Q11 4Q11
Figure 6 - Fresh beef revenue and exports
Export ('000 tonnes) Revenue (US$ million)
Average Price (US$)
1Q12 Earnings Release
Source: SECEX
show the monthly evolution of Brazilian beef export volumes and average prices
Source: SECEX
demand for beef is usually the lowest in the first quarter of the year, due to the weak
the heavy consumption in the previous quarter
was conducive for growth in beef sales, thanks to the increase in income
monthly wage) and decreasing production costs, the
below estimates. Much of this effect was due to the sharp decline
is considered a substitute for non-prime beef cuts, such
to the high inventory levels in the chicken industry in the beginning of the year. This effect had a greater
However, demand for beef cuts rebounded in April and early May, due to the
, the outlook for domestic market remains positive, because (1) unemployment rate in Brazil,
Brazilian Institute of Geography and Statistics (IBGE), remained stable compared with 4Q11
(2) the consumer confidence index remains above the historical average, according to the Getúlio Vargas
and (3) the monthly minimum wage increased by 14.13%. According to
Trade Union Department of Statistics and Socio-Economic Studies), the income of 48 million Brazilians
wage raise will inject R$47 in the Brazilian economy. Moreover, according to data
Labor and Employment (MTE), 1.4 million jobs were created in Brazil
63.1 62.8 55.0
69.8
de
z/1
1
jan
/12
fev/
12
ma
r/1
2
Fresh beef sales volume
5.08 5.32 4.94 5.04 5.27 5.27
8.05 8.597.84 7.88 8.42 9.22
ab
r/1
1
ma
i/1
1
jun
/11
jul/
11
ag
o/1
1
set/
11
Figure 9 - Fresh beef average prices
US$/Kg
187
1,088913
5,172
4,875
4Q11 1Q12
Fresh beef revenue and exports
Revenue (US$ million)Hong Kong
11.4%
Chile 8.1%
Others
30.2%
Figure 7 - Destinations of Brazilian
exports
1Q12 Earnings Release
6
and average prices.
due to the weak calendar effect and
the previous quarter. Nevertheless, though the
income levels of the C and D
the sector demand and prices
sharp decline in poultry prices (down
prime beef cuts, such as industrial cuts - due
This effect had a greater impact in
cuts rebounded in April and early May, due to the
unemployment rate in Brazil, reported by the
stable compared with 4Q11, at the historical low of
the historical average, according to the Getúlio Vargas
According to Dieese (Brazilian Inter
48 million Brazilians is linked to the
Moreover, according to data
Labor and Employment (MTE), 1.4 million jobs were created in Brazil between March
5.27 5.27 5.25 4.97 4.82 4.93 4.88
9.22 9.34 9.40 9.13 8.63 8.47 8.77
set/
11
ou
t/1
1
no
v/1
1
de
z/1
1
jan
/12
fev/
12
ma
r/1
2
Fresh beef average prices
R$/Kg
Russia
28.1%
Egypt 10.7%
Venezuela
11.5%Hong Kong
Destinations of Brazilian
exports - 1Q12
Our average installed capacity utilization stood at 65.8% at the end of
investments in the expansion of our units in Uruguay (from 900 head/day to 1,400 head/day) and in Campina Verde
(from 700 head/day to 840 head/day).
utilization rate remained stable at 66%.
last month of the quarter, as the chart shows
Slaughter Volume
Source: Minerva
Consolidated Gross Revenue
R$ Million 1Q12 4Q11
Gross Revenues 1,005.9 1,166
Beef Division 793.3 956
Others 212.6 209
R$ Million 1Q12 4Q11
Domestic Market 346.0 451
% Gross Revenues 34.4% 38.7%
Beef Division 276.3 364
Others 69.7 87.
R$ Million 1Q12 4Q11
Export Market 659.9 714
% Gross Revenues 65.6% 61.3%
Beef Division 517.1 592
Others 142.8 122
72.5% 76.7% 78.2%
1Q11 2Q11 3Q11
Figure 10 - Slaughter capacity utilization (%)
Minerva – Analysis of Results
1Q12 Earnings Release
capacity utilization stood at 65.8% at the end of 1Q12. At the
investments in the expansion of our units in Uruguay (from 900 head/day to 1,400 head/day) and in Campina Verde
(from 700 head/day to 840 head/day). Since these units are in the maturation phase,
However, it is worth noting that we achieved 70% capacity utilization in the
chart shows.
11 Var.% 1Q11 Var.% LTM 1Q12
166.1 -13.7% 938.6 7.2% 4,324.
956.3 -17.0% 798.4 -0.6% 3,475.
209.8 1.3% 140.2 51.6% 849.2
11 Var.% 1Q11 Var.% LTM 1Q12
451.4 -23.3% 423.2 -18.2% 1,762.
7% -4.3 p.p. 45.1% -10.7 p.p. 40.7%
364.3 -24.2% 354.6 -22.1% 1,394.
.1 -20.0% 68.9 1.2% 368.4
11 Var.% 1Q11 Var.% LTM 1Q12
714.7 -7.7% 515.2 28.1% 2,562.
3% 4.3 p.p. 54.9% 10.7 p.p. 59.3%
592.0 -12.7% 443.8 16.5% 2,081.
122.7 16.4% 71.3 100.3% 481.8
78.2%69.7% 65.8%
58.9%
3Q11 4Q11 1Q12 Jan-12
Slaughter capacity utilization (%)
1Q12 Earnings Release
7
end of 2011, we concluded
investments in the expansion of our units in Uruguay (from 900 head/day to 1,400 head/day) and in Campina Verde
Since these units are in the maturation phase, the company’s average
we achieved 70% capacity utilization in the
LTM 1Q12 LTM 1Q11 Var.%
.2 3,733.1 15.8%
.0 2,821.7 23.2%
2 911.4 -6.8%
LTM 1Q12 LTM 1Q11 Var.%
.4 1,379.8 27.7%
7% 37.0% 3.7 p.p.
.0 1,192.3 16.9%
4 187.4 96.6%
LTM 1Q12 LTM 1Q11 Var.%
.0 2,353.3 8.9%
3% 63.0% -3.7 p.p.
.0 1,629.3 27.7%
8 724.0 -33.5%
68.7% 69.9%
Feb-12 Mar-12
In 1Q12, gross revenue totaled R$1,055.9 million, up
34.4% and 65.6%, respectively, of total sales.
exchange rate and the heightened competitiveness
live cattle exports are gradually recovering
and 12 provide the breakdown of sales.
In addition to sales growth, Minerva’s market
p.p. from the same period in 2011.
Source: Secex
Beef Division
The current phase of the Brazilian cattle cycle, combined with
productivity, better economic and sanita
Brazilian beef in the international market
five years ago, which already anticipated this scenario,
competitive platform for supplying beef to the
In this context, the Beef Division, which includes fresh beef, processed beef and beef byproducts, recorded gross
revenue similar to in 1Q11. Despite the weak performance
increased 16.5% year on year, thanks to the weakening
prices compared to those of international peers.
Beef DM
27.4%
Others DM
6.9%
Others EM
Figure 11 - Breakdown of consolidated
gross revenue - 1Q12 (%)
967.4
19.4%
1Q11
Figure 13
(based on revenue in US$ million)
1Q12 Earnings Release
In 1Q12, gross revenue totaled R$1,055.9 million, up 7.2% from 1Q11. Domestic sales and exports accounted for
%, respectively, of total sales. Exports grew sharply from the first quarter of 2011, driven
the heightened competitiveness of Brazilian cattle prices in the international market
recovering, which also positively impacted exports by the Others Division
In addition to sales growth, Minerva’s market share of fresh beef exports (US$ FOB) stood at 21.0% in 1Q12, up 1.6
Secex
e of the Brazilian cattle cycle, combined with political stability,
sanitary conditions and the weakening real, raised the competitive advantages of
in the international market. The company’s investments and efforts followed
five years ago, which already anticipated this scenario, by which South America would
for supplying beef to the international market.
In this context, the Beef Division, which includes fresh beef, processed beef and beef byproducts, recorded gross
Despite the weak performance of the domestic market, gross revenue from exports
thanks to the weakening real and the increased competitiveness of Brazilian cattle
international peers.
Beef EM
51.5%
Others EM
14.2%
Breakdown of consolidated
1Q12 (%)
Beef DM
37.8%
Others DM
7.3%
Figure 12 - Breakdown of consolidated
gross revenue
913.0
187.9192.0
21.0%
1Q11 1Q12
Figure 13 - Market share trends
(based on revenue in US$ million)
Brasil Minerva Share Minerva (%)
1Q12 Earnings Release
8
Domestic sales and exports accounted for
the first quarter of 2011, driven by the
ternational market. In addition,
the Others Division. Figures 11
share of fresh beef exports (US$ FOB) stood at 21.0% in 1Q12, up 1.6
, constant improvements in
the competitive advantages of
followed a strategic plan prepared
would consolidate its position as a
In this context, the Beef Division, which includes fresh beef, processed beef and beef byproducts, recorded gross
the domestic market, gross revenue from exports
competitiveness of Brazilian cattle
Beef EM
47.3%
Others EM
7.6%
Breakdown of consolidated
gross revenue - 1Q11 (%)
1Q12 Earnings Release
9
Below is a complete detailing of the beef division:
R$ Million 1Q12 4Q11 Var.% 1Q11 Var.% LTM 1Q12 LTM 1Q11 Var.%
Fresh Beef – EM 483.3 552.5 -12.5% 415.9 16.2% 1,942.7 1,544.5 25.8%
Processed Beef – EM 5.6 8.7 -35.6% 2.9 93.1% 21.1 7.3 189.0%
Others – EM 28.2 30.9 -8.7% 25.0 12.8% 117.2 77.5 51.2%
Sub-Total – EM 517.1 592.0 -12.7% 443.8 16.5% 2,081.0 1,629.3 27.7%
Fresh Beef – DM 224.6 313.3 -28.3% 307.7 -27.0% 1,183.8 1,022.4 15.8%
Processed Beef – DM 4.1 5.1 -19.6% 4.9 -16.3% 18.2 13.1 38.9%
Others – DM 47.4 45.8 3.5% 42.0 12.9% 192.0 156.9 22.4%
Sub-Total – DM 276.2 364.3 -24.2% 354.6 -22.1% 1,394.0 1,192.3 16.9%
Total 793.3 956.3 -17.0% 798.4 -0.6% 3,475.0 2,821.7 23.2%
Volume (‘000 tonnes) 1Q12 4Q11 Var.% 1Q11 Var.% LTM 1Q12 LTM 1Q11 Var.%
Fresh Beef – EM 46.4 53.6 -13.3% 45.9 1.0% 206.9 185.2 11.7%
Processed Beef – EM 0.5 0.7 -37.1% 0.3 51.7% 2.0 0.8 140.6%
Others – EM 4.0 5.1 -21.6% 4.5 -9.9% 19.2 15.0 28.1%
Sub-Total – EM 50.9 59.4 -14.3% 50.7 0.4% 228.1 201.0 13.5%
Fresh Beef – DM 28.8 34.4 -16.3% 36.9 -22.0% 144.6 132.4 9.2%
Processed Beef – DM 0.5 0.6 -29.4% 0.7 -30.3% 2.4 1.7 38.4%
Others – DM 6.3 6.9 -8.3% 6.0 6.0% 28.9 23.1 25.1%
Sub-Total – DM 35.6 41.9 -15.2% 43.6 -18.3% 175.9 157.3 11.8%
Total 86.5 101.4 -14.7% 94.3 -8.3% 404.1 358.3 12.8%
Average Price – EM (US$/kg) 1Q12 4Q11 Var.% 1Q11 Var.% LTM 1Q12 LTM 1Q11 Var.%
Fresh Beef – EM 5.88 5.73 2.6% 5.42 8.5% 5.52 4.82 14.5%
Processed Beef – EM 6.85 6.55 4.6% 5.79 18.3% 6.32 5.19 21.8%
Others – EM 3.96 3.34 18.6% 3.34 18.6% 3.59 2.98 20.5%
Total 5.74 5.53 3.8% 5.24 9.5% 5.36 4.68 14.5%
Average FX Rate
(Source:BACEN) 1.77 1.80 -1.7% 1.67 6.0% 1.70 1.73 -1.7%
Average Price – EM (R$/kg) 1Q12 4Q11 Var.% 1Q11 Var.% LTM 1Q12 LTM 1Q11 Var.%
Fresh Beef – EM 10.41 10.32 0.9% 9.05 15.0% 9.39 8.34 12.6%
Processed Beef – EM 12.12 11.80 2.7% 9.67 25.3% 10.75 8.98 19.7%
Others – EM 7.01 6.01 16.6% 5.58 25.6% 6.10 5.16 18.2%
Total 10.16 9.96 2.0% 8.75 16.1% 9.12 8.10 12.6%
Average Price – DM (R$/kg) 1Q12 4Q11 Var.% 1Q11 Var.% LTM 1Q12 LTM 1Q11 Var.%
Fresh Beef – DM 7.80 9.11 -14.4% 8.33 -6.4% 8.19 7.72 6.1%
Processed Beef – DM 9.02 7.85 14.9% 7.39 22.1% 7.55 7.50 0.7%
Others – DM 7.49 6.64 12.8% 7.03 6.5% 6.64 6.79 -2.2%
Total 7.77 8.68 -10.5% 8.14 -4.5% 7.92 7.58 4.5%
EM - Export Market, DM – Domestic Market
1Q12 Earnings Release
10
Others Division
Gross revenue from this division totaled R$212.6 million in the first quarter of 2012, R$142.8 million of which came
from exports and R$69.7 million from domestic sales.
One notable development was the recovery in live cattle sales, which increased by 45.5% over the same period a
year ago.
The performance of the leather division remains solid, marked by the 57.5% upturn in gross revenue from exports. In
3Q11, we changed our strategy and focused our efforts on two different niches: the wholesale segment in the
domestic market and the automotive industry in the export market. We rationalized our operations and transformed
many fixed costs into variable costs, thus obtaining greater operational flexibility and reducing idle capacity.
Moreover, in order to improve risk management in the division, we created the Hide Desk - a weekly meeting with a
similar objective to that of the Beef Desk, i.e. to mitigate the financial and operational impacts from our exposure to
different risk factors. The weakening real also helped rebuild margins in the leather segment, making Brazilian
leather more competitive in the international market.
Resales of third-party products continue to return exceptional results, growing by over 70% year on year, and
optimizing our distribution network. This performance was driven by the adoption of the ‘one-stop-shop’ concept,
since we already offer our complete protein portfolio, especially frozen fish, poultry, pork and mutton and frozen
vegetables at all our distribution centers.
MDF also continues to set production and revenue records month after month. All this growth is driven by the
change in Brazilians’ consumption standards in recent years – more jobs result in higher income and, consequently,
higher consumption. As a result, a higher number of people go out to eat, which significantly increases the number
of restaurant and fast-food chains. In this context, MDF, whose core business is the Food Service segment, is well
positioned to reap the benefits of this strong growth in domestic sales.
Consolidated Net Revenue
Net revenue totaled R$944.0 million in 1Q12, 7.2% up on 1Q11, sustained by an exchange rate that favors fresh beef
exports and the solid performance of live cattle operations.
R$ Million 1Q12 4Q11 Var.% 1Q11 Var.% LTM 1Q12 LTM 1Q11 Var.%
Gross Revenues 1,005.9 1,166.1 -13.7% 938.6 7.2% 4,324.4 3,733.1 15.8%
Sales Taxes and Deductions (61.8) (73.5) -15.9% (58.2) 6.2% (283.8) (188.9) 50.2%
Net Revenues 944.0 1,092.6 -13.6% 880.4 7.2% 4,040.6 3,544.2 14.0%
% Gross Revenues 93.8% 93.7% 0.1 p.p. 93.8% 0.0 p.p. 93.4% 94.9% -1.5 p.p.
1Q12 Earnings Release
11
Cost of Goods Sold (COGS) and Gross Profit
In 1Q12, COGS amounted to R$759.7 million, while gross margin stood at 19.5%, 5.7 p.p. up on 1Q11, driven by the
exchange rate that benefited exports, and the steep decline in raw material prices (cattle prices in 1Q12 were 7.3%
lower than in 1Q11), due to the inversion in the cattle cycle.
R$ Million 1Q12 4Q11 Var.% 1Q11 Var.% LTM 1Q12 LTM 1Q11 Var.%
Net Revenues 944.0 1,092.6 -13.6% 880.4 7.2% 4,040.6 3,544.2 14.0%
COGS (759.7) (911.4) -16.6% (758.6) 0.1% (3,377.6) (2,897.3) 16.6%
% Net Revenues 80.5% 83.4% -2.9 p.p. 86.2% -5.7 p.p. 83.6% 81.7% 1.9 p.p.
Gross Profit 184.3 181.2 1.7% 121.7 51.4% 663.0 646.9 2.5%
Gross Margin 19.5% 16.6% 2.9 p.p. 13.8% 5.7 p.p. 16.4% 18.3% -1.9 p.p.
Selling, General and Administrative (SG&A) Expenses
Selling expenses totaled R$90.8 million in 1Q12, 48.1% up on 1Q11, due to the rebound in live cattle exports, which
entail high logistics costs. As a percentage of net revenue, selling expenses came to 9.6%, 2.6 p.p. up on 1Q11.
Administrative expenses increased by 14.3% over 1Q11, but remained stable as a percentage of net revenue.
R$ Million 1Q12 4Q11 Var.% 1Q11 Var.% LTM 1Q12 LTM 1Q11 Var.%
Selling Expenses (90.8) (59.4) 52.9% (61.3) 48.1% (266.4) (342.3) -22.2%
% Net Revenues 9.6% 5.4% 4.2 p.p. 7.0% 2.6 p.p. 6.6% 9.7% -3.1 p.p.
G&A Expenses (28.0) (22.7) 23.3% (24.5) 14.3% (114.0) (77.6) 47.0%
% Net Revenues 3.0% 2.1% 0.9 p.p. 2.8% 0.2 p.p. 2.8% 2.2% 0.6 p.p.
1Q12 Earnings Release
12
EBITDA
We ended 1Q12 with EBITDA of R$77.2 million, 28.1% up from 1Q11. EBITDA margin increased by 1.4 p.p. over 1Q11
to reach 8.2% in the quarter.
R$ Million 1Q12 4Q11 Var.% 1Q11 Var.% LTM 1Q12 LTM 1Q11 Var.%
Non-Controlling Interest (66.7) 15.1 -541.7% 14.4 -563.2% (39.6) 60.2 -165.8%
(+) Income and Deferred Taxes (6.3) (10.0) -37.8% (37.4) -83.2% (103.0) (80.6) 27.7%
(+) Net Financial Result 138.4 104.7 32.2% 66.8 107.2% 446.4 244.1 82.8%
(+) Depreciation and Amortization 11.8 12.3 -4.0% 11.9 -0.7% 45.2 34.7 30.5%
(+) Non-Recurring Itens - (5.7) - 4.4 - 15.2 22.9 33.6%
EBITDA 77.2 116.4 -33.8% 60.2 28.1% 364.2 281.3 29.5%
EBITDA Margin 8.2% 10.7% -2.5 p.p. 6.8% 1.4 p.p. 9.0% 7.9% 1.1 p.p.
Financial Result
In 1Q12, the net financial result, including foreign exchange variation with no cash effect on our debt, was a loss of
R$138.4 million.
The table below details the financial result in the first quarter of 2012:
R$ Million 1Q12 4Q11 Var.% 1Q11 Var.% LTM 1Q12 LTM 1Q11 Var.%
Financial Expenses (79.3) (67.3) 17.8% (61.6) 28.7% (239.1) (194.4) 23.0%
Financial Income 14.3 25.3 -43.5% 18.0 -20.6% 58.5 39.1 49.6%
FX Variation (11.6) 4.7 -346.8% 10.2 -213.7% (123.3) 26.8 -560.1%
Others (*) (61.9) (67.5) -8.3% (33.1) 87.0% (142.5) (115.4) 23.5%
Net Financial Result (138.4) (104.7) 32.2% (66.8) 107.2% (446.4) (244.1) 82.8%
% Net Revenues -14.6% -9.6% -5.0 p.p. -7.6% -7.0 p.p. -11.0% -6.9% -4.1 p.p.
(*) Includes FX Hedge, Cattle Hedge, Financial Discounts and Fees and Commissions
(*) Others expenses (in R$ millions) 1Q12
Expenses with FX and Commodities Hedge (33.8)
Financial Discounts, Taxes, Fees, Commissions and
Other Financial Expenses (28.1)
Total (61.9)
To improve its capital structure, in 1Q12 Minerva concluded the placement of US$450 million through 10-year notes
in the international market. However, despite the improvement in our capital structure, this issue resulted in non-
recurring financial expenses (in some cases non-cash expenses) that impacted our quarterly results and consequently
our bottom line.
Net Income
Net income in 1Q12 was lower than both
R$ Million 1Q12
Net (Loss) Income (66.7)
Net Margin (%) -7.1%
Minerva ended 1Q12 with cash and cash equivalents of R$846.3 million.
the quarter, the company’s balance sheet
the US$100 million re-tap issue was carried out at the end of the quarter
medium-term debt as on March 31, 2012. Of the Company’s total debt, 7
our domestic sales/ export mix.
Minerva ended the quarter with a net debt/EBITDA ratio
to the third installment of the PULSA acquisition
interest on equity relating to fiscal year 2011.
We plan to speed up this deleveraging process in the coming
made in recent years, the impact of the positive
management.
846.3
93.7 94.6 63.8
Cash 2Q12 3Q12 4Q12
Capital Structure
1Q12 Earnings Release
was lower than both 4Q11 and 1Q11, due to the non-recurring financial expenses.
4Q11 Var.% 1Q11 Var.% LTM 1Q12
15.1 -541.7% 14.6 -556.8 (39.6)
1.4% -8.5 p.p. 1.7% -8.8 p.p. -1.0%
Minerva ended 1Q12 with cash and cash equivalents of R$846.3 million. After the issue
the quarter, the company’s balance sheet presents a significantly longer debt profile, as
tap issue was carried out at the end of the quarter and hence had no
on March 31, 2012. Of the Company’s total debt, 75% is denominated in U.S. dollar,
net debt/EBITDA ratio of 3.83x, influenced by the payment of
acquisition and the payment of approximately R$30 million
to fiscal year 2011.
We plan to speed up this deleveraging process in the coming quarters, backed by the maturation of the investments
of the positive cattle cycle on the company’s costs
30.6
158.6 137.1 88.7
29.2 62.8 9.1
677.6
1Q13 2013 2014 2015 2016 2017 2018 2019
Figure 14 - Debt amortization
1Q12 Earnings Release
13
recurring financial expenses.
LTM 1Q12 LTM 1Q11 Var.%
6) 59.5 -166.6%
0% 1.7% -2.7 p.p.
After the issue of the 10-year notes issue in
debt profile, as the figure shows. Note that
had not impacted our short- and
% is denominated in U.S. dollar, similar to
the payment of R$24 million related
and the payment of approximately R$30 million as dividends and
, backed by the maturation of the investments
costs and the excellence in risk
6.8 6.7
818.6
2020 2021 2022
1Q12 Earnings Release
14
R$ Million 1Q12 4Q11 Var. % 1Q11 Var. %
Short Term Debt 282.7 541.6 -47.8% 306.2 -7.7%
% Short Term Debt 12.4% 26.6% -14.2% 17.0% -4.6%
Local Currency 143.1 222.2 -35.6% 165.8 -13.7%
Foreign Currency 139.6 319.4 -56.3% 140.5 -0.6%
Long Term Debt 1,995.1 1,494.5 33.5% 1,494.1 33.5%
% Long Term Debt 87.6% 73.4% 14.2% 83.0% 4.6%
Local Currency 424.7 677.3 -37.3% 706.4 -39.9%
Foreign Currency 1,570.4 817.1 92.2% 787.5 99.4%
Total Debt 2,277.8 2,036.0 11.9% 1,800.3 26.5%
Local Currency 567.7 899.5 -36.9% 872.2 -34.9%
Foreign Currency 1,710.1 1,136.5 50.5% 928.1 84.3%
(Cash and Cash Equivalents) (846.2) (746.4) 13.4% (566.1) 49.5%
Net Debt* 1,394.8 1,266.8 10.1% 1,199.2 16.3%
Net Debt/ EBITDA 3.83x 3.65x 0.18x 4.01x -0.18x
(*) Adjusted to treasury stock and subordinated FDIC quotas
1Q12 Earnings Release
15
Investments totaled R$24.8 million in 1Q12, the bulk of which was allocated to the maintenance of our operations.
In the first quarter of 2012, the company recorded operating cash flow of R$16.4 million in the first quarter, which is
seasonally considered the quarter with the lower demand of our products.
R$ Million 1Q12
Net Income (Loss) (66.7)
Net Income Adjustments 75.0
Change in Working Capital Requirement 8.1
Cash Flow from Operating Activities 16.4
LOCAL CURRENCY (R$ thousand) FOREIGN CURRENCY (R$ thousand)
1Q12 4Q11 1Q12 4Q11
2Q12 33,825 121,685 2Q12 59,904 24,753
3Q12 35,244 30,707 3Q12 59,343 119,596
4Q12 62,151 48,693 4Q12 1,592 95,752
1Q13 11,808 21,114 1Q13 18,802 79,266
2013 132,036 326,399 2013 26,607 57,905
2014 124,799 67,643 2014 12,281 5,947
2015 88,721 206,619 2015 - 1,375
2016 29,207 29,207 2016 - -
2017 15,641 15,641 2017 47,134 61,771
2018 9,060 9,060 2018 - 0
2019 6,826 6,826 2019 670,733 690,126
2020 6,826 6,826 2020 - -
2021 6,667 6,667 2021 - -
2022 4,924 2,462 2022 813,657 -
Total 567,735 899,549 Total 1,710,053 1,136,491
Investments
Cash Flow Investimentos
1Q12 Earnings Release
16
At the end of 2011, the São Paulo state government issued three decrees to speed up the monetization of ICMS (VAT
tax on goods and services) credits for the sector. One of them created a special system to use the accrued ICMS
credits, which speedier monetization of such credits.
This fact was evident in Minerva’s balance sheet in the first two months of 2012, when we effectively managed to
monetize a few credit installments. In March, however, due to the higher share of exports in net revenue,
monetization of credits was lower than in the first two months of 2012, implying an accrual of ICMS credits in an
amount approximately equal to the value monetized in January and February.
For the rest of the year, though, we are confident of stepping up the pace of monetization. For example, in April we
managed to monetize more credits than we accumulated.
Minerva S.A. is one of the leading producers and sellers of beef, leather, live cattle exports and cattle byproducts in
South America, and one of Brazil’s three largest exporters in the industry in terms of gross sales revenue, exporting
to over 100 countries, with operations also in the beef, pork and poultry processing segments. It has a daily slaughter
capacity of 10,480 heads of cattle and daily beef deboning capacity equivalent to 12,911 heads. With a presence in
the states of São Paulo, Rondônia, Goiás, Tocantins, Mato Grosso do Sul and Minas Gerais, as well as in Paraguay and
Uruguay, Minerva operates ten slaughter and deboning plants, one that process the three proteins (MDF) and eleven
distribution centers. In the 12 months ended March 31, 2012, the Company recorded net sales revenue of R$4.0
billion, for growth of 14.0% on the same period a year earlier.
Relationship with Auditors
In accordance with CVM Instruction 381/03, we inform that our auditors did not provide services other than those related
to external audit in fiscal year 2010 and the quarter ended December 31, 2011.
Statement from Management
In compliance with CVM Instructions, Management declares that it has discussed, revised and agreed with the individual
and consolidated accounting information related to the quarter ended December 31, 2011, and the opinions expressed in
the independent auditors’ review report, hereby authorizing their disclosure.
About Minerva S.A
XXXXXXXXX.
Tax Credit
XXXXXXXXX.
1Q12 Earnings Release
17
ANNEX 1 - CONSOLIDATED INCOME STATEMENT
1Q12 4Q11 1Q11
Export Sales 659,875 714,714 515,713
Domestic Sales 346,012 451,353 423,433
Gross Sales Revenues 1,005,887 1,166,067 938,606
Deductions and Discounts (61,823) (73,501) (58,223)
Net Sales Revenues 944,064 1,092,566 880,383
Cost of Goods Sold (759,744) (911,385) (758,636)
Gross Profit 184,320 181,181 121,747
Selling Expenses (90,726) (59,399) (61,321)
General and Administrative Expenses (27,984) (22,666) (24,480)
Others Operating Revenues (Expenses) (233) 10,682 8,029
Financial Expenses (141,145) (134,758) (94,947)
Interest on Equity - (20,560) -
Income Expenses 14,335 25,317 17,999
Exchange Rate (11,608) 4,744 10,153
Operating Revenue (Expenses) (257,361) (196,640) (66,795)
Operating Income (73,041) (15,459) (22,820)
Profit Before Income Tax (73,041) (15,459) (22,820)
Corporate Taxation - Current (829) (1,112)
Corporate Taxation - Deferred 7,131 11,083 37,424
Net Income before Non-Controling Interest
and Reversal of Interest on Equity (66,739) (5,488) 14,604
Reversal of Interest on Equity - 20,560 -
Net Income (66,739) 15,075 14,604
Net Income Attributed to Controlling Shareholders (65,743) 14,821 13,271
Net Income Attributed to Non-Controlling Shareholders (996) 251 1,333
1Q12 Earnings Release
18
ANNEX 2 – CONSOLIDATED BALANCE SHEET
Assets 1Q12 4Q11
Current Assets
Cash and Cash Equivalents 846,276 746,382
Clients 130,070 207,402
Inventories 200,275 168,423
Taxes Recoverable 455,909 432,832
Others Receivables 99,279 100,648
Biological Assets 36,895 47,680
Total Current Assets 1,768,704 1,703,367
Non-Current Assets
Related Parties 7,483 597
Taxes Recoverable 108,744 108,897
Deferred Taxes 235,612 205,500
Other Credits 33,211 16,640
Judicial Deposits 10,082 9,943
Long-Term Assets 395,132 341,577
Fixed Assets 1,127,838 1,114,584
Intangibles 340,294 339,663
Fixed Assets 1,468,132 1,454,247
Total Non-Current Assets 1,863,263 1,795,824
Total Assets 3,631,967 3,499,191
Liabilities 1Q12 4Q11
Current Liabilities
Loans and Financing 276,908 540,665
Convertible Debentures 5,761 903
Trade Accounts Payable to Suppliers 264,471 311,117
Payroll and Tax Payable 55,606 54,463
Others Liabilities 68,564 73,744
Total Current Liabilities 671,310 980,892
Non-Current Liabilities Long Term Liabilities
Loans and Financing 1,995,122 1,494,475
Convertible Debentures 178,631 183,796
Other Liabilities 29,759 30,893
Payroll and Tax Payable 44.358 46,437
Provision for Contingencies 19,285 19,286
Related Parties 71,003 66,606
Deferred Liabilities Tax 86,862 64,136
Total Non-Current Liabilities 2,425,020 1,905,629
Capital Stock 257,885 252,251
Tresury Stock (20,883) (7,482)
Capital Reserves 190,042 190,042
Revaluation Reserves 75,085 75,724
Profits Reserve 48,366 48,366
Balance Sheet Evaluation Adjustments (25,690) (22,939)
Retained Earnings (64,776) -
Shareholders’ Equity 460,029 535,962
Non-Controling Interest 75,608 76,708
Total Shareholders’ Equity 535,637 612,670
Total Liabilities and Shareholders’ Equity 3,631,967 3,499,191
1Q12 Earnings Release
19
ANNEX 3 - CONSOLIDATED CASH FLOW STATEMENT – Financial Calculation
Cash Flow 1Q12 1Q11
Net Income (Loss) (66,739) 14,604
Adjustments to Reconcile Net Income (Loss) and Cash from Operating
activities:
Depreciation and Amortization 11,812 11,892
Net Income Attributed to Non-Controlling Shareholders 996 (1,333)
Value Biological Assets 3,501 (367)
Increase in Deferred Taxes – Temporary Differences (7,131) (36,496)
Net Realization of Revaluation Reserve 967 -
Financial Charges 75,018 44,663
Foreign Exchange Variation – Not Realized (10,129) (33,807)
Contingency Allowances (1) (1,932)
Receivable from Customers 74,973 (11,851)
Inventories (31,852) 16,721
Biological Assets 7,284 3,392
Taxes Recoverable (22,924) (34,791)
Accounts receivable from Related Parties (2,489) 32,129
Deposits in Court (139) (1,728)
Suppliers (46,646) (23,173)
Labor and Tax Obligations (936) 4,938
Accounts Payable 30,826 (13,767)
Cash Flow from Operating Activies 16,392 (30,906)
Cash Flow from Investment Activities
Acquisition of Controlling Interest minus Cash - (12,055)
Payment instalment PULSA (23,717)
Acquisition of Intangible (846) (61,693)
Acquisition of Fixed Assets (24,851) (34,832)
Cash Applied in Investment Activities (49,414) (108,580)
Net Cash from Financing Activities
Loans and Financings 799,559 187,954
Loans and Financings Settled (622,700) (68,960)
Variation in Minoritary Equity (1,100) -
Interest on Equity (17,680) -
Dividends (11,762) -
Treasury Stock (13,401) (12,944)
Net Cash from Financing Activities 132,916 106,053
Net Cash / Cash Equivalent Decrease 99,894 (33,433)
Cash and Cash Equivalents
Beginning of Period 746,382 576,464
End of Period 846,276 543,031
Net Cash / Cash Equivalent Decrease 99,894 (33,433)