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Klabin S.A.
Interim Financial Statements for the nine-month periodended September 30, 2013 and
Independent Auditors Report
PricewaterhouseCoopers Auditores Independentes
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(A free translation of the original in Portuguese)
Independent auditors report
To the Board of Directors and StockholdersKlabin S.A.
Introduction
We have audited the accompanying interim financial statements of Klabin S.A. ("Company" or"Parent Company"), which comprise the balance sheet as at September 30, 2013 and the statementsof income, comprehensive income, changes in equity and cash flows for the nine-month period thenended, and a summary of significant accounting policies and other explanatory information.
We have also audited the accompanying consolidated interim financial statements of Klabin S.A.and its subsidiaries ("Consolidated"), which comprise the consolidated balance sheet as atSeptember 30, 2013 and the consolidated statements of income, comprehensive income, changes inequity and cash flows for the nine-month period then ended, and a summary of significantaccounting policies and other explanatory information.
Management's responsibility forthe financial statements
Management is responsible for the preparation and fair presentation of the parent company interimfinancial statements in accordance with accounting practices adopted in Brazil, and for theconsolidated interim financial statements in accordance with the International Financial ReportingStandards (IFRS) issued by the International Accounting Standards Board (IASB) and accounting
practices adopted in Brazil, and for such internal control as management determines is necessary toenable the preparation of financial statements that are free from material misstatement, whetherdue to fraud or error.
Auditor's responsibility
Our responsibility is to express an opinion on these interim financial statements based on our audit.We conducted our audit in accordance with Brazilian and International Standards on Auditing.Those standards require that we comply with ethical requirements and plan and perform the auditto obtain reasonable assurance about whether the financial statements are free from materialmisstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor's judgment,including the assessment of the risks of material misstatement of the financial statements, whetherdue to fraud or error.
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In making those risk assessments, the auditor considers internal control relevant to the entity'spreparation and fair presentation of the financial statements in order to design audit proceduresthat are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entity's internal control. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of accounting estimates made by management, as
well as evaluating the overall presentation of the financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basisfor our audit opinion.
Opinion on the parent company
financial statements
In our opinion, the parent company interim financial statements referred to above present fairly, inall material respects, the financial position of Klabin S.A. as at September 30, 2013, and its financialperformance and its cash flows for the nine-month period then ended, in accordance with CPC 21.
Opinion on the consolidatedfinancial statements
In our opinion, the consolidated interim financial statements referred to above present fairly, in allmaterial respects, the financial position of Klabin S.A. and its subsidiaries as at September 30, 2013,and their financial performance and their cash flows for the nine-month period then ended, inaccordance with CPC 21 and IAS 34.
Emphasis of matter
As discussed in Note 2.1 to these financial statements, the parent company interim financialstatements have been prepared in accordance with accounting practices adopted in Brazil. In thecase of Klabin S.A., these practices differ from IFRS applicable to separate interim financialstatements only in relation to the measurement of investments in subsidiaries, associates and
jointly-controlled entities based on equity accounting, while IFRS requires measurement based oncost or fair value. Our opinion is not qualified in respect of this matter.
Other matters
Supplementary information - Statementsof value added
We have also audited the parent company and consolidated statements of value added for the n ine-month period ended September 30, 2013, which are the responsibility of the Company'smanagement. The presentation of this statement is required by the Brazilian corporate legislationfor listed companies, but it is considered supplementary information for IFRS. These statements
were subject to the same audit procedures described above and, in our opinion, are fairly presented,in all material respects, in relation to the financial statements taken as a whole.
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Audit of prior-period information
The interim financial statements for the nine-month period ended September 30, 2012, presentedfor comparison purposes, were not audited by us or other independent auditors. Consequently, wedo not express an opinion on those financial statements.
So Paulo, November 1, 2013
PricewaterhouseCoopersAuditores IndependentesCRC 2SP000160/O-5
Tadeu Cendn FerreiraContador CRC 1SP188352/O-5
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(A free translation of the original in Portuguese)
Supervisory Boards Opinion
By virtue of the powers conferred on them by law and the Companys bylaws and in accordance witharticle 163 of Law 6,404/76 and subsequent amendments thereto, the undersigned members of theSupervisory Board of KLABIN S.A. have examined the parent company and consolidated interimfinancial statements prepared in accordance with the legislation in force, which comprise the
balance sheet as at September 30, 2013 and the statements of income, comprehensive income,changes in equity and cash flows for the period from January 1 to September 30, 2013, accompanied
by the related explanatory information.
Based on the documents examined, the clarifications provided by representatives of the Companysmanagement and the unqualified report issued by PricewaterhouseCoopers AuditoresIndependentes on the Financial Statements, they are of the unanimous opinion that the documentsreferred to above present fairly the financial position and the activities of the Company atSeptember 30, 2013.
So Paulo, November 1, 2013
Joo Alfredo Dias Lins Lus Eduardo Pereira de Carvalho
Paulo Roberto Araujo de Almeida Vivian do Valle Souza Leo Mikui
Wolfgang Eberhard Rohrbach
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(A free translation of the original in Portuguese)
CONTENTS Page
ASSETS 7LIABILITIES AND EQUITY 8
STATEMENT OF INCOME 9
STATEMENT OF COMPREHENSIVE INCOME 10
STATEMENT OF CHANGES IN EQUITY 11
STATEMENT OF CASH FLOWS 12
STATEMENT OF VALUE ADDED 13
1 GENERAL INFORMATION 142 BASIS OF PRESENTATION OF THE INTERIM FINANCIAL STATEMENTS AND
MAIN ACCOUNTING POLICIES 15
3 CONSOLIDATED INTERIM FINANCIAL STATEMENTS 24
4 CASH AND CASH EQUIVALENTS 24
5 MARKETABLE SECURITIES 25
6 TRADE RECEIVABLES 25
7 RELATED PARTIES 27
8 INVENTORY 29
9 TAXES RECOVERABLE 29
10 INCOME TAX AND SOCIAL CONTRIBUTION 30
11 INTERESTS IN SUBSIDIARIES AND JOINTLY-CONTROLLED SUBSIDIARIES 32
12 PROPERTY, PLANT AND EQUIPMENT 33
13 BIOLOGICAL ASSETS 35
14 BORROWINGS 38
15 TRADE PAYABLES 40
16 TAX, SOCIAL SECURITY, LABOR AND CIVIL PROVISIONS 40
17 EQUITY 42
18 NET SALES REVENUE 45
19 EXPENSES / INCOME BY NATURE 46
20 FINANCE INCOME AND COSTS 46
21 STOCK OPTION PLAN 46
22 EARNINGS PER SHARE 48
23 OPERATING SEGMENTS 49
24 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS 52
25 EMPLOYEE BENEFITS AND PRIVATE PENSION PLAN 57
26 INSURANCE COVERAGE 58
27 EVENTS AFTER THE REPORTING PERIOD 58
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(A free translation of the original in Portuguese)
BALANCE SHEETS AT SEPTEMBER 30. 2013 AND DECEMBER 31. 2012(All amounts in thousands of reais)
Parent Consolidated
Note 09/30/2013 12/31/2012 09/30/2013 12/31/2012ASSETS
Current assetsCash and cash equivalents 4 1,896,127 2.157.148 2.174.176 2.517.312Marketable securities 5 243,870 240.077 243.870 240.077
Accounts receivable:. Trade receivables 6 901,635 801.004 1.119.278 1.027.649. Provision for impairment of trade receivables 6 (47,120) (45.187) (47.269) (45.663). Receivables from related parties 7 328,386 402.798 - -Inventory 8 453,431 438,091 489,805 473,658Taxes recoverable 9 96,835 130,441 102,116 135,310Prepaid expenses related parties 7 3,023 7,775 3,023 7,775Prepaid expenses - third parties 14,213 14,557 14,223 14,557Other 21,521 60,465 21,884 61,415Total current assets 3,911,921 4,207,169 4,121,106 4,432,090
Non-current assetsLong-term receivablesReceivables from related parties 7 64,950 1,687 - 146Judicial deposits 16 89,922 85,691 91,354 87,123Taxes recoverable 9 116,412 128,402 116,412 128,402
Other 158,168 151,864 163,356 158,374429,452 367,644 371,122 374,045
Investments:. Interests in subsidiaries 11 1,324,231 1,267,255 452,726 450,651. Other 11,542 11,542 11,542 11,542Property. plant and equipment 12 5,349,271 5,003,707 5,798,805 5,379,426Biological assets 13 2,797,739 2,944,187 3,392,538 3,441,495Intangible assets 8,456 8,486 8,624 8,654
9,491,239 9,235,177 9,664,235 9,291,768Total non-current assets 9,920,691 9,602,821 10,035,357 9,665,813
Total assets 13,832,612 13,809,990 14,156,463 14,097,903
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(continued)
BALANCE SHEET AT SEPTEMBER 30, 2013 AND DECEMBER 31, 2012(All amounts in thousands of reais)
Parent Consol dated
Note 09/30/2013 12/31/2012 09/30/2013 12/31/2012LIABILITIES AND EQUITY
Current liabilitiesBorrowings 14 1,128,506 1,120,770 1,128,466 1,120,770Trade payables 15 381,655 313,559 391,830 318,077Tax obligations 51,802 52,919 56,264 57,095Provision for income tax
and social contribution 10 37,131 54,553 38,298 54,387Social and labor obligations 128,261 123,934 130,572 125,807Payables to related parties 7 53,835 9,665 3,378 2,693Enrollment in Tax Debt Refinancing Program (REFIS) 16 25,746 39,383 25,746 39,383Other payables and provisions 53,066 39,699 70,409 49,177Total current liabilities 1,860,002 1,754,482 1,844,963 1,767,389
Non-current liabilitiesBorrowings 14 4,888,701 4,914,334 4,884,241 4,914,334Deferred income tax
and social contribution 10 1,066,531 1,190,673 1,287,082 1,392,257Tax, social security,labor and civil provisions 16 93,505 83,189 93,506 83,189
Payables - investors in SPCs - - 123,826 69,214Enrollment in Tax Debt Refinancing Program (REFIS) 16 393,082 389,793 393,082 389,793Other payables and provisions 64,466 56,598 63,438 60,806Total non-current liabilities 6,506,285 6,634,587 6,845,175 6,909,593Total liabilities 8,366,287 8,389,069 8,690,138 8,676,982
EquityShare capital 2,271,500 2,271,500 2,271,500 2,271,500Capital reserves 4,417 1,423 4,417 1,423Revaluation reserves 49,447 49,980 49,447 49,980Revenue reserves 2,094,146 2,170,215 2,094,146 2,170,215Carrying value adjustments 1,069,795 1,081,379 1,069,795 1,081,379Retained earnings 129,105 - 129,105 -Treasury shares (152,085) (153,576) (152,085) (153,576)Total equity 17 5,466,325 5,420,921 5,466,325 5,420,921
Total l ab l t es and equ ty 13,832,612 13,809,990 14,156,463 14,097,903
The accompanying notes are an integral part of these interim financial statements.
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(A free translation of the original in Portuguese)
STATEMENT OF INCOME FOR THE NINE-MONTH PERIODS ENDEDSEPTEMBER 30, 2013 AND 2012
(All amounts in thousands of reais unless otherwise stated)
Parent Consolidated1/1 to 1/1 to 1/1 to 1/1 to
Note 09/30/2013 09/30/2012 09/30/2013 09/30/2012Unaudited Unaudited
Net sales revenue 18 3,278,889 2,993,443 3,363,116 3,085,306Changes in the fair value of biological assets 13 283,813 314,878 279,927 772,578Cost of sales 19 (2,335,521) (2,090,084) (2,361,884) (2,098,211)Gross profit 1,227,181 1,218,237 1,281,159 1,759,673
Operating income (expenses)Selling expenses 19 (241,319) (210,197) (265,861) (258,616)General and administrative expenses 19 (199,650) (196,518) (203,860) (200,272)Other operating income (expenses). net 19 12,173 3,484 12,814 (4,164)
(428,796) (403,231) (456,907) (463,052)
Equity in the results of investees 11 50,223 334,588 17,375 25,329
Profit before finance resultand taxes 848,608 1,149,594 841,627 1,321,950
Finance resultFinance income 20 179,733 246,884 186,723 253,669
Finance costs 20 (674,540) (694,121) (677,238) (723,063)(494,807) (447,237) (490,515) (469,394)
Profit before taxes on income 353,801 702,357 351,112 852,556
Income tax and social contribution. Current 10 (162,641) (1,231) (169,768) (45,181). Deferred 10 77,417 (95,676) 87,233 (201,925)
(85,224) (96,907) (82,535) (247,106)
Profit for the period 268,577 605,450 268,577 605,450
Bas c/d luted earn ngs per share(common shares) R$ 22 0.2844 0.6412 0.2844 0.6412
Basic/diluted earnings per share(preferred shares) R$ 22 0.3128 0.7054 0.3128 0.7054
The accompanying notes are an integral part of these interim financial statements.
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(A free translation of the original in Portuguese)
STATEMENT OF COMPREHENSIVE INCOME FOR THE NINE-MONTH PERIODS ENDEDSETPEMBER 30, 2013 AND 2012
(All amounts in thousands of reais)
Parent and consolidated1/1 to 1/1 to
09/30/2013 09/30/2012Unaudited
Profit for the period 268,577 605,450Other comprehensive income:. Foreign currency translation adjustments (3,539) (327). Actuarial liability restatement (7,841) -Total comprehensive income for the period, net of taxes 257,197 605,123
The accompanying notes are an integral part of these interim financial statements.
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(A free translation of the original in Portuguese)
STATEMENT OF CHANGES IN EQUITY FOR THE NINE-MONTH PERIODS ENDEDSEPTEMBER 30, 2013 AND 2012
(All amounts in thousands of reais)
Parent and consolidated
Revaluationreserve Revenue reserves
Investment CarryingShare Capital Own Legal Biological Proposed and working value Treasury Retainedcapital reserves assets reserve assets dividends capital adjustments shares earnings Total
At December 31. 2011 2,271,500 - 50,691 9,783 1,219,591 79,998 383,170 1,085,045 (141,476) - 4,958,302
Profit for the year 605,450 605,450Other comprehensive income for the year (327) (327)Total comprehensive income for the year - - - - - - - (327) - 605,450 605,123Realization of revaluation reserves (533) 533 -Purchase of treasury shares (8,002) (8,002)Supplementary dividends for 2011 - approved at the
General Meeting of Stockholders (79,998) (7) (80,005)Dividends prepaid in the year (119,996) (119,996)Stock option plan: -. Disposal of treasury shares 1423 2,290 3,713. Award of treasury shares 2291 (2,291) -. Recognition of the stock option plan remuneration 347 347At September 30. 2012 - Unaudited 2,271,500 1,423 50,158 9,783 1,219,591 - 383,163 1,087,356 (149,479) 485,987 5,359,482
At December 31. 2012 2,271,500 1,423 49,980 47,381 1,578,337 76,002 468,495 1,081,379 (153,576) - 5,420,921
Profit for the period 268,577 268,577Other comprehensive income for the period (11,380) (11,380)Total comprehensive income for the period - - - - - - - (11,380) - 268,577 257,197Realization of revaluation reserve (533) 533 -Supplementary dividends for 2012 - approved at the
General Meeting of Stockholders (76,002) (67) (76,069)Purchase of treasury shares (2,999) (2,999)Dividends prepaid in the year (140,005) (140,005)Stock option plan: -. Disposal of treasury shares 2,994 1,900 4,894. Award of treasury shares (2,590) 2,590 -. Recognition of the stock option plan remuneration 2,386 2,386At September 30. 2013 2,271,500 4,417 49,447 47,381 1,578,337 - 468,428 1,069,795 (152,085) 129,105 5,466,325
The accompanying notes are an integral part of these interim financial statements.
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(A free translation of the original in Portuguese)
STATEMENT OF CASH FLOWS FOR THE NINE-MONTH PERIODS ENDEDSEPTEMBER 30, 2013 AND 2012
(All amounts in thousands of reais)
Parent Consolidated1/1 to 1/1 to 1/1 to 1/1 to
09/30/2013 09/30/2012 09/30/2013 30/09/2012
Unaudited UnauditedNet cash provided by operating activities 792,790 265,468 815,348 629,211
Cash flows from operations 708,175 683,578 758,935 750,766Profit for the period 268,577 60 5,450 268,577 605,450Depreciation and amortization 173,143 161,655 174,228 164,643Changes in the fair value of biological assets (283,813) (314,878) (279,927) (772,578)Depletion of biological assets 347,837 116,440 375,576 259,309Deferred income tax and social contribution (77,417) 95,676 (87,233) 201,925Interest and exchange variation on borrowings 620,995 624,492 620,798 624,492Payment of interest on borrowings (235,253) (218,472) (235,253) (218,472)Accrued interest - REFIS 26,341 36,885 26,341 36,885Result of sale of assets and subsidiaries 3,651 363 3,651 363Equity in the results of investees (50,223) (334,588) (17,375) (25,329)Income tax and social contribution paid (81,264) (73,579) (82,701) (118,349)Other (4,399) (15,866) (7,747) (7,573)Changes in assets and liabilities 84,615 (418,110) 56,413 (121,555)
Trade receivables and related parties (26,219) (331,809) (91,629) (150,160)Inventory (15,340) 23,640 (16,147) 27,591Taxes recoverable 126,860 36,329 127,885 82,229Marketable securities (3,793) (14,765) (3,793) (14,765)Prepaid expenses 5,096 9,917 5,086 10,784Other assets (34,854) (22,541) 30,464 (26,174)Trade payables 30,242 (99,747) 35,899 (101,842)Tax obligations (18,539) 15,663 (16,920) 1,443Social and labor obligations 4,327 21,836 4,765 22,052Other liabilities 16,835 (56,633) (19,197) 27,287Net cash used in investment activities (435,993) (292,068) (586,151) (381,006)Purchase of property. plant and equipment (i) (493,429) (299,660) (561,364) (300,967)Planting cost of biological assets (i) (39,039) (54,041) (54,276) (88,483)Proceeds from sale of assets and subsidiaries 14,189 9,291 14,189 9,291Acquisition of and capital investment in subsidiaries (10,559) (2,680) - (847)Dividends received from subsidiaries 92,845 55,022 15,300 -Net cash (used in) provided by financing activities (617,818) 332,825 (572,333) 325,294
Borrowings 426,140 1,237,237 421,836 1,237,237Repayment of borrowings (829,779) (700,122) (829,778) (700,122)
Purchase of treasury shares (2,999) (8,002) (2,999) (8,002)Disposal of treasury shares 4,894 3,713 4,894 3,713Addition of new investors - S PCs - - 50,000 -Withdrawal of investors - SPCs - - (212) (7,531)Dividends paid (216,074) (200,001) (216,074) (200,001)Increase (decrease) in cash and cash equivalents (261,021) 306,225 (343,136) 573,499Cash and cash equivalents at the beginning of theperiod 2.157.148 2.146.456 2.517.312 2.341.064Cash and cash equivalents at the end of the period 1.896.127 2.452.681 2.174.176 2.914.563(i) Net of recoverable taxes
The accompanying notes are an integral part of these interim financial statements.
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(A free translation of the original in Portuguese)
STATEMENT OF VALUE ADDED FOR THE NINE-MONTH PERIODS ENDEDSEPTEMBER 30, 2013 AND 2012
(All amounts in thousands of reais)
Parent Consolidated1/1 to 1/1 to 1/1 to 1/1 to
9/30/2013 9/30/2012 9/30/2013 9/30/2012Revenue Unaudited Unaudited. Sale of goods 4,141,592 3,766,337 4,241,136 3,871,250. Changes in the fair value of biological assets 283,813 314,878 279,927 772,578. Other revenue 14,189 9,291 14,189 9,291. Provision for impairment of trade receivables (1,933) (12,337) (1,605) (12,336)
4,437,661 4,078,169 4,533,647 4,640,783Inputs acquired from third parties. Cost of sales (1,452,724) (1,538,236) (1,451,569) (1,404,727). Materials, energy, outsourced services and other (696,767) (676,503) (725,929) (735,343)
(2,149,491) (2,214,739) (2,177,498) (2,140,070)Gross value added 2,288,170 1,863,430 2,356,149 2,500,713
Retentions. Depreciation, amortization and depletion (520,980) (278,095) (549,804) (423,952)Net value added generated by the Company 1,767,190 1,585,335 1,806,345 2,076,761
Value added rece ved through transfers. Equity in the results of investees 50,223 334,588 17,375 25,329. Finance income, including exchange variations 179,733 246,884 186,723 253,669
229,956 581,472 204,098 278,998Total value added to distribute 1,997,146 2,166,807 2,010,443 2,355,759
D str but on of value added:Personnel. Direct remuneration 380,363 336,317 391,561 344,882. Benefits 87,927 70,609 88,297 70,904. Government Severance Indemnity Fund for Employees (FGTS) 28,925 27,676 28,995 27,762
497,215 434,602 508,853 443,548Taxes and contributions. Federal 415,521 381,856 414,482 532,920. State 134,029 44,071 134,029 44,071. Municipal 7,264 6,707 7,264 6,707
556,814 432,634 555,775 583,698Remuneration of third-party capital. Interest 674,540 694,121 677,238 723,063
674,540 694,121 677,238 723,063Remuneration of own capital. Dividends (140,005) 119,996 (140,005) 119,996. Profits reinvested for the period 408,582 485,454 408,582 485,454
268,577 605,450 268,577 605,4501,997,146 2,166,807 2,010,443 2,355,759
The accompanying notes are an integral part of these interim financial statements.
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(A free translation of the original in Portuguese)
Klabim S.A.
Notes to the financial statementsat September 30, 2013All amounts in thousands of reais unless otherwise stated
14
1 GENERAL INFORMATIONKlabin S.A. (the "Company") and its subsidiaries operate in the following segments of the paper andpulp industry serving the domestic and foreign markets: supplying wood, packaging paper, papersacks, and corrugated cardboard boxes. Their operations are integrated, from forestation to themanufacture of final products. Klabin S.A. is a publicly-traded corporation whose shares are tradedon the So Paulo Commodities, Futures and Stock Exchange (BM&FBOVESPA). The Company isdomiciled in Brazil and headquartered in So Paulo.
The parent company (Klabin S.A.) also has investments in Special Partnership Companies ("SPCs")for the specific purpose of raising funds from third parties to support reforestation projects. TheCompany, as an ostensible partner, has contributed forest assets, mainly forests and land, throughgranting usage rights, while the other investing stockholders have contributed cash to these SPCs.
These SPCs give Klabin S.A. the preemptive right to acquire forestry products at market prices andconditions.
The Company also has ownership interests in other companies (Notes 3 and 11), whose operationalactivities are related to the Company's business objectives.
These interim financial statements were approved by the Board of Directors on November 1, 2013.
1.1 Corporate restructuring of subsidiaries
At the Extraordinary General Meeting of Stockholders held on May 31, 2012, the stockholders of thesubsidiary Centaurus approved a partial split-off with the transfer of part of its equity relating to
Vale do Corisco. As a result, the stockholders Klabin and Arauco now hold direct and joint interestsin Vale do Corisco, of 51% and 49%, respectively.
As a consequence of the reorganization, the subsidiary Centaurus began to be fully consolidatedfrom that date, whereas the jointly-controlled subsidiary Vale do Corisco is currently accounted forusing the equity accounting method.
1.2 Creation of the Special Partnership Company (SPC) CG Forest
On October 19, 2012, the Company established a new SPC called CG Forest, for the specific purposeof raising funds from third parties to support reforestation projects.
The Company, as an ostensible partner, contributed R$ 53 million in forest assets and land userights for the establishment of this new SPC, while the other investing stockholders contributedR$ 25 million in cash. The SPC gives Klabin S.A. the preemptive right to acquire forestry products atmarket prices and conditions.
1.3 Dissolution of SPC Leal
At December 31, 2012, the operations of SPC Leal were terminated. Upon the dissolution, SPC Lealpaid R$ 162 million to the investing stockholders according to their interests. The remaining assetsand liabilities, mainly comprised of land and forests, were merged into the parent company KlabinS.A.
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Klabim S.A.
Notes to the financial statementsat September 30, 2013All amounts in thousands of reais unless otherwise stated
15
1.4 Constitution of Klabin Celulose S.A.
The Company established a new wholly-owned subsidiary in 2012 named "Klabin Celulose S.A.",which will receive allocations of future investments in the industrial development project of a plantfor pulp production. The subsidiary is included in the Company's consolidated interim financialstatements.
1.5 Approval of pulp-related project (Puma Project)
According to the Significant Event Notices released, the Company's Board of Directors decided onOctober 21, 2013 to proceed with the capital raising process to finance the construction of a newplant in the city of Ortigueira, State of Paran, for the production of pulp, with a capacity of 1.5million metric tons per year, as approved by management on June 11, 2012.
The cost of the project is estimated at R$ 5.8 billion. In addition, expenditure is estimated at R$ 0.8billion for taxes recoverable on machinery and equipment and at R$ 0.6 billion for infrastructure
construction work, also recoverable through ICMS tax credits, pursuant to an agreement with theParan State Government.
The resources to finance the project will come from the issue of shares or convertible securities orboth after obtaining the proper approval from the relevant agencies. The remainder of the funds willbe obtained from lines of credit with the National Bank for Economic and Social Development(BNDES) as well as with multinational import agencies. In the third quarter of 2013, the PumaProject became eligible for a financing facility estimated at R$ 4.0 billion from the BNDES and US$0.3 billion from the International Development Bank (IDB).
Additionally, the approved proposal for the project includes the Company being listed in the Level 2segment of the Securities, Commodities and Futures Exchange (BM&FBOVESPA) as well as thegranting of a tag-along of 100% of non-controlling common stockholders and holders of preferredshares. Some of these proposals are subject to the approval of the stockholders meeting.
1.6 Creation of the Special Partnership Company (SPC) Monte Alegre
On September 18, 2013 the Company established a new company named Monte Alegre with thespecific aim of raising funds from third parties to finance reforestation projects.
The Company, as an ostensible partner, contributed R$ 122 million in forest assets and land userights for the establishment of this new SPC, while the other investing stockholders contributedR$ 50 million in cash. The SPC gives Klabin S.A. the preemptive right to acquire forestry products atmarket prices and conditions.
2 BASIS OF PRESENTATION OF THE INTERIM FINANCIAL STATEMENTS ANDMAIN ACCOUNTING PRACTICES
2.1 Basis of presentation of the financial information
The Company presents the consolidated interim financial statements in accordance with theInternational Financial Reporting Standards (IFRS) issued by the International AccountingStandards Board (IASB) and accounting practices adopted in Brazil, based on the technicalpronouncements issued by the Brazilian Accounting Pronouncements Committee (CPC), which arefully convergent with IFRS, and the standards issued by the Brazilian Securities and ExchangeCommission (CVM).
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Klabim S.A.
Notes to the financial statementsat September 30, 2013All amounts in thousands of reais unless otherwise stated
16
The parent company interim financial statements have been prepared in accordance withaccounting practices adopted in Brazil, which differ from the International Financial Reporting
Standards (IFRS) only in relation to the measurement of investments in subsidiaries using theequity accounting method, instead of at cost or fair value in accordance with IFRS.
2.2 Summary of significant accounting practices adopted
The main accounting practices adopted by the Company and its subsidiaries are set out below.
a) Functional currency and foreign currency translation
The interim financial statements are presented in Brazilian reais (R$), which is the functional andpresentation currency of the Company and its subsidiaries, except for the subsidiary Klabin
Argentina (Note 3) which has the Argentine Peso (A$) as its functional currency.
(i) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange ratesprevailing at the dates of the transactions. Foreign exchange gains and losses resulting from thetranslation of assets and liabilities in foreign currency at the end of the reporting period arerecognized in the Company's statement of income.
(ii) Foreign subsidiaries
Foreign subsidiaries with the characteristics of a branch have the same functional currency as theCompany. The exchange differences arising in a subsidiary which has a different functionalcurrency, resulting from the translation of its interim financial statements, are recorded separatelyin an equity account named "carrying value adjustments" (comprehensive income). Upon the sale ofa foreign subsidiary, the accumulated deferred amount recognized in equity relating to this foreignsubsidiary is recognized in the statement of income.
The assets and liabilities of this foreign subsidiary are translated using the exchange rate prevailingat the end of the reporting period. Income and expenses are translated at the exchange ratesprevailing at the dates of the transactions.
b) Cash and cash equivalents
Cash and cash equivalents include cash on hand, bank deposits and highly-liquid short terminvestments, which are readily convertible into a known amount of cash and are subject toimmaterial risk of changes in value.
c) Financial instruments
Financial instruments are initially recognized at fair value plus, in the case of financial assets orfinancial liabilities not carried at fair value through profit or loss, transaction costs that are directlyattributable to the acquisition or issue of the financial asset or financial liability. They aresubsequently measured at the end of each reporting period based on the classification of financialinstruments in to the following categories: 1) financial assets: (i) measured at fair value throughprofit or loss, (ii) loans and receivables, and (iii) available for sale; 2) financial liabilities: (i)measured at fair value through profit or loss, and (ii) other financial liabilities.
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Klabim S.A.
Notes to the financial statementsat September 30, 2013All amounts in thousands of reais unless otherwise stated
17
(i) Marketable securities
Securities are considered available-for-sale and are recognized at fair value plus finance income(costs).
(ii) Borrowings
The balance of borrowings refers to the amount of funds raised, plus interest and chargesproportional to the period incurred, less installments paid, and includes the exchange variation onthe liability, if applicable.
Interest is measured using the effective interest rate method and recognized as "finance costs", asare the monetary and exchange variations of the balance of outstanding borrowings.
d) Trade receivables
Trade receivables are stated at the original amounts of the invoices for sales of products, plusexchange variations when applicable. A provision for the impairment of trade receivables isrecorded based on an individual analysis of the receivables, at an amount considered bymanagement to be sufficient to cover probable losses on their realization, which can be modified asa result of the recovery of receivables from defaulting customers or a change in a customer'sfinancial situation.
The adjustment to present value of trade receivables is not material due to their short terms ofrealization.
e) Inventory
Inventory is stated at its average cost, net of taxes to be offset, when applicable, or in the case ofbiological assets, at their fair value at the cut-off date, which are both lower than the respective net
realizable values. Finished products inventory is valued based on the cost of processed rawmaterials, direct labor and other production costs.
When necessary, inventory is reduced by a provision for losses, which is set up in cases of inventorydevaluation, obsolescence of products and physical inventory losses. In addition, because of thenature of the Company's products, obsolete finished products may be able to be recycled for reuse inproduction.
f) Income tax and social contribution
The Company calculates corporate income tax (IRPJ) and social contribution on net income (CSLL),current and deferred, using a rate of 15%, plus a 10% surcharge on taxable profits exceeding R$ 240for income tax and 9% on taxable profit for social contributions. The balances are recognized in theCompany's statement of income on an accruals basis.
The tax rates currently used to determine deferred taxes are the same as for current taxes.
The deferred income tax and social contribution are recorded in the balance sheet at their netamounts in non-current assets or liabilities, and derive mainly from temporarily non-deductibleprovisions and taxes under litigation, the deferred exchange variations of the parent company, andadjustments included in the Transition Tax Regime (RTT) such as: deemed cost of property, plantand equipment (land), fair value measurement of biological assets (Note 13), changes in thedepreciation rates of property, plant and equipment (Note 12) and amortization of deferred charges.
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Klabim S.A.
Notes to the financial statementsat September 30, 2013All amounts in thousands of reais unless otherwise stated
18
Subsidiaries have their taxes calculated and accrued in accordance with the legislation of theirrespective countries and/or their specific tax systems, including, in some cases, presumed profits.
The provision for current income tax and social contribution for the period is stated in the balancesheet net of tax prepayments made during the period.
g) Investments
These refer to investments in subsidiaries and jointly-controlled subsidiaries accounted for usingthe equity method, based on the Company's ownership interest in these companies. The interimfinancial statements of subsidiaries and jointly-controlled subsidiaries are prepared for the samereporting period as that adopted by the Company. When necessary, adjustments are made to bringthe accounting policies into line with those adopted by the Company.
Unrealized gains and losses resulting from transactions between the Company and its subsidiariesand jointly-controlled subsidiaries are eliminated for equity accounting purposes in the parent
company balance sheet, as well as for consolidation purposes.At the end of each reporting period, the Company determines if there is objective evidence that theinvestments in the subsidiaries or jointly-controlled subsidiaries are impaired. If there is anindication of impairment, the Company calculates the amount of the impairment loss andrecognizes it in the statement of income.
Exchange variations on investments in foreign subsidiaries, recognized in "Comprehensive income",are classified as carrying value adjustments and are realized simultaneously with the realization ofthe respective investments.
In the consolidated interim financial statements, the investors' interest in SPCs (Notes 3 and 11) ispresented in the balance sheet in liabilities, under "Other payables - investors in SPCs.
The Company's management treats Special Partnerships as independent entities with the
characteristics of subsidiaries, and they are recorded in the parent company interim financialstatements using the equity accounting method.
h) Property, plant and equipment
Property, plant and equipment are stated at acquisition or construction cost, less taxes to be offset,when applicable, and accumulated depreciation. Based on the option exercised by the Company onthe first-time adoption of IFRS, the deemed cost of property, plant and equipment (land) wasdetermined based on the adoption of the deemed cost for this class of assets.
Depreciation is calculated on a straight line basis taking into consideration the estimated usefullives of the assets, based on the expected future economic benefits, except for land, which is notdepreciated. The estimated useful lives of assets are reviewed annually and adjusted, if necessary,and may vary based on technological updates at each unit. The useful lives of the Company's assets
are stated in Note 12.The costs of maintaining the Company's assets are allocated directly to the profit for the period in
which they are realized.
Finance charges are capitalized as part of property, plant and equipment, when incurred onconstruction in progress, if applicable.
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Klabim S.A.
Notes to the financial statementsat September 30, 2013All amounts in thousands of reais unless otherwise stated
19
i) Impairment of assets
Property, plant and equipment and other assets are tested for impairment on an annual basis orwhenever events or changes in circumstances indicate that their carrying amounts may not berecoverable. When this is the case, the recoverable amount is calculated to determine whether theassets are impaired.
The recoverable amount of an asset is the higher of the net sales price and the value in use of theasset or its Cash-Generating Unit (CGU), and is determined individually for each asset, unless theasset does not generate cash inflows that are independent from those of other assets or groups ofassets. In estimating the value in use, estimated future cash flows are discounted its present value,using a discount rate that reflects current market assessments of the time value of money and therisks specific to the asset.
An impairment loss is recognized at the amount by which the asset's carrying amount exceeds itsrecoverable amount, which is the higher of the assets net sales price and its value in use.
j) Biological assets
Biological assets refer to eucalyptus and pine forests, which are used for the production of packagingpaper, paper sacks and corrugated cardboard boxes as well as being sold to third parties. Harvestingand replanting have an approximate cycle of 7 - 14 years, which varies based on the crop and geneticmaterial. Biological assets are measured at fair value, less estimated selling costs, at the point ofharvest.
The significant assumptions used in determining the fair value of biological assets are stated in Note13.
The valuation of biological assets is carried out on a quarterly basis by the Company, and any gainor loss on the change in the fair value of biological assets is recognized in the statement of income inthe period in which it occurs, in a specific line item named "Change in the fair value of biologicalassets". The increase or decrease in fair value is determined based on the difference between the fair
values of biological assets at the beginning and at the end of the valuation period.
The depletion of biological assets is measured based on the amount of wood cut, carried at fairvalue.
k) Intangible assets
Intangible assets are stated at cost less accumulated amortization, calculated on a straight line basisbased on their estimated useful lives. Expenditure on research into new products and techniquesused by the Company is recognized as an expenses as incurred.
l) Non-current assets and liabilities
Non-current assets and liabilities include receivables and payables maturing 12 months after theend of the reporting period, plus the corresponding charges and monetary and exchange variationsincurred, if applicable, through the end of the reporting period.
m) Provisions
A provision is recognized when the Company has a present legal or constructive obligation as aresult of past events, it is probable that an outflow of resources will be required to settle theobligation, and the amount has been reliably estimated.
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Klabim S.A.
Notes to the financial statementsat September 30, 2013All amounts in thousands of reais unless otherwise stated
20
The expenses related to any provision are presented in the statement of income, net of anyreimbursement. If the time effect of the amount is material, the provision is discounted using a
discount rate that reflects the risks specific to the obligation, if applicable.Among the provisions recorded by the Company are provisions for tax, social security, labor andcivil claims, which are accrued when lawsuits are assessed by the Company's legal counsel andmanagement as being likely to result in losses. This assessment is made taking into account thenature of the lawsuits, similarities with prior lawsuits and the progress of pending litigation.
When the Company expects that the amount of provision will be fully or partially reimbursed, thisasset is recognized only when realization is considered clear and certain, with no recognition ofassets in scenarios of uncertainty.
n) Sales revenue
Sales revenue is stated net of taxes, discounts and rebates, and is recognized when all of the risks
and rewards of ownership of the product are transferred to the buyer, to the extent that it isprobable that economic benefits will be generated and will flow to the Company and its subsidiariesand jointly-controlled subsidiaries, and when it can be reliably measured based on the fair value ofthe consideration received or receivable, net of discounts, rebates and taxes or charges on sales.
o) Employee benefits and private pension plan
The Company grants employee benefits such as life insurance, health care, profit sharing and otherbenefits, which are recognized on an accruals basis and are discontinued at the end of theemployment relationship with the Company.
Additionally, the Company grants a private pension and health care plan to former employees whoretired by 2001. In relation to these benefits the Company adopts practices for the recognition of theliability and the result based on an actuarial valuation prepared by an independent expert. Gains
and losses on the actuarial valuation of benefits generated by changes in actuarial assumptions andcommitments on the actuarial liability are recognized in an account in equity named "Carrying valueadjustments" (comprehensive income).
p) Stock option plan
The stock option plan offered by the Company is measured at its fair value on the grant date and therelated expenses are recognized in the statement of income during the period in which the grantingright is acquired, against equity in the "Carrying value adjustments" group.
q) Significant accounting judgments, estimates and assumptions
In the preparation of the interim financial statements, accounting judgments, estimates andassumptions have been used to account for certain assets, liabilities and transactions and to
recognize income and expenses for the periods. The accounting judgments, estimates andassumptions adopted by management are made using the best information available at the date ofthe interim financial statements, and involve experience of past events, forecasts of future eventsand the assistance of experts, when applicable.
The interim financial statements include various estimates, including, but not limited to, therealization of deferred tax assets, the fair value measurement of biological assets, and the provisionfor tax, social security, civil and labor claims.
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Klabim S.A.
Notes to the financial statementsat September 30, 2013All amounts in thousands of reais unless otherwise stated
21
Actual results may differ from those estimates made based on accounting judgments, estimates andassumptions, and the Company may be exposed to material losses.
r) Earnings per share
The Company calculates earnings per share based on the profit for the period attributed to eachclass of shares issued by the Company, weighting the number of shares outstanding during theperiod.
s) Statement of value added
Brazilian corporate legislation requires listed companies to present a statement of value added aspart of the interim financial statements presented by the Company. This statement is intended toprovide evidence of the wealth created by the Company and its distribution during the periodspresented.
2.3 Adoption of new technical pronouncements, revisions and interpretations issued
The following new technical pronouncements, revisions and interpretations, effective as of January1, 2013, were approved by IASB and regulated by CPC and CVM:
- CPC 18/ IAS 28 (R2) Investment in Associates, Subsidiaries and Joint Ventures- CPC 19/ IFRS 11 Joint Arrangements- CPC 26/ IAS 1 (R1) Presentation of Financial Statements- CPC 33/ IAS 19 (R1) Employee Benefits- CPC 36/ IFRS 10 (R3) Consolidated Financial Statements- CPC 45/ IFRS 12 Disclosure of Interests in Other Entities- CPC 46/ IFRS 13 Fair Value MeasurementThe effects of their adoption are highlighted below:
a) CPC 33/ IAS 19 (R1) Employee Benefits
Although the accounting practice used by the Company was to record actuarial gains and lossesusing the "corridor method", the total amounts involved are not relevant. Following the revision ofthe pronouncement, the actuarial gains and losses are fully recognized in equity in the group"carrying value adjustments" (comprehensive income).
Therefore, the adoption of the pronouncement did not have any relevant impact on the Company'sfinancial information.
b) CPC 46/ IFRS 13 Fair Value Measurement
The new pronouncement basically determines new disclosure criteria for the measurement at fairvalue of the Company's assets and liabilities, such as the hierarchical level at which the calculationof fair value, calculation assumptions and sensitivity analysis are classified.
c) CPC 19/ IFRS 11 Joint Arrangements
The Company evaluated this pronouncement and concluded that the only company to fall within thescope of this pronouncement is Florestal Vale do Corisco S.A. The conclusion is that this jointly-controlled subsidiary is a joint venture and, accordingly, it shall be accounted for in equity. Since theCompany already accounted for that investment using the equity method, the adoption of the newpronouncement did not produce any new impact.
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Klabim S.A.
Notes to the financial statementsat September 30, 2013All amounts in thousands of reais unless otherwise stated
22
3 CONSOLIDATED INTERIM FINANCIAL STATEMENTSSubsidiaries are fully consolidated as at the date of the acquisition of control and continue to beconsolidated until the date on which such control ceases to exist, except for joint ventures, which areaccounted for using the equity accounting method both in the parent company and in theconsolidated interim financial statements.
The financial statements of subsidiaries are prepared for the same reporting period as the parentcompany, using accounting policies consistent with the policies adopted by the parent company.The following criteria are adopted for consolidation purposes: (i) investments in subsidiaries andequity in the results of investees are eliminated, (ii) profits from intercompany transactions and therelated assets and liabilities are also eliminated, and (iii) the amount of non-controlling interest iscalculated and shown separately.
The consolidated interim financial statements comprising Klabin S.A. and its subsidiaries atSeptember 30, 2013 and 2012 and December 31, 2012, are as follows:
Ownership interest - %
Country Activity Investment 9/30/2013 12/31/2012 9/30/2012Subsidiaries:Klabin Argentina S.A. Argentina Industrial sacks Direct/indirect 100 100 100
Klabin Ltd.CaymanIslands
Interest in other companies Direct 100 100 100
. Klabin Trade EnglandSale of products in the foreign
marketIndirect 100 100 100
Klabin Forest Products CompanyUnitedStates
Sale of products in the foreignmarket
Direct 100 100 100
IKAP Empreendimentos Ltda. Brazil Hotel Direct 100 100 100
Klabin do Paran Produtos Florestais Ltda. BrazilManufacture of phytotherapic
productsDirect 100 100 100
Klabin Florestal Ltda. Brazil Forestry Direct 100 100 100
Centaurus Holdings S.A. (i) BrazilHolding interests in
companiesDirect 100 100 -
Klabin Celulose S.A. (iii) Brazil Pulp Direct 100 - -Special partnership companies:Correia Pinto Brazil Reforesting Direct 90 91 91Leal (ii) Brazil Reforesting Direct - - 88CG Forest (iii) Brazil Reforesting Direct 64 68 -Monte Alegre (iii) Brazil Reforesting Direct 65 - -Joint ventures (unconsolidated):Florestal Vale do Corisco S.A. (i) Brazil Reforesting Direct 51 51 51
(i) See Note 1.(ii) The operations of this subsidiary were discontinued, as disclosed in Note 1.(iii) New subsidiary established, as disclosed in Note 1.
Investment in joint ventures
The investment in Florestal Vale do Corisco S.A., classified as a joint venture, has not beenconsolidated using the proportional consolidation method. The investment is recorded based on theequity accounting method from the date when joint control was acquired.
4 CASH AND CASH EQUIVALENTSIn accordance with its policy, the Company has made low-risk investments with no significant riskof changes in value with financial institutions considered by management as prime banks both inBrazil and abroad, based on their ratings from risk rating agencies. Management considers thesefinancial assets as cash and cash equivalents due to their immediate liquidity with financialinstitutions.
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Notes to the financial statementsat September 30, 2013All amounts in thousands of reais unless otherwise stated
23
Parent Consolidated9/30/2013 12/31/2012 9/30/2013 12/31/2012
Cash and banks 10,177 14,366 85,713 41,940Investments in local currency 1,885,950 2,142,782 2,030,167 2,238,192Investments in foreign currency - - 58,296 237,180
1,896,127 2,157,148 2,174,176 2,517,312
Financial investments in local currency, relating to Bank Deposit Certificates (CDBs) and otherrepurchase transactions, are indexed to the variations of the Interbank Deposit Certificate (CDI)
with an average annual yield of 8.86% (7.01% at December 31, 2012), and financial investments inforeign currency, relating to time deposits in US Dollars, have an average annual yield of 0.21%(0.21% at December 31, 2012). The investments have daily liquidity guaranteed by the financialinstitutions.
5 MARKETABLE SECURITIESMarketable securities are connected to Financial Treasury Bills (LFTs), with yields indexed to the
variations of the basic interest rate (SELIC). At September 30, 2013, the balance of these securitiesis R$ 243,870 (R$ 240,077 at December 31, 2012). Management classified these securities asavailable-for-sale financial assets. The original maturities are through the end of 2015. However,there is an active trading market for these securities and their fair value basically represents theprincipal plus interest, as originally established.
6 TRADE RECEIVABLESParent Consolidated
9/30/2013 12/31/2012 9/30/2013 12/31/2012Customers. Domestic 828,136 785,853 828,574 785,927. Foreign 73,499 15,151 290,704 241,722
Total trade receivables 901,635 801,004 1,119,278 1,027,649Provision for impairmentof trade receivables (47,120) (45,187) (47,269) (45,663)
854,515 755,817 1,072,009 981,986
Overdue 62,244 64,569 70,513 71,804% of total portfolio 6,90% 8,06% 6,30% 6,99%01 to 10 days 1,953 6,991 1,953 6,99111 to 30 days 4,129 5,969 8,854 8,50531 to 60 days 3,689 3,385 5,382 4,40061 to 90 days 1,604 2,420 1,741 4,166Over 90 days 50,869 45,804 52,583 47,742Not yet due 839,391 736,435 1,048,765 955,845Total portfolio 901,635 801,004 1,119,278 1,027,649
The average collection period of trade receivables is approximately 90 days for domestic marketsales and approximately 120 days for foreign market sales, and interest is charged after the
contractual maturity date. As mentioned in Note 24, the Company has rules for monitoringreceivables and past-due notes as well as for monitoring the risk of not receiving the amountsarising from credit sale transactions.
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Klabim S.A.
Notes to the financial statementsat September 30, 2013All amounts in thousands of reais unless otherwise stated
24
The provision for the impairment of trade receivables is considered sufficient to cover any losses onthe outstanding receivables. The changes in the provision for the impairment of trade receivables
were as follow:Parent Consolidated
Balance at December 31, 2011 (33,665) (33,791)Provisions for the year (16,906) (16,909)Reversal of receivables 4,749 4,753Balance at September 30, 2012 -Unaudited (45,822) (45,947)
Balance at December 31, 2012 (45,187) (45,663)Provisions for the period (6,414) (6,538)Reversal of receivables 4,481 4,932Balance at September 30, 2013 (47,120) (47,269)
The balance of the provision for the impairment of trade receivables relates mainly to trade notesoverdue for more than 90 days. The expenses on the recognition of provision for the impairment oftrade receivables are recorded in the statement of income under "Selling expenses".
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Klabim S.A.
Notes to the financial statementsat September 30, 2013
All amounts in thousands of reais unless otherwise stated
25
7 RELATED PARTIESa) Balances and transactions with related parties
Parent
9/30/2013 12/31/2012 9/30/2012
Unaudited
Monteiro Klabin
Klabin Klabin Klabin SPC Aranha IrmosTrade Argentina Celulose Correia Pinto S.A. & Cia. BNDES Other Total Total Total
(i) (i) (vii) (ii) and (v) (iii) (iii),(iv)a nd(viii) (vi) (viii)Type of relationship Subsidiary Subsidiary Subsidiary Subsidiary Stockholder Stockholder StockholderBalancesCurrent assets 325,508 540 2,338 3,023 331,409 410,573Non-current assets 64,027 923 64,950 1,687Current liabilitie s 44,640 5,840 507 2,474 400,419 414 454,294 369,177Non-current liabilities 4,460 1,324,637 1,329,097 1,225,793
TransactionsSales revenue 622,416 990 9,270 632,676 605,363Purchases (29,147) (29,147) 144,343Interest expenses on financing (196) (81,762) (81,958) 93,135Guarantee commission expenses (11,274) (11,274) 15,094Royalty expenses (4,187) (20,432) (3,285) (27,904) 25,434
(i) Balance receivable from sales of products conducted at prices and conditions agreed upon between the parties (ii) Purchase of timber at usual market prices, terms and conditions(iii) Brand licensing(iv) Prepaid expenses for guarantee commission, calculated on the balance of the financing from BNDES at 1% semiannually(v) Supply of seedlings, seeds and services at usual market prices, terms and conditions (vi) Loans obtained under usual market conditions(vii) Advance for future capital payment(viii) Other
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Klabim S.A.
Notes to the financial statementsat September 30, 2013All amounts in thousands of reais unless otherwise stated
26
Consolidated9/30/2013 12/31/2012 9/30/2012
Monteiro Klabin UnauditedAranha Irmos
S.A. & Cia. BNDES Other Total Total Total(i) (i), (ii)and(iv) (iii) (iv)
Type of relationship Stockholder Stockholder Stockholder
BalancesCurrent assets 3,023 3,023 7,775Non-current assets - 146Current liabilities 507 2,474 400,419 397 403,797 362,205Non-current liabilities 1,324,637 1,324,637 1,225,793
TransactionsInterest expenses on financing (81,762) (81,762) 96,404Guarantee commission expenses (11,274) (11,274) 19,128Royalty expenses (4,187) (20,432) (3,285) (27,904) 23,075
(i) Brand licensing(ii) Prepaid expenses for guarantee commission, calcu lated on the balance of the financing from BNDES at 1% semiannually(iii) Loans obtained under usual market conditions(iv) Other
b) Management remuneration and benefits
Management remuneration is determined by the stockholders at the Annual General Meeting, inaccordance with Brazilian corporate legislation and the Company's bylaws. Accordingly, at the
Annual General Meeting held on April 2, 2013, the stockholders established the overall amount ofthe annual remuneration of the members of the Board of Directors and Supervisory Board at up toR$ 34,200 for 2013. The remuneration approved for 2012 amounted to R$ 30,000.
The table below shows the remuneration of the members of the Board of Directors and SupervisoryBoard:
Parent and consolidatedShort term Long term Total benefits
9/30/2013 9/30/2012 9/30/2013 9/30/2012 9/30/2013 9/30/2012Board of
Directors and Unaudited Unaudited UnauditedSupervisory
Board 20,920 21,656 527 502 21,447 22,158
Management remuneration includes the fees of the Board members, along with the fees andvariable remuneration of officers. Long-term benefits relate to contributions made by the Companyto the pension plan. These amounts are mainly recorded under "Administrative expenses".
The Company grants a stock option plan to the statutory officers and other executives, as describedin Note 21.
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Klabim S.A.
Notes to the financial statementsat September 30, 2013All amounts in thousands of reais unless otherwise stated
27
8 INVENTORYParent Consolidated
9/30/2013 12/31/2012 9/30/2013 12/31/2012Finished products 90,854 101,771 114,307 123,358Raw materials 127,833 105,774 137,141 115,924Timber and logs 109,791 99,999 109,791 99,999Fuel and lubricants 4,979 6,133 4,979 6,133Maintenance supplies 123,816 120,878 125,886 122,355Provision for losses (20,261) (11,625) (20,291) (11,625)Other 16,419 15,161 17,992 17,514
453,431 438,091 489,805 473,658
Raw material inventory includes paper rolls transferred from paper units to conversion units.
The expenses on the recognition of the provision for inventory losses are recorded in the statementof income under "Cost of sales". During the nine month periods ended September 30, 2013 and2012, the net effect of the provision for inventory losses was an increase in the provision byR$ 8,636 and R$ 3,416, respectively.
The Company does not have any inventory pledged as collateral.
9 TAXES RECOVERABLE9/30/2013 12/31/2012
Current Non-current Current Non-currentassets assets assets assets
Value-added Tax on Sales and Services (ICMS) 36,189 36,368 8,422 48,887Excise Tax (IPI) 614 - 18,971 -Social Integration Program (PIS) 4,723 8,784 2,460 8,680Social Contribution on Revenues (COFINS) 21,749 51,499 11,322 50,739Income tax (IR)/Social Contribution (CS) 4,367 - 80,740 -Other 29,193 19,761 8,526 20,096
Parent 96,835 116,412 130,441 128,402Subsidiaries 5,281 - 4,869 -Consolidated 102,116 116,412 135,310 128,402
The Company recognized credits from taxes and contributions levied on purchases of property,plant and equipment, as permitted by prevailing legislation, which are being utilized for futureoffsetting against taxes payables, whether of the same nature or otherwise.
Based on analyses and the budget projection approved by management, the Company does notforesee any risk of non-realization in relation to these tax credits.
PIS/COFINS and ICMS on current assets are expected to be offset against the same types of taxespayable in the next 12 months, according to management's estimates.
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Klabim S.A.
Notes to the financial statementsat September 30, 2013All amounts in thousands of reais unless otherwise stated
28
10 INCOME TAX AND SOCIAL CONTRIBUTIONa) Nature and expected realization of deferred taxes
At September 30, 2013 and December 31, 2012, the effects of deferred tax assets and liabilities areas follow:
Parent Consolidated
9/30/2013 12/31/2012 9/30/2013 12/31/2012Tax, social security, labor and civil provisions 27,229 24,394 27,229 24,394Write-off of deferred charges (adoption of RTT) 12,841 14,957 12,841 14,957Income tax and social contribution losses - - 109 114Deferred exchange variations (*) 294,675 203,894 294,675 203,894Actuarial liability 17,004 12,964 17,004 12,964Other temporary differences 49,953 41,403 49,953 41,403Non-current assets 401,702 297,612 401,811 297,726
Fair value of biological assets 673,596 710,421 800,029 817,892Revision of useful lives of property, plant and equipment
(adoption of RTT) 210,653 178,248 210,653 178,248
Deemed cost of property, plant and equipment (land) 471,515 471,515 565,742 565,742Adjustment to present value of balances 45,249 46,366 45,249 46,366Asset revaluation reserve 25,474 25,749 25,474 25,749Other temporary differences 41,746 55,986 41,746 55,986Non-current liabilities 1,468,233 1,488,285 1,688,893 1,689,983
Net balance in the balance sheet (liabilities) 1,066,531 1,190,673 1,287,082 1,392,257
(*) Management opted for the tax recognition of the exchange variations of its foreign currency receivables and payables on a cash basis,thereby generating temporary differences arising from exchange variation, which will be taxed according to the settlement of thereceivables and payables in foreign currency.
Since 2008 the Company has adopted the Transition Tax Regime (RTT) established by Law11,941/09, for the tax treatment of income tax and social contribution on the effects arising from theadoption of CPCs.
Management, based on the budgets approved by the Board of Directors, estimates that tax creditsarising from temporary differences will be realized as follow:
9/30/2013Parent Consolidated
2013 71,698 71,6982014 88,124 88,1242015 88,318 88,3182016 42,729 42,7292017 onwards 110,833 110,942
401,702 401,811
The above projection of the realization of the balance might not materialize if the estimates used inthe preparation of the interim financial statements differ from the actual amounts.
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Klabim S.A.
Notes to the financial statementsat September 30, 2013All amounts in thousands of reais unless otherwise stated
29
Information on the Company's taxes under litigation is disclosed in Note 16.
b) Tax expense in the statement of income
The current and deferred tax expense in the statement of income for the nine-month periods endedSeptember 30, 2013 and 2012 can be summarized as follow:
Parent Consolidated
1/1 to 1/1 to 1/1 to 1/1 to9/30/2013 9/30/2012 9/30/2013 9/30/2012
Unaudited UnauditedCurrent tax expense (180,602) (1,231) (187,729) (45,181)Prior year adjustment 17,961 - 17,961Current (162,641) (1,231) (169,768) (45,181)
Recognition and reversal of temporary differences 101,805 17,758 101,723 27,361Revision of useful lives of property, plant and equipment (32,352) (40,763) (32,352) (40,763)Changes in the fair value and depletion of biological assets 7,964 (72,671) 17,862 (188,523)Deferred 77,417 (95,676) 87,233 (201,925)
c) Reconciliation of income tax and social contribution expenses with the amountsbased on the statutory tax rate
Parent Consolidated
1/1 to 1/1 to 1/1 to 1/1 to9/30/2013 9/30/2012 9/30/2013 9/30/2012
Unaudited Unaudited
Profit before taxation 353,801 702,357 351,112 852,556
Income tax and social contribution at thestatutory rate of 34% (120,292) (238,801) (119,378) (289,869)
Tax effect on permanent differences:Difference in taxation - subsidiaries - - 7,803 7,212Equity in the results of investees 17,076 113,760 5,908 8,612Other effects 17,992 28,134 23,132 26,939
(85,224) (96,907) (82,535) (247,106)Income tax and social contribution. Current (162,641) (1,231) (169,768) (45,181). Deferred 77,417 (95,676) 87,233 (201,925)Income tax and social contributionexpenses in the statement of income (85,224) (96,907) (82,535) (247,106)
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Klabim S.A.
Notes to the financial statementsat September 30, 2013
All amounts in thousands of reais unless otherwise stated
30
11 INTERESTS IN SUBSIDIARIES AND JOINTLY-CONTROLLED SUBSIDIARIESKlabin Centaurus Florestal Special Special Special Special
Klabin Argentina Holdings Vale do Corisco Partnership Partnership Partnership Partnership
Ltd. (i) S.A. S.A. (iii) S.A. (iii) Correia PintoCG Forest
(vi) Mt Alegre (vii) Leal Other TotalAt December 31, 2011 39,740 38,259 606,487 - 400,317 - - 1,182,035 9,510 2,276,348Acquisitions and capital contribution 2,680 2,680Dividends received (18,977) (36,045) (55,022)Losses on changes in ownership percentages (2,644) (2,644)
Split-offs / mergers (v) (450,304) 450,304 -Equity in the results of investees (ii) 28,287 5,554 45,833 (150) 29,213 226,108 (257) 334,588Exchange variation on foreign investments (331) (331)At September 30, 2012 - Unaudited 68,027 43,482 202,052 450,154 410,553 - - 1,372,098 9,253 2,555,619
At December 31, 2012 76,912 43,269 205,686 450,651 429,510 52,736 - - 8,491 1,267,255Acquisitions and capital contribution 995 2,262 92,578 7,302 103,137
Dividends received(60,519
) (15,300) (17,026) (92,845)Equity in the results of investees (ii) 20,510 7,338 8,300 17,375 2,927 (4,098) 238 (2,367) 50,223Exchange variation on foreign investments (3,539) (3,539)At September 30, 2013 37,898 47,068 216,248 452,726 415,411 48,638 92,816 - 13,426 1,324,231
Summary of the financial information of subsidiaries at September 30, 2013:Total assets 36,903 57,764 201,423 1,165,014 631,369 84,010 171,868Total liabilities - 8,883 53,976 277,315 145,003 10,373 29,053Equity 36,903 48,881 147,447 887,699 486,366 73,637 142,815Profit (loss) for the period 19,006 7,338 8,300 28,281 26,899 (4,098) 238
(i) Parent company of Klabin Trade(ii) Includes the effects of change in and realization of fair value of biological assets (Note 13)(iii) As mentioned in Notes 1 and 3, Centaurus Holdings S.A. was a jointly-controlled subsidiary and parent company of Florestal Vale do Corisco until May 2012, and became the Company's wholly-owned subsidiary in June 2012(iv) Refers to the corporate restructuring of subsidiaries, as stated in Notes 1 and 3(v) Refers to the dissolution of SPC Leal, as mentioned in Notes 1 and 3(vi) Refers to the formation of a new subsidiary named CG Forest, as mentioned in Notes 1 and 3(vii) Refers to the formation of a new subsidiary named Monte Alegre, as mentioned in Notes 1 and 3
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Klabim S.A.
Notes to the financial statementsat September 30, 2013All amounts in thousands of reais unless otherwise stated
31
12 PROPERTY, PLANT AND EQUIPMENTa) Property, plant and equipment are composed of the following:
9/30/2013 12/31/2012Accumulated
Parent Cost depreciation Net Net
Land 1,639,145 - 1,639,145 1,639,159Buildings and construction 609,785 (190,821) 418,964 420,754Machinery, equipment and facilities 4,032,661 (1,751,190) 2,281,471 2,307,403Construction in progress 479,139 - 479,139 270,682Other (i) 714,774 (184,222) 530,552 365,709
7,475,504 (2,126,233) 5,349,271 5,003,707
ConsolidatedLand 2,012,894 - 2,012,894 2,002,793Buildings and construction 617,451 (193,632) 423,819 425,976Machinery, equipment and facilities 4,052,697 (1,765,796) 2,286,901 2,313,454Construction in progress 542,344 - 542,344 270,927Other (i) 718,983 (186,136) 532,847 366,276
7,944,369 (2,145,564) 5,798,805 5,379,426(i) Refers to leasehold improvements, vehicles, furniture and fittings, and IT equipment. This also includes advances made to suppliersfor the acquisition or construction of property, plant and equipment.
The information on property, plant and equipment pledged as collateral in transactions carried outby the Company is disclosed in Note 14, and information on the insurance coverage of assets isdisclosed in Note 26.
b) Summary of changes in property, plant and equipment
Parent
LandBuildings andconstruction
Mach nery,equipment and
facilitiesConstructionin progress Other Total
Balance at December 31, 2011 966,697 405,818 2,197,031 242,916 191,416 4,003,878Additions - - - 288,687 117,234 405,921Disposals - - (908) - (84) (992)
Depreciation - (15,652) (130,418) - (13,495) (159,565)Internal transfers 786 6,540 194,939 (235,717) 33,452 -Other - - (192) (2,778) 15 (2,955)Balance at September 30, 2012 -
Unaudited 967,483 396,706 2,260,452 293,108 328,538 4,246,287
Balance at December 31, 2012 1,639,159 420,754 2,307,403 270,682 365,709 5,003,707Additions - - - 297,803 233,480 531,283Disposals (14) (76) (2,739) - (52) (2,881)Depreciation - (16,801) (146,158) - (17,494) (180,453)Internal transfers - 15,087 123,261 (87,462) (50,886) -Other - - (296) (1,884) (205) (2,385)Balance at September 30, 2013 1,639,145 418,964 2,281,471 479,139 530,552 5,349,271
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Klabim S.A.
Notes to the financial statementsat September 30, 2013All amounts in thousands of reais unless otherwise stated
32
Consolidated
Land
Buildingsand
construction
Machinery,equipment and
facilitiesConstructionin progress Other Total
Balance at December 31, 2011 1,867,086 411,463 2,203,676 242,917 191,941 4,917,083Additions 132 1 331 289,370 117,394 407,228Disposals - - (908) (1) (90) (999)Depreciation - (15,798) (131,217) - (15,538) (162,553)Internal transfers 786 6,540 195,375 (236,153) 33,452 -Consolidation of subsidiary (i) 131,860 - - - - 131,860Other 617 (44) (246) (2,807) 1,929 (551)Balance at September 30, 2012 -
Unaudited 2,000,481 402,162 2,267,011 293,326 329,088 5,292,068
Balance at December 31, 2012 2,002,793 425,976 2,313,454 270,927 366,276 5,379,426Additions 2,291 - 303 360,965 235,659 599,218Disposals (14) (76) (2,781) - (56) (2,927)Depreciation - (16,943) (146,955) - (17,640) (181,538)Internal transfers - 15,086 123,344 (87,544) (50,886) -Other 7,824 (224) (464) (2,004) (506) 4,626Balance at September 30, 2013 2,012,894 423,819 2,286,901 542,344 532,847 5,798,805
(i) Refers to the consolidation of subsidiary Centaurus Holdings S.A. from June 2012, as mentioned in Notes 1 and 3
Depreciation was mainly allocated to the production costs for the period.
c) Useful lives and depreciation method
The table below shows the annual depreciation rates calculated using the straight line method,which were applicable for the periods ended September 30, 2013 and 2012, defined based on theeconomic useful lives of assets:
Rate - %
Buildings and construction 2.86 to 3.33Machinery, equipment and facilities 2.86 to 10 (*)Other 4 to 20(*) Prevailing rate of 6%.
At the end of 2012, management reviewed the useful lives of the Company's property, plant andequipment and decided to maintain the depreciation rates used in 2011.
d) Construction in progress
The balance of construction in progress at September 30, 2013 relates to the following mainprojects: (i) remodeling of the lime kiln and power boiler at the Monte Alegre (Paran State) unit,(ii) ground-leveling works in the area of the pulp-related project, (iii) expansion of the evaporationsystem at the Otaclio Costa (Santa Catarina State) unit, (iv) biomass boiler at the Correia Pinto(Santa Catarina State) unit, (v) expansion project at Correia Pinto (Santa Catarina State) with theinstallation of a new paper machine, (vi) new recycled paper machine for the unit in Goiana(Pernambuco State), and (vii) current investment in the continuing operations of the Company.
e) Impairment of property, plant and equipment
The Company did not identify any indications of the impairment of its assets in the periods endedSeptember 30, 2013 and 2012, based on its analyses of the value in use utilizing discounted cashflows prepared in accordance with the budget projections approved by management.
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Klabim S.A.
Notes to the financial statementsat September 30, 2013All amounts in thousands of reais unless otherwise stated
33
13 BIOLOGICAL ASSETSThe Company's biological assets comprise the planting and growing of pine and eucalyptus trees forthe supply of raw materials to produce the pulp used in paper production and for sales of timber tothird parties. Including its interest in the forestry area of its jointly-controlled subsidiary Florestal
Vale do Corisco, the Company owned 238 thousand hectares of planted area at September 30, 2013(242 thousand hectares at December 31, 2012), not including the permanent preservation areas andlegal reserve that are maintained in compliance with Brazilian environmental legislation.
The balance of the Company's biological assets consists of the cost of growing forests, and the fairvalue difference on the growing costs, less the costs necessary to prepare the assets for use or sale,so that the balance of biological assets as a whole is recorded at fair value, as follows:
Parent Consolidated9/30/2013 12/31/2012 9/30/2013 12/31/2012
Growing cost of biological assets 832,530 870,671 1,055,467 1,051,887Fair value adjustments of biological assets 1,965,209 2,073,516 2,337,071 2,389,608
2,797,739 2,944,187 3,392,538 3,441,495
The fair value measurement of biological assets considers certain estimates, such as the price ofwood, the discount rate, the harvesting plan for the forests and productivity level, all of which aresubject to uncertainty, and may have an impact on the Company's future results due to theirfluctuations.
There are no biological assets pledged as collateral for transactions carried out by the Company.Information on the insurance of biological assets and the financial risks of forestry operations isdisclosed in Note 26.
a) Assumptions regarding the recognition of the fair value of biological assets
In accordance with CPC 29 (equivalent to IAS 41) - Biological Assets and Agricultural Products, the
Company recognizes its biological assets at fair value, adopting the following assumptions in itscalculation:
(i) Eucalyptus forests are maintained at historical cost through the third year of planting and pineforests through the fifth year of planting, based on management's understanding that, during thatperiod, the historical costs of biological assets approximate their fair values.
(ii) After the third and fifth years of planting, eucalyptus and pine forests, respectively, aremeasured at fair value, which reflects the sales price of the asset less the costs necessary to preparethe assets for the intended use or sale.
(iii) The methodology used in the fair value measurement of biological assets relates to thediscounted future cash flows estimated according to the projected productivity cycle of the forests,
taking into consideration price variations and the growth of biological assets.(iv) The discount rate used for cash flows is the Company's Weighted Average Cost of Capital(WACC), which is periodically reviewed.
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Klabim S.A.
Notes to the financial statementsat September 30, 2013All amounts in thousands of reais unless otherwise stated
34
(v) The projected productivity volumes of forests are determined using a stratification based onforest type, genetic material, handling system, productive potential, rotation and age. These
characteristics form an index named Average Annual Growth, expressed in cubic meters/hectare/year, which is used as the basis of productivity projections.
The Company's harvesting plan varies from six to seven years for eucalyptus trees and fourteen tofifteen years for pine trees.
(vi) The prices of biological assets, denominated in R$/cubic meter, are obtained using market pricesurveys issued by specialized firms, and the prices charged by the Company on sales to third parties.The prices obtained are adjusted by deducting the capital costs relating to land, since they relate toassets that contribute to the planting of forests, and to other costs necessary to prepare the assetsfor sale or consumption.
(vii) Planting expenses relate to the costs of the development of biological assets.
(viii) The depletion of biological assets is calculated based on the fair value of biological assetsharvested in the period.
(ix) The Company has decided to review the fair value of its biological assets on a quarterly basissince it believes that this period is sufficiently short to prevent any significant gaps in the fair valuesof the biological assets recorded in its interim financial statements.
b) Reconciliation and movement in fair value variations
Parent ConsolidatedBalance at December 31, 2011 1,361,751 2,715,769Planting 54,041 88,483Depletion:. Historical costs (15,438) (38,698)
. Fair value adjustments (101,002) (220,611)Changes in fair value due to:
. Price 89,655 251,473
. Growth 225,223 521,105Consolidation of subsidiary (i) - 86,921Transfers (79) 2,567Balance at September 30, 2012 - Unaudited 1,614,151 3,407,009
Balance at December 31, 2012 2,944,187 3,441,495Planting 39,039 54,276Depletion:. Historical costs (40,594) (43,106). Fair value adjustments (307,243) (332,470)Changes in fair value due to:. Price 204,439 191,441. Growth 79,374 88,486Capital contribution to a new company (ii) (121,463)
Transfers - (7,584)Balance at September 30, 2013 2,797,739 3,392,538
(i) Relates to the consolidation of subsidiary Centaurus Holdings S.A. as from June 2012, as mentioned in Notes 1 and 3(ii) Relates to the dissolution of the special partnership company Leal, as mentioned in Notes 1 and 3
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Klabim S.A.
Notes to the financial statementsat September 30, 2013All amounts in thousands of reais unless otherwise stated
35
The variations in fair value in 2013 were mainly due to the increase in the prices charged and thereview of the discount rate during the first quarter of the year, pursuant to an internal policy, which
increased the discount rate utilized in calculating the discounted cash flow and decreased the fairvalue of assets, as reflected in the growth variation for the period.
The depletion of biological assets in the periods presented was mainly allocated to production costs,after allocation to inventory through the harvesting of forests and their use in the productionprocess or sale to third parties.
c) Sensitivity analysis
In accordance with the hierarchy of CPC 46 (equivalent to IFRS 13) Fair Value Measurement, thecalculation of biological assets is classified at Level 3 due to its complexity and calculation structure.
Assumptions used include sensitivity to the prices used in the evaluation and the discount rate usedin the discounted cash flow. Prices correspond to the prices obtained in the regions in which theCompany is located. The discount rate corresponds to the Company's Weighted Average Cost of
Capital (WACC), taking into consideration the basic interest rate (SELIC) and inflation levels.
Significant increases (decreases) in the prices used in the evaluation would result in an increase(decrease) in the measurement at fair value of biological assets. The average price used in theevaluation of the biological assets in the period ended September 30, 2013 was equivalent toR$68.27/m3(R$62.62/m3 at December 31, 2012).
The significant increase (decrease) effects on the discount rate of the rate used in the measurementof the fair value of biological assets would result in a decrease (increase) in the values measured.The Company's WACC is updated on an annual basis, and the new rate is applied as from the date ofthe first-quarter evaluation for each year, and the rate used in the calculation for the first quarterremains the same for the other. The discount rate used in the evaluation of the biological assets forthe period ended September 30, 2013 was 5.7% in constant currency (5.5% at December 31, 2012).
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Klabim S.A.
Notes to the financial statementsat September 30, 2013All amounts in thousands of reais unless otherwise stated
36
14 BORROWINGSa) Borrowings consist of the following:
Annual interest rate % 9/30/2013
Current Non-current TotalIn local currency
. BNDES - Project MA1100Long-Term Interest Rate (TJLP) + 4.5
and basket(i) + 1.5 263,109 406,060 669,169. BNDES - Other TJLP + 0.0 to 4.8 125,359 812,178 937,537
. Working capitalInterbank Deposit Certificate rate
(CDI) + 0.6 18,284 41,667 59,951. Other 1.0 to 6.8 40,649 89,993 130,642
447,401 1,349,898 1,797,299In foreign currency (ii). BNDES - Other USD + 5.7 to 6.3% 11,951 106,399 118,350. Export prepayments USD + 6M Libor + 1.1 to 6.4 566,223 2,345,399 2,911,622. Export credit notes USD + 3.9 to 8.1 102,891 1,082,545 1,185,436
681,065 3,534,343 4,215,408Total consolidated 1,128,466 4,884,241 6,012,707
Subsidiaries:. Export prepayments with subsidiaries (ii) USD + 3.1 40 4,460 4,500Total parent 1,128,506 4,888,701 6,017,207
Annual interest rate % 12/31/2012
Current Non-current Total
In local currency. BNDES - Project MA1100 TJLP + 4.8 and basket(i) + 2.0 260,884 639,174 900,058. BNDES - Other TJLP + 0.0 to 4.8 87,254 507,390 594,644. Working capital CDI + 0.6 16,957 50,000 66,957. Other 1.0 to 6.8 22,024 82,098 104,122
387,119 1,278,662 1,665,781In foreign currency (ii). BNDES - Other USD + 5.8 11,374 79,229 90,603. Export prepayments USD + 6M Libor + 1.0 to 6.4 623,333 2,510,326 3,133,659. Export credit notes USD + 3.9 to 8.1 98,944 1,046,117 1,145,061
733,651 3,635,672 4,369,323
Total parent and consolidated 1,120,770 4,914,334 6,035,104(i) Currency basket basically comprising US Dollars(ii) In US Dollars
National Bank for Economic andSocial Development (BNDES)
The Company has agreements with the National Bank for Economic and Social Development(BNDES) for the financing of industrial development projects, such as the expansion project in thepaper segment (MA 1100), which will be settled through January 2017. This financing is repaidmonthly, along with the related interest.
Export prepayments and export credit notes
Export prepayment and credit note transactions were carried out with major banks for the purposesof working capital management and the development of the Company's operations. Theseagreements will be settled through May 2022.
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Klabim S.A.
Notes to the financial statementsat September 30, 2013All amounts in thousands of reais unless otherwise stated
37
b) Schedule of non-current maturities
The maturity dates of the Company's financing at September 30, 2013, classified in non-currentliabilities, are as follow:
2021
Year 2014 2015 2016 2017 2018 2019 2020 onwards Total
Amount 221,199 1,046,066 697,880 942,696 741,613 650,697 372,392 211,698 4,884,241
c) Summary of changes in borrowings
Parent ConsolidatedBalance at December 31, 2011 5,297,336 5,297,336New borrowings 1,237,237 1,237,237Accrued interest 230,875 230,875Foreign exchange and monetary variations 393,617 393,617Amortization and payment of interest (918,594) (918,594)
Balance at September 30, 2012 - Unaudited 6,240,471 6,240,471Balance at December 31, 2012 6,035,104 6,035,104New borrowings 426,140 421,836Accrued interest 229,316 229,282Foreign exchange and monetary variations 391,679 391,516Amortization and payment of interest (1,065,032) (1,065,031)Balance at September 30, 2013 6,017,207 6,012,707
d) Guarantees
The financing agreements with BNDES are guaranteed by the land, buildings, improvements,machinery, equipment and facilities of the plants in Correia Pinto (Santa Catarina State), and Monte
Alegre (Paran State), of which the carrying amount, net of depreciation, was R$ 2,063,256 atSeptember 30, 2013. The financing is also guaranteed by escrow deposits and sureties from thecontrolling stockholders.
Export credits, export prepayment, and working capital loans are not collateralized.
e) Restrictive covenants
At the end of the reporting period, the Company and its subsidiaries did not have any financingagreements containing restrictive covenants requiring compliance with financial ratios oncontracted transactions, where non-compliance could accelerate the maturity of the debt.
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Klabim S.A.
Notes to the financial statementsat September 30, 2013All amounts in thousands of reais unless otherwise stated
38
15 TRADE PAYABLESParent Consolidated9/30/2013 12/31/2012 9/30/2013 12/31/2012
Local currency 364,794 303,958 371,211 304,873Foreign currency 16,861 9,601 20,619 13,204
381,655 313,559 391,830 318,077
The Company's average payment term for suppliers is approximately 45 days.
16 TAX, SOCIAL SECURITY, LABOR AND CIVIL PROVISIONSa) Risks provided for
Based on the individual analysis of lawsuits filed against the Company and its subsidiaries and the
opinion of their legal counsel, provisions are recorded in non-current liabilities for losses consideredprobable, as follow:
9/30/2013Restricted Unrestricted
Amount of judicial Net judicialIn the parent company: the provision deposits liability depositsTax:. PIS COFINS - - - 25,252. IR/CS (13,420) 10,671 (2,749) -. OTHER (3,066) 3,066 - 31,869
(16,486) 13,737 (2,749) 57,121Labor (69,183) 18,297 (50,886) -Civil (7,836) 767 (7,069) -
(93,505) 32,801 (60,704) 57,121
In subsidiaries:Other (1) - (1) 1,432Consolidated (93,506) 32,801 (60,705) 58,553
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Notes to the financial statementsat September 30, 2013All amounts in thousands of reais unless otherwise stated
39
12/31/2012
Restricted UnrestrictedAmount of judicial Net judicialIn the parent company: the provision deposits liability depositsTax:. PIS/COFINS - - - 24,446. IR/CS (11,442) 10,202 (1,240) 469. OTHER (3,291) 3,396 105 29,531
(14,733) 13,598 (1,135) 54,446Labor (61,479) 16,880 (44,599) -Civil (6,977) 767 (6,210) -
(83,189) 31,245 (51,944) 54,446
In subsidiaries:Other - - - 1,432Consolidated (83,189) 31,245 (51,944) 55,878
The risks provided for by the Company at September 30, 2013 relate to tax lawsuits, mainlychallenges regarding income tax and social contribution on monetary restatements under Law8,200/91, labor lawsuits filed by former employees of the Company's plants claiming labor rights(severance pay, overtime, hazardous duty and health hazard premiums), indemnities and jointliability, and civil lawsuits relat