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Deloitte Touche Tohmatsu Rua Jos Guerra, 127 04719-030 - So Paulo - SP Brasil Tel.: +55 (11) 5186-1000 Fax: +55 (11) 5181-2911 www.deloitte.com.br
Management is responsible for the preparation of the individual interim financial information in accordance with CPC 21 - Interim Financial Reporting and the consolidated interim financial information in accordance with CPC 21 and IAS 34 - Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), as well as for the presentation of such information in accordance with the standards issued by the Brazilian Securities Commission (CVM), applicable to the preparation of Interim Financial Information (ITR). Our responsibility is to express a conclusion on this interim financial information based on our review. Scope of review
We conducted our review in accordance with the Brazilian and international standards on review of interim financial information (NBC TR 2410 and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim financial information consist of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with the standards on auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion on the individual interim financial information Based on our review, nothing has come to our attention that causes us to believe that the accompanying individual interim financial information included in the ITR referred to above is not prepared, in all material respects, in accordance with CPC 21 applicable to the preparation of Interim Financial Information ITR) and presented in accordance with the standards issued by the Brazilian Securities Commission.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Deloitte Touche Tohmatsu. All rights reserved.
Conclusion on the consolidated interim financial information Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated interim financial information included in the ITR referred to above is not prepared, in all material respects, in accordance with CPC 21 and IAS 34 applicable to the preparation of Interim Financial Information (ITR) and presented in accordance with the standards issued by the Brazilian Securities Commission. Emphasis of matter As described in Note 2, the individual financial statements have been prepared in accordance with accounting practices adopted in Brazil. In the case of Klabin S.A. these practices differ from IFRSs, applicable to the individual financial statements, only with respect to the valuation of investments in subsidiaries under the equity method of accounting, while for IFRS purposes these investments would be measured at cost or fair value. Other matters Statement of value added We have also reviewed the individual and consolidated interim statements of value added (DVA), for the three-month period ended March 31, 2011, the presentation of which is required by the standards issued by the Brazilian Securities Commission (CVM) applicable to the preparation of Interim Financial Information (ITR), and is considered as supplemental information for IFRS that does not require the presentation of DVA. These statements were subject to the same review procedures described above and, based on our review, nothing has come to our attention that causes us to believe that they are not prepared, in all material respects, in relation to the individual and consolidated interim financial information taken as a whole. The accompanying interim financial information has been translated into English for the convenience of readers outside Brazil. So Paulo, April 27, 2011
2011-0787
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Index
Company Information
Capital Composition Proceeds in Cash 1 2
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Account Description Total Assets Current Assets Cash and Cash Equivalents Short-term Investments Short-term Investments through Fair Value Securities Available for Sale Receivables Customers Trade Accounts Receivable Allowance for Doubtful Accounts Inventories Recoverable Taxes Current Tax Recoverable Prepaid Expenses Prepaid Expenses - Third Parties Prepaid Expenses - Related Parties Other Current Assets Others Noncurrent Assets Long-term Assets Biological Assets Credits with Related Parties Other Credits with Related Parties Other Noncurrent Assets Recoverable Taxes Escrow Deposits Other Noncurrent Assets Investments Investment Property Property, Plant and Equipment Property, Plant and Equipment in Operation Property and Equipment in Progress Intangible Intangibles
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Account Description Revenue from Sales and/or Services Cost of Goods and/or Services Sold Change in Fair Value of Biological Assets Cost of Sales Gross Profit Operating Expenses/Income Selling General and Administrative Other Operating Income Other Operating Expenses Income from Operations before Income Taxes and Financial Income Financial, net Financial Income Financial Expenses Income before Income Taxes Income Tax and Social Contribution Current Deferred Net Income from Continuing Operations Income/Loss for the period Attributed to Owners of the Company Attributed to Noncontrolling Interests Earnings per Share - (Reais / Share) Basic Earnings per Share ON PN Diluted Earnings per Share ON PN
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Account Description Consolidated Net Income for the Period Other Comprehensive Income Foreign Currency Translation Adjustments Consolidated Comprehensive Income for the Period Attributed to Owners of the Company Attributed to Noncontrolling Interests
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Consolidated Financial Statements / Statement of Changes in Shareholders Equity / 01/01/2011 to 03/31/2011 (Reais)
Account Code 5.01 5.03 5.04 5.04.08 5.04.09 5.05 5.05.01 5.05.02 5.05.02.04 5.06 5.06.02 5.06.03 5.07 Account Description Capital Capital Reserves, Granted Options and Treasury Shares 84,491 84,491 84,491 Earnings Reserve 2,326,171 2,326,171 -180 -271 91 2,325,991 Retained Earnings 140,202 140,202 180 271 -91 140,382 Other Comprehensive Income 1,083,423 1,083,423 -1,344 -1,344 -1,344 1,082,079 Shareholders' Equity 4,994,085 4,994,085 138,858 140,202 -1,344 -1,344 5,132,943 Noncontrolling Interests 160,417 160,417 11,783 12,507 -724 8,777 8,777 180,977 Consolidated Shareholders' Equity 5,154,502 5,154,502 11,783 12,507 -724 147,635 148,979 -1,344 -1,344 5,313,920
Opening Balance Adjusted Opening Balance Capital Transactions with the Partners Capital Contribution in Subsidiaries by Noncontrolling Shareholders Acquisition of Noncontrolling Interests in Subsidiaries Total Comprehensive Income Net income for the Period Other Comprehensive Income Valuation Adjustment for the Period Internal Changes in Shareholders Equity Realization of Revaluation Reserve Income Tax on Realization of Revaluation Reserve Closing Balance
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Consolidated Financial Statements / Statement of Changes in Shareholders Equity / 01/01/2010 to 03/31/2010 (Reais)
Account Code 5.01 5.03 5.04 5.04.08 5.04.09 5.05 5.05.01 5.05.02 5.05.02.04 5.06 5.06.02 5.06.03 5.06.04 Account Description Capital Capital Reserves, Granted Options and Treasury Shares 84,491 84,491 Earnings Reserve 1,973,331 1,973,331 -22,410 -271 92 -79,996 Retained Earnings 41,583 41,583 22,410 271 -92 79,996 Other Comprehensive Shareholders' Income Equity 1,104,337 1,104,337 75 75 75 4,662,159 4,662,159 41,658 41,583 75 75 Noncontrolling Interests 56,665 56,665 5,666 6,515 -849 3,290 3,290 Consolidated Shareholders' Equity 4,718,824 4,718,824 5,666 6,515 -849 44,948 44,873 75 75 -
Opening Balance Adjusted Opening Balance Capital Transactions with the Partners Capital Contribution in Subsidiaries by Noncontrolling Shareholders Acquisition of Noncontrolling Interests in Subsidiaries Total Comprehensive Income Net income for the Period Other Comprehensive Income Valuation Adjustment for the Period Internal Changes in Shareholders Equity Realization of Revaluation Reserve Income Tax on Realization of Revaluation Reserve Realization of Unrealized Earnings Reserve - Biological Assets Transfer of Unrealized Income to Unrealized Earnings Reserve Biological Assets Closing Balance
1,500,000 1,500,000 -
5.06.05 5.07
1,500,000
84,491
57,765 1,950,921
-57,765 63,993
1,104,412
4,703,817
65,621
4,769,438
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(Convenience Translation into English from the Original Previously Issued in Portuguese)
1. Interim Financial Statements for the Quarter Ended March 31, 2011
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INDEX TO THE NOTES TO THE INTERIM FINANCIAL STATEMENTS 1 GENERAL INFORMATION 2 BASIS OF PRESENTATION OF THE INTERIM FINANCIAL INFORMATION AND SIGNIFICANT ACCOUNTING PRACTICES 3 CONSOLIDATION OF INTERIM FINANCIAL INFORMATION 4 CASH AND CASH EQUIVALENTS 5 SECURITIES 6 TRADE ACCOUNTS RECEIVABLE 7 RELATED-PARTY TRANSACTIONS 8 INVENTORIES 9 RECOVERABLE TAXES 10 INCOME TAX AND SOCIAL CONTRIBUTION 11 INVESTMENTS IN SUBSIDIARIES 12 PROPERTY, PLANT AND EQUIPMENT 13 BIOLOGICAL ASSETS 14 LOANS AND FINANCING 15 TRADE ACCOUNTS PAYABLE 16 RESERVE FOR TAX, SOCIA SECURITY, CIVIL AND LABOR CONTINGENCIES 17 SHAREHOLDERS' EQUITY 18 NET REVENUE FROM SALES 19 EXPENSES / REVENUE BY NATURE 20 FINANCIAL INCOME (EXPENSES) 21 EARNINGS PER SHARE 22 OPERATING SEGMENTS 23 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS 24 EMPLOYEE BENEFITS AND PENSION PLAN 25 INSURANCE 26 EVENTS AFTER THE REPORTING PERIOD
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(Convenience Translation into English from the Original Previously Issued in Portuguese)
Klabin S.A. (the Company) and its subsidiaries are engaged in the following sectors of the pulp and paper industry to serve the domestic and foreign markets: wood supply, packaging paper, paper sacks, and corrugated cardboard boxes. Their operations are integrated from forestation to production of final products. Klabin is a publicly held corporation whose shares are traded on So Paulo Stock Exchange (BM&F Bovespa). The Company is domiciled in Brazil and headquartered in So Paulo. The Company also has investments in Special Purposes Entities (SCPs) for the specific purpose of raising funds from third parties to support reforestation projects. The Company, as an ostensible partner, has contributed with forest assets, composed basically of forests and land, by means of the granting of use, while the other investing shareholders have contributed cash to these companies. These SCPs entitle Klabin S.A. a preemptive right to acquire forestry products at market price and conditions. The Company also has ownership interests in other companies (notes 3 and 11), whose operational activities are related to the Companys business objectives.
2.1 Basis of presentation of Interim Financial Information The Company presents the individual Interim Financial Information in conformity with CPC 21 Interim Financial Information, issued by the Accounting Pronouncements Committee (CPC) and consolidated Interim Financial Information in conformity with CPC 21 and IAS 34 Interim Financial Reporting, issued by the International Accounting Standards Board IASB and the standards established by the Brazilian Securities and Exchange Commission (CVM). The individual Interim Financial Information (Company) were prepared based on accounting practices adopted in Brazil, which differ from the accounting practices used to prepare the consolidated Interim Financial Information prepared in conformity with IAS 34 only with respect to the valuation of investments in subsidiaries under the equity method, instead of valuation at cost or fair value. 2.2 Summary of significant accounting practices The significant accounting practices adopted by the Company and its subsidiaries can be summarized as follows: a) Functional currency and translation of foreign currencies The Interim Financial Information are presented in Brazilian reais (R$), which is the Company and its subsidiaries functional and presentation currency. (i) Transactions and balances Foreign currency transactions are originally recorded at the exchange rate prevailing on the transaction date. Gains and losses resulting from the difference between the translation of assets and liabilities in foreign currency at the balance sheet date are recognized in the Companys income statement.
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(ii) Foreign subsidiaries Assets and liabilities of foreign subsidiaries are translated based on the exchange rate of the reporting currency set by the Company at the balance sheet date and the corresponding income statements are translated based on the exchange rate on the transaction dates. Investment translation gains or losses are recognized in the income statement. In the subsidiaries classified as independent entities, exchange differences arising from translation are separately recorded in a line item in shareholders' equity under Valuation adjustments to equity (comprehensive income/loss). Upon the sale of a foreign subsidiary, the accumulated deferred amount recognized in shareholders' equity relating to this foreign subsidiary is recognized in the income statement. b) Cash and cash equivalents Comprise cash, banks, and highly liquid short-term investments, immediately convertible into a known cash amount, and subject to an insignificant risk of change in value. c) Financial instruments Originally recognized at fair value plus, transaction costs that are directly attributable to their acquisition or issuance of financial assets or financial liabilities, other than financial assets or financial liabilities at fair value in profit or loss. They are subsequently measured at the balance sheet date based on the classification of financial instruments into the following categories: financial asset measured at fair value through income or loss, held-to-maturity investments, loans and receivables, financial assets availablefor-sale; and financial liability measured at fair value through income or loss and others financial liabilities. (i) Securities Securities are available for sale and recorded including financial income (income/loss), which approximate their fair values. (ii) Loans and financing This balance corresponds to the amount of funds raised, plus interest and charges proportional to the period incurred, less installments paid, and includes the exchange rate change on the liability, if applicable. Interest is measured using the effective interest rate method and recorded as financial expenses, as well as the adjustment for inflation and foreign exchange rate on the balance of outstanding loans and financing. d) Trade accounts receivable Stated at the original amounts of trade accounts receivable from sales of products, plus foreign exchange changes, when applicable. The allowance for doubtful accounts is recorded based on an individual analysis of receivables and in an amount considered sufficient by Management to cover possible losses on collection of receivables that can be changed as a result of the recovery of receivables from defaulting customers or change in the customers financial condition.
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The adjustment to present value of the balance of trade accounts receivable is immaterial due to the short realization period. e) Inventories Inventories are stated at average cost, net of taxes to be offset, when applicable, and at the fair value of biological assets on the cut-off date, which is lower than net realizable values of selling costs. Inventory of finished products comprise processed raw materials and direct labor and production costs on inventory valuation. When necessary, inventories are reduced by the inventory losses provision, which is recognized for inventory devaluation, obsolescence of products and physical inventory loss. In addition, because of the nature of the Companys products, obsolete finished products may be recycled for reuse in production. f) Income tax and social contribution Current and deferred income tax is calculated at the rate of 15%, plus a 10% surtax on taxable income exceeding R$240, and current and deferred social contribution is calculated at the rate of 9% on taxable income. Balances are recorded in the Companys income on the accrual basis. Prevailing tax rates used to determine deferred tax credits are similar to those used for current taxes. Deferred income tax and social contribution are recorded in the financial statements at the net amount of noncurrent assets or liabilities, arising basically from temporarily nondeductible provisions and taxes challenged in court, both in the Companys assets and liabilities, deferred foreign exchange changes (Company) and adjustments included in the Transitional Tax Regime (RTT) such as: deemed cost of property, plant and equipment (land), measurement of biological assets at fair value (note 13), changes in depreciation rates of property, plant and equipment (note 12) and amortization of deferred assets. The provision for current income and social contribution taxes is stated in the balance sheet net of tax prepayments made in the year. g) Investments (Company) Represented by investments in subsidiaries and accounted for using the equity method in the Companys balance sheet based on the Companys ownership interest in these companies. The financial statements of the subsidiaries are prepared for the reporting period equivalent to the Companys reporting period. The accounting practices are adjusted to conform to the accounting practices adopted by the Company, when necessary. Intercompany unrealized gains and losses are eliminated for purposes of equity accounting in the Companys balance sheet and consolidation, proportionately to the interest held in the subsidiary. At each balance sheet date, the Company determines whether there is objective evidence that the investment in the subsidiary is impaired. If applicable, the Company calculates the amount of the impairment loss and recognizes it in the income statement.
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Exchange rate changes on the investment in foreign subsidiaries that cannot be characterized as branches are recognized as valuation adjustments to equity and realized at the time of the respective investment realization. h) Property, plant and equipment Stated at acquisition or construction cost, less taxes to be offset, when applicable, and accumulated depreciation. Additionally, as elected by the Company on the first-time adoption of IFRS, property, plant and equipment was measured at fair value, based on the adoption of the deemed cost of property, plant and equipment. Depreciation is calculated on a straight-line basis taking into consideration the estimated useful lives of the assets, based on the expectation of future economic benefits, except for land, which is not depreciated. The estimated useful lives of the assets is annually reviewed and adjusted, if necessary, and may vary based on the technological modernization of each branch. The useful lives of the Companys assets are stated in note 12. Maintenance costs on the Companys assets are directly recorded in the income statement when realized. Financial charges are capitalized in property, plant and equipment, when incurred on property, plant and equipment in progress, if applicable. i) Impairment of assets Property, plant and equipment and other assets are tested for impairment on an annual basis or whenever significant events or changes in circumstances indicate that their carrying amounts may not be recoverable. When this is the case, recoverable values are calculated to determine if assets are impaired. The recoverable value of an asset corresponds to the greater of the net sales price or value in use of an asset or a cash-generating unit, which is separately determined for each asset, unless the asset does not result in cash flow separately from other assets or groups of assets. In estimating the value in use, estimated future cash flows are discounted to their present value, using a discount rate that reflects current market estimates of the time value of cash and specific risks inherent in the asset. Impairment losses are recognized in the income statement at the amount by which the carrying amount of an asset exceeds its recoverable amount, which is the higher of net selling price and value in use of an asset. j) Biological assets Biological assets correspond to eucalyptus and pine forests, which are used in the production of packaging paper, paper sacks and corrugated cardboard boxes and sales to third parties, when depleted. Harvest and replanting have an approximate cycle of 7 - 14 years, which varies based on the crop and genetic material. Biological assets are measured at fair value, less estimated selling costs at harvest period. Significant assumptions for determining the fair value of biological assets are stated in note 13.
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The evaluation of biological assets is carried out on a quarterly basis by the Company, and corresponding gains or losses on the changes in fair value of biological assets are recognized in the income statement for the period in which they occur, in a separate line item in the income statement under changes in the fair value of biological assets. The increase or decrease in the fair value is determined based on the difference between the fair values of biological assets at the beginning and end of the current period. The balancing item of the fair value of biological assets, net of deferred taxes, is recorded under unrealized earnings reserve in shareholders' equity. k) Intangible assets Intangible assets are stated at cost less accumulated amortization for the period, calculated on a straightline basis based on their estimated useful lives. Expenditures on research and development of new products and techniques used by the Company are recorded in the income statement as expenses, when incurred. l) Noncurrent assets and liabilities Comprise assets and receivables and liabilities and payables maturing 12 months after the balance sheet date, plus corresponding charges and adjustment for inflation, if applicable, through the balance sheet date. m) Provisions Provisions are recognized when the Company has a legal or constructive obligation as a result of past events or expected future events, it is probable that an outflow of funds will be required to settle the obligation, and the accrued amount can be reliably measured. Expense on provisions is stated in the income statement, net of any reimbursement. If the time effect of the amount is material, provisions are discounted using a discount rate that reflects the specific risks inherent in the obligation, if applicable. The Company records reserves for tax, social security, civil and labor contingencies, based on the assessment of probable loss in the lawsuits, in accordance with the opinion of the Companys legal counsel and management. This assessment is made taking into consideration the nature of lawsuits, outcome of similar lawsuits and the progress of pending litigation. When the Company expects the full or partial reimbursement of a reserve amount, this asset is recognized only when realization is clear and certain, without recognition of assets in uncertain scenarios. n) Net revenue from sales Sales revenue is stated net of taxes, discounts and rebates, and is recognized to the extent that it is probable that economic benefits will be generated and transferred to the Company, upon the transfer of ownership of the products, and when it can be reliably measured based on the fair value of the consideration received, net of discounts, rebates and taxes or charges on sales.
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o) Employee benefits and pension plan The Company grants to employees, benefits such as life insurance, health care, profit sharing and other benefits recorded on the accrual basis, which are discontinued after the termination of the employment relationship with the Company. Additionally, the Company grants a private pension and health care plan to former employees retired until 2001, classified as defined benefit plans. These benefits adopt liability and income/expense recognition practices measured based on the actuarial valuation. Gains and losses on the actuarial valuation of the benefits from changes in actuarial assumptions and commitments are recognized in the income statement. p) Significant accounting judgments, estimates and assumptions In preparing the Interim Financial Information, judgments, estimates and assumptions were used to account for certain assets, liabilities, income and expenses for the period. The accounting judgments, estimates and assumptions adopted by Management were defined by using the best information available up to the date of the Interim Financial Information and the experience of past events, assumptions on future events, and the assistance of experts, when applicable. The Interim Financial Information include, therefore, various estimates, including, but not limited to, the determination of the useful lives of property, plant and equipment, the realization of deferred tax credits, allowance for doubtful accounts, provision for inventory losses, measurement of the fair value of biological assets, reserve for tax, social security, civil and labor contingencies, fair value measurement of certain financial instruments and the provision for impairment. Actual results recognized by using accounting judgments, estimates and assumptions, when realized, could differ from those estimates, and the Company may be exposed to significant losses. q) Earnings per share The Company calculates earnings per share based on profit for the year attributed to each class of Company share, weighted by the number of shares outstanding in the period. r) Statement of value added (DVA) The Brazilian corporate law requires the presentation of the statement of value added as an integral part of the set of financial statements presented by the Company. The purpose of this statement is to disclose the economic value added created by the Company and its distribution during a certain reporting period. The statement of value added was prepared pursuant to the provisions of CPC 09 - Statement of Value Added, using information obtained in the same accounting records used to prepare the financial statements.
The subsidiaries are fully consolidated after the acquisition date, i.e., the date in which the parent company holds the shareholding control, and continue to be consolidated until the date in which such control ceases.
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The Interim Financial Information of the subsidiaries are prepared for the same reporting period as the Company, using accounting practices consistent with the practices adopted by the Company. The following criteria are adopted for consolidation purposes: (i) elimination of investments in subsidiaries and equity in subsidiaries; (ii) the profits from intercompany transactions and the assets and liabilities are equally eliminated and (iii) the noncontrolling interest is calculated and disclosed separately. The consolidated Interim Financial Information comprises Klabin S.A. and its subsidiaries as at March 31, 2011 and December 31, 2010, as follows:
Ownership interest (%) 3/31/11 12/31/10 100 100 100 100 100 100 100 100 100 89 92 100 100 100 100 100 100 100 100 100 89 94
Head office Subsidiaries: Klabin Argentina S.A. Klabin Ltd. . Klabin Trade Klabin Forest Products Company IKAP Empreendimentos Ltda. Klabin do Paran Produtos Florestais Ltda. Antas Servios Florestais S/C Ltda. Centaurus Holdings S.A. Timber Holdings S.A. Silent partnerships: Paran Santa Catarina Argentina Cayman Islands England United States of America Brazil Brazil Brazil Brazil Brazil Brazil Brazil
Activity Industrial sacks Interest in other companies Sale of products in the foreign market Sale of products in the foreign market Hotel services Manufacture of phytotherapic products Forestry Interest in other companies Interest in other companies Reforesting Reforesting
Ownership Direct/ indirect Direct Indirect Direct Direct Direct Direct Direct Direct Direct Direct
In order to comply with its policy for the use of funds, the Company has maintained its short-term investments in low-risk investments at financial institutions considered by Management as prime banks both in Brazil and abroad, based on the rating disclosed by agencies. The Management has considered those financial assets as cash and cash equivalents due to its immediate liquidity in financial institutions.
Company 12/31/2010 7,117 2,261,028 671 2,268,816 Consolidated 12/31/2010 39,880 2,361,210 130,015 2,531,105
Cash and banks Short-term investments in local currency Short-term investments in foreign currency
Short-term financial investments in local currency, corresponding to Bank Certificates of Deposit (CDBs), are indexed based on the variation of the interbank deposit rate (CDI), at an annual average rate of 11.81% (10.00% as at December 31, 2010), and investments in foreign currency correspond to Time Deposits in US dollar, with maturity up to 90 days and annual average rate of 0.06% (0.05% as at December 31, 2010). Short-term investments in CDB can be immediately redeemed without interest and have daily liquidity.
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SECURITIES
Comprise Brazilian National Treasury Bills (LFTs), whose yield is linked to fluctuations in the SELIC interest rate. The balance for these securities, which Management classified as available-for-sale, was R$203,465 as at March 31, 2011 (R$198,222 as at December 31, 2010). Original maturities are through 2013 However, there is an active market for these securities and their fair value is basically the principal plus the interest originally established therein.
03/31/2011 Trade accounts receivable . Local . Foreign Total trade accounts receivable Allowance for doubtful accounts 572,833 16,735 589,568 (33,083) 556,485 64,248 10.90% 5,620 6,917 5,410 6,751 39,550 525,320 589,568
Past-due % on total portfolio From 4 to 10 days From 11 to 30 days From 31 to 60 days From 61 to 90 days Over 90 days Current Total portfolio
The average collection term of trade receivables is approximately 60 days for domestic market sales and approximately 120 days foreign market sales, and interest is collected after the contractual payment term. As mentioned in note 23, the Company has standards for monitoring credits and past-due trade accounts receivable, and the related risk refers to the possibility of not receiving the amounts resulting from selling transactions. The allowance for doubtful accounts is sufficient by Management to cover possible losses on outstanding trade accounts receivable. Changes in the allowance for doubtful accounts are as follows:
Company (27,283) (5,141) 1,735 (30,689) (2,613) 219 (33,083) Consolidated (27,537) (5,141) 1,914 (30,764) (4,328) 219 (34,873)
Balance as at December 31, 2009 Current year provision Reversal provision Balance as at December 31, 2010 Current year provision Reversal provision Balance as at March 31, 2011
The balance of the allowance for doubtful accounts recorded by the Company corresponds mainly to trade accounts receivable past due over 90 days. The expense on the recognition of the allowance for doubtful accounts is recorded in Selling expenses in the income statement.
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03/31/2011
Klabin Argentina (i) BNDES (vi) Shareholder 334,517 1,278,554 32,840 889 201,203 43,176 32,840 6,743 7,549 9,603 448 352,809 10,687 364,252 1,278,554 325,840 5,216 348,606 1,364,978 192,327 43,004 35,146 8,195 6,708 Other (vii) Total Total Total Subsidiary 936 4,950 1,139 9,172 1,133 6,743 5,527 379 6,499 1,084 1,848 Shareholder Shareholder
Silent Silent partnership partnership Paran Sta Catarina (ii) and (v) (ii) and (v)
9,778 -
333,846 -
469 -
197,116 -
Transactions Revenue from sales Purchases Interest expenses on borrowings Guarantee commission expense Expenses on royalties
Balance receivable for product sales transactions entered into under usual market prices, terms and conditions, as established by the parties; Purchase of timber made under usual market price, terms and conditions; Licensing for use of brand; Prepaid expense for guarantee commission on balance of BNDES financing due at the rate of 1% semiannually; Supply of seedlings, seeds and services under usual market prices, terms and conditions; Borrowings raised at usual market conditions; Other.
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12/31/2010
Consolidated 03/31/2010
BNDES (iii)
Shareholder
Outras (vii)
Total
Total
Total
Type of relationship Balances Current assets Noncurrent assets Current liabilities Noncurrent liabilities Transactions Interest expenses on borrowings Guarantee commission - expense Expenses on royalties
379 1,133
296 3,420
(i) Licensing for use of brand; (ii) Prepaid expense for guarantee commission on balance of BNDES financing due at the rate of 1% semiannually; (iii) Loans raised under usual market conditions; (iv) Other.
b) Management compensation and benefits Management compensation should be established by the Annual Shareholders' Meeting, in accordance with Brazilian corporate law and the Companys bylaws. Accordingly, the Annual Shareholders Meeting held on April 4, 2011 established the overall amount of the annual compensation payable to the Board of Directors and management at up to R$29.7 million in 2011. The compensation approved for 2010 amounted to R$24.6 million. The table below shows the compensation payable to the Board of Directors and Management in the period:
Short-term 03/31/2011 03/31/2010 Salary and benefits of Board of Directors and Directors Long-term 03/31/2011 03/31/2010 Company and Consolidated Total 03/31/2011 03/31/2010
2,247 (*)
4,834
115
89
2,362
4,923
(*) Includes an adjustment of the provision for variable compensation made in 2010.
Management compensation includes the fees of the Companys Directors, and the fees and variable compensation of the Companys Officers. Long-term benefits relate to contributions made by the Company to the pension plan. Said amounts are mostly recorded in General and Administrative expenses/income. The Company has no stock-based payment.
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INVENTORIES
Company 12/31/2010 104,425 120,304 81,731 6,823 105,556 (2,923) 11,315 427,231 Consolidated 12/31/2010 137,900 129,450 69,874 6,823 106,864 (2,923) 12,140 460,128
Finished products Raw materials Timber and logs Fuel and lubricants Maintenance supplies Provision for losses Other
Raw material inventories include paper rolls transferred from paper to packaging units. The expense on the recognition of the allowance for inventory losses is recorded in the income statement under Cost of sales. For the three-month period ended March 31, 2011, an additional provision for inventory losses in the amount of R$583 was recognized. The Company has no inventories pledged as collateral.
RECOVERABLE TAXES
Company 12/31/2010 Noncurrent assets 63,480 9,599 53,949 4,593 131,621 131,621
State VAT (ICMS) Tax on revenue (PIS) Tax on revenue (COFINS) Income tax and social contribution Other Subsidiaries Consolidated
Current assets 47,375 4,057 18,701 4,625 8,796 83,554 3,326 86,880
03/31/2011 Noncurrent assets 65,788 9,446 53,284 4,427 132,945 (30) 132,915
Current assets 57,726 7,654 34,707 17,149 8,738 125,974 5,128 131,102
In view of the expansion plan (MA1100 project, performed over the last years), the Company recorded credits from tax and contributions levied on purchases of property, plant and equipment, as permitted by legislation for future offset against taxes payable of the same nature or other taxes. Based on its budget analyses and projections, the Companys management does not foresee any risks related to the realization of these tax credits. Taxes on revenue (PIS/COFINS) and State VAT (ICMS) shown in the current group are expected to be offset against these same taxes payable for the next 12 months, in accordance with managements projections.
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10
a) Nature and expected realization of deferred taxes As at March 31, 2011 and December 31, 2010, the effects of deferred tax assets and liabilities are as follows:
Company Consolidated 03/31/2011 12/31/2010 03/31/2011 12/31/2010 29.359 29.169 29.359 29.169 47.240 39.134 47.240 39.134 21.527 22.436 21.527 22.436 87 90 31.018 27.429 31.018 27.430 129.144 118.168 129.231 118.259 74.479 53.549 88.580 53.549 330.219 341.394 636.507 628.904 77.674 64.095 77.674 64.095 263.954 263.954 565.742 565.742 26.388 26.481 26.388 26.481 21.989 13.604 9.470 15.123 794.703 763.077 1.404.361 1.353.894 665.559 644.909 1.275.130 1.235.635
Reserve for civil, tax and labor provision Interest from enrollment with REFIS (note 15) Write-off of deferred charges (adoption of RTT) Tax loss carryforwards Temporarily nondeductible provisions Noncurrent assets Deferred exchange rate change (*) Fair value of biological assets Reassessment of useful lives of PP&E (adoption of RTT) Deemed cost of property, plant and equipment Asset revaluation reserve Other temporary differences Noncurrent liabilities Net amount in liability
(*) Management opted for tax recognition criteria of exchange rate of their rights and obligations based on a cash basis, generating foreign exchange temporary differences, which will be taxed according to the settlement of receivables and payables denominated in foreign currency. The Company adopted the Transitional Tax Regime (RTT) established by Law 11941/09, for the tax treatment of income tax and social contribution on the effects arising from the adoption of accounting pronouncements (CPCs). Management, based on the budget, business plan and budget projection approved by the Board of Directors expects that tax credits derived from temporary differences and tax loss carryforwards will be realized as follows:
03/31/2011 Consolidated 60,503 23,511 33,362 5,826 6,029 129,231
The projected realization may not materialize if the estimates used reflected in the preparation of these financial statements are different when the balances are realized. The Companys information on the taxes challenged in the courts is disclosed in note 16.
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b) Reconciliation of tax expenses in income (loss) The reconciliation of current and deferred income tax and social contribution expenses in the income statements for the quarters ended March 31, 2011 and 2010 are summarized as follows:
03/31/2011 (35,545) (35,545) (18,308) (13,579) 11,176 (20,711) Company 03/31/2010 (5,644) (5,644) 2,544 (17,040) 8,394 (6,102) 03/31/2011 (50,717) (50,717) (15,944) (13,579) (7,602) (37,125) Consolidated 03/31/2010 (19,392) (19,392) 1,970 (17,040) 11,452 (3,618)
Income tax and social contribution expense Current income tax and social contribution Tax effects on temporary differences Reassessment of useful lives of PP&E Change in fair value - biological assets (note 13) Deferred income tax and social contribution
c) Reconciliation of income tax and social contribution to the amounts resulting from directly applying related tax rates to corporate results
Company 03/31/2010 53,329 (18,132) Consolidated 03/31/2010 67,883 (23,080)
03/31/2011 Income before income tax and social contribution Income tax and social contribution at the rate of 34% Tax effects on permanent differences: Equity in subsidiaries Other effects Difference in taxation - subsidiaries Income tax and social contribution . Current . Deferred Income tax and social contribution expense in statements of income 196,458 (66,796)
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11
Klabin Argentina S.A. Silent Partnership "Paran" Silent Partnership "Santa Catarina"
Total
4.545 16.007 20.552 2.562 1 35.997 (36) 35.961 1.156.316 23.114 (1.344) 30.733 165.287 (2.304) 31.228 849 156.573 4.138 4.576 1.126.862 (4.041) 33.495 415.799 (6.460) 11.417 420.756
27.520 6.012
35.991 5
1.778.638 6.878 (138.168) 146.688 (2.274) 2.196 1.793.958 4.138 (10.501) 54.120 (1.344) 1.840.371
INVESTMENTS IN SUBSIDIARIES
Balance as of December 31, 2009 Acquisition and capital payment Proceeds Equity in subsidiaries (**) Exchange differences on translating foreign operations Transfers Balance as of December 31, 2010 Acquisition and capital payment Proceeds Equity in subsidiaries (**) Exchange differences on translating foreign operations Balance as of March 31, 2011
(**) Includes the effects of changes in and realization of the fair value of biological assets (note 14). (***) Includes fair value recognized on the acquisitions of the Company investments.
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12
The information on property, plant and equipment pledged as collateral in transactions conducted by the Company is disclosed in note 14, and information on insurance coverage of assets is disclosed in note 25.
Amount on December 31, 2009 Additions Write-off Depreciation Internal transfers Others Amount on December 31, 2010 Additions Write-off Depreciation Internal transfers Others Amount on March 31, 2010
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Consolidated Land 2,051,557 6,929 (28,197) (37) (58) 2,030,194 4,135 (31) 2,034,298 Buildings and construction 453,069 1,103 (93) (19,536) 1,937 (439) 436,041 (41) (5,394) 496 (205) 430,897 Machinery, equipment and fixtures 2,265,898 793 (2,478) (184,736) 106,713 (2,197) 2,183,993 45 (501) (47,742) 58,252 (176) 2,193,871 Construction and facilities in progress 103,913 183,852 (105,112) (4,601) 178,052 38,640 (46,992) (777) 168,923 Other (*) 122,455 73,812 (181) (16,278) (3,501) (564) 175,743 40,522 (1,914) (3,988) (11,756) 165 198,772 Total 4,996,892 266,489 (2,752) (220,550) (28,197) (7,859) 5,004,023 83,342 (2,456) (57,124) (1,024) 5,026,761
Amount on December 31, 2009 Additions Write-off Depreciation Reversal of deemed cost Internal transfers Others Amount on December 31, 2010 Additions Write-off Depreciation Internal transfers Others Amount on March 31, 2011
Depreciation for the period was substantially allocated to cost of production. c) Depreciation method The table below shows the annual depreciation rates calculated under the straight-line method that were applicable to the quarter ended March 31, 2011 and 2010, defined based on the economic useful lives of assets: Rate - % 2.86 to 3.33 2.86 to 10 (*) 4 to 20
Buildings and construction Machinery, equipment and facilities Other (*) Prevailing average rate of 6%.
As of December 31, 2010, management conducted a reassessment of the useful lives of the Companys property, plant and equipment, but no adjustments to the depreciation rates used was considered necessary. d) Construction and facilities in progress As at March 31, 2011, the balance of construction and facilities in progress relates to the following major projects: (i) evaporation and storage system and refurbishment of the Monte Alegre unit turbogenerator, (ii) technological upgrading of packaging segment plants, (iii) biomass boiler and refurbishment of the Otaclio Costa unit turbogenerator, and (iv) current investments in continuing operations of the Company. e) Impairment of assets The Company did not identify any indicators that as at March 31, 2011 and December 31, 2010 its assets might be impaired, based on its analysis of discounted cash flows prepared in accordance with the budget plan approved by Management.
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13
BIOLOGICAL ASSETS
The Companys biological assets comprise the planting and growing of pine and eucalyptus trees for the supply of raw material to produce the pulp used in the paper production process and sales of timber to third parties. As at March 31, 2011, the Company had 211 thousand hectare (213 thousand hectare as at December 31, 2010) of planted areas (information not reviewed by independent auditors), not considering the permanent preservation areas and legal reserve to be maintained to comply with the Brazilian environmental law. The balance of the Companys biological assets consists of the cost to grow forests and the fair value difference on the growing cost so that the total balance of biological assets is recorded at fair value, less costs necessary to prepare the assets for use or sale, as follows:
Company 12/31/2010 390.837 1.004.101 1.394.938 Consolidated 12/31/2010 913.159 1.849.720 2.762.879
Historical cost of biological assets Adjustment to fair value of biological assets Fair value
Measurement of biological assets at their fair values takes into consideration certain estimates, such as: wood price, discount rate, forest-harvesting planning, and productivity, which are subject to uncertainties, as any variation would have an impact on actual results. The information on assets pledged as collateral in transactions conducted by the Company is disclosed in note 14, and information on insurance coverage of biological assets and financial risks of forestry operations is disclosed in note 25. a) Assumptions for recognition of the fair value of biological assets Under CPC 29 (IAS 41) - Biological Assets and Agricultural Product, the Company recognizes its biological assets at fair value in accordance with the following assumptions: (i) Eucalyptus forests are recorded at historical cost through their third year and pine forests through their fifth year, based on the Managements understanding that during these periods the historical cost of biological assets approximates their fair values; (ii) After the third and fifth year, eucalyptus and pine forests, respectively, are measured at fair value, which reflects the sales price of the assets less the costs of necessary to prepare the assets for the intended use or sale; (iii) The methodology used to measure the fair value of biological assets corresponds to future cash flows estimated according to the projected productivity cycle of forests, taking into consideration the pricing changes and growth of biological assets; (iv) The discount rate used in cash flows corresponds to the Companys WACC, which is periodically reviewed by Management; (v) The estimated productivity volumes of forests are defined using a stratification method based on the type, genetic material, forest management system, productive potential, rotation and age of forests. This set of characteristics forms an index called Average Annual Growth (AAG), expressed in cubic meters per hectare/year used as a basis to estimate productivity. The harvesting plan of Company forests varies from 6 to 7 years for eucalyptus trees and 14 to 15 years for pine trees;
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(vi) The prices of biological assets, denominated in R$/cubic meter, are obtained using market price surveys disclosed by specialized firms, and the prices charged by the Company on sales to third parties. The prices are adjusted by deducting the capital costs relating to land, since they refer to assets used to plant forests and other costs to adjust the assets to sale or consumption conditions; (vii) Planting expenses refer to the costs on development of biological assets; (viii) Depletion of biological assets is calculated based on the fair value of biological assets harvested in the period; (ix) The Company decided to revalue the fair value of its biological assets on a quarterly basis since it understands that this time interval is sufficient to prevent any significant gap in the fair value of the biological assets recoded in its financial statements. b) Reconciliation of changes in fair value The changes for the periods are as follows:
Balance as of December 31, 2009 Planting Transfers Depletion: . Historical cost . Fair value Change in fair value due to: . Price . Growth Balance as of December 31, 2010 Planting Depletion: . Historical cost . Fair value Change in fair value due to: . Price . Growth Balance as of March 31, 2011
Company 1,326,757 65,084 3,134 (16,495) (204,152) 45,499 175,111 1,394,938 18,840 (5,473) (47,863) 37,633 (22,640) 1,375,435
Consolidated 2,491,169 119,108 41,077 (28,844) (308,256) 75,455 373,170 2,762,879 32,137 (10,557) (85,447) 75,748 32,059 2,806,819
The depletion of biological assets in the periods was mainly recognized as production costs after allocating inventories as forests are harvested either to use in production or sale to third parties.
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14
7.2
Company:
Annual interest % Current Noncurrent 1,069,519 295,459 83,333 57,656 1,505,967 37,474 1,990,554 480,981 2,509,009 4,014,976 4,014,976
12/31/2010 Total 1,324,230 367,490 150,452 100,765 58,796 2,001,733 41,407 2,247,404 529,647 2,818,458 4,820,191 26,278 10,628 4,857,097
In local currency . BNDES - Projeto MA1100 . BNDES - Other . Export credit . Working capital . Other In foreign currency (**) . Property, plant and equipment . Export prepayments . Export credit notes
TJLP + 2.0 and basket (*) + 1.5 TJLP + 0.0 a 4.5 7.0 CDI + 0.6 1.0 to 8.7
254,711 72,031 150,452 17,432 1,140 495,766 3,933 256,850 48,666 309,449 805,215 26,278 10,628 842,121
(*) Currency basket basically composed of U.S. dollars. (**) In US dollars. BNDES
The Company has agreements with BNDES for the financing of industrial development projects, such as project MA 1100, repayable through January 2017. These loans are amortized on a monthly basis, including the corresponding interest.
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Export prepayments and export credit notes Export prepayments and credit notes were raised with banks in order to manage working capital and promote the Companys activities. The agreements will be settled through July 2019. b) Maturities of long-term loans The maturity of the Companys loans as at March 31, 2011, classified in noncurrent liabilities, is as follows:
Year Amount 2012 614,998 2013 832,479 2014 705,711 2015 676,220 2016 304,285 2017 164,336 2018 205,490 2019 200,688 2020 and thereafter 88,910 Total 3,793,117
Balances as of December 31, 2009 Borrowings Accrued interest Exchange rate change Amortization and payment of interest Balances as of December 31, 2010 Borrowings Accrued interest Exchange rate change Amortization and payment of interest Balances as of March 31, 2011
d) Guarantees BNDES loans are guaranteed by land, buildings, improvements, machinery, equipment, and plants in Correia Pinto, Santa Catarina state, and Monte Alegre, Paran state, whose carrying amount as at March 31, 2011, net of depreciation is R$2,104,713, the financed assets, in addition to escrow deposits and sureties of controlling shareholders. Export credit, 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 financing agreements that contain restrictive covenants requiring the maintenance of certain financial ratios on the transactions under the agreements or the debt payment acceleration.
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15
16
a) Accrued contingencies Based on the individual analysis of the lawsuits and the opinion of their legal counsel, the Company and its subsidiaries recorded, in noncurrent liabilities, reserves for probable losses, as shown below:
03/31/2011 Other escrow deposits 23.121 21.813 44.934 803 45.737 1.329 47.066
Company: Tax: . PIS/COFINS (taxes on revenue) . CPMF (tax on banking transactions) . Income tax and social contribution . OTHER Labor Civil
Accrued amount (13.592) (8.646) (16.357) (1.508) (40.103) (56.531) (6.072) (102.706) (102.706)
Related escrow deposits 13.592 8.646 9.480 1.508 33.226 11.697 44.923 44.923
Company: Tax: . PIS/COFINS (taxes on revenue) . CPMF (tax on banking transactions) . Income tax and social contribution . OTHER Labor Civil
Accrued amount (13.466) (8.646) (16.357) (1.508) (39.977) (55.996) (6.174) (102.147) (102.147)
Related escrow deposits 13.466 8.646 9.480 1.508 33.100 14.587 47.687 47.687
12/31/2010 Other escrow deposits 22.676 19.025 41.701 41.701 1.310 43.011
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As at March 31, 2011, the Companys accrued contingencies related to tax lawsuits related mainly to challenges regarding the payment of PIS/COFINS on the sale of shares and income tax and social contribution on the inflation adjustments under Law 8200/91, labor lawsuits comprising mostly lawsuits filed by former employees of the Companys plants claiming the payment of labor rights (severance pay, overtime, hazardous duty and health hazard premiums), compensations and joint liability, as well as civil lawsuits related mainly to compensation claims due to property damage and/or pain and suffering resulting from accidents. b) Summary of changes in reserve for civil, tax and labor provisions
Company / Consolidated Civil Net exposure (9,021) (94,032) (312) 1,775 3,159 37,797 (6,174) (54,460) 102 636 (3,959) (6,072) (57,783)
Balances as of December 31, 2009 New lawsuits/increases and inflation adjustments (Recognitions)/reversals (*) Balance as of December 31, 2010 New lawsuits/increases and inflation adjustments (Recognitions)/reversals Balance as of March 31, 2011
(*) Substantially due to the update process and according to representatives of business, still under approval. c) Unaccrued civil, tax and labor risks The Company and its subsidiaries are parties to other tax, labor and civil lawsuits for which the risk of loss was assessed as possible, involving the following approximate amounts: tax - R$455,310 (does not include income tax assessment described below), labor - R$58,022, and civil - R$29,305. Based on the individual analysis of the lawsuits and the opinion of the Companys legal counsel, Management understands that these lawsuits do not need to be accrued because the likelihood of loss is possible. d) Contingent assets As at March 31, 2011, the Company was a plaintiff in lawsuits for which no amount was recognized in its financial statements and amounts are recognized only after a final and unappealable decision is rendered. The Companys legal counsel assessed the likelihood of a favorable outcome in some of the lawsuits as possible and probable. These lawsuits include the Companys claim for the full inflation adjustment and interest on inflation adjustment differences of compulsory loans made to Eletrobrs, deemed IPI credits on the purchase of electric power, fuel and natural gas used in production, and the offset of IPI credits paid on exports made while the Federal Governments tax offset program (BEFIEX) was effective. e) Income tax and social contribution assessment/Enrollment with REFIS On July 27, 2007, the Company received an income tax and social contribution assessment notice with respect to divestures made by the Company in 2003. This tax assessment notice, which amounts approximately to R$1,069 million, including principal, fine and interest at December 31, 2009 values, was not recorded as a reserve for contingencies in light of the aforementioned likelihood of loss.
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The Company joined the Tax Debt Refinancing Program (REFIS) within the legal deadline set out by Law 11941/09 and, as disclosed in the Material Fact of February 18, 2010, included part of the amounts collected in said tax assessment. As at December 31, 2009, the amount included in the REFIS tax installment plan was approximately R$862 million and, after applying the plans rules, it dropped to approximately R$332 million, accrued in the financial statements for the year ended December 31, 2009, and which as at March 31, 2011 represents R$373 million (R$349 million as at December 31, 2010). f) Commitments At the end of the reporting period, the Company and its subsidiaries do not have any future material commitments that have not been disclosed in the financial statements.
17
SHAREHOLDERS EQUITY
a) Capital As at March 31, 2011 and December 31, 2010, the Companys subscribed and paid-in capital in the amount of R$1,500,000 is represented by 917,683,296 shares, without par value. Preferred shares are nonvoting but have priority in capital reimbursement in case of Company liquidation and are paid dividends 10% higher than those paid on common shares. b) Treasury shares The Extraordinary Board of Directors Meeting held on October 13, 2010 approved the buyback of up to 45,278,818 preferred shares of the Company (equivalent to 10% of the outstanding shares of this class on that date) over a 365-day period, to be held in treasury and be subsequently sold or cancelled with no capital reduction. The Companys own shares purchased in prior periods are held in treasury for purposes of investment in existing funds. As at March 31, 2011, the Company held in treasury 27,196,800 preferred shares. As at March 31, 2011, the price of this class of shares (PN) traded on the So Paulo Stock Exchange was R$6.60 per share. c) Reserves Capital reserve Recognized pursuant to Law 8200/91, capital reserve refers to the effects of the inflation adjustment of capital, while not capitalized, and may be used for share buyback and capital increase purposes. Earnings reserve (i) Legal reserve Pursuant to Brazilian Corporate Law, the Company shall allocate 5% of net income for year that does not exceed 20% of capital to this reserve or, at the Companys discretion, recognize a reserve capped to 30% of capital. The objective of the legal reserve is to ensure the integrity of the Companys capital and can only be utilized to offset losses or increase capital, if determined by the Shareholders Meeting.
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(ii) Statutory reserve Comprises the variable portion of net income adjusted as provided for by the law and, pursuant to Company bylaws, from 5% to 75% of net income, to ensure investments in property, plant and equipment and reinforcement of working capital. (iii) Unrealized earnings reserve Used to absorb the balance arising from the measurement at fair value of the Companys biological assets in income statement (note 13), which are recognized in income but have not yet been economically and financially realized. After the actual realization of the biological asset, i.e., the asset depletion, the portion of fair value of the depleted asset is transferred from the unrealized earnings reserve to the statutory allocations of net income earned. The related balance is net of applicable income tax and social contribution. (iv) Reserve of proposed dividends Recognized based on Managements proposed dividends on the portion exceeding the mandatory minimum dividend, whose payment is contingent upon approval by the Shareholders Meeting. Revaluation reserves Based on CVM Resolution 27/86, this balance refers to the revaluation of property, plant and equipment in 1988, realized through the depreciation or sale of the revalued assets. The related balance is net of applicable income tax and social contribution. d) Dividends Concerning profit distribution in 2010, in addition to the interim dividends of R$120,001, the Companys management proposed for approval at the Annual Shareholders' Meeting held on April 4, 2011 the distribution of additional dividends in the amount of R$70,002, corresponding to R$73.85 per thousand registered common share (ON) and R$81.24 per thousand registered preferred share (PN), to be paid within 30 days after being approved by shareholders. The balance of supplementary dividends will remain stated in a separate account in shareholders' equity, under "proposed dividends reserve" until it is actually approved. Company bylaws also grant Management the right to distribute interim dividends in advance during the year. The allocation of net income recorded under retained earnings is only recorded at year-end.
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18
The Companys net revenue includes only the sales of its products and is broken down as follows:
Company 03/31/2010 1,004,089 (6,432) (165,795) 831,862 631,076 200,786 831,862 Consolidated 03/31/2010 1,022,474 (7,615) (170,474) 844,385 629,481 214,904 844,385
19
EXPENSES/REVENUES BY NATURE
03/31/2011 (425,414) (139,941) (110,918) (36,107) (57,930) (60,319) (830,629) Company 03/31/2010 (362,836) (116,292) (112,977) (32,889) (55,544) (70,091) (750,629) 03/31/2011 (384,489) (144,018) (153,892) (46,499) (59,591) (73,060) (861,549) Consolidated 03/31/2010 (326,250) (117,652) (181,133) (43,239) (54,694) (60,471) (783,439)
Variable costs (raw materials and consumption supplies) Personnel expenses Depreciation, amortization and depletion Freight Services received Other
20
03/31/2011 Financial income . Income from short-term investments . Other . Exchange variation on assets Financial expenses . Interest on financing . Other . Exchange variation on liabilities Financial income (expenses), net 64,444 2,028 (8,548) 57,924 (61,421) (31,871) 64,464 (28,828) 29,096
Company 03/31/2010 41,145 2,725 1,936 45,806 (62,717) (17,938) (45,700) (126,355) (80,549)
03/31/2011 66,723 2,030 (8,481) 60,272 (63,691) (30,232) 67,209 (26,714) 33,558
Consolidated 03/31/2010 42,449 2,724 1,925 47,098 (63,119) (18,440) (46,125) (127,684) (80,586)
21
Basic earnings per share are calculated by dividing net income attributable to the holders of Company common and preferred shares by the weighted average number of common and preferred shares outstanding in the year. Diluted earnings per share correspond to basic earnings per share as the Company has no potentially dilutive common or preferred shares.
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As there was no change in the Companys equity structure in the reporting period, the weighted average number of common and preferred shares corresponds to the number of outstanding shares at the end of the period. The table below, presented in reais, reconciles net income as of March 31, 2011 and 2010 to the amounts used for the calculation of basic and diluted earnings per share:
Company / Consolidated 03/31/2011 Preferred shares (*) Total 600,855,733 (27,196,800) 573,658,933 573,658,933 66.57% 917,683,296 (27,196,800) 890,486,496 890,486,496 100.00%
Common shares Denominator Weighted average number of shares Treasury shares Weighted average number of shares 316,827,563 316,827,563 316,827,563 33.43%
% of shares Numerator Net income attributable to each class of shares (R$) Weighted average number of shares Earnings per share - basic and diluted (R$)
140,202,000 890,486,496
Common shares Denominator Weighted average number of shares Treasury shares Weighted average number of shares 316,827,563 316,827,563 316,827,563 33.03%
Company / Consolidated 03/31/2010 Preferred shares (*) Total 600,855,733 (16,907,900) 583,947,833 583,947,833 66.97% 917,683,296 (16,907,900) 900,775,396 900,775,396 100.00%
% of shares Numerator Net income attributable to each class of shares (R$) Weighted average number of shares Earnings per share - basic and diluted (R$)
41,583,000 900,775,396
(*) Preferred shares are entitled to dividends 10% higher than those paid to common shares.
22
OPERATING SEGMENTS
a) Criteria for identification of operating segments The Company segmented its operating structure taking into consideration the way Management manages the business. Management defined the following operating segments:
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(i) Forestry segment: includes planting and growing pine and eucalyptus trees to supply of the Companys paper plants and sell timber (logs) to third parties in the domestic market. (ii) Paper segment: substantially includes the production and sale of cardboard, kraftliner and recycled paper rolls in the domestic and foreign markets. (iii) Conversion segment: includes the production and sale of corrugated cardboard boxes and boards, and industrial bags in the domestic and foreign markets. b) Consolidated information on operating segments
Consolidated 03/31/2011 Forestry Sales, net: .Domestic market .Foreign market Revenue from sales to third parties Intersegment revenue Total sales, net Change in fair value of biological assets Cost of sales Gross profit Operating expenses Income from operations before financial income (expenses) Sale of products (tonne) .Domestic market .Foreign market .Intersegment Sale of timber (tonne) .Domestic market .Intersegment 73,496 73,496 119,742 193,238 107,807 (213,028) 88,017 (15,611) Papers 253,898 225,151 479,049 202,892 681,941 (500,708) 181,233 (82,362) Conversion 383,312 21,026 404,338 3,552 407,890 (322,502) 85,388 (48,265) Corporate/ eliminations 122 122 (326,186) (326,064) 324,904 (1,160) (3,977) Total 710,828 246,177 957,005 957,005 107,807 (711,334) 353,478 (150,215)
72,406
98,871
37,123
(5,137)
203,263
Investments in the current period Total assets Total liabilities Shareholders equity
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Consolidated 03/31/2010 Forestry Sales, net: .Domestic market .Foreign market Revenue from sales to third parties Intersegment revenue Total sales, net Change in fair value of biological assets Cost of sales Gross profit Operating expenses Income from operations before financial income (expenses) Sale of products (tonne) .Domestic market .Foreign market .Intersegment Sale of timber (tonne) .Domestic market .Intersegment 56,802 56,802 103,055 159,857 87,523 (216,982) 30,398 (11,935) Papers 233,747 193,476 427,223 189,901 617,124 (447,842) 169,282 (69,482) Conversion 338,812 21,428 360,240 2,423 362,663 (294,600) 68,063 (40,945) Corporate/ eliminations 120 120 (295,379) (295,259) 294,019 (1,240) 4,328 Total 629,481 214,904 844,385 844,385 87,523 (665,405) 266,503 (118,034)
18,463
99,800
27,118
3,088
148,469
Investments in the current period Total assets Total liabilities Shareholders equity
Corporate refers basically to the corporate units expenses not apportioned among the other segments, and eliminations refer to adjustments of intersegment transactions. The information related to financial income (expenses) and income tax and social contribution was not disclosed in segment reporting because the Companys management does not use said data on a segmented basis, which is managed and analyzed on a consolidated basis. c) Information on net revenues from sales The Companys net revenues generated by sales to foreign market customers, in the consolidated balance sheet for the quarter ended March 31, 2011, amount to R$246 million (R$215 million for the quarter ended March 31, 2010). The table below shows the distribution of net revenues from sale for the periods indicated by country: Consolidated Consolidated 03/31/2011 03/31/2010 Total revenue % of revenue Total revenue % of revenue Pas (R$ million) Total net (R$ million) Total net Argentina 64 6.7% 65 7.7% China 37 3.9% 25 3.0% Ecuador 24 2.5% 1 0.1% Spain 15 1.6% 10 1.2% Singapore 11 1.1% 11 1.3% Philippines 9 0.9% 1 0.1% Germany 8 0.8% 7 0.8% Nigeria 6 0.6% 9 1.1% Turkey 6 0.6% 7 0.8% Italy 5 0.5% 7 0.8% Sundry others 61 6.4% 72 8.5% 246 26% 215 25% The Companys net revenue for the quarter ended March 31, 2011 and 2010 generated by sales to domestic market customers amounts to R$711 million and R$629 million, respectively.
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For the quarter ended March 31, 2011, in the papers segment, a single customer of cardboards accounted for approximately 22% of the Companys net revenue, corresponding to approximately R$209 million (R$190 million in the quarter ended March 31, 2010). The remaining customer base is diluted as none of the other customers individually accounts for a material share of the Company's net operating revenue (above 10%).
23
a) Risk management The Company and its subsidiaries conduct transactions with financial instruments, all recorded in balance sheet accounts, that are intended to meet their operational needs and reduce exposure to financial risks, mainly credit and investment of funds, market risks (foreign exchange and interest rates) and liquidity risks, to which the Company understands that it is exposed based on the nature of its business and corporate structure. Management of these risks is implemented through strategies defined and approved by the Companys management in conjunction with control systems and specific limits. Transactions are not conducted with financial instruments for speculative purposes. In addition, Management assesses on a timely basis the Companys consolidated position and monitors the financial income (expenses) obtained based on the analysis of future projections to ensure that the business plan is fulfilled and the risks to which the Company is exposed are monitored. The risks to which the Company is exposed are described below:
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Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument fluctuates due to changes in market prices. Market prices are affected by two types of risks: interest rate risk and currency risk. The financial instruments affected by market risks are short-term investments, trade receivables, trade payables, loans and financing, available-for-sale instruments, and derivatives. (i) Currency risk The Company has transactions denominated in foreign currencies, which are exposed to market risks arising from fluctuations in foreign exchange rates. Any change in the exchange rate can increase or reduce these balances. Breakdown of this exposure is as follows:
Consolidated 12/31/2010 162,000 184,800 (19,000) (2,855,364) (2,527,564)
Cash and short-term investments Trade accounts receivable (net of allowance for doubtful accounts) and other assets Trade accounts payable Export prepayments (financing) Net exposure
As at March 31, 2011, the balance by maturity for this net exposure is as follows:
2018 thereafter (424,091)
Year amount
2011 104,571
2012 (439,650)
2013 (518,692)
2014 (395,321)
2015 (322,083)
2016 (221,319)
2017 (129,834)
Total (2,346,419)
The Company has not entered into derivative contracts to hedge against long-term currency exposure. However, in order to hedge against this net liability exposure, the Company has a plan for projected exports sales of approximately US$500 million receivable annually that, if realized, would exceed the flow of payments for the respective liabilities, thus offsetting the effect of this currency exposure in the future. (ii) Interest rate risk The Company has loans indexed to the TJLP and CDI and short-term investments indexed to CDI and SELIC fluctuations, which expose these assets and liabilities to fluctuations in interest rates as shown in the interest sensitivity schedule shown below. The Company does not have swap or hedging derivative contracts to hedge against this risk. However, market interest rates are constantly monitored to assess the need to hedge against the risk of volatility in these rates. The Company understands that the high cost associated with entering into transactions at fixed interest rates in the Brazilian macroeconomic scenario justifies its option for floating rates.
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Short-term investments - CDI Short-term investments - Selic Asset exposure Financing - CDI Financing - TJLP Liability exposure
Credit risk and investment of funds Credit risk is the risk that the counterparty of a business does not meet an obligation established by a financial instruments or contract with a customer, thus resulting in a financial loss. The Companys operating activities (mainly those related to trade accounts receivable) and investment, including deposits in banks and financial institutions, foreign exchange transactions, short-term investments and other contracted financial instruments, are exposed to credit risks. As at March 31, 2011, the maximum amount exposed to credit risks is the carrying amount of trade accounts receivable stated in note 6. The investment amount exposed to credit risks corresponds substantially to the amounts of short-term investments and securities, described in notes 4 and 5. The credit risks to which the Company is exposed are managed based on specific rules for acceptance of customers, credit ratings, and individual limits for exposure by customer, which are periodically reviewed. Monitoring of past-due trade receivables is carried out in a timely manner. Additionally, there are specific analyses and rules approved by Management for investment in financial institutions highly rated by rating agencies, and the types of investments offered in financial markets, which seek to invest funds conservatively and safely. Liquidity risk The Company monitors the risk of lack of funds through a recurring liquidity-planning tool, in particular by means of financing with financial institutions, so that it has funds available to meet its obligations. The table below shows the maturity of the financial liabilities contracted by the Company, in consolidated, and the related amounts include principal and future interest levied on transactions calculated based on rates and ratios prevailing as at March 31, 2011:
2017 thereafter Total 272,144 691,652 5,277,034 691,652 5,549,178
The projection for the following years, which was approved by the Board of Directors, shows the Companys ability to meet the obligations, if required.
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The Companys equity structure consists of its net debt, consisting of loans and financing (note 14) less the cash, cash equivalents, and securities (notes 4 and 5), and shareholders equity, including the balance of issued capital and all recognized reserves. The Companys net indebtedness is broken down as follows:
Consolidated 12/31/2010 2,729,327 (4,857,097) (2,127,770) 5,154,502 (0.41)
Cash, cash equivalents and securities Loans and financing Net indebtedness Shareholders equity Debt to asset ratio
b) Financial instruments The Companys main financial instruments are classified as follows: Loans and receivables and other financial liabilities The financial instruments included in this group comprise balances arising from transactions related to the Companys activities, such as accounts receivable, trade accounts payable, loans and financing, shortterm investments and cash and cash equivalents. All of them are recognized at their notional value plus, when applicable, contractual charges and interest, expenses and income from which are recognized in income (loss) for the year. Available-for-sale financial assets The Company classified its securities that comprise National Treasury Bills (LFT) (note 5) as financial assets available for sale, because they can be traded in the future. These securities are recorded at fair value. Due to this assets liquidity, its fair value approximates its amortized cost, and thus it has no impact on the Companys shareholders equity. As at March 31, 2011, the balance of these securities on a consolidated basis is R$203,465. c) Sensitivity analysis The Company presents below sensitivity schedules for currency and interest rate risks to which the Company is exposed considering that any effects would impact future earnings, based on the exposures presented as at March 31, 2011. (i) Currency exposure The Company has assets and liabilities indexed to a foreign currency in the balance sheet as at March 31, 2011, and for sensitivity analysis purposes adopted as scenario I the future market rate in effect at the time these statements were prepared. In scenario II and scenario III this rate was adjusted by 25% and 50%, respectively.
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It is important to note in the maturity schedule disclosed in note 14 that most of the Companys loans will not mature in 2011. Therefore, exchange fluctuations will have no impact on cash resulting from this analysis. On the other hand, the Companys exports should already be impacted by currency appreciation during the year. The sensitivity analysis of exchange fluctuations is being calculated in relation to net currency exposure (basically advances on foreign exchange contracts) and the effects of these scenarios were not considered in relation to export sales, which as mentioned previously tend to offset any possible future exchange loss. Accordingly, the schedule below simulates the effects of currency fluctuations on future income (loss) for 12 months.
Balance as of 03/31/2011 Scenario I US$ Assets Cash and cash equivalents Trade accounts receivable, net of allowance for doubtful accounts and discounted export receivables Liabilities Trade accounts payable Borrowings Total effect on net income - R$ 87,800 Rate 1.63 R$ income (loss) 114 Scenario II Rate 2.04 R$ income (loss) 36,112 Scenario III Rate 2.45 R$ income (loss) 72,110
(ii) Interest rate exposure Short-term investments and loans, except those linked to the TJLP, are linked to fixed CDI rate. For sensitivity analysis purposes, for the projection of scenario I the Company used the same rates prevailing on dates close to the end of the reporting period for Selic and CDI, given their proximity. These rates were adjusted by 25% and 50% for the projection of scenarios II and III, respectively. Accordingly, the table below simulates the effects of interest rate fluctuations on income (loss) for 12 months:
Balance as of 03/31/2011 Scenario I R$ Short-term investments Bank Certificates of Deposit (CDBs) Treasury Bills (LTFs) Borrowings Working capital BNDES Total effect on net income - R$ CDI Selic CDI TJLP 2,289,042 203,465 103,535 1,613,071 Rate 12.06% 12.06% 12.06% 6.00% R$ income (loss) 276,058 24,538 (12,486) (96,784) 191,326 Scenario II Rate 15.08% 15.08% 15.08% 7.50% R$ income (loss) 345,188 30,683 (15,613) (120,980) 239,278 Scenario III Rate 18.09% 18.09% 18.09% 9.00% R$ income (loss) 414,088 36,807 (18,729) (145,176) 286,990
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24
The Company and its subsidiaries offer their employees life insurance, healthcare, and pension plan benefits. These benefits are accounted for on an accrual basis and stop being granted after severance. a) Pension Plan Klabins pension fund Plano Prever, administered by Ita Vida e Previdncia S.A., was created in 1986 as a defined benefit plan. Beginning 1998, the plan was restructured, resulting in the transformation of the plan into a defined contribution plan. In November 2001, a new pension plan was created, the Plano de Aposentadoria Complementar Klabin PACK, also administered by Ita Vida e Previdncia S.A. and structured as a PGBL (plan/life insurance plan). The participants of the Prever Plan were offered the option to migrate to the new plan. The Company does not assume any responsibility to pay minimum benefits to retirees in either of the plans. b) Healthcare Pursuant to the agreement entered into the Union of the So Paulo State Pulp and Paper Workers, the Company pays for a lifetime healthcare plan (Hospital SEPACO, principal plan) for its former employees who retired up to 2001, and their dependents (spouses and children until they reach majority age), while no new beneficiaries are allowed. The Company understands that said healthcare benefit is a defined benefit plan in accordance with accounting practices adopted in Brazil and thus recognizes a provision for the estimated actuarial liability in the amount of R$33,705 (R$32,805 as at December 31, 2010), in noncurrent liabilities, in line item Other payables and provisions. As at December 31, 2010, the actuarial appraisal considered the following economic and biometrical assumptions: nominal discount rate of 10.75% per year (11.25% as at December 31, 2009), nominal growth rate of variable medical costs of 12.5% per year in 2011, reaching 6.5% per year in 2023, longterm inflation of 4.5% per year (4.5% per year as at December 31, 2009), and biometrical mortality table RP 2000. The amount recognized as expense for 2010 totaled R$8,205 (R$3 in 2009). This plan does not assets for disclosure.
25
INSURANCE
As at March 31, 2011, the Company has insurance against fire, lightening, explosion, electrical damages, and windstorm covering all its industrial, administrative, and storage facilities. The Company also has general civil liability and D&O, auto, and multiperils insurance for its chattels, amounting to R$1,807,314.
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In view of the nature of its activities, the location of forests in different areas, and the preventive actions taken against fire and other risks, the Company, rather than contracting insurance against damage caused to forests, opted to adopt protection policies, which, historically, have proven to be highly effective and caused no harm to the Companys activities or financial position. Management understands that the Companys structure of management of the financial risks related to forest activities is appropriate to guarantee its continuity as a going concern.
26
According to the minutes of the Annual Shareholders Meeting held on April 4, 2011, the proposal for distribution of additional dividends in 2010, as mentioned in note 17, was approved and payment was scheduled for April 20, 2011. The issuance of this Interim Financial Information of Klabin S.A. (Company) and its subsidiaries were authorized by the finance executive board on April 27, 2011.
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IN ACCORDANCE WITH THE DIFFERENTIATED CORPORATE GOVERNANCE PRACTICES REGULATION - LEVEL 1, WE PRESENT BELOW ADDITIONAL DISCLOSURES ON THE COMPANY AS AT MARCH 31, 2011. 1 COMPANYS OWNERSHIP INTEREST INCLUDING SHAREHOLDERS WITH MORE THAN 5% OF VOTING CAPITAL, DETAILED UP TO THE LEVEL OF INDIVIDUALS
- 105,859,840 17,62 105,859,840 11.54 - 27,196,800 4,53 27,196,800 2.96 20.47 379,973,822 63,23 444,845,373 48.47 100.00 600,855,733 100,00 917,683,296 100.00
(*) Foreign shareholders. (**) Shareholders with less than 5% of voting capital.
SHARES Number % of capital 1 12.52 1 6.26 1 6.26 1 12.52 1 12.52 1 11.07 1 11.07 1 11.07 1 8.36 1 8.35 10 100.00
General partnership, with capital in the amount of R$1,000,000.00, represented by shares of various amounts.
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CONTROLLING SHAREHOLDER/INVESTOR: Jacob Klabin Lafer Adm. Partic. S.A. SHAREHOLDERS Miguel Lafer Vera Lafer TOTAL CONTROLLING SHAREHOLDER/INVESTOR: Miguel Lafer Participaes S.A. SHAREHOLDERS Miguel Lafer Vera Lafer TOTAL CONTROLLING SHAREHOLDER/INVESTOR: VFV Participaes S.A. SHAREHOLDERS Vera Lafer Other TOTAL CONTROLLING SHAREHOLDER/INVESTOR: PRESH S.A. SHAREHOLDERS Sylvia Lafer Piva Pedro Franco Piva Horcio Lafer Piva Eduardo Lafer Piva Regina Piva Coelho Magalhes TOTAL ON % SHARES PN % TOTAL 17,658,895 99.99993 17,658,895 12 0.00007 12 33.33 2,943,151 33.33 2,943,151 % 66.66662 0.00005 11.11111 11.11111 SHARES ON % Total 981,094,312 99.9999 688 0.0001 981,095,000 100.0000 SHARES ON % Total 223,510,726 99.9999 344 0.0001 223,511,070 100.0000 SHARES ON % Total 215,059,063 50.00 215,059,063 50.00 430,118,126 100.00
CONTROLLING SHAREHOLDER/INVESTOR: GL Holdings S.A. SHAREHOLDERS Graziela Lafer Galvo Other TOTAL ON % 4,233,864 99.99991 4 0.00009 4,233,868 100.00000 SHARES PN % TOTAL % 8,467,726 99.99993 12,701,590 99.99992 6 0.00007 10 0.00008 8,467,732 100.00000 12,701,600 100.00000
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CONTROLLING SHAREHOLDER/INVESTOR: GLIMDAS Participaes S.A. SHARES SHAREHOLDERS ON % PN % TOTAL % Israel Klabin 1,756,611 92.5090 1,756,611 45.747 Alberto Klabin (*) 323,502 16.6664 23,707 1.2485 347,209 9.042 Leonardo Klabin (*) 323,502 16.6664 23,707 1.2485 347,209 9.042 Stela Klabin (*) 323,502 16.6664 23,707 1.2485 347,209 9.042 Maria Klabin (*) 323,502 16.6664 23,707 1.2485 347,209 9.042 Dan Klabin (*) 323,502 16.6664 23.707 1.2485 347,209 9.042 Gabriel Klabin (*) 323,502 16.6664 23,707 1.2485 347,209 9.042 Esplio Maurcio Klabin (*) 32 0.0017 32 0.001 1,941,044 100.0000 1,898,853 100.0000 3,839,897 100.0000 TOTAL (*) Shares subject to usufruct, with the usufructuary Israel Klabin having voting right. CONTROLLING SHAREHOLDER/INVESTOR: DARO Participaes S.A. SHARES SHAREHOLDERS ON % Total Daniel Miguel Klabin 1,627,732 53.065 Rose Klabin (*) 479,900 15.645 Amanda Klabin (*) 479,900 15.645 David Klabin (*) 479,900 15.645 3,067,432 100.000 TOTAL (*) Shares subject to usufruct, with the usufructuary Daniel Miguel Klabin having voting right. CONTROLLING SHAREHOLDER/INVESTOR: DAWOJOBE Participaes S.A. SHARES SHAREHOLDERS ON % Armando Klabin 4 0.20 Wolff Klabin (*) 516 24.95 Daniela Klabin (*) 516 24.95 Bernardo Klabin (*) 516 24.95 Jos Klabin (*) 516 24.95 2,068 100.00 TOTAL (*) Shares subject to usufruct, with the usufructuary Armando Klabin having voting right. CONTROLLING SHAREHOLDER/INVESTOR: ESLI Participaes S.A. SHAREHOLDERS Lilia Klabin Levine Cristina Levine Martins Xavier Regina Klabin Xavier Roberto Klabin Martins Xavier TOTAL
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CONTROLLING SHAREHOLDER/INVESTOR: LKL Participaes S.A. SHAREHOLDERS Lilia Klabin Levine Other TOTAL CONTROLLING SHAREHOLDER/INVESTOR: NIBLAK PARTICIPAES S.A. SHAREHOLDERS Miguel Lafer Part. S.A. VFV Participaes S.A. GL Holdings S.A. Glimdas Participaes S.A. Daro Participaes S.A. Dawojobe Partic. S.A. Armando Klabin Esli Participaes S.A. Pedro Franco Piva TOTAL SHARES ON % Total 3,038,036 12.521 3,038,035 12.521 3,038,061 12.521 2,686,869 11.074 2,686,869 11.074 2,562,686 10.562 124,183 0.511 4,050,722 16.695 3,038,061 12.521 24,263,522 100.000 SHARES ON % Total 17,933,200 99.998 300 0.002 17,933,500 100.000
ON PN
63.78 18.71
202,093,755 107,052,943
63.79 17.82
0.03 -4.78
Members of Board of Directors Members of Executive Board Members of Supervisory Board Treasury shares Other Shareholders
ON PN ON PN
33,202,415 12,333,385
10.48 2.05
94,149 4,895,740
(4,179,834)
33,296,564 13,049,291
10.51 2.17
0.28 5.80
79,038
0.02
7,800
406,000
(7,100)
485,738
0.08
514.56
ON PN ON PN ON PN
1,000 3,420
0.00 0.00
1,000 3,420
0.00 0.00
10,288,900
27,196,800 81,436,244
23,453,028
(2,406,000)
2,007,100
453,067,541
Total
ON PN
100.00 100.00
0 0
0 0
0 0
0 0
316,827,563 600,855,733
100.00 100.00
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NUMBER OF COMPANYS SHARES DIRECTLY OR INDIRECTLY HELD BY CONTROLLING SHAREHOLDERS, MEMBERS OF THE EXECUTIVE BOARD AND MEMBERS OF THE BOARD OF DIRECTORS AND NUMBER OF SHARES OUTSTANDING
As at September 30, 2010 SHAREHOLDERS Controlling shareholders Members of Board of Directors Members of Executive Board Members of Supervisory Board Treasury shares Other shareholders Total Number of shares outstanding As at September 30, 2009 SHAREHOLDERS Controlling shareholders Members of Board of Directors Members of Executive Board Members of Supervisory Board Treasury shares Other shareholders Total Number of shares outstanding 81,538,193 81.539.193 25.74 25.74 316,827,563 100.00 1,000 0.00 ON 202,085,955 33,202,415 % 63.78 10.48 81,436,244 81,437,244 25.70 25.70 316,827,563 100.00 1,000 0.00 ON 202,093,755 33,296,564 % 63.79 10.51 SHARES PN 107,052,943 13,049,291 485,738 3,420 27,196,800 453,067,541 453,070,961 % 2.17 0.08 0.00 4.53 Total 46,345,855 485,738 4,420 27,196,800 % 33.69 5.05 0.05 0.00 2.96 58.25 58.25 17.82 309,146,698
SHARES PN 112,429,094 12,333,385 79,038 3,420 16,907,900 459,102,896 459.106.316 % 2.05 0.02 0.00 2.81 Total 45,535,800 79,038 4,420 16,907,900 % 34.27 4.96 0.02 0.00 1.84 58.91 58.91 18.71 314,515,049
OTHER INFORMATION Relationship with Independent Auditors In conformity with CVM Instruction 381/03, the auditing firm Deloitte Touche Tohmatsu Auditores Independentes did not provide non-audit services accounting for more than 5% of its total fees. The Companys policy for non-audit services contracted from its independent auditors is based on principles designed to ensure the independence of the auditors. Those principles, which follow internationally accepted standards, consist of the following: (a) the auditor must not audit his own work; (b) the auditor must not perform managerial jobs at his client; and (c) the auditor must not promote his clients interests.
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(Convenience Translation into English from the Original Previously Issued in Portuguese) REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION To the Board of Directors and Shareholders of Klabin S.A. So Paulo - SP Introduction We have reviewed the accompanying individual and consolidated interim financial information of Klabin S.A. (the Company), included in the Interim Financial Information Form (ITR), for the quarter ended March 31, 2011, which comprises the balance sheet and the related income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows for the threemonth period then ended, including the explanatory notes.
Management is responsible for the preparation of the individual interim financial information in accordance with CPC 21 - Interim Financial Reporting and the consolidated interim financial information in accordance with CPC 21 and IAS 34 - Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), as well as for the presentation of such information in accordance with the standards issued by the Brazilian Securities Commission (CVM), applicable to the preparation of Interim Financial Information (ITR). Our responsibility is to express a conclusion on this interim financial information based on our review. Scope of review
We conducted our review in accordance with the Brazilian and international standards on review of interim financial information (NBC TR 2410 and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim financial information consist of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with the standards on auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion on the individual interim financial information Based on our review, nothing has come to our attention that causes us to believe that the accompanying individual interim financial information included in the ITR referred to above is not prepared, in all material respects, in accordance with CPC 21 applicable to the preparation of Interim Financial Information ITR) and presented in accordance with the standards issued by the Brazilian Securities Commission.
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Conclusion on the consolidated interim financial information Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated interim financial information included in the ITR referred to above is not prepared, in all material respects, in accordance with CPC 21 and IAS 34 applicable to the preparation of Interim Financial Information (ITR) and presented in accordance with the standards issued by the Brazilian Securities Commission. Emphasis of matter As described in Note 2, the individual financial statements have been prepared in accordance with accounting practices adopted in Brazil. In the case of Klabin S.A. these practices differ from IFRSs, applicable to the individual financial statements, only with respect to the valuation of investments in subsidiaries under the equity method of accounting, while for IFRS purposes these investments would be measured at cost or fair value. Other matters Statement of value added We have also reviewed the individual and consolidated interim statements of value added (DVA), for the three-month period ended March 31, 2011, the presentation of which is required by the standards issued by the Brazilian Securities Commission (CVM) applicable to the preparation of Interim Financial Information (ITR), and is considered as supplemental information for IFRS that does not require the presentation of DVA. These statements were subject to the same review procedures described above and, based on our review, nothing has come to our attention that causes us to believe that they are not prepared, in all material respects, in relation to the individual and consolidated interim financial information taken as a whole. The accompanying interim financial information has been translated into English for the convenience of readers outside Brazil. So Paulo, April 27, 2011
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