(A free translation of the original in Portuguese)
Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Financial statements
at December 31, 2013
and independent auditor's report
(A free translation of the original in Portuguese)
Independent auditor's report
To the Board of Directors and Stockholders of
Companhia Ítalo-Brasileira de Pelotização - Itabrasco
We have audited the accompanying financial statements of Companhia Ítalo-Brasileira de Pelotização Itabrasco ("Company"), which comprise the balance sheet as at December 31, 2013 and the statements
of income, changes in equity and cash flows for the year then ended, and a summary of significant
accounting policies and other explanatory information.
Management's responsibility
for the financial statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with accounting practices adopted in Brazil, and for such internal control as management
determines is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
Auditor's responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with Brazilian and International Standards on Auditing. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial statements. The procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error.
In making those risk assessments, the auditor considers internal control relevant to the entity's
preparation and fair presentation of the financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as
well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
PricewaterhouseCoopers, Av. José Silva de Azevedo Neto 200, 1º e 2º, Torre Evolution IV, Barra da Tijuca, Rio de Janeiro, RJ, Brasil 22775-056
T: (21) 3232-6112, F: (21) 3232-6113, www.pwc.com/br
PricewaterhouseCoopers, Rua da Candelária 65, 20º, Rio de Janeiro, RJ, Brasil 20091-020, Caixa Postal 949,
T: (21) 3232-6112, F: (21) 2516-6319, www.pwc.com/br
2
Companhia Ítalo-Brasileira de Pelotização - Itabrasco
Opinion
In our opinion the financial statements referred to above present fairly, in all material respects, the
financial position of Companhia Ítalo-Brasileira de Pelotização - Itabrasco as at December 31, 2013,
and its financial performance and cash flows for the year then ended, in accordance with accounting
practices adopted in Brazil.
Emphasis of matter
We draw attention to Note 8 to these financial statements that says that the Company has balances
and transactions with related parties involving significant amounts in relation to its financial position.
Our opinion is not qualified in respect of this matter.
Other matters
Supplementary information statement of value added
We have also audited the statement of value added for the year ended December 31, 2013, which was
prepared under the responsibility of the Company's management as supplementary information. This
statement was subject to the same audit procedures described above and, in our opinion, is fairly
presented, in all material respects, in relation to the financial statements taken as a whole.
Rio de Janeiro, March 24, 2014
PricewaterhouseCoopers
Auditores Independentes
CRC 2SP000160/O-5 "S" ES
Maria Salete Garcia Pinheiro
Contadora CRC 1RJ048568/O-7 "S" ES
3
Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Balance sheets at December 31
(A free translation of the original in Portuguese)
All amounts in thousands of reais
Assets
Current assets
Cash and cash equivalents
Accounts receivable
Related party
Taxes recoverable
Other assets
Non-current assets
Long-term receivables
Judicial deposits
Deferred taxes
Property, plant and equipment
Intangible assets
Total assets
Notes
2013
2012
6
90,835
66,359
7 and 8
1,842
718
1
6
2
93,396
66,367
13
11
9
10
74,313
9,449
69,637
2,342
83,762
71,979
172,889
4
187,156
11
256,655
259,146
350,051
325,513
The accompanying notes are an integral part of these financial statements.
1 of 25
Liabilities and equity
Current liabilities
Trade payables
Related party
Other
Proposed dividends
Taxes payable
Other liabilities
Non-current liabilities
Provision for contingencies
Other provisions
Equity
Share capital
Revenue reserves
Total liabilities and equity
Notes
2013
2012
8
78
824
6,176
6,500
65
604
4,642
8,068
6,273
181
13,643
19,768
59,168
2,006
54,160
2,945
61,174
57,105
133,790
141,444
133,790
114,850
275,234
248,640
350,051
325,513
14(b)
12
13
14
Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Statements of income
Years ended December 31
All amounts in thousands of reais unless otherwise stated
(A free translation of the original in Portuguese)
Notes
Net revenue from lease
Cost of lease
16
Gross profit
Operating income (expenses)
General and administrative expenses
Other operating income (expenses)
17
Operating profit
Finance income (costs)
Finance costs
Finance income
53,439
(26,552 )
62,621
(25,645 )
26,887
36,976
(694 )
(1,310 )
(857 )
5,865
(2,004 )
5,008
24,883
41,984
(7,385 )
11,361
(2,921 )
8,267
3,976
5,346
28,859
47,330
(11,264 )
7,107
(14,087 )
(971 )
(4,157 )
(15,058 )
11
Profit for the year
Earnings per thousand shares - in R$
The accompanying notes are an integral part of these financial statements.
2 of 25
2012
18
Profit before income tax and social contribution
Income tax and social contribution
Current
Deferred
2013
24,702
32,272
17.41
22.75
Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Statements of changes in equity
(A free translation of the original in Portuguese)
All amounts in thousands of reais
Revenue reserves
Share
capital
Legal
reserve
At December 31, 2011
Allocation of investment reserve to dividends (AGM of April 17, 2012)
Appropriation of dividends (AGM of April 17, 2012)
Profit for the year
Allocation of profit:
Mandatory minimum dividend - 25%
Special reserve for dividends - 25%
Investment reserve - 50%
133,790
26,759
At December 31, 2012
Reversal of mandatory minimum dividend for 2012 (AGM of April 29, 2013)
Appropriation of special reserve for dividends (AGM of April 29, 2013)
Profit for the year
Allocation of profit:
Mandatory minimum dividend - 25%
Special reserve for dividends - 25%
Investment reserve - 50%
133,790
At December 31, 2013
133,790
The accompanying notes are an integral part of these financial statements.
3 of 25
Investment
reserve
73,887
(10,000 )
Special
reserve for
dividends
Retained
earnings
36,911
(36,911 )
32,272
8,068
16,136
26,759
80,023
8,068
8,068
(8,068 )
(8,068 )
(16,136 )
8,068
(8,068 )
(8,068 )
6,176
12,350
108,509
271,347
(10,000 )
(36,911 )
32,272
248,640
8,068
24,702
26,759
Total
6,176
(6,176 )
(6,176 )
(12,350 )
24,702
(6,176 )
275,234
Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Statements of cash flows
Years ended December 31
All amounts in thousands of reais
(A free translation of the original in Portuguese)
Cash flows from operating activities
Profit before income tax and social contribution
Adjustments
Depreciation and amortization
Disposal of property, plant and equipment
Provision for contingencies
Reversal of other provisions
Provision for ICMS loss
Monetary and exchange variations on contingencies
and judicial deposits
2013
2012
28,859
47,330
28,925
13
(242 )
(939 )
27,949
(1,380 )
55,236
Changes in assets and liabilities
Accounts receivable
Taxes recoverable
Judicial deposits
Other assets
Trade payables
Taxes payable
Other liabilities
Cash from operations
Income tax and social contribution paid
Net cash provided by (used in) operating activities
(1,842 )
(712 )
1,954
1
(4,344 )
(810 )
(116 )
49,367
(10,227 )
(96 )
(6,495 )
(1,745 )
(774 )
66,169
969
936
138
19
626
(40,283 )
128
28,702
(9,789 )
39,140
18,913
Cash flows from investing activities
Acquisition of property, plant and equipment
(14,664 )
(25,737 )
Net cash (used in) provided by investing activities
(14,664 )
(25,737 )
Cash flows from financing activities
Dividends paid
(70,821 )
Net cash (used in) provided by financing activities
(70,821 )
Net increase (decrease) in cash and cash equivalents
24,476
(77,645 )
Cash and cash equivalents at the beginning of the year
66,359
144,004
Cash and cash equivalents at the end of the year
90,835
66,359
The accompanying notes are an integral part of these financial statements.
4 of 25
Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Statements of value added
Years ended December 31
All amounts in thousands of reais
(A free translation of the original in Portuguese)
2013
2012
Revenue
Gross revenue from lease
Other income (expenses)
58,942
773
69,004
7,728
Gross value added
59,715
76,732
(28,925 )
(27,949 )
Net value added generated by the entity
30,790
48,783
Value received through transfer
Finance income
11,361
8,267
Total value added to distribute
42,151
57,050
Distribution of value added
Personnel and payroll charges
Executive officers' fees
Pension plan
7
396
73
342
403
415
Depreciation and amortization
Taxes and contributions
Federal - current
Federal - deferred
Municipal
Creditors
Interest, monetary and exchange variations
Stockholders
Dividends
Profits reinvested
Value added distributed
The accompanying notes are an integral part of these financial statements.
5 of 25
16,767
(7,107 )
1
20,470
971
1
9,661
21,442
7,385
2,921
6,176
18,526
8,068
24,204
24,702
32,272
42,151
57,050
(A free translation of the original in Portuguese)
Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Notes to the financial statements
at December 31, 2013
All amounts in thousands of reais unless otherwise stated
1
Operations
Companhia Ítalo-Brasileira de Pelotização - ITABRASCO (the "Company"), a private corporation
having its headquarters and industrial plant in the city of Vitória, State of Espírito Santo, was formed
in 1973 through an association between Vale S.A. ("Vale") and ILVA Commerciale S.r.l. ("ILVA")
that, together, control the Company. The Company manufactures and sells iron ore pellets, the sales
of which are made to its stockholders.
In October 2008, the Company signed with its stockholder Vale an operating lease agreement of its
Pellet Factory, which came into effect from the date of execution. The purpose of this agreement is to
generate gains from the synergy of the pellet factories that Vale already manages.
On February 23, 2011, the 3rd amendment to the operating lease agreement was signed, modifying
as from 2012 the calculation of the fixed installment, which shall be calculated based on the average
depreciation recorded in the previous three years plus 12% and PIS and COFINS. Previously, the
fixed installment corresponded to R$ 47,400 annually adjusted according to the variation of the
General Market Price Index (IGP-M) published by Fundação Getúlio Vargas (FGV).
The variable installment of the lease revenue suffered the impact of the lower demand for the volume
of pellets by Vale.
The issue of these financial statements was authorized by the Executive Board on March 24, 2014.
2
Summary of significant accounting policies
The main accounting policies applied in the preparation of these financial statements are set out
below. These policies have been consistently applied in the years presented, unless otherwise stated.
2.1
Basis of preparation
The financial statements have been prepared in accordance with accounting practices adopted in
Brazil issued by the Brazilian Accounting Pronouncements Committee (CPC), under the historical
cost convention, as modified by financial assets and financial liabilities measured at fair value.
The preparation of financial statements requires the use of certain critical accounting estimates. It
also requires management to exercise its judgment in the process of applying the Company's
accounting policies. The areas involving a higher degree of judgment or complexity, or areas where
assumptions and estimates are significant to the financial statements, are disclosed in Note 3.
2.2
Foreign currency translation
(a)
Functional and presentation currency
Items included in the financial statements of the Company are measured using the currency of the
primary economic environment in which the entity operates ("the functional currency"). The
financial statements are presented in Brazilian reais (R$), which is the Company's functional
currency, and also its presentation currency.
6 of 25
Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Notes to the financial statements
at December 31, 2013
All amounts in thousands of reais unless otherwise stated
(b)
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions or the dates of valuation when items are remeasured.
Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities denominated in foreign
currencies are recognized in the statement of income.
Foreign exchange gains and losses are presented in the statement of income within "Finance income
or costs".
2.3
Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits with banks and other short-term highly
liquid investments with original maturities of three months or less, and with immaterial risk of
change in value.
2.4
Financial assets
2.4.1
Classification
The Company classifies its financial assets into the following categories: at fair value through profit
or loss, loans and receivables, and available for sale. The classification depends on the purpose for
which the financial assets were acquired. Management determines the classification of its financial
assets at initial recognition. In the years presented in the financial statements, the Company had
only financial assets classified under "loans and receivables".
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market. They are included in current assets, except for maturities greater
than 12 months after the end of the reporting period, which are classified as non-current assets. The
Company's loans and receivables comprise "Accounts receivable", "Judicial deposits" and "Cash and
cash equivalents".
2.4.2
Recognition and measurement
Normal purchases and sales of financial assets are typically recognized on the trade date - the date
on which the Company commits to purchase or sell the asset. Investments are initially recognized at
fair value plus transaction costs for all financial assets not carried at fair value through profit or loss.
Financial assets are derecognized when the rights to receive cash flows from the investments have
expired or have been transferred and the Company has transferred substantially all the risks and
rewards of ownership. Loans and receivables and judicial deposits are carried at amortized cost
using the effective interest rate method. Gains or losses arising from changes in the fair value of the
"financial assets at fair value through profit or loss" category are presented in the statement of
income.
2.4.3
Offsetting of financial instruments
Financial assets and liabilities are offset and the net amount presented in the balance sheet when
there is a legally enforceable right to offset the recognized amounts and there is an intention to settle
on a net basis or realize the asset and settle the liability simultaneously.
7 of 25
Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Notes to the financial statements
at December 31, 2013
All amounts in thousands of reais unless otherwise stated
2.4.4 Impairment of financial assets
(a)
Assets carried at amortized cost
The Company assesses at the end of each reporting period whether there is objective evidence that a
financial asset or group of financial assets is impaired. A financial asset or a group of financial assets
is impaired and impairment losses are incurred only if there is objective evidence of impairment as a
result of one or more events that occurred after the initial recognition of the asset (a "loss event")
and that loss event (or events) has an impact on the estimated future cash flows of the financial asset
or group of financial assets that can be reliably estimated.
The criteria that the Company uses to determine that there is objective evidence of an impairment
loss include:
(i)
significant financial difficulty of the issuer or debtor;
(ii)
a breach of contract, such as a default or delinquency in interest or principal payments;
(iii)
the Company, for economic or legal reasons relating to the borrower's financial difficulty,
granting to the borrower a concession that the lender would not otherwise consider;
(iv)
it becomes probable that the borrower will enter bankruptcy or other financial reorganization;
(v)
the disappearance of an active market for that financial asset because of financial difficulties;
or
(vi)
observable data indicating that there is a measurable decrease in the estimated future cash
flows from a portfolio of financial assets since the initial recognition of those assets, although
the decrease cannot yet be identified with the individual financial assets in the portfolio,
including:

adverse changes in the payment status of borrowers in the portfolio; and

national or local economic conditions that correlate with defaults on the assets in the
portfolio.
The Company first assesses whether objective evidence of impairment exists.
The amount of the loss is measured as the difference between the asset's carrying amount and the
present value of estimated future cash flows (excluding future credit losses that have not been
incurred) discounted at the financial asset's original effective interest rate. The carrying amount of
the asset is reduced and the amount of the loss is recognized in the statement of income. If a loan or
held-to-maturity investment has a variable interest rate, the discount rate for measuring any
impairment loss is the current effective interest rate determined under the contract. As a practical
expedient, the Company may measure impairment on the basis of an instrument's fair value using an
observable market price.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognized (such as an
improvement in the debtor's credit rating), the reversal of the previously recorded loss is recognized
in the statement of income.
8 of 25
Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Notes to the financial statements
at December 31, 2013
All amounts in thousands of reais unless otherwise stated
At December 31, 2013, there was no objective evidence of impairment of the Company's financial
assets.
2.5
Trade receivables and receivables from related parties
Trade receivables and receivables from related parties are amounts due from Vale S.A. for lease
revenue in the ordinary course of the Company's business. If collection is expected in one year or
less, they are classified as current assets. If not, they are presented as non-current assets.
Trade receivables are recognized initially at fair value and subsequently measured at amortized cost
using the effective interest rate method, less provision for impairment of trade receivables. In
practice, they are usually recognized at the amount billed, adjusted for a provision for impairment,
when necessary.
2.6
Intangible assets
Computer software
Computer software licenses purchased are capitalized on the basis of the costs incurred to acquire
and bring to use the specific software. These costs are amortized over the estimated useful life of the
software (three to five years).
Costs associated with maintaining computer software programs are recognized as an expense as
incurred.
2.7
Property, plant and equipment
Land and buildings comprise mainly factories and offices. Property, plant and equipment are stated
at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with these costs will
flow to the Company and they can be measured reliably. The carrying amount of the replaced items
or parts is derecognized. All other repairs and maintenance are charged to the statement of income
during the financial period in which they are incurred.
Land is not depreciated. Depreciation of other assets is calculated using the straight-line method to
reduce their cost to their residual values over their estimated useful lives, as follows:
Estimated
useful life
Buildings
Facilities and operating systems
Autonomous equipment
Other
33 years
10 to 50 years
5 to 30 years
10 years
The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of
each reporting period.
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Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Notes to the financial statements
at December 31, 2013
All amounts in thousands of reais unless otherwise stated
An asset's carrying amount is written down immediately to the recoverable amount when it is greater
than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount
and are recognized within "Other operating income, net" in the statement of income.
2.8
Impairment of non-financial assets
Assets that are subject to amortization are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An impairment loss is
recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. In 2013
and 2012, management did not identify any event or circumstance indicating that the carrying
amount may not be recoverable.
2.9
Trade payables and payables to related parties
Trade payables and payables to related parties are obligations to pay for goods or services that have
been acquired from suppliers in the ordinary course of business. Accounts payable are classified as
current liabilities if payment is due in one year or less (or in the normal operating cycle of the
business even if longer). If not, they are presented as non-current liabilities.
Trade payables are recognized initially at fair value and subsequently measured at amortized cost
using the effective interest rate method.
2.10
Provisions
The provisions for legal claims (labor, civil and indirect taxes) are recognized when: the Company
has a present legal or constructive obligation as a result of past events; it is probable that an outflow
of resources will be required to settle the obligation; and the amount can be reliably estimated.
Where there are a number of similar obligations, the likelihood that an outflow will be required in
settlement is determined by considering the class of obligations as a whole. A provision is recognized
even if the likelihood of an outflow with respect to any one item included in the same class of
obligations may be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the
obligation using a pre-tax rate that reflects current market assessments of the time value of money
and the risks specific to the obligation. The increase in the provision due to the time elapses is
recognized as interest expense.
2.11
Current and deferred income
tax and social contribution
The income tax and social contribution expenses for the year comprise current and deferred taxes.
Taxes on profit are recognized in the statement of income.
The current income tax and social contribution are calculated on the basis of the tax laws enacted or
substantively enacted at the balance sheet date. Management periodically evaluates positions taken
by the Company in income tax returns with respect to situations in which applicable tax regulation is
subject to interpretation. It establishes provisions where appropriate on the basis of amounts
expected to be paid to the tax authorities.
10 of 25
Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Notes to the financial statements
at December 31, 2013
All amounts in thousands of reais unless otherwise stated
Deferred income tax and social contribution are recognized, using the liability method, on temporary
differences between the tax bases of assets and liabilities and their carrying amounts in the financial
statements. Deferred income tax and social contribution are measured at the tax rates that are
expected to apply to the period when the asset is realized or the liability is settled, based on tax rates
(and tax laws) that have been enacted or substantively enacted by the balance sheet date.
Deferred tax assets are recognized only to the extent that it is probable that future taxable profit will
be available against which the temporary differences and/or tax losses can be utilized. Deferred tax
liabilities are fully recognized.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current
tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to
income taxes levied by the same taxing authority on either the same taxable entity or different
taxable entities where there is the intention to settle the balances on a net basis.
2.12
Share capital
Common shares are classified in equity.
2.13
Revenue recognition
(a)
Lease revenue
Leases in which the Company does not transfer substantially all the risks and rewards of ownership
of the asset are classified as operating leases.
Revenue comprises the fair value of the consideration received or receivable for the lease of the
factory to Vale, and is monthly recognized in the statement of income to the extent that:
 the costs associated with the lease as well as the amount of revenue can be reliably measured; and
 it is probable that future economic benefits will flow to the Company.
(b)
Interest income
Interest income is recognized using the effective interest rate method. When a loan and receivable
instrument is impaired, the Company reduces the carrying amount to its recoverable amount, being
the estimated future cash flow discounted at the original effective interest rate of the instrument.
Subsequently, as time elapses, interest is incorporated into loans and receivables against interest
income. This interest income is calculated at the same effective interest rate used to determine the
recoverable amount, that is, the original rate of the receivables.
2.14
Distribution of dividends
The distribution of dividends to the Company's stockholders is recognized as a liability in the
Company's financial statements at year-end based on the Company's bylaws.
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Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Notes to the financial statements
at December 31, 2013
All amounts in thousands of reais unless otherwise stated
2.15
Employee benefits
(a)
Pension obligations
The Company has only defined contribution plans. For these plans, the Company pays contributions
to publicly or privately administered pension plans on a mandatory, contractual or voluntary basis.
The Company has no further payment obligations once the contributions have been paid. Regular
contributions comprise net periodic costs for the period in which they are due and, thus, they are
included in personnel costs.
2.16
Accounting pronouncements
The Company prepared its financial statements based on the pronouncements already issued by the
Brazilian Accounting Pronouncements Committee (CPC).
The Company does not expect any impact as a result of the new accounting standards that are
effective from January 1, 2014.
3
Critical accounting estimates and judgments
Accounting estimates and judgments are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are believed to be
reasonable under the circumstances.
3.1
Critical accounting estimates and assumptions
Based on assumptions, the Company makes estimates concerning the future. The resulting
accounting estimates will, by definition, seldom equal the related actual results. The estimates and
assumptions that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are addressed below:
(a)
Income tax, social contribution and other taxes
The Company is subject to the payment of income tax according to Brazilian law. Significant
judgment is required in determining the provision for income taxes. There are many transactions
and calculations for which the ultimate tax determination is uncertain. The Company also recognizes
liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due.
Where the final tax outcome of these matters is different from the amounts that were initially
recorded, such differences will impact the current and deferred tax assets and liabilities in the period
in which such determination is made.
(b)
Useful life of the assets
The Company regularly recognizes expenses related to the depreciation of property, plant and
equipment. Depreciation of assets is calculated using the straight-line method to reduce their cost to
their residual value over their estimated useful lives, at the rates stated in Note 10.
12 of 25
Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Notes to the financial statements
at December 31, 2013
All amounts in thousands of reais unless otherwise stated
(c)
Provision for contingencies
Provisions are recognized when the Company has a present legal or constructive obligation as a
result of past events and it is probable that an outflow of resources will be required to settle the
obligation and the amount can be reliably estimated.
The recognition of a provision for contingencies is determined based on estimates of loss made by
the Company's legal advisors, which are evaluated and defined by management.
4
Financial risk management
4.1
Financial risk factors
(a)
Credit risk
Credit risk arises from cash and cash equivalents, and deposits with banks and financial institutions.
The Company works with financial institutions based on their evaluation by a rating company, and
only operates with "AAA" institutions.
Regarding the accounts receivable, the credit risk is restricted to Vale.
(b)
Liquidity risk
Cash flow forecasting is performed by the Company's management, which monitors rolling forecasts
of the Company's liquidity requirements to ensure it has sufficient cash to meet operational needs.
Surplus cash held by the Company is invested in interest-earning bank accounts, time deposits,
money market deposits and marketable securities, choosing instruments with appropriate maturities
or sufficient liquidity to provide adequate margin as determined by the above-mentioned forecasts.
The Company did not hold derivative financial instruments in the periods presented in the financial
statements.
4.2
Capital management
The Company's objectives when managing capital are to safeguard the Company's ability to continue
as a going concern in order to provide returns for stockholders and to maintain an optimal capital
structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Company can make adjustments to the
amount of dividends paid to stockholders, return capital to stockholders or issue new shares or sell
assets to reduce, for example, debt.
4.3
Fair value estimation
The carrying values of trade receivables and payables, less impairment provision, are assumed to
approximate their fair values. The fair value of financial liabilities for disclosure purposes is
estimated by discounting the future contractual cash flows at the current market interest rate that is
available to the Company for similar financial instruments.
13 of 25
Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Notes to the financial statements
at December 31, 2013
All amounts in thousands of reais unless otherwise stated
5
Financial instruments by category
Loans and receivables
Assets as per balance sheet
Cash and cash equivalents
Trade and other receivables,
excluding prepayments
Judicial deposits
2013
2012
90,835
66,359
1,842
74,313
69,637
166,990
135,996
Other financial liabilities
Liabilities as per balance sheet
Trade and other payables, excluding
legal obligations
6
2013
2012
967
5,427
2013
2012
360
90,475
413
65,946
90,835
66,359
Cash and cash equivalents
Cash and banks
Financial investments
At December 31, 2013 the balance of financial investments comprises highly liquid investments with
original maturities of three months or less that are readily convertible to a known amount of cash
and that are subject to an insignificant risk of changes in value. The amounts are totally
denominated in Brazilian reais (R$).
7
Accounts receivable
At December 31, 2013, accounts receivable consist mainly of revenue from the operating lease and
the transfer of ICMS credits.
2013
Accounts receivable from Vale
1,842
1,842
At December 31, 2013, no accounts receivable were past due. There is no provision for impairment of
trade receivables since there is no history of late payments.
14 of 25
Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Notes to the financial statements
at December 31, 2013
All amounts in thousands of reais unless otherwise stated
8
Related-party transactions
(a)
Transactions and balances
Assets
2013
2012
Liabilities
2013
2012
Vale
1,842
78
604
Current
1,842
78
604
The main balances related to the operating and financial result with related parties are as follows:
Revenue
Net revenue from lease:
Vale
2013
2012
53,439
62,621
All the transactions with related parties are formalized through agreements entered into between the
parties.
Accounts receivable from related parties represent the amounts receivable from Vale for the lease of
the pellet factory.
In October 2008, the Company signed with its stockholder Vale an operating lease agreement of its
Pellet Factory, which came into effect from the date of execution. The purpose of this agreement is to
generate gains from the synergy of the pellet factories already managed by Vale, which shall pay the
following amounts: (i) a fixed annual installment based on the average depreciation recorded in the
previous three years plus 12% and PIS and COFINS in force and (ii) a variable installment resulting
from the performance of the Pellet Factory.
(b)
Key management compensation
The information presented includes the basis related to executive officers. The compensation paid or
for their services is shown below:
Executive officers' fees
There is neither share-based compensation nor long-term benefits.
15 of 25
2013
2012
7
73
Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Notes to the financial statements
at December 31, 2013
All amounts in thousands of reais unless otherwise stated
9
Property, plant and equipment
Facilities
and operating
systems
Autonomous
equipment
Other
Total in
operation
Balances at January 1, 2012
Acquisition
Transfer
Depreciation
162,770
9,091
23
171,884
(3 )
13,334
(27,941 )
Balances at December 31, 2012
149,063
8,194
20
157,277
29,879
187,156
Total cost
Accumulated depreciation
459,528
(310,465 )
10,649
(2,455 )
274
(254 )
470,451
(313,174 )
29,879
500,330
(313,174 )
149,063
8,194
20
157,277
29,879
187,156
Balances at January 1, 2013
Acquisition
Transfer
Disposal
Depreciation
149,063
8,194
20
157,277
187,156
14,664
(27,709 )
9,783
(1 )
(1,207 )
(12 )
(2 )
15,355
(13 )
(28,918 )
29,879
14,664
(15,355 )
Balances at December 31, 2013
126,926
16,769
6
143,701
29,188
172,889
Total cost
Accumulated depreciation
465,100
(338,174 )
20,431
(3,662)
485,793
(342,092 )
29,188
514,981
(342,092 )
126,926
16,769
143,701
29,188
172,889
Net book value
Net book value
16 of 25
13,334
(27,041 )
5,572
(897)
262
(256 )
6
PP&E
in progress
17,476
25,737
(13,334 )
Total
PP&E
189,360
25,737
(27,941 )
(13 )
(28,918 )
Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Notes to the financial statements
at December 31, 2013
All amounts in thousands of reais unless otherwise stated
In 2013, the amount of R$ 28,918 (2012 - R$ 27,941) of depreciation was classified as cost of lease.
The amount of R$ 2,373 (2012 - R$ 2,304) refers to PIS and COFINS credits taken on the
depreciation of the asset and was classified as taxes recoverable.
10
Intangible assets
2013
Computer software
Accumulated amortization
11
Income tax and social contribution
(a)
Deferred income tax and social contribution
2012
36
(32 )
36
(25 )
4
11
Deferred taxes are calculated on income tax and social contribution losses and the temporary
differences between the tax bases of assets and liabilities and their carrying amounts in the financial
statements. In Brazil, the currently enacted tax rates of 25% for income tax and 9% for social
contribution are used to calculate deferred taxes.
Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be
available to utilize temporary differences, considering projections of future results based on internal
assumptions and future economic scenarios, which are, therefore, subject to change.
The amounts included in non-current assets in the line item "Deferred taxes" refer to deferred
income tax and social contribution arising from temporary differences on provisions for
contingencies and other.
Deferred income
tax and social
contribution
Base
Temporary differences on provisions
Temporary differences on monetary
restatement of judicial deposits
2013
2012
Tax rate
2013
2012
28,309
6,888
34%
9,625
2,342
(518 )
27,791
(b)
34%
6,888
(176 )
9,449
2,342
Reconciliation of the income tax
and social contribution expense
The reconciliation of current income tax and social contribution that affect the results for the years
with the amounts resulting from applying the statutory rate is as follows:
17 of 25
Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Notes to the financial statements
at December 31, 2013
All amounts in thousands of reais unless otherwise stated
Profit before income tax and social contribution
Combined statutory rate of income tax
and social contribution
Income tax and social contribution
at the statutory rates
Non-deductible expenses
Recognition (realization) of deferred income tax and social contribution
Reversal of provision for ICMS loss
Reversal of other provisions
Other
Income tax and social contribution expense
12
2013
2012
28,859
47,330
34
34
(9,812 )
134
7,107
319
(1,905 )
(4,157 )
(16,092 )
112
(971 )
593
2,208
(908 )
(15,058)
Taxes payable
Social contribution (CSLL)
Due in the year
Prepaid in the year
Payable in December
Income tax (IRPJ)
Due in the year
Prepaid in the year
Payable in December
Other taxes payable
18 of 25
2013
2012
2,990
(1,431 )
3,735
(2,191 )
1,559
1,544
8,280
(3,553 )
10,352
(6,131 )
4,727
4,221
214
508
6,500
6,273
Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Notes to the financial statements
at December 31, 2013
All amounts in thousands of reais unless otherwise stated
13
Contingencies and commitments assumed
At the dates of the financial statements, the Company had the following liabilities and corresponding
judicial deposits, related to contingencies:
2013
Deductibility of the depreciation related
to the IPC (consumer price index) of
January 1989
Differential rate for the incentive of exports
Deductibility of the depreciation due to
complementary monetary restatement
Value-added Tax on Sales and Services
(ICMS) on the use of electric power
Emergency charges for electric power
Social Integration Program (PIS) and Social
Contribution on Revenues (COFINS) on
financial investments
PIS and COFINS on sales to Vale
Other
2012
Judicial
deposits
Provision for
contingencies
Judicial
deposits
Provision for
contingencies
26,343
9,983
26,343
9,179
25,043
10,073
25,043
9,262
11,097
18,253
3,681
11,196
18,253
3,681
15,092
3,475
15,092
3,475
2,706
402
1,848
1,712
2,261
331
2,166
1,288
74,313
59,168
69,637
54,160
The Company is a party to labor, civil and tax lawsuits in progress, and is discussing such matters at
the administrative and judicial levels, which, when applicable, are supported by judicial deposits.
The provisions are estimated and adjusted by management, based on the opinion of its external legal
advisors, and these amounts are considered sufficient to cover probable losses.
(a)
Contingencies with possible losses
Furthermore, the Company has R$ 331,238 at December 31, 2013 (R$ 350,967 in 2012), relating to
the lawsuits mentioned above, which, based on management's estimates and legal advisors' opinion,
were classified as a possible loss and therefore did not require a provision for contingencies.
The major possible cases at December 31 are described below:
(i)
In the period from 2006 to 2008, the Company was assessed by the Brazilian Revenue Service for
non-payment of PIS/PASEP and COFINS on the transaction of sale of pellets for the purposes of
exports. The updated amount of said lawsuits is R$ 268,561.
(ii)
The Company manufactures and sells iron ore pellets and iron ore fines. According to the
understanding of management and its legal advisors, the iron ore fines are sold in the domestic
market and are taxed accordingly, while the iron ore pellets are sold in the foreign market and
therefore PIS/PASEP and COFINS are not levied on the sales of pellets for the purposes of exports.
Nature
Labor and social security
Tax
19 of 25
2013
2012
1,566
329,672
1,430
349,537
331,238
350,967
Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Notes to the financial statements
at December 31, 2013
All amounts in thousands of reais unless otherwise stated
(b)
Changes in judicial deposits
2012
Deductibility of the depreciation related to
the IPC of January 1989
ICMS on the use of electric power
Differential rate for the incentive of exports
Deductibility of the depreciation due to
complementary monetary restatement
Emergency charges for electric power
PIS and COFINS on financial investments
PIS and COFINS on sales to Vale
Other
(c)
25,043
15,092
10,073
Additions
(write-offs)
(632 )
(702 )
Monetary
restatement
and interest
2013
1,300
3,161
542
26,343
18,253
9,983
11,097
3,681
2,706
402
1,848
11,196
3,475
2,261
331
2,166
(620 )
603
206
445
71
302
69,637
(1,954 )
6,630
74,313
Monetary
restatement
and interest
2013
26,343
18,253
9,179
3,681
1,712
59,168
Changes in provision for contingencies
2012
Deductibility of the depreciation related to
the IPC of January 1989
ICMS on the use of electric power
Differential rate for the incentive of exports
Emergency charges for electric power
Other
20 of 25
Additions
(write-offs)
25,043
15,092
9,262
3,475
1,288
(581 )
339
1,300
3,161
498
206
85
54,160
(242 )
5,250
Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Notes to the financial statements
at December 31, 2013
All amounts in thousands of reais unless otherwise stated
14
Equity
(a)
Share capital
Share capital at December 31, 2013 is as follows:
Number
of shares
Registered common shares without par value
Local stockholder
Foreign stockholder
651,073,140
625,540,860
1,276,614,000
Registered preferred shares without par value
Local stockholder - Class "A"
Foreign stockholder:
Class "B"
Class "C"
70,923,000
45,390,720
25,532,280
141,846,000
1,418,460,000
Class A and Class B preferred shares, together with the common stock, have the right to vote to elect
and to remove certain members of the Executive Board. Class C preferred shares, together with the
common stock, have the right to vote exclusively for any changes in the Company's bylaws, the
approval of the financial statements and all resolutions related to the allocation of profits, including
distribution of dividends. All preferred shares have priority in the reimbursement of capital and are
entitled to the same dividend as the common stock.
The foreign stockholder's capital is registered with the Brazilian Central Bank at US$ 9,075,493.20
(US dollars) and €$ 24,448,544.06 (euros).
(b)
Proposed dividends
The stockholders are entitled to receive a minimum dividend of 25% of the profit for the year,
calculated in accordance with the Company's bylaws.
The partners' Meeting has the power to approve the distribution of dividends; therefore, the amount
relating to the distribution of dividends proposed by management, which exceeds 25% of the profit
for the year, will be maintained in equity as "special reserve for dividends".
The partners' Meeting elected not to distribute dividends out of the profit for 2012 and reverse the
previously recorded dividend provision and the dividend recorded in the special reserve for
dividends against the investment reserve, as per resolution passed at the Annual General Meeting on
April 29, 2013.
21 of 25
Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Notes to the financial statements
at December 31, 2013
All amounts in thousands of reais unless otherwise stated
(c)
Revenue reserves
The investment reserve refers to the remaining balance of retained earnings, maintained to fund
projected business growth, as established in the Company's investment plan, according to the capital
budget approved and proposed by management and submitted for approval at the General
Stockholders' Meeting, in conformity with article 196 of the Brazilian Corporation Law.
The legal reserve is credited annually with 5% of the profit for the year and cannot exceed 20% of the
capital. The purpose of the legal reserve is to protect capital, and it can only be used to offset losses
and increase capital. In 2013, no portion of the profit was transferred to the legal reserve because the
balance of such reserve has reached the limit of 20% of the capital.
(d)
Allocation of the profit for the year
Management proposed to the stockholders, based on the Brazilian Corporation Law, the following
allocation of the profit:
15
2013
2012
Sources
Profit for the year
24,702
32,272
Total sources
24,702
32,272
Allocations
Proposed dividends
Special reserve for dividends
Investment reserve
6,176
6,176
12,350
8,068
8,068
16,136
Total allocations
24,702
32,272
ICMS tax credits
In May 2008, the Company sold part of the ICMS tax credits to its stockholder Vale, with a discount
of approximately 30%. The Company recognized a provision for loss on the non-realization of these
tax credits, without any tax effect, due to the low expectation of fully recovering the tax credits.
At December 31, 2013, there was no reversal of provision corresponding to the realization of credits
due to the sale to Vale. In 2012, the reversal was R$ 892.
The sale of these ICMS credits to Vale is supported by the law of the State of Espírito Santo and by an
agreement entered into by the parties.
Furthermore, at December 31, 2013, the Company has R$ 1,065 (2012 - R$ 1,324) of ICMS credits
that have not yet been negotiated and that are fully provided for because the Company cannot
estimate the recovery of this balance.
22 of 25
Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Notes to the financial statements
at December 31, 2013
All amounts in thousands of reais unless otherwise stated
16
Operating lease
Itabrasco's factory was leased by Vale under an operating lease agreement for the period from
October 1, 2008 to December 31, 2018, for which Vale shall pay the following amounts: (i) a fixed
annual installment of R$ 26,263 in 2013 (2012 - R$ 24,360) and (ii) a variable installment resulting
from the performance of the Pellet Factory. The total amounts involved in 2013 and 2012 were as
follows:
Fixed installment
Variable installment
2013
2012
26,263
32,679
24,360
44,644
58,942
69,004
On February 23, 2011, the 3rd amendment to the operating lease agreement was signed, modifying
as from 2012 the calculation of the fixed installment, which shall be calculated based on the average
depreciation recorded in the previous three years plus 12% and PIS and COFINS. Previously, the
fixed installment corresponded to R$ 47,400 annually adjusted according to the variation of the
General Market Price Index (IGP-M) published by Fundação Getúlio Vargas (FGV).
Revenue
The reconciliation between lease revenue and net revenue is as follows:
17
2013
2012
Lease revenue
Taxes on lease
58,942
(5,503 )
69,004
(6,383 )
Net revenue
53,439
62,621
Other operating income (expenses)
Reversal of (provision for) contingencies
Principal of tax assessment notice
Reversal of other provisions (*)
Reversal of provision for ICMS loss
Research and development expenses
Other income (expenses)
2013
2012
242
96
939
(2,767 )
276
6,495
1,745
(2,762 )
291
(1,310 )
5,865
(*) At December 31, 2012, this refers to the reversal of the provision for contingencies for PIS and
COFINS on finance income.
23 of 25
Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Notes to the financial statements
at December 31, 2013
All amounts in thousands of reais unless otherwise stated
18
Finance income and costs
Finance income and costs are as follows:
Monetary and exchange variations, net
Income on financial investment
Other
Monetary and exchange variations, net
Interest and fines
Tax on Financial Operations (IOF)
Discounts granted
Other
19
2013
2012
6,661
4,700
3,075
5,186
6
11,361
8,267
(5,250 )
(1,758 )
(3 )
(2,302 )
(374 )
(4 )
(268 )
(347 )
(7,385 )
(2,921 )
3,976
5,346
Insurance
The Company has a risk management program to mitigate risks, contracting in the market insurance
coverage compatible with its size and operations. The insurance amounts are considered sufficient
by management to cover possible losses, taking into account the nature of the activities, the risks
involved in the operations and the advice of its insurance consultants.
At December 31, 2013, the Company had an insurance policy contracted with third parties to provide
cover for all risks related to material damage, including machinery breakdown and production
interruption and the consequential loss of revenue. The amount of the coverage corresponds to
R$ 1,900,635 (R$ 2,204,330 in 2012).
20
Supplementary pension plan
Pension fund - Valia
Fundação Vale do Rio Doce de Seguridade Social - Valia is a non-profit closed private pension entity,
incorporated in 1973 to supplement the social security benefits granted to the employees of Vale and
its associated companies and other companies participating in the plans managed by Valia.
The Company, together with Vale and its associated companies, sponsor the Valia Defined
Contribution plan.
24 of 25
Companhia Ítalo-Brasileira
de Pelotização - Itabrasco
Notes to the financial statements
at December 31, 2013
All amounts in thousands of reais unless otherwise stated
The sponsors' contributions to the Valia plan are as follows:

Ordinary contribution - this contribution is for accumulating funds necessary for granting income
benefits. It is identical to the participants' contribution and is limited to 9% of the participants'
salary.

Extraordinary contribution - this contribution can be made at any time, at the sponsors'
discretion.

General contribution - this contribution is to cover the risk plan and administrative expenses, as
determined by the actuary based on the actuarial appraisals.

Special contribution - this contribution is to cover any special commitment.
During 2013 and 2012, the Company made contributions to the Valia plan in the amounts of
R$ 396 and R$ 342.
*
*
*
25 of 25