(Amounts in thousands of Brazilian reais R$, unless otherwise stated).

Transcription

1 (Amounts in thousands of Brazilian reais R$, unless otherwise stated). 1. OPERATIONS Celulose Irani S/A (the Company ) and its subsidiaries manufacture paper, corrugated cardboard packaging, wood furniture, timber and gum rosing and turpentine extracted from wood resins. The Companies are also engaged in forestation and reforestation and use the wood from their own reforestation areas. 2. PRESENTATION OF INTERIM FINANCIAL STATEMENTS The interim financial statements have been prepared and are presented in conformity with Brazilian accounting practices and standards established by the Brazilian Securities Commission (CVM). 3. SIGNIFICANT ACCOUNTING PRACTICES (a) Temporary cash investments Stated at cost plus income earned through the balance sheet date. (b) Allowance for doubtful accounts Based on a credit risk assessment, which contemplates historical losses, customer s financial condition and attorneys opinion, this allowance is recorded in an amount considered sufficient by Management to cover losses on uncollectible receivables. (c) Inventories Stated at the lower of average acquisition or production cost and market price or net realizable value. (d) Investments Investments in subsidiaries are accounted for under the equity method. Other investments are stated at cost, less a provision for adjustment to realizable value, if applicable. (e) Property, plant and equipment Stated at acquisition or construction cost plus revaluation cost, less depreciation and depletion. Depreciation is calculated under the straight-line method, based on the estimated useful lives of the assets. Depletion of forests is calculated based on the wood extraction. (f) Income and social contribution taxes

2 The provision for income and social contribution taxes is calculated and recorded at the tax rates prevailing at June 30, (g) Loans and financing Stated at cost plus monetary adjustment and interest accrued through the balance sheet date, on an accrual basis. (h) Results of operations Income and expenses are recorded on an accrual basis. (i) Reserve for contingencies Recorded in an amount considered sufficient by Management to cover probable losses, and is monetarily adjusted through the balance sheet date, based on the nature of each contingency and the attorneys opinion. (j) Use of estimates The preparation of financial statements requires Management to make estimates and assumptions that affect the reported amounts of certain assets, liabilities and other transactions, such as determination of depreciation rates for property, plant and equipment, reserves for contingencies, among others. Actual results could differ from those estimates.

3 4. CONSOLIDATION OF INTERIM FINANCIAL STATEMENTS The consolidated interim financial statements include the accounts of Celulose Irani S/A and the following subsidiaries: Ownership interest - % Irani Trading S/A (direct investment) Habitasul Florestal S/A (direct and indirect investment) The accounting practices adopted by the subsidiaries are consistent with those adopted by the Company, and the quarter end of all consolidated companies is June 30, Intercompany balances and investments and equity in subsidiaries have been eliminated in consolidation. The financial statements of Irani Trading S/A and Habitasul Florestal S/A were consolidated from the date of acquisition of the investments, as determined by Brazilian corporate law, especially CVM Instruction No. 247/ CASH AND CASH EQUIVALENTS Cash and cash equivalents are as follows: Company 06/30/ /31/ /30/ /31/2007 Cash Banks 1,136 1,530 1,167 1,896 Temporary cash investments 64,995 87,628 64,995 87,628 66,147 89,174 66,180 89,544 Temporary cash investments are represented by investment funds. Interest rate as of June 30, 2007 varied from 106% to 124% of the CDI (interbank deposit rate). Funds are derived from the export prepayment operation contracted with Credit Suisse Bank and are being used in investment projects for 2007 and 2008.

4 6. INVENTORIES Notes to the interim financial Statements 2nd Quarter of 2007 Company and 06/30/ /31/2007 Finished products 6,391 6,801 Work in process 1,504 1,292 Production materials 11,488 10,399 Consumption materials 4,422 4,176 Other 1, ,003 23, RECOVERABLE TAXES Company 06/30/ /31/ /30/ /31/2007 ICMS (state VAT) on purchase 6,095 6,446 6,096 6,447 of fixed assets ICMS IPI (federal VAT) Other Deferred income and social contribution taxes 7,168 7,490 8,056 8,377 Current 3,952 3,912 4,280 4,239 Noncurrent 3,216 3,578 3,776 4, INVESTMENTS Habitasul Irani Other Total Total Total Florestal Trading investments 06/30/ /31/ /30/2006 Capital 28,260 3, Shareholders equity 29,710 3, Net income for the quarter Ownership interest - % Beginning balance 27,817 3, ,026 32,079 4,603 Equity in subsidiaries (80) Investment adjustment - - (116) (116) - - Dividends (1,790) (1,229) Total investments in subsidiaries 28,333 3, ,571 31,026 3,294

5 Habitasul Irani Other Total Total Total Florestal Trading investments 06/30/ /31/ /30/2006 Goodwill on subsidiaries Beginning balance 40, ,881 41,482 - Realization of goodwill (1,048) - - (1,048) (601) - Ending balance 39, ,833 41,481 - Total 68,166 3, ,404 71,907 3,294 On June 18, 2007, Habitasul Trading S/A changed its name to Irani Trading S/A. This subsidiary acts as an intermediary in export and import of goods and export of goods acquired for this purpose. In December 2006, Celulose Irani S/A acquired, from Companhia Habitasul de Participações and its subsidiaries, 11,122,356 registered common shares equivalent to 95.36% of total capital of Habitasul Florestal S/A. The subsidiary Habitasul Florestal S/A is engaged in the planting, cutting and care of pine forests and extraction of resins. The goodwill on the acquisition of Habitasul Florestal is based on expected future earnings and is being amortized under the straight-line method over a 10-year period. 9. PROPERTY, PLANT AND EQUIPAMENT Annual 06/30/ /31/2007 depreciation Accumulated rates depreciation Company % Cost and depletion Net Net Land - 14,576-14,576 14,576 Buildings and improvements 4 51,709 (21,832) 29,877 30,332 Machinery, equipment and installations 10 to ,059 (94,431) 70,628 72,280 Forestation and reforestation (*) 67,714 (23,445) 44,269 44,006 Vehicles and tractors 20 1,773 (1,356) Other 10 to Property, plant and equipment in 23,662-23,662 20,887 progress - Advance to suppliers - 14,878-14,878 - Subtotal 339,373 (141,064) 198, ,455 Annual 06/30/ /31/2007 depreciation Accumulated rates depreciation % Cost and depletion Net Net Land - 28,033-28,033 28,033 Buildings and improvements 4 55,455 (23,202) 32,253 32,745 Machinery, equipment and installations 10 to ,211 (94,473) 70,738 72,391 Forestation and reforestation (*) 86,876 (35,626) 51,250 51,518 Vehicles and tractors 20 1,782 (1,359) Other 10 to (31) Property, plant and equipment in 23,989-23,989 21,139 progress - Advance to suppliers - 14,878-14,878 -

6 Subtotal 376,310 (154,691) 221, ,260 (*) Depletion is calculated based on the wood extraction. 10. DEFERRED CHARGES Refer to preoperating expenses of the Furniture Division projects named My Wood Furniture and Furniture USA (Brastilo) in the amount of R$ 2,018 (R$ 1,240 as of March 31, 2007); and implementation and preoperating expenses of the new Packaging Division Indaiatuba São Paulo, in the amount of R$ 627 (R$ 407 as of March 31, 2007). 11. LOANS AND FINANCING Company and 06/30/ /31/2007 Current Local currency FINAME 9,201 8,672 Working capital 11,543 11,300 APV South American Ltda. 1,967 1,932 Total local currency 22,711 21,904 Foreign currency Advance on foreign exchange contracts 10,422 4,853 IKB Deutsche Banco Votorantim S/A 2,719 2,966 Banco ABN Amro Real DF Deustche Forfait s.r.o Toronto Dominion Bank Credit Suisse Bank 9,374 9,979 Total foreign currency 23,945 19,271 Total current 46,656 41,175 Noncurrent Local currency FINAME 21,289 21,525 Working capital 10,486 13,373 APV South American Ltda Total local currency 31,775 35,381 Foreign currency Advance on foreign exchange contracts - 4,516 Banco Votorantim S/A 2,719 4,449 Banco ABN Amro Real 3,369 - DF Deustche Forfait s.r.o 1,225 1,259 Toronto Dominion Bank 1,429 1,539 Credit Suisse Bank 107, ,893 Total foreign currency 115, ,656 Total noncurrent 147, ,037 Total 194, ,212 Long-term maturities

7 Loans and financing in local currency: Notes to the interim financial Statements 2nd Quarter of , , , , , , ,537 a) Finame (equipment financing) is subject to interest rates from 5.6% to 8.5% per year, plus TJLP (long-term interest rate), with final maturity in b) Working capital loans are subject to interest rates from 102.9% to 154% of the CDI (interbank deposit rate), with final maturity in the second half of c) APV South American Ltda. - refers to the purchase of machinery and equipment, bearing interest of 15% per year, with final maturity in Loans and financing in foreign currency: a) Advances on foreign exchange contracts - adjusted for dollar rate fluctuation and payable until June b) Banco Votorantim S/A - adjusted for dollar rate fluctuation and payable in semiannual installments until c) Banco ABN Amro Real - adjusted for euro rate fluctuation and payable in annual installments until d) DF Deutsche Forfait s.r.o - adjusted for euro rate fluctuation and payable in semiannual installments until e) Toronto Dominion Bank - adjusted for dollar rate fluctuation and payable in semiannual installments until f) Credit Suisse Bank refers to export prepayment and is adjusted for dollar rate fluctuation and payable in quarterly installments until This financing was contracted as approved by the Board of Directors and will be used to fund exports, extend debt payment and implement the 2007/2008 investment plan. Loans and financing in foreign currency as of June 30, 2007 are subject to the dollar and euro rate fluctuation and interest of 6.67% to 11.36% per year. Loans and financing are guaranteed by controlling shareholders collateral signatures or property mortgage or financed asset or two of these according to each contract. The export prepayment financing from Banco Credit Suisse is collateralized by properties and forests of the subsidiary and the shares held by the Company in Celulose Irani S/A. The loan from Banco ABN Amro Real is collateralized by receivables from the sale of Kyoto Protocol carbon credits generated from the Electricity Co-Generation project. The carbon credit sale contracts are valid until 2013.

8 12. RELATED-PARTY TRANSACTIONS Assets Suppliers Intercompany loans Company 06/30/ /31/ /30/ /31/ /30/ /31/2007 Irani Trading S.A ,275 1,335 Habitasul Florestal S.A. 14 1, ,736 6,183 Cia Habitasul de Partic Habitasul Emp. Imob ,101 6,101 Laje da Pedra Village ,460 1,460 Habitasul Desen. Imob ,015 12,015 Total 14 1, ,272 27,779 Current (14) (1,399) (704) (474) (2,251) (563) Noncurrent ,021 27,216 Refer to debts with subsidiaries and other related parties as shown below: Debts to subsidiaries Irani Trading S/A and Habitasul Florestal S/A are related to commercial operations among the parties, free of charges and without established final maturity. Debts to Cia. Habitasul de Participações, Habitasul Empreendimentos Imobiliários Ltda., Laje da Pedra Mountain Village Ltda. and Habitasul Desenvolvimentos Imobiliários S.A. will be paid in 50 monthly successive installments, with final maturity in February 2011, monetarily adjusted at TJLP (long-term interest rate) plus interest of 6% per year, according to the terms of the contract for purchase of Habitasul Florestal S/A shares signed in December There was no monetary adjustment in the second quarter of 2007 because of the early payment of 11 installments in March 2007, when interest and discount on such payment were recognized. 13. NONCURRENT OBLIGATIONS a) Taxes in installments Assets Suppliers Intercompany loans 06/30/ /31/ /30/ /31/ /30/ /31/2007 Kock Metálurigica Cia Habitasul de Partic Habitasul Emp. Imob ,101 6,101 Laje da Pedra Village ,460 1,460 Habitasul Desen. Imob ,015 12,015 Total ,261 20,261 Current (432) (432) - - (2,251) (563) Noncurrent ,010 19,698 Refer mainly to taxes payable in installments, in accordance to Law No /2003, which are monetarily adjusted for the variation of the TJLP (long-term interest rate). The installments are amortized monthly and mature as follows: Company Maturity 06/30/ /31/ /30/ /31/2007

9 Special installment plan - INSS (social June ,933 6,155 5,933 6,155 security contribution) Special installment plan Federal July ,619 9,978 9,619 9,978 Revenue Service INSS in installments May 2018 Income tax in installments December ICMS (state VAT) in installments January Rio Grande do Sul state 2009 b) Reserve for contingencies 15,552 16,133 17,018 17,018 Long-term maturities ,540 1, ,079 3, ,079 3, ,079 3, ,077 3, ,698 1,850 Thereafter ,552 16,405 Refer to labor contingencies, net of related escrow deposits in the amount of R$ 18 (R$ 90 as of March 31, 2007) and tax contingencies related to ICMS (state VAT) and IPI (federal VAT) untimely used credits in the amount of R$ 6, SHAREHOLDERS EQUITY Capital The Company s capital as of June 30, 2007 and March 31, 2007 is R$ 63,381, represented by 7,463,987 common shares and 640,513 preferred shares, totaling 8,104,500 shares, without par value. Preferred shares carry no voting rights, are entitled to receive dividends of 10% higher than those paid on common shares, have priority in the capital reimbursement without premium in the event of company liquidation. The Company may issue preferred shares, without par value and voting rights, up to the limit of 2/3 of the Company s total shares, and increase existing share types or classes without keeping proportion among the shares of each type or class. On March 21, 2007, the Board of Directors authorized the Company to acquire 22,500 common shares of its stock in the amount of R$ 321. These shares were issued at the time of the capital increase on February 8, 2007, and were acquired for the subscription price determined at the Board s Meeting that approved the capital increase. The shares will be held in treasury for subsequent use in the Stock Option Plan to be submitted to the Shareholders Meeting for approval.

10 15. OTHER OPERATING EXPENSES Company 06/30/ /31/ /30/ /31/2007 Goodwill amortization - (2,096) (1,048) (2,096) (1,048) Habitasul Florestal Other operating expenses (318) (91) (323) (91) (2,414) (1,139) (2,419) (1,139) 16. INCOME AND SOCIAL CONTRIBUTION TAXES Reconciliation of income and social contribution taxes: Company 06/30/ /31/ /30/ /31/2007 Income before taxes 14,601 4,630 14,728 4,711 Statutory rate 34% 34% 34% 34% Expense at statutory rate (4,964) (1,574) (5,008) (1,602) Tax effect of permanent (additions) deductions: Goodwill amortization (713) (356) (713) (356) Equity in subsidiaries Realization of revaluation reserve (270) (264) (270) (264) Interest on capital Other permanent differences Income and social contribution taxes in the statement of operations (4,803) (1,938) (4,930) (2,019) 17. MANAGEMENT COMPENSATION Management compensation expenses, without payroll charges, totaled R$ 528 in the second quarter of 2007 (R$ 480 in the same period of the prior year). The Annual Shareholders Meeting held on March 21, 2007 approved for this year a maximum overall management compensation of R$ 4,000.

11 18. INTEREST ON CAPITAL The Company recorded interest on capital as mandatory minimum interim dividends for the income in the six-month period. On July 19, 2007, the Executive Board proposed to pay interest on capital for the six-month period ended June 30, 2007 in the total amount of R$ 1,750 and the Board of Directors approved this proposal. As required by paragraph 2, article 9 of Law No. 9249/95, income tax in the amount of R$ 263 was withheld from interest on capital paid. The payment will be made by October 2007 to each shareholder, less 15% withholding income tax, observing the limits of dividends required by bylaws.