Vanguarda Agro S.A. Quarterly information (ITR) at September 30, 2015 and report on review of quarterly information

Transcription

1 (A free translation of the original in Portuguese) Vanguarda Agro S.A. Quarterly information (ITR) at and report on review of quarterly information

2 (A free translation of the original in Portuguese) Report on review of quarterly information To the Board of Directors and Stockholders Vanguarda Agro S.A. We have reviewed the accompanying parent company and consolidated interim accounting information of Vanguarda Agro S.A. (the "Company"), included in the Quarterly Information Form (ITR) for the quarter ended, comprising the balance sheet as at that date and the statements of operations and comprehensive income (loss) for the quarter and nine-month period then ended, and the statements of changes in equity and cash flows for the nine-month period then ended, and a summary of significant accounting policies and other explanatory information. Management is responsible for the preparation of the interim parent company and consolidated accounting information in accordance with the accounting standard CPC 21, Interim Financial Reporting, issued by the Brazilian Accounting Pronouncements Committee (CPC), and International Accounting Standard (IAS) 34, Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), as well as the presentation of this information in accordance with the standards issued by the Brazilian Securities Commission (CVM), applicable to the preparation of the Quarterly Information (ITR). Our responsibility is to express a conclusion on this interim accounting information based on our review. Scope of review We conducted our review in accordance with Brazilian and International Standards on Reviews of Interim Financial Information (NBC TR Review of Interim Financial Information Performed by the Independent Auditor of the Entity, and ISRE Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim information consists 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 Brazilian and International 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 interim information Based on our review, nothing has come to our attention that causes us to believe that the accompanying parent company and consolidated interim accounting information included in the Quarterly Information referred to above has not been prepared, in all material respects, in accordance with CPC 21 and IAS 34 applicable to the preparation of the Quarterly Information, and presented in accordance with the standards issued by the CVM. 2 PricewaterhouseCoopers, Av. Antônio Diederichsen, 400, 21 e 22º, Ed. Metropolitan Business Center, Ribeirão Preto, SP, Brasil T:(16) , Fax: (16) ,

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4 (A free translation of the original in Portuguese) Contents Balance sheet 2 Statement of operations 3 Statement of comprehensive income (loss) 5 Statement of changes in equity 6 Statement of cash flows 7 Statement of value added 9 Notes to the quarterly information 1 General information Summary of significant accounting policies Critical accounting estimates and judgments Cash and cash equivalents Trade receivables Notes receivable Inventories Biological assets Non-current assets held for sale Taxes recoverable Deferred taxes Related parties Investments () Property, plant and equipment Intangible assets Trade payables Borrowings ( and consolidated) Advances from customers Federal Government Debt - PESA ( and consolidated) Taxes payable in installments Provision for contingencies Equity Financial instruments Management remuneration Net sales and services revenue Expenses by nature Finance result Transactions not affecting cash and cash equivalents Loss per share Share-based payments Commitments (consolidated) Insurance (not reviewed) of 54

5 Balance sheet All amounts in thousands of reais (A free translation of the original in Portuguese) Assets Note Consolidated Consolidated Liabilities and equity Note 30, 2015 Current assets Current liabilities Cash and cash equivalents 4 23, ,600 23, ,297 Salaries and social charges 12,860 10,871 13,010 11,000 Marketable securities Trade payables , , , ,573 Trade receivables 5 8,900 9,489 9,200 14,894 Taxes payable 5,735 4,862 7,726 12,179 Notes receivable ,905 11,662 12,271 Borrowings , , , ,426 Inventories 7 507, , , ,045 Related parties , ,744 Biological assets 8 1, ,491 1, ,491 Advances from customers 18 27,926 25,433 28,128 31,809 Related parties 12 2,267 2,267 2,267 2,267 Taxes payable in installments 20 1, ,919 Taxes recoverable 10 17,273 19,510 22,556 20,064 Derivative financial instruments 23 4,227 3,932 4,227 3,932 Prepaid expenses 1, ,479 10,134 Leases and services payable 5,418 35,564 5,418 35,564 Other assets 1,210 1,851 1,221 1,855 Federal Government Debt -PESA 19 2,940 2,904 2,940 2,904 Notes payable 1,994 6,410 2,499 6, , , , , , , , ,463 Non-current assets held for sale , , , ,060 Non-current liabilities Trade payables Borrowings , , , ,013 Non-current assets Taxes payable in installments Notes receivable 6 34,263 45,807 39,385 47,107 Notes payable Taxes recoverable 10 70,725 66,633 77,747 66,649 Deferred taxes 11 1,191 Deferred taxes ,609 65, ,522 79,397 Federal Government Debt -PESA 19 7,059 8,881 7,059 8,881 Related parties 12 18,926 51,022 18,922 18,922 Provision for contingencies 21 34,860 33,147 34,860 33,147 Judicial deposits 21 1,091 1,178 5,862 5,683 Provision for losses on investments 12 1,225 1,164 Other assets 4,804 4,791 4,820 4, , , , , , , , ,563 Total liabilities 1,288,104 1,157,601 1,356,327 1,263,560 Investments 13 1,144,035 1,098,365 Property, plant and equipment , ,280 1,181,354 1,231,783 Equity 22 Intangible assets 15 1,979 1, , ,599 Capital 2,707,502 2,654,140 2,707,502 2,654,140 Capital reserves 3,328 2,986 3,328 2,986 1,768,719 1,700,255 1,801,107 1,758,945 Carrying value adjustments (223,915) (56,453) (223,915) (56,453) Accumulated deficit (1,441,784) (1,354,228) (1,441,784) (1,354,228) Total equity 1,045,131 1,246,445 1,045,131 1,246,445 Total assets 2,333,235 2,404,046 2,401,458 2,510,005 Total liabilities and equity 2,333,235 2,404,046 2,401,458 2,510,005 The accompanying notes are an integral part of this quarterly information. 2 of 54

6 Statement of operations All amounts in thousands of reais unless otherwise stated (A free translation of the original in Portuguese) 30, 2014 Note Quarter 9 month-period Quarter 9 month-period Net sales and services revenue 25 75, ,111 43, ,508 Changes in fair value of biological assets and agricultural products 26 33,038 94,192 (22,620) (18,238) Realization of the fair value of biological assets 26 (5,108) (19,257) 7,856 6,565 Cost of products sold 26 (77,757) (596,618) (42,896) (117,877) Gross profit (loss) 25,829 80,428 (13,976) (11,042) Operating income (expenses) General. administrative and selling expenses 26 (18,465) (48,950) (8,081) (20,138) Management fees 24 (1,391) (5,109) (1,218) (4,103) Equity in the results of investees 13 (2,350) 16,062 (47,142) (28,433) Provision for losses on investments 13 (21) (61) (1,040) (2,484) Impairment of assets 1.3 (54,985) (54,985) Other income (expenses), net 26 1,639 (4,160) 16,517 12,644 (75,573) (97,203) (40,964) (42,514) Operating loss (49,744) (16,775) (54,940) (53,556) Finance result 27 Finance income 8,356 25,095 7,597 17,321 Finance costs (24,702) (64,796) (10,287) (28,455) Foreign exchange variations, net (35,221) (57,073) (1,450) 1,187 (51,567) (96,774) (4,140) (9,947) Loss before income tax and social contribution (101,311) (113,549) (59,080) (63,503) Deferred income tax and social contribution 11(b) 15,032 25,993 5,203 12,944 Loss for the period (86,279) (87,556) (53,877) (50,559) Loss for the period attributable to the stockholders of the Company (86,279) (87,556) (53,877) (50,559) Basic and diluted loss per share - R$ (0.1837) (0.1701) (0.1391) (0.1305) 3 of 54

7 Statement of operations All amounts in thousands of reais unless otherwise stated (continued) Consolidated 30, 2014 Note Quarter 9 month-period Quarter 9 month-period Net sales and services revenue 25 99, , , ,318 Changes in fair value of biological assets and agricultural products 26 44,205 94,448 (51,068) (51,447) Realization of the fair value of biological assets 26 (5,108) (8,925) 28,243 22,580 Cost of products sold 26 (97,990) (674,860) (121,882) (673,005) Gross profit (loss) 41, ,164 (33,219) 5,446 Operating income (expenses) General. administrative and selling expenses 26 (20,353) (55,780) (20,313) (55,412) Management fees 24 (1,391) (5,109) (1,496) (5,421) Impairment of assets 1.3 (54,985) (54,985) Other income (expenses), net 26 2,550 19,962 15,103 16,151 (74,179) (95,912) (6,706) (44,682) Operating profit (loss) (33,134) 23,252 (39,925) (39,236) Finance result 27 Finance income 8,482 29,089 10,097 25,449 Finance costs (26,029) (68,924) (24,465) (60,353) Foreign exchange variations, net (50,530) (85,829) (14,875) (89) (68,077) (125,664) (29,243) (34,993) Loss before income tax and social contribution (101,211) (102,412) (69,168) (74,229) Income tax and social contribution Current 11(b) 0 (37) (34) (1,002) Deferred 11(b) 14,932 14,893 15,325 24,672 Loss for the period (86,279) (87,556) (53,877) (50,559) Loss for the period attributable to the stockholders of the Company (86,279) (87,556) (53,877) (50,559) The accompanying notes are an integral part of this quarterly information. 4 of 54

8 Statement of comprehensive income (loss) All amounts in thousands of reais (A free translation of the original in Portuguese) 30, 2014 Quarter 9 month-period Quarter 9 month-period Loss for the period (86,279) (87,556) (53,877) (50,559) Other comprehensive loss: Items that will be reclassified to profit or loss and consolidated Foreign exchange variation of cash flow hedge of the Company, net of taxes (121,602) (167,462) (18,966) (18,966) Total comprehensive loss for the period, net of tax effects (207,881) (255,018) (72,843) (69,525) The accompanying notes are an integral part of this quarterly information. 5 of 54

9 Statement of changes in equity All amounts in thousands of reais (A free translation of the original in Portuguese) Capital Note Share capital Share issue costs Capital reserves Carrying value adjustments Accumulated deficit Total equity At January 1, ,578,353 (20,851) 2,880 (8,592) (1,279,416) 1,272,374 Loss for the period (50,559) (50,559) Foreign exchange variation of cash flow hedge, net of taxes (18,966) (18,966) Effects arising from the stock option plan recognized in the period , ,578,353 (20,851) 3,449 (27,558) (1,329,975) 1,203,418 At January 1, ,674,991 (20,851) 2,986 (56,453) (1,354,228) 1,246,445 Payment of capital 22 (a) 53,362 53,362 Loss for the period (87,556) (87,556) Foreign exchange variation of cash flow hedge, net of taxes 22 (c) (167,462) (167,462) Effects arising from the stock option plan recognized in the period ,728,353 (20,851) 3,328 (223,915) (1,441,784) 1,045,131 The accompanying notes are an integral part of this quarterly information. 6 of 54

10 Statement of cash flows Nine-month period ended 30 All amounts in thousands of reais (A free translation of the original in Portuguese) Consolidated Cash flows from operating activities Loss before income tax and social contribution (113,549) (63,503) (102,412) (74,229) Adjustments to reconcile loss for the period to cash provided by (used in) operating activities: Changes in fair value of biological assets and agricultural products (94,192) 18,238 (94,448) 51,447 Realization of the fair value of biological assets 19,257 (6,565) 8,925 (22,580) Depreciation and amortization 33,645 10,236 41,800 45,249 Result on the sale and write-off of property. plant and equipment 122 2, (1,112) Result on disposal of assets held for sale (17,983) (18,187) Equity in the results of investees (16,062) 28,433 Provision for losses on investments 61 2,484 Expenses with stock option plans Estimated losses for impairment of trade receivables (163) Reversal of estimated inventory losses (548) (548) (14) Provision (reversal of provision) for the adjustment of tax credits to recoverable value 5,633 (450) 5,675 (450) Provision for contingencies 1,730 2,628 1,730 3,168 Extemporaneous tax credits in the period ,305 Impairment of assets 54,985 54,985 Adjustment of financial assets and liabilities to present value 3,747 2,049 6,831 8,673 Interest and foreign exchange variations 118,182 5, ,262 32,026 Changes in assets and liabilities: Trade receivables (2,234) (2,897) 5,554 (11,652) Notes receivable 24,168 8,936 10,551 11,382 Inventories (191,398) (83,187) (176,237) (169,379) Biological assets 263,234 74, , ,148 Taxes recoverable (13,555) (4,127) (35,300) (15,779) Prepaid expenses (526) (703) 8,655 (879) Other assets 628 (631) 619 (1,557) Judicial deposits 70 (1,117) (196) (2,055) Salaries and social charges 1,989 2,267 2,010 6,632 Trade payables 44,503 (27,738) (7,727) (49,367) Taxes payable 6,603 (5,546) 1,277 1,841 Advances from customers 2,411 (6,961) (3,602) (16,366) Taxes payable in installments (1,307) (10,347) (2,050) (12,662) Leases and services payable (27,447) (7,624) (27,447) (33,098) Notes payable (411) 1,008 (2,021) (6,585) Cash provided by (used in) operating activities 120,978 (80,319) 104,457 (37,979) Income tax and social contribution paid - (37) (1,002) Interest paid (40,164) (4,426) (40,164) (25,788) Derivative financial instruments paid (8,543) (8,543) 1,595 Net cash provided by (used in) operating activities - carried forward 72,271 (84,745) 55,713 (63,174) 7 of 54

11 Statement of cash flows Nine-month period ended 30 All amounts in thousands of reais (continued) Consolidated Net cash provided by (used in) operating activities - brought forward 72,271 (84,745) 55,713 (63,174) Cash flows from investing activities Financial investments 742 (43) 742 (728) Proceeds from sale of assets ,249 Payment for land (1,000) (1,000) (7,334) Purchases of property, plant and equipment (10,968) (12,446) (11,357) (27,111) Additions to intangible assets (501) (501) (704) Cash used in investing activities (11,570) (12,311) (11,959) (34,628) Cash flows from financing activities Capital increase 53,362 53,362 New borrowings 231, , , ,682 Repayment of borrowings (440,454) (45,656) (440,454) (366,412) Payments of costs of new borrowings (10,179) (10,179) Payments to related parties, net (18,099) (60,681) (1,595) (8,139) Cash provided by (used in) financing activities (184,250) 114,848 (167,746) 85,131 Increase (decrease) in cash and cash equivalents (123,549) 17,792 (123,992) (12,671) Cash and cash equivalents at the beginning of the period 146,600 12, ,297 51,514 Cash and cash equivalents at the end of the period 23,051 29,974 23,305 38,843 The accompanying notes are an integral part of this quarterly information. 8 of 54

12 Statement of value added Nine-month period ended 30 All amounts in thousands of reais Consolidated Revenue Sales of products and services 665, , , ,256 Other revenue 7,752 3,370 23,805 11,576 Equalizing Premium Paid to the Producer (PEPRO) 9,017 Sales deductions and returns (2,861) (1,102) (3,071) (11,810) Estimated impairment of trade receivables (560) (170) (627) 163 Result on the disposal of assets held for sale 17,983 18,187 Fair value of biological assets and agricultural products 94,192 (18,238) 94,448 (51,447) 763, , , ,925 Inputs acquired from third parties Raw materials consumed (236,632) (62,349) (247,429) (238,351) Products sold(146,409) (7,555) (192,898) (181,563) Realization of the fair value of biological assets (19,257) 6,565 (8,925) 22,580 Materials, energy, outsourced services and other (130,449) (35,947) (142,634) (143,149) Provision for contingencies (1,730) (2,628) (1,730) (3,168) Provision for inventory losses Impairment of assets (54,985) (54,985) Other expenses (18,650) (12,960) (19,327) (30,720) (607,564) (114,874) (667,380) (574,357) Gross value added 156,167 8, , ,568 Depreciation, amortization and goodwill written-off (33,645) (10,236) (41,800) (45,249) Net value added provided by (used in) the Company 122,522 (2,128) 188,265 75,319 Value added received through transfer Equity in the results of investees 16,062 (28,433) Provision for losses on investments (61) (2,484) Finance income 25,095 17,321 29,089 25,449 Total value added to distribute 163,618 (15,724) 217, ,768 Distribution of value added Personnel: Direct remuneration 64,392 15,773 68,884 63,860 Benefits 1, ,036 1,269 Government Severance Indemnity Fund for Employees (FGTS) 5, ,362 4,834 Taxes and contributions: Federal 16,772 4,772 18,936 18,490 State 8,342 1,280 9,062 8,574 Municipal Deferred (25,993) (12,944) (14,893) (24,672) Remuneration of third party capital: Interest and foreign exchange variations 156,661 22, ,613 51,095 Fines , Rentals and leases 24,541 1,489 26,473 26,653 Remuneration of own capital: Loss for the period (87,556) (50,559) (87,556) (50,559) Value added distributed 163,618 (15,724) 217, ,768 The accompanying notes are an integral part of this quarterly information. 9 of 54

13 (A free translation of the original in Portuguese) Vanguarda Agro S.A. Notes to the quarterly information at All amounts in thousands of reais unless otherwise stated 1 General information 1.1 Operating activities Vanguarda Agro S.A. (the "Company" or "Vanguarda Agro") was incorporated on July 18, 2003, under the name Brasil Biodiesel Comércio e Indústria de Óleos Vegetais Ltda., as a limited-liability partnership. The Company currently has its headquarters at Praça General Gentil Falcão, cj 81, Brooklin Novo, São Paulo, State of São Paulo. On November 9, 2006, through Circular Letter 046/2006 ("OFÍCIO/CVM/SEP/RIC/046/2006"), the Brazilian Securities Commission (CVM) authorized the Company's registration as a publicly-traded corporation, thereby enabling the Company to trade its common shares on stock exchanges. The Company carries out agricultural activities, principally the cultivation of soybeans, corn and cotton. It also holds equity interests in other companies, whose activities basically consist of:. cultivation of agricultural products;. sale of agricultural inputs;. processing of cotton seed, owned by the Company or by third parties;. rendering of storage services for agricultural inputs and products;. rendering of soil preparation and harvesting services using agricultural machinery. These activities are carried out on Company-owned land, on land leased from third parties, and through agricultural partnerships with the related parties Vanguarda do Brasil S.A. and Maeda S.A. Agro industrial. 1.2 Economic and financial situation of the Company At, the Company presented negative working capital of R$ 132,083, mainly represented by bank liabilities payable during the following 12 months, totaling R$ 408,473. Of that amount, R$ 180,801 matures by 31, Because the cash generation expected for the period is lower than the aforementioned amount, and, also, because the credit limits have been fully attained (mainly due to the depreciation of the Brazilian real), management has been intensely working on extending the payment term of its short-term payables to financial institutions, by either renegotiating its debts or obtaining new borrowings. Even though the renegotiation efforts had not yet been finalized as at the date of this quarterly financial information, management is fully confident in the Company's ability to extend the payment terms of its debts, taking into consideration the status and the positive progress of the renegotiations already initiated with the creditor financial institutions and the successful outcome already obtained in renegotiations with banks and suppliers in the past few years. In a scenario of debt default due to the non-payment of borrowings on their maturities, the contractual clauses establish that all of the borrowing contracts, amounting to R$ 995,913, become immediately payable (cross-default clause) and that the related amounts be classified in short term liabilities. However, based on the aforementioned explanations, the Company's management, supported by its business plan, reaffirms its confidence in the Company's capacity to balance its short-term cash flows and, therefore, considers this scenario to be unlikely. 10 of 54

14 Notes to the quarterly information at All amounts in thousands of reais unless otherwise stated To support the Company's expectations regarding the aforementioned debt extension, it should be emphasized that the Company's business plan presents a significantly improved expectation of cash generation, mainly arising from (i) a foreign exchange appreciation, which increases the Company's expected cash generation, since only a part of its costs is indexed to the U.S. dollar and practically all of its revenue is directly or indirectly priced in U.S. dollars; and (ii) the improvement of the Company's operating indicators, especially the increase in the productivity of all crops and the decrease in the operating and administrative costs. If, for any unexpected reason, management is not able to successfully accomplish this debt extension plan and, in the likelihood of a default, the Company will have to rely on the contribution of funds from its stockholders in order to meet its cash requirements and maintain its operations, as has already been the case in previous years. 1.3 Leases - areas of negative return As approved by the Board of Directors and disclosed in the Company's significant event of October 14, 2015, the Executive Board was authorized to cancel and/or sublet lease agreements amounting to approximately 40.5 thousand hectares, in the States of Mato Grosso, Bahia and Piauí. These areas have been failing to achieve their productivity breakeven point and recorded a 22% negative operating margin in the 2014/2015 harvest. This decision is part of the Company's strategy to focus on the productivity/profitability of operations and on the risk profile, giving priority to areas that have a better climatic history, thereby increasing profitability and optimizing the utilization of working capital. At, the Company recognized the write-off for the impairment of assets relating to the leased areas that were returned or sublet, amounting to R$ 54,985. Of this amount, R$ 45,910 refers to the residual value of investments realized on soil and infrastructure in these areas, and R$ 9,075 refers to the residual value of intangible assets (revaluation surplus) calculated when the lease agreements were entered into (Notes 14 and 15(c). Of the total leased areas mentioned above, the areas in the State of Mato Grosso totaling 17.4 thousand hectares were sublet, without any onus for the Company, to Agropecuária Margarida Ltda., a related party that is controlled by a stockholder and Board Member of the Company, Mr. Otaviano Olavo Pivetta (Note 12(c)). Management believes that the subletting of these areas is the best solution for the Company, since it permits the Company to carry out the plan of returning the areas that have been presenting a negative return and also releases it from having to pay fines due to the early termination of the lease agreements. Furthermore, on the date of approval of this quarterly information, the Company's Executive Board had been continuing to evaluate the possibility of returning other leased areas, at an approximated total extension of 4,400 hectares, located in the State of Bahia. 11 of 54

15 Notes to the quarterly information at All amounts in thousands of reais unless otherwise stated 1.4 Corporate restructuring As informed in the significant event notice disclosed by the Company on November 12, 2014, an Extraordinary General Meeting of stockholders was held on November 28, 2014 and approved the merger into the Company of the spun-off portion of the equity of the subsidiary Vanguarda do Brasil S.A. Accordingly, after this spin-off, Vanguarda do Brasil S.A. started to operate in an agricultural partnership of its land with the Company. Due to this corporate reorganization, the parent company financial information at is not fully comparable with that presented in These transactions are part of the administrative, operating, financial and legal restructuring of the Company's business, which aims to segregate and redistribute its assets, liabilities and projects in order to optimize its capital and management structure and, at the same time, allow the reallocation of these assets and liabilities to gain greater efficiency. 2 Summary of significant accounting policies The interim accounting information included in this financial information was prepared in accordance with the Brazilian technical pronouncement CPC 21 - Interim Financial Reporting of the Brazilian Accounting Pronouncements Committee (CPC), and with international accounting standard IAS 34 - Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), and is presented in accordance with the standards issued by the Brazilian Securities Commission (CVM) applicable to the preparation of quarterly information (ITR). Consequently, and as permitted in CVM Circular Letter CVM/SNC/SEP 03/2011, the Company elected to present the explanatory notes in this ITR in a summarized manner when the information is the same as that presented in the annual financial statements. In such cases, the complete explanatory note in the annual financial statements is indicated to facilitate the understanding of the Company's financial position and performance during the interim period. The Company declares that the basis of preparation, including the consolidation criteria, of the ITR and the accounting policies adopted are the same as those utilized in preparing the financial statements for the year ended. Therefore, the corresponding information in explanatory Notes 2.1 through 2.23 to those financial statements should be referred to. The issue of the quarterly information for the quarter ended was authorized by the Company's management and Board of Directors on November 12, Critical accounting estimates and judgments Accounting estimates and judgments are continually reassessed and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Company confirms that the estimates and judgments described in the notes to the financial statements at remain valid. 12 of 54

16 Notes to the quarterly information at All amounts in thousands of reais unless otherwise stated 3.1 Critical accounting estimates and assumptions Information regarding uncertain assumptions and estimates that have a significant risk of resulting in material adjustments within the next year relate mainly to the following aspects: measurement of biological assets, the useful lives of property, plant and equipment, the realization of deferred tax credits and taxes recoverable, realization of accounts and notes receivable (provision for impairment of receivables), fair value of derivatives and other financial instruments, and the provisions for tax, civil and labor contingencies. These assumptions, although they reflect the best possible estimates of the management of the Company and its subsidiaries, relate to the probabilities of future events, and could therefore differ from actual data and amounts. Estimates and assumptions are continually revised. Revisions to accounting estimates are recognized in the period in which the estimates are revised and/or in any future periods affected. 3.2 Critical judgments in applying the Company's accounting policies - notes receivable for the sale of assets The provision for impairment of notes receivable is recorded in an amount considered sufficient to cover probable losses on their realization. As stated in Note 6(c) below, the Company had notes receivable for the sale of assets in the amount of R$ 20,304 at and. This credit has a real guarantee (industrial unit of São Luiz Gonzaga) which, according to management's best judgment, is sufficient to ensure the recoverability of the credit. Even though the debtor is undergoing in-court reorganization and the asset pledged as guarantee is listed in the process as an essential asset, management, based on the opinion of its legal advisors, understands that it can repossess the property and sell it at an amount sufficient to recover the asset, without significant losses in relation to the outstanding amount at. In the quarter ended, the Company noted that a portion of its credit had been included in the list of creditors involved in this in-court reorganization, in the "Class III - Unsecured Creditors" category. However, the Company's management and legal advisors believe that this situation does not jeopardize the expectation of recovering the asset and, therefore, it does not affect their judgment as to the non-constitution of a provision for impairment. 13 of 54

17 Notes to the quarterly information at All amounts in thousands of reais unless otherwise stated 4 Cash and cash equivalents Conmsolidated Description Type Cash and banks - local currency 1 3,87 2 2, ,097 2,7 08 Bank deposits - foreign currency 26,287-26,489 Banco ABC Bank Deposit Certificates (CDB) 5,202-5,202 Banco Santander Committed Banco Itaú S.A. Committed , ,000 Banco Itaú S.A. Autom. Inv estment 2, ,1 1 1 Banco Safra CDB (i) 8,47 4 8,47 4 Other inv estments CDB , ,600 23, ,297 (i) Refers to fixed-income investments remunerated at 100% of the CDI. The Company can readily redeem these investments, without any charge or restriction, and it decided to recognize them as cash equivalents because of this characteristic. 5 Trade receivables Consolidated Trade receiv ables in local currency 5,57 3 6,27 9 5,940 8,27 6 Trade receiv ables in foreign currency 3,53 6 3,47 3 3,53 6 6,881 9,1 09 9,7 52 9, ,1 57 ( - ) Prov ision for im pairment (209) (263) (27 6) (263) 8,900 9,489 9, , of 54

18 Notes to the quarterly information at All amounts in thousands of reais unless otherwise stated The aging of the trade receivables is as follows: Consolidat ed Sept ember Not y et due: Up to 30 day s 7,21 6 3,892 7,31 2 9,303 From 31 to 90 day s From 91 to 1 80 day s More than 1 80 day s 3, ,509 Ov erdue: Up to 30 day s 950 1,951 1,098 1,951 From 31 to 90 day s More than 1 80 day s ,1 09 9,7 52 9, ,1 57 The changes in the provision for impairment of trade receivables were as follows: Consolidated Opening balance Im pairm ent losses recognized Amounts recov ered during the period (56) (56) Merger of Vanguarda do Brasil S.A. 25 Trade receiv ables written-off during the period as uncollectible (25) (1 2) (25) (1 2) Closing balance The Company and its subsidiaries effected an analysis of the realization of overdue balances and recorded a provision for the impairment of the amounts with a low possibility of recovery. 15 of 54

19 Notes to the quarterly information at All amounts in thousands of reais unless otherwise stated 6 Notes receivable Consolidated For sale of land (a) 1, , , ,005 For sale of oil plant (b) 1 3, , , ,800 For sale of industrial units (c) 20, , , ,3 04 For sale of other assets 982 1, ,820 (-) Adjustments to present v alue (1,97 5) (1,492) (2,497 ) (1,626) ( - ) Prov ision for im pairm ent (4,062) (3,448) (4,062) (3,448) Other am ounts (d) 4,2 96 8,52 3 7,907 8,523 34,581 56, ,047 59,37 8 Current (31 8) (1 0,905) (1 1,662) (1 2,27 1 ) Non-current 3 4, , , ,1 07 (a) Notes receivable for the sale of land arise from the sale, in 2010, of the farm located in the municipality of Edéia, in the state of Goiás. The amounts are being received in installments until November 2016, indexed to the price variation of the Total Recoverable Sugar (ATR) index, disclosed by the Council of Sugarcane, Sugar and Alcohol Producers of the State of São Paulo (CONSECANA). The notes receivable were discounted to their present value on initial recognition, where applicable (basically for installments maturing in the long term), although they were indexed to a price variation, as mentioned above. A "real" interest rate of 5.38% (without considering an estimate of inflation) was considered to calculate the discount. Land was pledged as collateral for this transaction. The rate utilized for the indexation is the variation of the ATR, established by CONSECANA, as follows:. ATR at the date of the agreement - R$ Average ATR in R$ Accumulated ATR variation % In June 2014, the subsidiary Maeda S.A. Agroindustrial sold two rural plots in the municipality of Porteirão, in the State of Goiás. The outstanding balance of R$ 1,400 is receivable in July The note was discounted to its present value on initial recognition at an interest rate of 5% p.a. (b) Refers to the sale of the cotton seed crushing unit located in the municipality of Itumbiara, in the State of Goiás, formerly owned by the subsidiary Maeda S.A. Agroindustrial, whose spun-off net assets were merged into the Company. The amount of R$ 13,800 will be paid by the buyer within seven days from the submission by the Company of proof of discharge and cancellation of the guarantee for the Special Program for Asset Recovery (PESA) debt at the real estate registry office, expected for November The notes were discounted to their present value on initial recognition at an interest rate of 5% p.a. 16 of 54

20 Notes to the quarterly information at All amounts in thousands of reais unless otherwise stated (c) (d) The industrial units of Rosário do Sul I and II and São Luiz Gonzaga were sold on November 10, 2011 for R$ 55,455, of which R$ 25,000 was received on the sale date and R$ 30,455 was to be received in 36 consecutive monthly installments. At, the balance corresponds to the outstanding and past due installments between 2012 and November Management believes that, despite the default balance (R$ 20,304) and the fact that the debtor is undergoing in-court reorganization, there are sufficient guarantees and support for the maintenance of the credit in the financial statements, as described in Note 3.2. Mainly refers to (i) restatement of the notes receivable from the sale of the land in Edéia (GO), (described in Note (a)), totaling R$ 3,612, distributed as follows: current - R$ 2,409 ( R$ 2,098) and non-current - R$ 1,203 ( R$ 2,098); (ii) acknowledgment of debts of R$ 4,062 ( R$ 4,062), fully covered by a provision for impairment, and; (iii) subleases of R$ 980 ( R$ 264). 7 Inventories 31, 2014 Consolidated Agricultural products Agricultural products - formation cost 205,900 51, , ,7 54 Agricultural products - adjustment to net realizable v a 65,490 (9,938) 7 9,029 (6,987 ) Seeds, compost, fertilizers and crop protection products 1 69, , , ,532 Packaging and storage materials 1, , Spare parts 6,243 5,894 6,243 5,894 Adv ances to suppliers 7, , Expenditures with maintenance in the inter-crop period 42, ,223 42, ,223 Products for resale , ,448 Other inv entories 8, ,421 8, ,421 ( - ) Prov ision for impairment (i) (261 ) (809) (261 ) (809) 507, , , ,045 (i) Refers substantially to the obsolescence of materials in inventory with little expectation of realization. The inputs, seeds, compost, fertilizers, crop protection products, spare parts, packaging, storage materials and other materials are stated at the average purchase cost. Agricultural products arising from the harvest of biological assets are measured at fair value less selling expenses at the point of harvest. After the harvest, they are measured at the net realizable value, according to Technical Pronouncement CPC 16. At, 31,323 metric tons of agricultural products amounting, to approximately R$ 164,000 were pledged as collateral for bank liabilities and payables to suppliers of agricultural inputs. 17 of 54

21 Notes to the quarterly information at All amounts in thousands of reais unless otherwise stated The changes in the provision for impairment were as follows: Consolidated Opening balance Additions Merger of Vanguarda do Brasil S.A Rev ersals (641 ) (641 ) (56) Closing balance Biological assets At, the Company was cultivating around 124,801 hectares of arable land, including both its own land and land owned by third parties. The areas cultivated by the Company are located in the States of Mato Grosso and Bahia, to grow temporary crops, especially cotton, soybeans and corn. The fair values of the biological assets of the Company represent the present values of the estimated net cash flows for these assets, determined by applying the assumptions established by the management of the Company. The land owned by the Company on which crops are planted is classified as property, plant and equipment, and is not included in the fair value of biological assets. (a) Significant assumptions utilized in the measurement of fair value: (i) (ii) Cash inflows are obtained by multiplying (i) the estimated production, measured in sacks of 60 kg for soybean and corn, and "arrobas" (a unit equivalent to 15 kg) for seed cotton; and (ii) the prices in the futures market for each product, when available. The price of seed cotton (agricultural product of the cotton crop) was obtained based on the available price for cotton lint (commodity), less the costs of processing (removal of seeds) and the prices attributable to the byproducts (seed and fiber). (iii) Cash outflows are represented by the estimates of (i) costs necessary for the biological transformation of the crop (crop treatment) before the harvest; (ii) costs of harvesting, loading and transportation; and (iii) cost of capital (rental of land and machinery and equipment). (iv) Based on the estimated revenue and costs, the Company determines the fair value of biological assets, which are recorded in biological assets with a corresponding entry to "Changes in fair value of biological assets and agricultural products" in the statement of operations. (v) The model and assumptions utilized when determining the fair value represent management's best estimate at the end of the reporting period and are reviewed quarterly and, if necessary, adjusted. 18 of 54

22 Notes to the quarterly information at All amounts in thousands of reais unless otherwise stated and consolidated Cotton Soybean Corn Other Total Balance of biological assets at 31, , ,258 1, ,491 Increase resulting from planting and crop treatment 1 26,252 85,651 98, , ,1 48 Decrease resulting from harv esting, sales and losses (1 49,557 ) (324,41 6) (1 00,053) (1 8,3 7 0) (592,396) Changes in fair v alue (493) (493) Balance of biological assets at 30, assessed at cost of cultiv ation (i) ,7 50 1,7 50 (i) At, crops under cultivation, due to their slight biological transformation, are measured at cost of cultivation, which approximates their fair value. 19 of 54

23 Notes to the quarterly information at All amounts in thousands of reais unless otherwise stated 9 Non-current assets held for sale Non-current assets held for sale refer to the net book value of two agricultural aircrafts and a hangar in the City of Nova Mutum, State of Mato Grosso, which the Company is selling and expects to complete the sale over the course of the next 12 months. 10 Taxes recoverable Consolidated Value-added Tax on Sales and Serv ices (ICMS) (*) 1 4, , , ,7 29 Social Contribution on Rev enues (COFINS) (*) 57, , ,655 52,696 Social Integration Program (PIS) (*) 1 2, , , ,7 06 Corporate Income Tax (IRPJ) 27,848 27,848 28,023 28,024 Income Tax Withheld at Source (IRRF) 9,660 9, ,1 60 9,51 6 Social Contribution on Net Income (CSLL) 9,994 9, ,1 57 9,999 Other taxes , ( - ) Prov ision for impairment (44,1 94) (38,561 ) (44,651 ) (38,97 6) 87,998 86, ,303 86,7 1 3 Current (1 7,27 3) (1 9,51 0) (22,556) (20,064) Non current 7 0, , , ,649 (*) Mainly refer to credits arising from purchases of inputs and raw materials, as well as from the utilization of services relating to the production of biodiesel (freight and electricity). The Company has accumulated a credit balance of Social Integration Program (PIS) and Social Contribution on Revenues (COFINS) over the past years mainly due to domestic shipments subject to suspension of taxes and sales to the foreign market. The realization of the credits occurs in two ways: (i) offset against tax debits, past due or falling due; or (ii) reimbursement in cash. Management has been assessing the existing alternatives to maximize the realization of these accumulated credits and, currently, does not expect additional losses on their realization. 20 of 54

24 Notes to the quarterly information at All amounts in thousands of reais unless otherwise stated 11 Deferred taxes The Company and its subsidiaries Maeda S.A. Agroindustrial and Vanguarda do Brasil S.A. utilize the taxable income method to calculate and record their taxes based on the rates in effect on the date of the financial statements. (a) Nature and expected realization of deferred taxes Consolidated Nature Tax assets on: Accumulated income tax losses 1 7 7, , , ,1 48 Accumulated social contribution losses 63,867 27,008 99, ,491 Temporary differences: Taxes with suspended pay ment 7,1 57 6,641 7,1 57 6,641 Fair v alue of biological assets and agricultural products 2,605 5,441 2, ,97 1 Prov ision for impairment 1,7 32 2,055 3,094 3,400 Prov ision for contingencies 5, ,7 02 5, ,7 02 Adjustments to present v alue of long-term receiv ables Deriv ativ e financial instruments 1,437 1,337 1,437 1,337 Prov ision for losses on ICMS 2, , Hedge accounting 1 1 5,351 29, ,351 29,082 Other temporary differences 1,1 28 1,007 1,1 28 1, , , , ,7 05 Tax liabilities on: Accelerated tax-incentiv e depreciation 2,636-2,636 Fair v alue of biological assets and agricultural products 24,855 2,230 29,57 9 6,7 37 Deemed cost 27,936 29, , ,57 1 Credit sales of properties 4,861-4,861 Adjustments to present v alue 883 1, ,689 Hedge accounting 1 1 5,351 29, ,351 29,082 Goodwill amortization (future profitability ) 32, , , , ,808 88, , ,308 Tax assets, net 1 7 7,609 65, , ,397 Tax liabilities, net - 0 (1,1 91 ) Total, net 1 7 7,609 65, , ,397 Deferred income tax and social contribution are calculated on income tax and social contribution losses, as well as on temporary differences between the tax bases and the carrying amounts in the financial statements, as well as on adjustments arising from the adoption of new accounting pronouncements. Deferred tax assets on deductible temporary differences and tax losses are only recorded when it is probable that the Company and its subsidiaries will generate future taxable profits in sufficient amounts for these to be utilized. 21 of 54

25 Notes to the quarterly information at All amounts in thousands of reais unless otherwise stated The deferred tax credits on the balance of income tax and social contribution losses calculated up to and not recorded amounted to R$ 84,102 in the parent company and consolidated. These unrecorded credits did not meet the recognition requirements determined by the related accounting standard. When assessing the capacity to recover deferred assets, management takes into consideration projections of future taxable profit and the changes in temporary differences. When it is probable that a portion or all of the taxes will not be realized, no deferred tax assets are recorded, since they are not likely to be recovered. Income tax and social contribution losses can be carried forward indefinitely. The realization of the assets relating to the income tax and social contribution losses is expected to occur in accordance with the following schedule: Consolidated Amount Percentage Amount Percentage In % 1 2,1 54 3% In % 1 3,306 4% In ,253 3% 22,606 6% In ,432 5% 31,224 8% In , % 38, % From 2020 to ,620 33% 1 33,606 36% From 2023 to ,059 52% 1 24,059 33% 241, % 37 5, % (b) Reconciliation of income tax and social contribution benefit (expense) The income tax and social contribution amounts that had an impact on the result for the period are as follows: Consolidated Loss before income tax and social contribution (11 3,549) (63,503 ) (1 02,412) (7 4,229) Standard rate34% 34% 34% 34% 38,607 21,591 34,820 25,238 Taxes on permanent exclusions (additions) Equity in the results of inv estees 5,440 (1 0,51 2) Non-deductible expenses (37 ) (57 ) (263 ) (84) Taxes on temporary differences: Unrecorded tax credit on impairment of assets (1 8,695) (18,695) Calculation of subsidiaries taxes on the deem ed profit basis (280) 2,905 Other ,922 (7 26) (4,389) In the results for the period 25, ,944 14,856 23, of 54

26 Notes to the quarterly information at All amounts in thousands of reais unless otherwise stated 12 Related parties (a) Balances Current assets Trade receiv ables Agropecuária Margarida Ltda. (i) 1,240 1,240 Vanguarda do Brasil S.A. 6 Consolidated Related parties Adv ance on lease agreement FWA Empreendimentos e Participações S.A. (ii) 2,267 2,267 2,267 2,267 3,507 2,27 3 3,507 2,267 Non-current assets Adv ances for future capital increase 4 Loan agreements (iii) Vanguarda do Brasil S.A. 31,923 Maeda S.A. Agroindustrial Adv ance on lease agreement FWA Empreendimentos e Participações S.A. (ii) 1 8, , , , ,926 51, , ,922 Consolidated Current liabilities Loan agreements (iii) Indirect stockholders - Maeda Family , ,7 44 Maeda Armazéns Gerais S.A 4,594 Crateús Algodoeira S.A , ,7 44 (i) (ii) Refers to the sales of corn grains by the Company and its subsidiary Vanguarda do Brasil S.A. The related party Agropecuária Margarida Ltda. is controlled by Mr. Otaviano Olavo Pivetta and maintains a commercial relationship with the Company and its subsidiary Vanguarda do Brasil S.A. for the purchase of agricultural products. The related party FWA Empreendimentos e Participações S.A. is controlled by Mr. Otaviano Olavo Pivetta and, since 2011, has an agreement with the Company for the lease of a farming area. The area has 3,813 hectares with an average annual cost of R$ 2,355, and the agreement is effective through (iii) The balances presented in non-current assets and current liabilities relate to loan transactions with variable and renewable maturities, subject to the rates and/or indexes agreed between the parties. 23 of 54

27 Notes to the quarterly information at All amounts in thousands of reais unless otherwise stated The balances referring to the provision for losses on investments in the parent company are as follows: Sept ember 30, , 2014 Mocuri Agrícola Ltda. 1 Ecotrans 1,224 1,1 64 1,225 1,1 64 (b) Transactions Transactions 30, 2014 Consolidated 30, 2014 Sales of goods and products Vanguarda do Brasil S.A ,982 Agropecuária Margarida Ltda. (i) 4,346 4,653 4,7 91 Costs Cost of products sold Vanguarda do Brasil S.A. (333) (9,67 5) Agropecuária Margarida Ltda. (i) (3,926) (4,01 4) (4,942) Reimbursement of shared expenses Agropecuária Margarida Ltda. (ii) Rental of property Bonsucex Holding S.A. (iii) (4) (4) Maria Zilda Oliv eira de Araújo (iv ) (1 25) (1 25) Proceeds from the sale of the biodiesel plants FWA Empreendimentos e Participações S.A. 1 7, ,1 87 Finance income (costs) on loan agreements Maeda S.A Agroindustrial (547 ) 2 Maeda Armazéns Gerais S.A (1 22) (328) Vanguarda do Brasil S.A. 226 (1,882) Crateús Algodoeira S.A. (7 ) Indirect stockholders - Maeda Family (1 89) (1 49) (1 89) (1 49) (i) (ii) Refers to the sales of corn grains by the Company and its subsidiary Vanguarda do Brasil S.A. Refers to the reimbursement of electric power consumed by the related party Agropecuária Margarida Ltda. in a unit of the Company. (iii) Refers to the rental of a residential property used by the executive Arlindo Azevedo Moura. (iv) Contract with a related party to lease an office to house the installations of the Company's headquarters, according to the agreement signed on April for a period of 5 years. 24 of 54