Independent auditors review report

Transcription

1 JSL S.A. (Formerly Julio Simões Logística S.A.) Separate Interim Financial Statements (parent company), prepared in accordance with the accounting practices adopted in Brazil, Consolidated Interim Financial Statements, prepared in accordance with the International Financial Reporting Standards (IFRS) for the six-month period ended June 30, 2010 and for the year ended December 31, 2009, and independent auditors' report. 1/76

2 Independent auditors review report To the Management and shareholders of JSL S.A. São Paulo São Paulo 1. We have audited the separate and consolidated financial information contained in the Quarterly Financial Information ITR of JSL S.A. ( Company ), referring the quarter ended June 30, 2010, which comprised the balance sheet, the statements of income, statements of cash flows, statements of changes in shareholders equity, the performance report and the notes to the financial statements, prepared under the responsibility of its Management. 2. Our review was carried out in conformity with the specific guidelines established by IBRACON - Brazilian Institute of Accountants, in conjunction with the Federal Accounting Council (CFC), and mainly consisted of: (a) inquiry and discussion with the officers and directors in charge of the accounting, financial and operating areas of the Company, concerning the primary criteria adopted in the preparation of the quarterly financial information; and (b) review of the information and of the subsequent events that have or could have relevant impacts on the financial situation and operations of the Company. 3. Based on our review, we are not aware of any material changes that should be made to the aforementioned quarterly financial information contained in the (i) separate Quarterly Financial Information mentioned above for it to be in accordance with CPC 21 Interim Financial Statement and in compliance with the standards and guidance issued by CVM, applicable to the preparation of the Quarterly Financial Information (ii) consolidated Quarterly Financial Information mentioned above, so that for it to be in accordance with IAS 34 Interim Financial Reporting, and in compliance with the standards and guidance issued by CVM applicable to the preparation of the Quarterly Financial Information. 4. We also audited the separate and consolidated statements of value added (DVA) for the quarter ended June 30,2010, which is required by standards and guidance issued by CVM applicable to the preparation of the Quarterly Financial Information and as additional information by IFRS which do not require DVA. These statements have been submitted to the same previously described audit procedures and we are not aware of any relevant change that should be made therein. 5. As mentioned in Note 2.3, the separate and consolidated Quarterly Financial Information - ITR, originally reported on August 6, 2010, has been restated as required by CVM Resolution 603/09 (amended by CVM Resolution 656/11), in order to include the effects of adopting the new Pronouncements, Interpretations and Guidance issued by Brazilian Accounting Pronouncements Committee (CPC) in 2009, effective as of These standards effects have been stated in referred Note. 6. The separate and consolidated balance sheets of JSL S.A. as of December 31, 2009, before the restatement was audited, within the context of the complete financial statements by Terco Grant Thornton Auditores Indpendentes (Terco), an entity legally separated from Ernst & Young Auditores Independentes S.S., which issued an unqualified report on the separate and consolidated financial statements ended December 31, The Company's separate and consolidated quarterly financial information for the quarter ended June 30, 2009, before the restatement, was also reviewed by Terco which issued a special review report on this separate 2/76

3 and consolidated quarterly financial information. On October 1, 2010, Terco was merged into Ernst & Young Auditores Independentes S.A.. After this merger, Ernst & Young Auditores Independentes S.S. now is named Ernst & Young Terco Auditores Independentes S.S. São Paulo, May 13, ERNST & YOUNG TERCO Auditores Independentes S.S. CRC 2SP /O-6 Alexandre De Labetta Filho Accountant CRC 1SP /O-2 3/76

4 Assets JSL S.A. Balance sheets as of June 30, 2010 and December 31, 2009 (In thousands of Reais) Note Parent Company (CPCs) 06/30/2010 (Restated) 12/31/2009 (Restated) Consolidated (IFRS) 06/30/2010 (Restated) 12/31/2009 (Restated) Current assets Cash and cash equivalents 4 346, , , ,905 Accounts receivable 6 225, , , ,105 Inventories / Supplies 7 9,642 9,160 15,662 12,738 Taxes recoverable 9 44,797 44,592 50,276 45,716 Deferred income tax and social contribution Other receivables 10 36,490 54,039 31,352 54,521 Prepaid expenses 11 17,899 10,137 18,597 10, , , , ,215 Assets available for sale (fleet renewal) / Assets from discontinued operations 8 43,052 21,835 44,572 23,705 Non current assets Long-term assets Securities 5 29,209 27,000 29,209 27,000 Accounts receivable 6 6,100 6,253 6,100 9,762 Taxes recoverable 9 13,164 9,885 13,164 9,885 Court deposit 23 10,722 10,837 12,244 10,837 Deferred income tax and social contribution ,283 45,593 56,283 45,593 Related parties ,203 59, ,344 Other receivables 10 9,101 3,473 9,598 4, , , , ,483 Investments 12 91,865 76, Property, plant and equipment 13 1,332,998 1,054,857 1,394,757 1,119,166 Intangible assets , , , ,418 1,546,458 1,253,166 1,520,250 1,244,594 Total non current assets 1,683,241 1,415,975 1,646,875 1,411,077 Total assets 2,407,098 1,853,930 2,423,269 1,899,997 The accompanying notes are an integral part of this interim financial information. 4/76

5 Liabilities and shareholders' equity JSL S.A. Balance sheets as of June 30, 2010 and December 31, 2009 Note (In thousands of Reais) Parent Company (CPCs) 06/30/2010 (Restated) 12/31/2009 (Restated) Consolidated (IFRS) 06/30/2010 (Restated) 12/31/2009 (Restated) Current liabilities Loans and financing , , , ,153 Debentures 17 8,566 44,951 8,566 44,951 Finance lease payable 18 92, ,693 95, ,208 Suppliers - 28,512 48,338 32,425 50,750 Labor liabilities 19 50,450 33,029 74,042 50,302 Tax liabilities 20 12,265 12,981 26,646 26,382 Accounts payable and advances from clients 21 64, ,027 61, ,601 Related parties ,618 26, Income tax and social contribution payable ,327 1, , , , ,078 Non-current liabilities Loans and financing , , , ,399 Debentures ,660 33, ,660 33,713 Financial lease payable 18 62,206 42,992 64,816 43,347 Tax liabilities 20 32,776 31,206 45,301 46,973 Provision for investment losses - 24,916 12, Provision for legal and administrative proceedings 23 22,678 19,666 25,553 21,579 Deferred income tax and social contribution , , , ,799 Accounts payable and advances from clients 21 11,546 19,719 16,885 27,051 1,090, ,234 1,102, ,861 Shareholders' equity Capital stock , , , ,152 Equity valuation , , , ,589 Profit reserve - 27,262 87,270 27,262 87, , , , ,011 Minority interest Total shareholders' equity 753, , , ,059 Total liabilities and shareholders' equity 2,407,098 1,853,930 2,423,269 1,899,997 The accompanying notes are an integral part of this interim financial information. 5/76

6 JSL S.A. Income statements for the quarters and periods ended June 30, 2010 and 2009 Parent Company (CPCs) (In thousands of Reais) Consolidated (IFRS) Note Net revenue from services rendered and asset disposal used in services rendered 29 04/01 to 06/30/2010 (Restated) 01/01 to 06/30/2010 (Restated) 04/01 to 06/30/2009 (Restated) 01/01 to 06/30/2009 (Restated) 04/01 to 06/30/2010 (Restated) 01/01 to 06/30/2010 (Restated) 04/01 to 06/30/2009 (Restated) 01/01 to 06/30/2009 (Restated) ( - ) Services costs 30 ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( - ) Cost of asset disposal used in services rendered - (26.042) (48.482) (31.553) (64.484) (28.512) (51.884) (39.926) (74.997) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( = ) Gross profit Administrative and selling expenses 31 (22.321) (42.675) (30.336) (44.910) (26.243) (53.498) (33.480) (51.021) Tax expenses - (455) (647) (276) (472) (659) (1.135) (350) (606) Financial expenses 33 (29.879) (58.156) (29.394) (56.652) (30.165) (60.391) (30.746) (59.683) Financial income Other operating revenues, net 32 (3.245) (1.788) (779) (4.414) (2.476) Equity pickup (37.887) (73.239) (38.375) (77.482) (45.233) (91.590) (61.860) ( ) ( = ) Earnings before tax provisions (19.505) Taxes and contributions on income 25.3 (7.007) (10.924) (4.073) (10.028) (16.619) ( = ) Earnings before discontinued operations and interest Discontinued operations Net income for the year deriving from discontinued investments (426) (426) ( = ) Net income for the year Attributable to: Minority interest (8) (16) (5) (10) Controlling shareholders companying notes are an integral part of this interim financial information. 6/76

7 JSL S.A. Statement of cash flow for the periods ended June 30, 2010 and 2009 (In thousands of Reais) Parent Company (CPCs) Consolidated (IFRS) From operating activities 04/01 to 06/30/ /01 to 06/30/ /01 to 06/30/ /01 to 06/30/ /01 to 06/30/ /01 to 06/30/ /01 to 06/30/ /01 to 06/30/20109 Net income 6,725 8,948 20,987 6,147 6,725 8,948 20,987 6,147 Reconciliation of net income to net cash 48,359 86,058 69, ,823 57, ,235 59, ,994 from operating activities Depreciation 18,563 36,045 16,113 38,401 19,145 37,426 16,476 39,243 Cost of asset disposal used in services rendered - fixed assets 26,042 48,482 31,553 64,485 28,512 51,884 39,926 74,998 Equity pickup of ongoing investments (6,101) (12,617) (48) (836) Deferred income tax and social contribution 7,007 (10,924) 4,072 (8,207) 6,627 11,013 (13,971) (27,723) Provision for/reversal of legal and administrative proceedings 2,638 3,012 5,263 5,263 2,500 3,974 5,263 3,825 Estimated losses from doubtful accounts ,121 12, ,189 12,265 Investment losses from discontinued operations (219) 377 Minority interest (5) Changes in current and non current assets and liabilities (39,815) 8,126 (63,049) (48,937) (42,563) (2.996) (61,439) (47,809) Decrease (increase) in assets Securities (573) (2,205) - - (573) (2,209) - - Accounts receivable (25,520) (27,676) (23,290) (37,526) (14,421) (26,043) (23,223) (46,939) Inventory / Storeroom (1,401) (482) (2,847) (422) (3,161) (2,924) (2,847) (422) Taxes recoverable (2,219) (3,484) 1,195 (561) (3,569) (7,839) 1, Related parties (8,075) 47,565 (5,736) (13,429) 41 59,318 (5,504) (12,949) Court deposits (1,117) 115 (1,919) (3,051) (1,350) (1,407) (1,919) (3,052) Other receivables 37,709 11,921 (2,868) (2,900) 39,389 17,633 (1,709) (1,017) Expenses from the following year 17,895 (7,762) 398 (12,372) 18,135 (8,367) 633 (12,871) (Decrease) increase in liabilities Suppliers (19,755) (19,825) (17,390) (18,113) (20,073) (18,324) (17,419) (19,002) Labor and tax liabilities 12,307 18,274 5,237 23,903 14,935 22,332 5,934 24,417 Accounts payable (59,019) (27,472) (15,295) (2,018) (72,955) (38,508) (15,878) 6,839 Related parties 9,952 19,159 (534) 17,552 (2,073) (56) (691) 16,398 Tax provisions ,112 3, Net cash from operating activities 15, ,131 27,012 69,033 21, ,187 19,242 61,331 Cash flow from investing activities Discontinued operations investments - - 7,828 22, ,828 22,679 Fixed assets (6,544) (13,042) (18,980) (25,347) (6,544) (13,294) (18,980) (25,347) Intangible assets (66) (119) (27) (64) 87 (2,710) Net cash from (invested in) investing activities (6,611) (13,161) (11,129) (1,731) (6,571) (13,358) (11,065) (5,378) Cash flow from financing activities Capital stock increase (decrease) 457, , , , Dividends paid (30,787) (105,414) - - (30,787) (105,414) - - Increase in loans and financing, net (231,586) (199,791) (52,091) (7,245) (236,894) (204,663) (42,360) 10,451 Net cash from (invested in) financing activities 195, ,198 (52,091) (7,245) 189, ,326 (42,360) 10,451 Increase in cash and cash equivalents, net 203, ,168 (36,208) 60, , ,155 (34,183) 66,404 Cash and cash equivalents At the beginning of the period 143, , ,857 74, , , ,718 80,131 At the end of the period 346, , , , , , , ,535 Increase in cash and cash equivalents, net 203, ,168 (36,208) 60, , ,155 (34,183) 66,404 Additional information: Interest paid (29,937) (58,663) (31,202) (60,118) (30,067) (58,890) (31,378) (60,546) Income tax and social contribution paid (1,148) (6,002) (504) (593) The accompanying notes are an integral part of this interim financial information. 7/76

8 JSL S.A. Consolidated statements of value added for the periods ended June 30, 2010 and 2009 (In thousands of Reais) Parent Company (CPCs) Consolidated (IFRS) 06/30/ /30/ /30/ /30/2009 Sales and services rendered 770, , , ,094 Estimated losses from doubtful accounts (212) (12,121) (878) (12,189) Other operating revenues 14,696 3,744 21,898 6, , , , ,910 Inputs acquired from third parties Cost of sales and services rendered 333, , , ,475 Material, energy, outsourced services and other 78,758 70,544 88,963 98, , , , ,761 Gross value added 373, , , ,149 Retentions Depreciation and amortization 37,558 38,957 38,732 39,887 Net value added produced by the Company 335, , , ,262 Value added received in transfer Equity pickup - ongoing investments 12, Equity pickup - discontinued investments - (426) - (426) Financial income 17,409 9,608 18,908 10,029 30,026 10,019 18,908 9,603 Total value added to distribute 365, , , ,865 Distribution of value added Personnel and charges 163, , , ,723 Federal 73,436 50,292 94,635 37,061 State 38,830 27,700 44,543 32,711 Municipal 10,786 11,222 12,831 11,654 Interest and rentals 70,400 80,647 74,503 84,580 Dividends Minority interest (10) Retained earnings for the year 8,948 6,147 8,948 6, , , , ,865 The accompanying notes are an integral part of this interim financial information. 8/76

9 Statements of changes in shareholders' equity for the periods ended June 30, 2010 and 2009 (In thousands of Reais) Attributable to Controlling Shareholders Revenue reserve Note Capital stock Legal reserve Profit Retention Retained Earnings Equity valuation adjustment Total shareholders' equity - controlling shareholders Minority interest Total shareholders' equity At January 1, ,134 2, , , ,032 Net income for the period ,147-6, ,156 Deemed cost realization ,034 (19,034) At June 30, ,134 2,893-25, , , ,188 Net income for the period ,791-56, ,803 Capital stock decrease - partial spin-off to CS Brasil - (92,212) (92,212) - (92,212) Capital stock increase from JPS S/A to CS Brasil - 68, ,254-68,254 Capital stock increase from individuals to CS Brasil - 23, ,958-23,958 Capital decrease at investees Original Veículos, Ponto, Avante and Vintage - (56,982) (56,982) - (56,982) Deemed cost realization ,355 (17,355) Profit sharing - minimum mandatory dividends (14,950) - (14,950) - (14,950) Legal reserve - - 3,147 - (3,147) Income for the year in discontinued operations Profit retention ,230 (81,230) At December 31, ,152 6,040 81, , , ,059 Net income for the period ,947-8, ,949 Additional profit sharing - approved at AGM held on February 8, (44,852) - - (44,852) - (44,852) Interim profit sharing - from previous years (35,000) - - (35,000) - (35,000) Deemed cost realization ,898 (10,898) Capital increase with stock issue - IPO , , ,511 Capital increase with additional stock issue - IPO , ,392-31,392 Transaction costs, net - IPO 23.3 (13,529) (13,529) - (13,529) At June 30, ,526 6,040 1,377 19, , , ,529 The accompanying notes are an integral part of this interim financial information. 9/76

10 Notes to the separate and consolidated interim financial statements for the six-month period ended June 30, About the Company JSL S.A. (formerly known as Julio Simões Logística S/A.), (hereinafter referred to as Company ) is a publicly-held joint stock company with headquarters at Av. Angélica, nº 2.346, conjunto 161, parte B, 16º andar in the city and State of São Paulo. Its shares are listed in the São Paulo Stock, Commodities and Futures Exchange (BM&FBOVESPA). The Company and its subsidiaries provide logistics, road transport of cargo, public transport, collection and transportation of household, commercial or industrial waste, lease of machinery, new and used equipment and vehicles and river transport of cargo services. The Company's separate and consolidated financial statements were approved at the Board of Directors Meeting held on May 13, Accounting policies The Quarterly Information (ITR), originally presented on August 15, 2010, are being re-presented, as required by CVM Rule 603/09 (amended by CVM Rule 656/11), to include the effects of the adoption of the new Pronouncements, Interpretations and Orientations issued by the Brazilian Accounting Standards Board (CPC) in 2009 and effective as from The effects of the adoption of these rules are presented below: Quarterly results 06/30/ /30/2010 Before adoption of CPCs/IFRS 20,991 6,727 Deemed cost over lands/real estate properties (4) (4) Income tax 1 1 After adoption of CPCs/IFRS 20,987 6,725 Shareholders' equity attributable to controlling shareholders 06/30/ /30/2010 Before adoption of CPCs/IFRS 370, ,828 Deemed cost over lands/real estate properties 7,064 7,048 Income tax (2,402) (2,397) After adoption of CPCs/IFRS 375, ,479 The parent company s Interim Financial Statements for the period ended June 30, 2010 were prepared, in all material aspects, in accordance with CPC 21 applicable to the preparation of the interim financial statements, and are presented in compliance with the rules issued by the Brazilian Securities and 10/76

11 Notes to the separate and consolidated interim financial statements for the six-month period ended June 30, 2010 Exchange Commission (CVM) applicable to the Quarterly Information (ITR). The consolidated Interim Financial Statements were prepared, in all material aspects, in accordance with IAS 34 applicable to the preparation of the interim financial statements, and are presented in compliance with the rules issued by the Brazilian Securities and Exchange Commission (CVM) applicable to the Quarterly Information (ITR). The parent company's and consolidated financial statements were prepared based on various evaluation bases used in accounting estimates. The accounting estimates used in the preparation of the financial statements were based on objective and subjective factors and on Management's judgment to determine the correct amount to be recorded in the financial statements. Significant items subject to these estimates and assumptions include the selection of useful life of fixed assets and their recoverability in transactions, the evaluation of financial assets at fair value and adjustment to present value, recoverable amount estimates for land and buildings, a credit risk analysis to estimate losses from doubtful accounts, and the analysis of other risks to determine other provisions, including contingencies. Clearance of transactions involving these estimates may result in different amounts than those recorded in the financial statements due to uncertainties inherent to the estimate process. The Company reviews its estimates and assumptions at least once a year. The Company adopted all standards, amendments to standards and interpretations issued by the Accounting Standards Board (CPC), the IASB and regulating agencies, in force on December 31, The financial statements were prepared based on the historical cost, except for the valuation of certain assets and liabilities as financial instruments, which are measured at fair value. 2.1 Consolidation basis The consolidated financial statements include the financial statements for JSL S.A. and other companies in which it holds a controlling stock, as detailed below: % Interest Company Country 6/30/ /31/2009 JP Tecnolimp S/A Brazil Mogipasses Comércio de Bilhetes Eletrônicos Ltda. Brazil Transportadora Grande ABC Ltda. Brazil Yolanda Logística Armazém Transporte e Serviços Gerais Ltda. Brazil CS Brasil Transportes de Passageiros e Serviços Ambientais Ltda. Brazil Riograndense Navegação Ltda. (1) Brazil (1) Pre-operational company 11/76

12 Notes to the separate and consolidated interim financial statements for the six-month period ended June 30, 2010 Subsidiaries are fully consolidated as of their acquisition date, which is the date when the Parent Company acquires control, and remain consolidated until the Parent Company ceases to control them. The fiscal years of subsidiaries coincide with the Parent Company's, and the financial statements are prepared for the same reporting period as for the Parent Company, using consistent accounting principles. The accounting principles are consistently applied to all consolidated companies. The consolidation process eliminates investments in subsidiaries, accounts receivable and payable, and revenues and expenses from intercompany transactions. 2.2 Corporate restructuring Throughout the years, searching for synergy in its service, sales, operating and administrative structures, the Company has carried out various corporate transactions, consolidating in a single company all corporate interests aligned with its operating activities, and discontinuing investments in subsidiaries whose operations were not aligned with its business strategy. Likewise, in order to fulfill its strategic planning, the Company has expanded is businesses in similar or supplementary activities, by acquiring other companies, starting new operations, and segregating similar activities. In September 2009, the Company announced its decision of discontinuing investments in subsidiaries Original Veículos Ltda., Avante Veículos Ltda., Ponto Veículos Ltda., and Corretora e Administradora de Seguros Vintage Ltda., by selling the controlling ownership interest to shareholders (Julio Simões Participações and individual investors of the Simões family), by means of capital reduction. Discontinued investments are as follows: Company Original Veículos Ltda. Avante Veículos Ltda. Ponto Veículos Ltda. Corretora e Administradora de Seguros Vintage Ltda. Activities Sale of new Volkswagen vehicles and parts, and of used vehicles of various brands. Sale of new Ford vehicles and parts, and of used vehicles of various brands. Sale of new Fiat vehicles and parts, and of used vehicles of various brands. Insurance management and brokerage. 2.3 Functional currency 12/76

13 Notes to the separate and consolidated interim financial statements for the six-month period ended June 30, 2010 The Company's functional currency is the Brazilian real, same currency used in the preparation and presentation of the financial statements. 2.4 Cash and cash equivalents Cash equivalents are held in order to meet short-term cash commitments, not for investments. Cash and cash equivalents consist of cash balances, bank deposits and short-term investments with highliquidity and insignificant risk of change in the market value upon redemption. In the statement of cash flow, cash and cash equivalents are recorded net of secured account loans. Cash and cash equivalents are classified as "Financial assets at fair value through profit or loss. 2.5 Trade accounts receivable Accounts receivable are recorded at the estimated net realizable value and do not include interests. The provision for estimated losses from doubtful accounts is based on the default history and individual analysis of each client, in an amount deemed sufficient by Management to cover losses in the realization of accounts receivable. 2.6 Investments in subsidiaries The Company's investments in its subsidiaries are evaluated based on the equity accounting method, under CPC18 (IAS 18), for the parent company's financial statements. Based on the equity accounting method, investments in the subsidiary are recorded at cost in the parent company's balance sheet, plus changes after the acquisition of interest in the subsidiary. Interest in the subsidiary is shown as equity accounting in the Parent Company's statement of income, representing net income attributable to shareholders of the affiliated company. After applying the equity accounting method to the parent company's financial statements, the Company determines whether it is necessary to recognize an additional impairment loss over the Company's investment in its affiliated company. At every balance sheet closing date, the Company determines whether there is any objective evidence that the investments in subsidiaries are impaired. If this is the case, the Company will calculate the impairment loss as the difference between the subsidiary's recoverable amount and book value, recognizing the amount in the parent company's statement of income. 2.7 Securities 13/76

14 Notes to the separate and consolidated interim financial statements for the six-month period ended June 30, 2010 These securities refer to financial investments linked to the financing line. Financial investments recorded under Securities are classified as "Financial assets at fair value recognized in profit or loss. 2.8 Financial instruments Initial recognition and subsequent measurement (i) Financial Assets Initial recognition and measurement Financial assets are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or derivatives recorded as efficient hedge instruments, as applicable. The Company determines the classification of its financial assets upon their initial recognition, when it becomes part of the instrument's contractual provisions. Financial assets are initially recognized at fair value, plus, for investments not at fair value through profit or loss, transaction costs directly attributable to the acquisition of the financial asset. The Company's financial assets include cash and cash equivalents, trade accounts receivable and other short and long-term accounts receivable, loans and other receivables and securities. Subsequent measurement The subsequent measurement of financial assets depends on their classification, which may be as follows: a. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial assets measured at fair value through profit or loss upon the initial recognition. Financial assets are classified as held for trading when they are acquired for the purpose of selling in the short term. Financial assets at fair value through profit or loss are presented in the balance sheet at fair value, with associated gains or losses recognized in the statement of income. The Company classified cash and cash equivalents and securities as at fair value through profit or loss. b. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After the initial measurement, these financial assets are accounted for at amortized cost, using the effective interest rate method (effective interest rate) less any impairment loss. The amortized cost is calculated taking into account any discount or "premium" in the acquisition and fees or costs incurred. The effective interest rate amortization is added to the financial expenses or revenues line in the statement of income. Impairment losses are recognized as financial expenses in profit or loss. The Company included trade accounts receivable and other credits in this category. 14/76

15 Notes to the separate and consolidated interim financial statements for the six-month period ended June 30, 2010 c. Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held to maturity when the Company intends and has the financial capacity to hold them to maturity. After the initial evaluation, held-to-maturity investments are evaluated at amortized cost using the effective interest rate method, less any impairment loss. The amortized cost is calculated taking into account any discount or premium over the acquisition and fees or costs incurred. The amortization of effective interest rate is recorded under financial revenues in the statement of income. Impairment losses are recognized as financial expenses in profit or loss. The Company did not record any held-to-maturity investment in the six-month period ended June 30, 2010, and in the year ended December 31, d. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets not classified as (a) loans and receivables, (b) held-to-maturity investments, or (c) financial assets at fair value through profit or loss. These financial assets include equity instruments and debt securities. Debt securities in this category are those intended to be held for an undetermined period of time, and that may be sold to meet liquidity needs or in response to changes in market conditions. After the initial measurement, available-for-sale financial assets are measured at fair value, with unrealized gains and losses directly recognized as available-for-sale reserve under other comprehensive income until the investment is derecognized, except for impairment losses, interest rates calculated using the effective interest rate method, and gains or losses from exchange variation over monetary assets directly recognized in the profit or loss for the period. The Company did not record any available-for-sale financial assets in the six-month period ended June 30, 2010, and in the year ended December 31, e. Derecognition (write-off) A financial asset (or, when applicable, part of a financial asset or part of a group of similar financial assets) is derecognized when: The rights to receive cash flows from the asset expire; The Company transfers its rights to receive cash flows from the asset or commits to fully pay for cash flows received, with no significant delay, to third parties through an onlending agreement; and (a) the Company substantially transfers all of the asset's risks and benefits, or (b) the Company does not transfer nor substantially hold risks and benefits related to the asset, but transfers control over the asset. When the Company transfers its rights to receive cash flows from an asset or executes an onlending agreement and does not substantially transfer or hold all risks and benefits related to the asset, the 15/76

16 Notes to the separate and consolidated interim financial statements for the six-month period ended June 30, 2010 asset is recognized to the extent of the Company's continuing involvement with it. In this case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured based on the rights and obligations maintained by the Company. Continuing involvement in the form of guarantee over the transferred asset is measured at the asset's original book value or the highest consideration that can be demanded from the Company, whichever is lower. (ii) Impairment of financial assets At balance sheet dates, the Company evaluates whether there is any objective evidence that the financial asset or group of financial assets may be impaired. A financial asset or group of financial assets is impaired when there is objective evidence of non-recoverability caused by one or more events that took place after the initial recognition of the asset ( a loss event incurred), and if such loss event has an impact on the estimated future cash flow of the financial asset or group of financial assets that can be estimated. Evidence of impairment loss may include: i) indication that the borrowers are experiencing significant financial difficulties; ii) likelihood that the borrowers will declare bankruptcy or any other kind of financial reorganization; iii) default or late payment of interest or principal; iv) indication of a measurable decrease in the estimated future cash flow, such as changes in maturity or economic condition related to the default. f. Financial assets at amortized cost As for the financial assets presented at amortized cost, the Company will evaluate each financial asset separately if there is any clear evidence of an impairment loss for each financial asset, or jointly significant losses for financial assets that are not individually significant. Should there be any clear evidence of impairment, the loss is measured as the difference between the asset's book value and the present value of estimated future cash flows. The asset's book value is reduced through a provision, and the loss amount is recognized in the statement of income. If the estimated impairment loss increases or decreases in subsequent years due to an event that takes place after the impairment loss is recognized, the previously recognized loss is increased or reduced, and the provision is adjusted. In case of any future recovery of a derecognized amount, such recovery is recognized in the statement of income. (iii) Financial liabilities Initial recognition and measurement Financial liabilities are classified as financial liabilities at fair value through profit or loss, loans and financing, or as derivatives classified as hedge instruments, as applicable. The Company determines the classification of its financial liabilities upon their initial recognition. 16/76

17 Notes to the separate and consolidated interim financial statements for the six-month period ended June 30, 2010 Financial liabilities are initially recognized at fair value, and directly related transaction costs are added to loans and financing. The Company's financial liabilities include accounts payable to suppliers and other accounts payable, secured accounts (overdraft checking accounts), loans, financing, and debentures. Subsequent measurement The subsequent measurement of financial liabilities depends on their classification, which may be as follows: a. Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include held-for-trade financial liabilities and financial liabilities measured at fair value through profit or loss in the initial recognition. Financial liabilities are classified as held for trading when they are acquired for the purpose of selling in the short term. This category includes derivative financial instruments contracted by the Company that do not meet the hedge accounting criteria established by CPC38 (IAS 39). Gains and losses on heldfor-trading liabilities are recognized in the statement of income. In the six-month period ended June 30, 2010 and in the year ended December 31, 2009, the Company did not incur financial liabilities at fair value through profit or loss. b. Borrowings and financing After the initial recognition, borrowings and financing subject to interest are subsequently measured at amortized cost, using the effective interest rate method. Gains and losses are recognized in the statement of income upon derecognition of liabilities, and during the amortization process by the effective interest rate method. c. Debentures Debentures issued by the Company are accounted for at cost, and adjusted based on the effective interest rate method plus monetary variations at the closing rates of each period. d. Derecognition (write-off) Financial liabilities are derecognized when the obligation is revoked, canceled or expires. When an existing financial liability is replaced with another liability from the same lender with substantially different terms, or when the terms of an existing liability are significantly changed, such replacement or change is treated as derecognition of the original liability and recognition of a new liability, and the difference between their respective book values is recognized in the statement of income. 17/76

18 Notes to the separate and consolidated interim financial statements for the six-month period ended June 30, 2010 (iv) Financial instruments net reporting Financial assets and liabilities are reported net in the balance sheet if, and only if, there is any current and enforceable legal right to offset the amounts recognized, and if there is an intention to offset or realize the asset and settle the liability simultaneously. 2.9 Inventory / Supplies Supplies are evaluated at the average acquisition cost, and a provision for impairment loss is formed, when applicable, in an amount that Management deems sufficient to cover possible losses Assets available for sale due to fleet renewal Pursuant to its service agreements, the Company needs to constantly renew its fleet after a certain period of use. Vehicles, machinery and equipment available for sale are reclassified from fixed assets to available-for-sale assets. Once they are classified as available-for-sale, these assets are not depreciated and are recorded at their residual or market value, whichever is lower Property, plant and equipment Property, plant and equipment are recorded at acquisition or construction cost, plus interest and other charges incurred during construction. These are depreciated using the straight-line method at the rates mentioned in Note 13, over their estimated useful lives, considering their recoverable value, and are recognized in the profit or loss for the year. The Company practices different selling prices for its vehicles, thus, it estimates the depreciation rates on a straight-line basis and/or apply this for the entire fleet and machinery to offset gains and losses between the estimated selling price and cost when these assets are sold. Residual values and useful life of assets and depreciation methods are reviewed and adjusted by Management at the end of each year, and adjusted prospectively, when necessary. Depreciation of vehicles and other assets that comprise the cost of services provided is recognized in the profit or loss for the year, in accordance with the rates disclosed in Note 13. An asset's book value is immediately reduced to its recoverable amount when the its book value is higher than its expected future economic benefit. 18/76

19 Notes to the separate and consolidated interim financial statements for the six-month period ended June 30, Leasing The definition of a leasing agreement is based on substantial aspects related to the use of an asset or specific assets, and also the right to use a certain asset on the date of agreement. The Company as a lessee Financial lease transactions that transfer virtually all risks and benefits related to the ownership of the leased item to the Company are initially capitalized at the fair value of the leased asset or, if lower, at the present value of minimum lease payments. Costs are increased by initial direct costs incurred in the transaction, when applicable. Financial lease payments are allocated to financial charges and reduction of financial lease liabilities, so as to obtain a constant interest rate over the remaining balance of liabilities. Financial charges are recognized in the statement of income. Leased assets are depreciated throughout their useful life as estimated by the Company. Operating lease payments are recognized as expenses in the statement of income, on a straight-line basis, throughout the lease term. The Company as a lessor Lease transactions where the Company substantially transfers all risks and benefits of asset ownership are considered as sale, with derecognition of the related item and recognition of the financial revenue throughout the lease term. Lease transactions where the group does not substantially transfer all risks and benefits of asset ownership are considered as operating leases, and the revenues are recorded in the same way as rental revenues, linearly, according to the contractual term Intangible assets and goodwill Intangible assets consist mostly of goodwill paid in companies acquisitions, based on the expected future profitability, these were amortized up to December 31, 2008, and tested for impairment every year as of January 1, 2009 (note 14). Only the goodwill arising from the appreciation of property, plant and equipment is amortized, taking into consideration the estimated useful life of the assets from which it originated and the related write-offs in the period Impairment test Management reviews the net book value of key assets annually in order to assess events or changes in economic and operating circumstances that may indicate impairment or loss of their recoverable value. 19/76

20 Notes to the separate and consolidated interim financial statements for the six-month period ended June 30, 2010 When such evidence is detected and the net book value exceeds the recoverable value, an impairment provision is formed to adjust the net book value to the recoverable value Revenue Recognition Revenue is recognized to the extent that it is probable that economic benefits will be generated for the Company and when it can be reliably measured. Revenue is measured based on the fair value of the consideration received, excluding discounts, deductions and taxes or charges on sales and services rendered. The Company evaluates revenue transactions according to specific criteria to determine whether it is acting as an agent or principal, and concluded that it is the principal in all of its revenue agreements. The specific criteria below must also be met before revenue recognition: a. Service revenue Service revenue is recognized based on the performance of services provided for in the service agreements executed between the parties or upon completion of the services. When the result of the agreement cannot be reliably measured, revenue is only recognized to the extent that the expenses incurred can be recovered. b. Revenue from sale of assets used in service providing Revenue from sale of assets is recognized when the significant risks and benefits of product ownership are transferred to the buyer, which usually happens upon delivery of the product. c. Interest income For all financial instruments evaluated at amortized cost and financial assets that generate interest, a financial revenue or expense is recorded using the effective interest rate method, which deducts estimated future cash payments or receivables throughout the financial instrument's estimated life or for a shorter period of time, when applicable, at the net book value of the financial asset or liability. Interest income is recorded under financial revenue in the statement of income. d. Lease revenues Lease revenue is recognized as operating lease on a straight-line basis throughout the agreement term Taxes a. Current income tax and social contribution Income tax and social contribution on net profit are calculated in conformity with the criteria set forth by the current tax legislation. In the parent company, income tax and social contribution are calculated at the regular rates of 15%, plus a 10% surtax for income tax and 9% for social contribution tax. As allowed 20/76

21 Notes to the separate and consolidated interim financial statements for the six-month period ended June 30, 2010 by the tax legislation, certain subsidiaries with annual sales under R$48,000 have chosen to adopt the estimated profit taxation system. For these subsidiaries, the income tax rate is 8% and the social contribution rate is 12% on gross revenues (32% when revenue derives from service providing, and 100% when it derives from financial revenues), to which the regular income tax and social contribution rates are applied. b. Deferred taxes Deferred taxes are generated by temporary differences on the balance sheet date between the tax base of assets and liabilities and their book value. Deferred tax liabilities are recognized for all temporary tax differences except: when the deferred tax liability derives from the initial recognition of goodwill or from an asset or liability in a transaction that is not a business combination and, on the transaction date, does not affect the accounting profit or the tax profit or loss; and over temporary tax differences related to investments in subsidiaries, in which the reversal period of temporary differences can be controlled and when it is probable that the temporary differences will not be reversed in the near future. Deferred tax assets are recognized for all deductible temporary differences, unused tax credits and losses, when it is probable that the taxable profit will be available to enable the realization of deductible temporary differences and use of unused tax credits and losses, except: when the deferred tax asset related to the deductible temporary difference derives from the initial recognition of the asset or liability in a transaction that is not a business combination and, on the transaction date, does not affect the accounting profit or tax profit or loss; and over deductible temporary differences associated to investments in subsidiaries, deferred tax assets are only recognized to the extent that it is probable that the temporary differences will be reversed in the near future and that a taxable profit will be available to enable the use of temporary differences. The book value of deferred tax assets is revised on every balance sheet date and derecognized when it is no longer probable that taxable profits will be available to enable the use of deferred tax assets, in whole or in part. Deferred tax assets and liabilities are measured at the tax rate expected to be applied in the year when the asset is realized or the liability is settled, based on the tax rates (and legislation) enacted until the balance sheet date. 21/76

22 Notes to the separate and consolidated interim financial statements for the six-month period ended June 30, 2010 Deferred taxes related to items directly recognized in shareholders' equity are also recognized in shareholders' equity, not in the statement of income. Deferred tax items are recognized according to the transaction that originates the deferred tax, in the comprehensive income or directly in shareholders' equity. Deferred tax assets and liabilities are related to the same taxable entity and subject to the same tax authority. c. Taxes on revenue Revenues, expenses and assets are recognized net of sales taxes, except: when the sales taxes incurred in the purchase of assets or services are not recoverable from tax authorities, in which case the sales tax is recognized as part of the asset acquisition cost or the expense item, as applicable; when the accounts receivable and payable are reported together with the sales tax value; and the net amount of sales taxes, recoverable or payable, is recorded under accounts receivable or payable in the balance sheet Provisions General Provisions are recognized when the Company has a current liability (legal or unformalized) as a result of a past event, and when it is probable that economic benefits will be required to settle the liability and that the liability amount can be reliably estimated. When the Company expects a provision to be reimbursed, in whole or in part, such as by force of an insurance agreement, the reimbursement is recognized as a separate asset, but only when such reimbursement is highly probable. Expenses related to any provision are reported in the statement of income, net of reimbursements. Provisions for legal and administrative claims The Company is party to various legal and administrative proceedings. Provisions are accrued for all contingencies related to lawsuits when it is probable that an outflow of resources may be necessary to settle the contingency/liability and an estimate can be reliably made. The assessment on the probability of loss includes the analysis of available evidence, the hierarchy of laws, the available jurisprudence, the latest decisions of courts of law and their relevance in the legal system, as well as the opinion of external legal advisers. The provisions are revised and adjusted to take into account changes in circumstances, 22/76

23 Notes to the separate and consolidated interim financial statements for the six-month period ended June 30, 2010 such as the applicable expiration deadline, conclusions of fiscal inspections, or additional exposures that may be identified based on new matters or court decisions Discontinued operations Revenues and expenses from discontinued operations mentioned in note 2.2 are reported separately from other revenues and expenses under profit after taxes. The resulting profit or loss (after taxes) is reported separately in the statement of income Jointly-controlled operations (Consortia) The Company maintains operations with consortia (1 2 3, Unileste, and Metropolitano de Transportes), in which the entrepreneurs have a contractual agreement that establishes the joint control of the operations. Jointly-controlled operations involve the use of assets and other resources from the Company and other Consortium participants, in consideration of the constitution of a legal entity. The Company records the assets it controls and the liabilities and expenses it incurs, as well as its portion related to the service revenue Borrowing costs Borrowing costs directly related to the acquisition, construction or production of an asset that necessarily takes a significant amount of time to be completed for use or sale are capitalized as part of the cost of the corresponding asset. All other borrowing costs are recorded as expense in the period they are incurred. Borrowing costs consist of interest and other costs incurred by an entity in relation to the borrowing. The Company capitalizes borrowing costs for all eligible assets whose construction started after January 1st, The Company continues to account for, as expenses, borrowing costs related to construction projects started before January 1st, Earnings per share The Company calculates the earnings per share by using the average weighted number of total outstanding common shares in the period corresponding to the result, under technical pronouncement CPC41 (IAS 33) Other assets and liabilities (current and non-current) 23/76

24 Notes to the separate and consolidated interim financial statements for the six-month period ended June 30, 2010 An asset is recognized in the balance sheet when it is likely that its future economic benefits will flow to the Company, and its cost or value can be reliably measured. A liability is recognized in the balance sheet when the Company has a legal or constructive obligation as a result of a past event, and it is probable that an economic resource will be required to settle it. When applicable, these will include the respective charges and monetary and exchange variations incurred. Provisions are recorded considering the best estimates of the risk involved. Assets and liabilities are classified as current when their realization or settlement is likely to occur in the next 12 months. Otherwise, they will be stated as non-current Segment information The Company is organized in a single segment which is the rendering of services. The Company s Management regularly reviews this segment s results on a consolidated basis. Despite its business lines are divided into Dedicated Supply Chain Services, Management and Outsourcing of Fleet/Equipment, Passenger Transportation and Freight, the Company is supported by contracts, whose cycle includes procurement, utilization and subsequent sale of these assets Significant accounting judgments, estimates and assumptions a. Judgments The preparation of the separate and consolidated financial statements of the Company requires that Management make judgments and estimates and adopt assumptions that affect reported revenues, expenses, assets and liabilities, as well as the reporting on contingent liabilities, on the financial statement date. However, the uncertainty factor of such assumptions and estimates could lead to results that require an adjustment to book value of the affected asset or liability in future periods. b. Estimates and assumptions The key assumptions regarding the sources of uncertainty for future estimates and other important sources of uncertainty for estimates on the balance sheet date, involving significant risk of causing major adjustment to the book value of assets and liabilities in the following reporting period, are discussed below. b.1. Impairment loss of non-financial assets An impairment loss exists when the book value of an asset or cash-generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The calculation of fair value less costs to sell is based on available information on sale transactions for similar assets or market prices less additional costs to dispose of such asset. The calculation of the 24/76

25 Notes to the separate and consolidated interim financial statements for the six-month period ended June 30, 2010 value in use is based on the discounted cash flow model. Cash flows derive from the budget for the next five years and do not include reorganization activities the Company has not committed to yet, or significant future investments that will improve the asset base of the cash-generating unit being tested for impairment. The recoverable value is sensitive to the discount rate used in the discounted cash flow method, as well as to expected future cash flows to be received and to the growth rate used for extrapolation purposes. The key assumptions used to determine the recoverable value of the different cash-generating units, including a sensitivity analysis, are further detailed on Note 15. b.2. Taxes There are uncertainties regarding the interpretation of complex tax regulations and the value and timing of future taxable results. Given the long-term nature and the complexity of existing contracts, differences between the actual results and the assumptions adopted or future changes in such assumptions could require future adjustments to the tax income and expense already recorded. The Company forms provisions, based on applicable estimates, for possible consequences of auditing by tax authorities of the respective jurisdictions where it operates. The amount of such provisions is based on several factors, such as prior experiences with fiscal audits and different interpretations of the tax regulations by the taxable entity and by the tax authority in question. Such differences in interpretation may arise for the most diverse matters, depending on the conditions in force in the respective domicile of the Company. Significant judgment by Management is required in determining the amount of the deferred tax asset that can be recognized based on the probable deadline and future taxable income levels, as well as future fiscal planning strategies. b.3. Fair value of financial instruments Whenever the fair value of financial assets and liabilities reported in the balance sheet cannot be obtained from active markets, it is determined through appraisal techniques, including the discounted cash flow methodology. Data used with such methodologies is based on market practices whenever possible; however, when it is not feasible, a certain level of judgment is required to determine the fair value. Judgment includes considerations on used data, such as, for example, liquidity risk, credit risk and volatility. Changes in assumptions on such factors could affect the reported fair value of the financial instruments. b.4. Provisions for tax, civil and labor risks The Company recognizes a provision for civil and labor lawsuits. The assessment on the probability of loss includes the analysis of available evidence, the hierarchy of laws, the available jurisprudence, the latest decisions of courts of law and their relevance in the legal system, as well as the opinion of external legal advisers. The provisions are revised and adjusted to take into account changes in circumstances, such as the applicable expiration deadline, conclusions of fiscal inspections, or additional exposures that may be identified based on new matters or court decisions. 25/76

26 Notes to the separate and consolidated interim financial statements for the six-month period ended June 30, New IFRS and IFRIC Interpretations Certain new accounting IASB pronouncements and IFRIC interpretations were issued and/or reviewed that are of optional or mandatory application for fiscal years beginning as of January 1, Management has analyzed the impacts of these new procedures and interpretations and does not expect their adoption to cause a material impact on the Company's yearly information for the year of first-time application, as follows: IAS 24 Disclosure Requirements for Government-Related Entities and Related Party Definition (Revised) - Simplifies the disclosure requirements for government-related entities and defines related parties. This revised rule addresses aspects that, according to previous disclosure requirements and the prior definition of related party, were extremely complex and difficult to be applied in practice, particularly in environments where government control is pervasive, and now provides a partial exemption for government-related entities as well as a revised definition of a related party. This amendment was issued in November 2009, and became effective for fiscal years beginning in January 1, This amendment will have no impact on the consolidated financial statements of the Company. IFRS 9 Financial Instruments Classification and Measurement IFRS 9 closes the first part of the project to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 uses a simple approach to determine if a financial asset is measured at amortized cost or fair value, based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. The standard also requires that only one method be adopted for the determination of impairment losses. This standard will become effective for fiscal years beginning in January 1, The Company does not expect this change to have any impact on its consolidated financial statements. IFRIC 14 Prepayments of a Minimum Funding Requirement This amendment only applies to situation where an entity is subject to minimum funding requirements and advances its contributions in order to meet such requirements. This amendment allows for the entity to account for the benefit of such prepayment as an asset. This amendment will become effective for fiscal years beginning in January 1, This amendment will have no impact on the consolidated financial statements of the Company. IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments IFRIC 19 was issued on November 2009 and became effective on July 1, 2010, and earlier application is permitted. This interpretation clarifies the requirements of International Financial Reporting Standards (IFRS) when an entity renegotiates the terms and conditions of a financial liability with its creditor and the latter agrees to accept entity stock or other equity instruments to settle the financial liability in full or in 26/76

27 Notes to the separate and consolidated interim financial statements for the six-month period ended June 30, 2010 part. The Company does not expect IFRIC 19 to have any impact on its consolidated financial statements. Improvements to the IFRS The IASB issued improvements to the rules and amendments to the IFRS on May 2010; the amendments will be in force as of January 1, Below is a list of the main amendments that could have an impact on the Company: - IFRS 3 Business combinations. - IFRS 7 Financial Instruments: Disclosures. - IAS 1 Presentation of Financial Statements. The Company does not expect the changes to have any impact on its consolidated financial statements. Other rules and interpretations that have been issued but not adopted yet are not expected, based on Management's opinion, to have a significant impact on the Company's reported result or equity. 3. First-time adoption of International Financial Reporting Standards (IFRSs) and CPCs The Brazilian Accounting Standards Board (CPC) has issued several pronouncements to converge the Brazilian accounting practices to the international accounting standards, approved by CVM through the Resolutions. The pronouncements and the Resolutions are in force for the fiscal years beginning January 1, 2010, with retroactive application for purposes of comparison with January 1, As permitted by CVM Rule 603/09, the Company s Management has chosen to present the parent company s and consolidated Quarterly Information (ITR) within its respective deadlines in accordance with accounting principles generally accepted in Brazil (BRGAAP), including CPC pronouncements until December 31, 2009, i.e., the Company did not adopt these standards effective for Therefore, the parent company s and the consolidated ITRs are being re-presented in accordance with the CPCs, IFRS and CVM Resolutions approved by December 31, Therefore, the Company has prepared its separate and consolidated financial statements in compliance with the standards set out in CPC pronouncements for periods beginning January 1, Opening balances presented in the financial statements being presented were those existing on January 1, 2009, date of the transition to CPC. The Company's separate financial statements differ from IFRS only in respect of evaluating equity investments in subsidiaries through the equity method of accounting. Under IFRS, these evaluations are made at the cost or fair value. Moreover, Brazilian corporate laws require publicly-held companies to include a value-added statement (VAS) with their separate and consolidated financial statements at the end of each fiscal year, while under IFRS such statements are presented on a supplementary basis. 27/76

28 Notes to the separate and consolidated interim financial statements for the six-month period ended June 30, 2010 Note 3.2 discusses the primary adjustments made by the Company in order to re-present opening balances on January 1, 2009 in accordance with BRGAAP, and also the published financial statements prepared in accordance with BRGAAP for the year ended December 31, The separate financial statements for the six-month period ended June 30, 2010 are the first ever represented following full adoption of CPCs. Similarly, the consolidated financial statements were prepared following full adoption of CPCs and in accordance with International Financial Reporting Standards (IFRS). 3.1 Mandatory exceptions and exemption from retrospective application The CPC pronouncement No. 37 Initial adoption of International Financial Reporting Standards, allows certain exemptions concerning retrospective application of CPC requirements for the period ended in June The Company adopted the mandatory exceptions and also the following exemptions: Business combinations: The Company adopted the exemption set out in CPC 37 waiving application of CPC 15 to acquisitions completed before the transaction date on January 1, Classification of financial instruments: The Company chose to classify and evaluate its financial instruments in accordance with CPCs 38, 39, and 40 at the transition date. No evaluations were performed retrospectively from the original date of purchase of financial instruments in force on the transition date. All financial instruments purchased after the transition date were evaluated and classified on each respective purchase date. Borrowing costs: The Company adopted the exemption set out in CPC 37 and began to capitalize interest paid on ongoing projects initiated after the transition date, i.e. January 1, Cost imputed to fixed assets (deemed cost for PPE): The Company chose to re-evaluate, at the transition date, certain items of its fixed assets (properties and buildings). This reassessment had an impact of R$4,668 at transition date. Additionally, during the year ended December 31, 2008 the Company reviewed the depreciation for key items of its property, plant and equipment (fleet, machinery and equipment) against their estimated useful lives. This adjustment was initially posted to retained earnings at the amount of R$165,310 and then carried over to asset evaluation adjustments on the transition date. These adjustments were accounted for net of their tax impacts. 3.2 Reconciliation of accounting practices used in preparing previously presented financial statements 28/76

29 Notes to the separate and consolidated interim financial statements for the six-month period ended June 30, 2010 Pursuant to CPC37 R (IFRS 1), the Company is presenting a reconciliation of its assets, liabilities, shareholders' equity, and income of parent company and also the same consolidated items for periods disclosed prior to that ended December 31, This reconciliation considered January 1, 2009 as transition date and were was prepared in accordance with BRGAAP and international standards effective in /76

30 a. Reconciliation of parent company and Company consolidated balance sheets 12/31/2009 JSL S.A. (Formerly Julio Simões Logística S/A) Reconciliation of the Company's separate and consolidated balance sheet as of December 31,2009 (In thousands of Reais) Parent Company Consolidated Reclassification Reclassification / Assets Note BRGAAP / Adjustment BRGAAP (CPC) Note BRGAAP Adjustment Current assets Cash and cash equivalents a 20,033 80, ,534 a 26,594 84, ,905 Securities a 80,501 (80,501) - a 84,311 (84,311) - Accounts receivable - 197, , , ,105 Supplies - 9,160-9,160-12,738-12,738 Taxes recoverable - 44,592-44,592-45,716 - Deferred income tax and social contribution b 11,398 (11,398) - b 11,398 (11,398) 45,716 - Other credits - 54,039-54,039-54,521-54,521 Prepaid expenses - 10,137-10,137-10,230-10, ,518 (11,398) 416, ,613 (11,398) 465,215 Assets available for sale (fleet renewal) / Assets from discontinued operations h - 21,835 21,835 h - 23,705 23,705 Non current assets Long-term assets Securities - 27,000-27,000-27,000-27,000 Accounts receivable - 6,253-6,253-9,762-9,762 Taxes recoverable - 9,885-9,885-9,885-9,885 Deposits in court c - 10,837 10,837 c - 10,837 10,837 Deferred income tax and social contribution b 34,195 11,398 45,593 b 34,195 11,398 45,593 Related parties Other credits ,768 3, ,768 3, ,344 4, ,344 4, ,574 22, , ,248 22, ,483 Investments - 76,833-76, Property, plant and equipment Intangible assets e / h j 1,078, ,444 (23,867) 2,032 1,054, ,476 e / i j 1,138, ,198 (18,869) 2,220 1,119, ,418 1,275,001 (21,835) 1,253,166 1,261,243 (16,649) 1,244,594 Total non current assets 1,415, ,415,975 1,405,491 5,586 1,411,077 Total assets 1,843,093 10,837 1,853,930 1,882,104 17,893 1,899,997 IFRS 30/76

31 a. Reconciliation of parent company and Company consolidated balance sheets 12/31/2009 (continued) JSL S.A. (Formerly Julio Simões Logística S/A) Reconciliation of the Company's separate and consolidated balance sheet as of December 31,2009 Liabilities and Shareholders' equity Note BRGAAP (In thousands of Reais) Parent Company Reclassification / Adjustment BRGAAP (CPC) Note BRGAAP Consolidated Reclassification / Adjustment Current liabilities Loans and financing f 290,159 (44,951) 245,208 f 291,104 (44,951) 246,153 Debentures f - 44,951 44,951 f - 44,951 44,951 Finance lease payable - 101, , , ,208 Suppliers - 48,337-48,337-50,749-50,749 Labor liabilities - 33,029-33,029-50,302-50,302 Tax liabilities - 12,981-12,981-26,382-26,382 Accounts payable and advances from clients - 109, , , ,601 Related parties - 26,459-26, Provision for losses in investments m 17,088 (17,088) Provision for losses - investing activity of discontinued operations Income tax and social contribution payable d 37,175 (37,175) - d 41,777 (39,850) 1, ,948 (54,263) 621, ,927 (39,850) 640,077 Non current liabilities Loans and financing f 597,521 (33,713) 563,808 f 599,112 (33,713) 565,399 Debentures f - 33,713 33,713 f - 33,713 33,713 Finance lease payable - 42,992-42,992-43,347-43,347 Tax liabilities - 31,206-31,206-46,973-46,973 Provision for losses in investments m - 12,431 12, Provision for court and administrative claims c 8,829 10,837 19,666 c 10,742 10,837 21,579 Deferred income tax and social contribution d 111,524 37, ,699 d / i 119,550 42, ,799 Accounts payable and advances from clients - 19,719-19,719-27,051-27, ,791 60, , ,775 53, ,861 Minority interest g 48 (48) - Shareholders' Equity Capital stock Equity valuation - i / l 139, , , ,585 - i / l 139, , , ,589 Revenue reserve l 216,202 (168,932) 87,270 l 216,202 (128,932) 87,270 Accrued profit ,354 4, , ,354 4, ,011 Minority interest g ,354 4, , ,354 4, ,059 Total liabilities and shareholders equity 1,843,093 10,837 1,853,930 1,882,104 17,893 1,899,997 IFRS 31/76

32 a. Reconciliation of parent company and Company consolidated balance sheets 6/30/2009 (continued) JSL S.A. Consolidated statements of income for the years ended June 30, 2009 (In thousands of Reais) Parent Company Consolidated Results Note BRGAAP Adjustments CPCs BRGAAP Adjustments IFRS ( = ) Net revenue 335, , , ,428 ( - ) Cost of sales and services rendered i / m (233,534) (11,136) (244,670) (254,438) (11,140) (265,578) ( - ) Cost of asset disposal used in services rendered m (26,521) (5,032) (31,553) (34,894) (5,032) (39,926) (260,055) (16,167) (276,222) (289,332) (16,171) (305,503) ( = ) Gross profit 75,660 (16,167) 59,493 78,096 (16,171) 61,924 (+/-) Operating expenses and revenues Administrative and selling expenses m (40,913) 10,577 (30,336) (44,057) 10,577 (33,480) Tax expenses m (7,302) 7,026 (276) (7,376) 7,026 (350) Financial expenses m (28,189) (1,204) (29,393) (29,543) (1,204) (30,746) Financial income - 6,789-6,789 7,131-7,131 Other operating revenues (expenses) m 15,025 (232) 14,793 (4,182) (232) (4,414) Equity pickup - 51 (3) (54,539) 16,164 (38,375) (78,027) 16,167 (61,860) ( = ) Earnings before tax provisions 21,121 (3) 21, (5) 64 ( - ) Provision for income tax and social contribution - (14,828) - (14,828) (15,723) - (15,723) ( + ) Deferred tax credits / debts i 10,755-10,755 32, ,708 ( = ) Earnings before discontinued operations and interest 17,048 (3) 17,044 17,053 (3) 17,050 Discontinued operations Net income for the period deriving from discontinued investments - 3,943-3,943 3,943-3,943 ( = ) Net income for the year before interest 20,991 (3) 20,987 20,996 (3) 20,992 ( - ) Minority interest (5) - (5) ( = ) Net income for the year 20,991 (3) 20,987 20,991 (3) 20,987 ( = ) Earnings per share at the end of the year (in Reais) The accompanying notes are an integral part of this financial information. 32/76

33 Notes to the separate and consolidated financial statements for the six-month period ended June 30, Discussion of the main differences between IFRS and BRGAAP affecting the Company's financial statements The Company has not identified any necessary accounting adjustments upon the adoption of IFRS, however made certain reclassification in balance sheet items to improve comparability, reading of accompanying notes and adaptations to the new accounting practices. The relevant points are discussed below: a. Reclassification of securities with immediate liquidity not linked to loans taken for cash and cash equivalents. b. Reclassification of deferred income tax and social contribution from current assets to non-current assets. c. Reclassification of court deposits previously recognized in non-current liabilities to non-current assets. (This reduced the balance of provisions for court and administrative judgments.) d. Reclassification of payable income tax and social contribution from current liabilities to deferred income tax and social contribution in non-current liabilities. e. Reclassification of fixed assets undergoing deactivation to the 'assets made available for sale for fleet renovation purposes' item. f. Segregation of debenture balances from loan items in non-current and current liabilities. g. We now recognize the minority interests item as a component of the shareholders' equity. h. Discontinued operations, which comprise Original Veículos Ltda., Avante Veículos Ltda., Ponto Veículos Ltda., and Corretora e Administradora de Seguros Vintage Ltda. are being considered in the opening balance by their respective asset and liability balances. (Accordingly, the corresponding investment line item was removed under assets, as was the provision for losses as a result of equity positions in companies with negative shareholders' equity); i. Supplementary impact of deemed cost as mentioned in Note 3.1; j. Reclassification of residual balances accounted for in PPE as intangibles; k. Segregation of asset evaluation adjustments previously comprised in retained earnings; l. Reclassification of the provision for investment losses from current to non-current liabilities; and 33/76

34 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 m. Sundry reclassifications made for better presentation of income line items. 4 Cash and cash equivalents Type of Balances Parent Company Consolidated 06/30/ /31/ /30/ /31/2009 Fundo Exclusivo Bradesco Debentures 58,979-58,979 - Repurchase agreements 145, ,766 - LFT - Financial Treasury Bills 90,727-90,727 - CDB - Bank Deposit Certificate 19,788-19,788 - Other 4,902-4, , ,161 - Investments CDB - Bank Deposit Certificate 13,161 80,501 17,123 84,311 13,161 80,501 17,123 84,311 Available cash and banks Cash , Banks 12,751 19,736 17,582 25,751 13,381 20,033 18,776 26, , , , ,905 The Parent Company has an investment in Bradesco Fundo de Investimento Multimercado Crédito Privado JSL, an investment fund managed by bank Bradesco S/A, which is responsible for the custody of the assets of the fund's portfolio and for the financial settlement of its operations. The exclusive fund is regularly audited by independent auditors and is subject to obligations limited to the payment of asset management services, attributed to the operation of investments, such as custody and audit fees and other expenses. No material financial obligations, nor Company's assets guarantee such obligations. The average yield of investments for the six-month period ended June 30, 2010 was 0.70% (0.76% on June 30, 2009). 34/76

35 Notes to the separate and consolidated financial statements for the six-month period ended June 30, Securities This balance is linked to amortization of loans taken from escrow financial institutions, as shown below: Parent Company / Consolidated Financial Institution 06/30/ /31/2009 Remuneration Committed Maturity CEF 16,690 15,000 CDI CCB - 150,000 Mar/13 Banco do Brasil 12,519 12,000 CDI 2 nd Debent. BB Dec/16 Total 29,209 27,000 6 Accounts receivable Parent Company Consolidated Description 06/30/ /31/ /30/ /31/2009 Accounts receivable (1) 191, , , ,910 Adjustment to present value (1) (428) (1,445) (1,035) (3,236) Unbilled revenue (2) 69,194 48,264 74,565 52,696 (-) Provision for impairment (3) (28,945) (25,601) (41,419) (30,503) 231, , , ,867 Current assets 225, , , ,105 Non-current assets 6,100 6,253 6,100 9,762 Total 231, , , ,867 (1) Receivables with average maturity of more than 90 days are recorded at present value upon the initial recording of the transaction, pursuant to the variation of the base rate Selic, as this rate approximates the average rate used by the Company to calculate the prices of the related agreements. Financial charges are recognized as financial income when incurred; (2) Billable revenue comprises any bills of lading issued and recognized as revenue in the period on an accrual basis and as services effectively provided; (3) Below is the history of estimated losses from doubtful accounts for the periods ended June 30, 2010 and 2009: Parent Company Consolidated 06/30/ /30/ /30/ /30/2009 Balance in the beginning of the period (25,601) (26,695) (30,503) (27,209) (+) Additions (11,646) (17,009) (19,589) (17,009) (-) Write-offs 8,302 2,341 8,673 2,341 Balance at the end of the period (28,945) (41,363) (41,419) (41,877) 35/76

36 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 Classification per maturity (aging list) 06/30/2010 Accounts receivable, net Parent Company Consolidated Over 365 days past due 6,114 6, to 365 days past due 7,558 7, to 180 days past due 6,332 6, to 90 days past due 8,707 12,893 Up to 30 days past due 25,265 28,931 Past due 53,976 61,912 Due in up to 30 days 147, ,993 Due in 31 to 90 days 13,033 17,058 Due in 91 to 180 days 5,095 8,401 Due in 181 to 365 days 3,627 7,735 Due in over 365 days 7,809 7,203 Falling due 177, ,391 Total 231, ,304 7 Inventory / Supplies Parent Company Consolidated Description 06/30/ /31/ /30/ /31/2009 Consumable materials 8,683 8,123 14,643 11,675 Supplies Other Total 9,642 9,160 15,662 12,738 Goods owned by third parties and stored in the Company's warehouses due to its warehousing and logistics activities amount to R$152,530 on June 30, 2010 (R$107,742 on December 31, 2009). 8 Assets made available for sale (fleet renovation) and discontinued operation assets 8.1. Assets made available for sale (fleet renovation) The Company's fleet renovation initiative involves releasing certain assets (vehicles and machines) and making them available for sale. As per CPC 31 (IFRS 5), in this item are classified assets previously accounted for as PPE that have a potential for sale in the short term. Amounts are presented at the lesser of the residual cost, which is the acquisition cost less depreciation accrued as of the date of the financial statement, and the fair value less the cost of selling the asset. 36/76

37 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 These assets are available for immediate sale on an as-is basis, and, in view of such circumstance, very likely to be sold within one year or less. This change of classification criterion complies with the alterations mandated by adoption of the new accounting pronouncements in 2010, but does not change the nature of the transaction involving sales of assets (as PPE) for taxation purposes Discontinued operations Based on the balance as of September 30, 2009, the Company disclosed a resolution of its Board of Directors that called for the operations of Original Veículos Ltda., Avante Veículos Ltda., Ponto Veículos Ltda. and Corretora e Administradora de Seguros Vintage Ltda. to be discontinued. These concerns operate in a segment for which information is disclosed separately and not included in the Company's operations. As of January 1, 2009, these discontinued businesses were classified in the investment item under assets, and in the provision for losses resulting from equity positions in companies with negative shareholders' equity. Below is a presentation of the income and balance sheets for the discontinued operations as of June 30, 2009: 06/30/2009 Revenue from sales and services rendered 517,665 ( - ) Revenue deductions (19,454) ( - ) Cost of sales and services rendered (443,006) ( = ) Gross profit 55,205 (+/-) Operating expenses and revenues (55,812) Taxes 768 ( = ) Earnings before discontinued operations and interest 160 Assets 06/30/2009 Liabilities and Shareholders' equity 06/30/2009 Current assets 166,886 Current liabilities 167,353 Non current assets 78,028 Non current liabilities 6,138 Shareholders' equity 71,423 Total assets 244,914 Total liabilities and shareholders' equity 244,914 37/76

38 Notes to the separate and consolidated financial statements for the six-month period ended June 30, Taxes recoverable Parent Company Consolidated Description 06/30/ /31/ /30/ /31/2009 ICMS tax on sale of goods and services (1) 33,684 32,081 33,815 32,149 Adjustment to present value (3,541) (2,553) (3,541) (2,553) Income tax withheld (IRRF) 10,182 6,970 10,651 7,209 Social contribution withheld (CSRF) 2,127 2,127 2,127 2,127 INSS social security tax 2,643 3,732 3,561 4,520 Income tax and social contribution on net income (IRPJ/CSLL) 4,008 2,690 7,942 2,605 PIS/COFINS 708 1, ,441 Other taxes 8,152 7,989 8,168 8,103 57,961 54,477 63,440 55,601 Current assets 44,797 44,592 50,276 45,716 Non current assets 13,164 9,885 13,164 9,885 Total 57,961 54,477 63,440 55,601 (1) ICMS is mainly represented by credits from acquisitions of fixed assets, offset at a monthly rate of 1/48, pursuant to the prevailing tax legislation. That is recorded at present value upon the initial recording of the credit based on the broad consumer price index (IPCA), since this approximates the expected indexation for the fixed asset to be affected. Financial charges are recognized as financial income when incurred. 38/76

39 Notes to the separate and consolidated financial statements for the six-month period ended June 30, Other credits Parent Company Consolidated Description 06/30/ /31/ /30/ /31/2009 Leases - 3,187-3,187 Amounts receivable - municipal commuting 20 1, ,134 Claims receivable 602 1, ,460 Dividends receivable 1,062 1,788 1,062 1,788 Advances to employees 2,499 3,235 2,956 3,487 Accounts receivable Shared Services Center 2,871-2,871 - Advances to suppliers 5,573 3,327 6,726 3,437 Amounts receivable - CMT (2) 16,519 37,947 16,519 37,947 Other credits 16,445 5,434 10,195 6,143 Total 45,591 57,512 40,950 58,583 Current assets 36,490 54,039 31,352 54,521 Non current assets 9,101 3,473 9,598 4,062 Total 45,591 57,512 40,950 58,583 (1) This amount refers to expenses advanced in connection with a productivity improvement project, which is currently being repaid/amortized as per the relevant services agreement; and (2) Balance corresponding to amounts maintained by urban passenger transportation entity Consórcio Metropolitano de Transportes for its operating activities. 11 Anticipated expenses Parent Company Consolidated Description 06/30/ /31/ /30/ /31/2009 Unrecorded lease (1) 7,092 7,653 7,092 7,651 Unrecorded insurance policies 3,115 2,066 3,590 2,075 Other unrecorded expenses 7, , Total 17,899 10,137 18,597 10,230 (1) The Company entered into an operating lease agreement with Ribeira Imóveis Ltda. effective August 31, 2009, covering certain rent expenses. (Please see note 22.4). 39/76

40 Notes to the separate and consolidated financial statements for the six-month period ended June 30, Investments Information on subsidiaries Investments Interest Income Shareholders' equity Income for the year % Interest 06/30/ /31/ /30/2010 6/30/2009 Parent Company JP Tecnolimp S.A. 4,942 1, ,892 4,709 1, Mogipasses Comércio de Bilhetes Eletrônicos Ltda. 1, ,956 1, CS Brasil Transportes de Passageiros e Serviços Ambientais Ltda. 76,771 11, ,763 65,638 11,132 - Transportadora Grande ABC Ltda. (18,797) (8,217) ,660 - (6) (6) Yolanda Logística Armazém Transporte e Serviços Gerais Ltda. (3) (6,963) (459) ,271 72,060 12, Other investments Work Container Ind. Transf. Plast. Ltda. (2) 7, Amortization of goodwill from appreciation of fixed assets TGABC (1) 3,584 4, Total Parent Company's investments 91,865 76,833 12, Information on subsidiaries Interest Investments Shareholders' equity Income for the year % Interest 06/30/ /31/2009 Consolidated Work Container Ind. Transf. Plast. Ltda. (2) 7, Total investments (1) Goodwill from appreciation of fixed assets in the acquisition of Transportadora Grande ABC Ltda. in the amount of R$22,944 with accumulated amortization of R$19,360 calculated taking into account the depreciation and/or sale of the related assets. (2) Evaluated at the cost. (3) The Company has set up a 100% provision covering potential losses from this investment; 40/76

41 Notes to the separate and consolidated financial statements for the six-month period ended June 30, Changes in investments Discontinued Ongoing Balance on 01/01/ ,644 26,361 (-) Reversal of provision for loss on investment (2,385) - (+) Paid-up capital - Avante 19,199 - (-) Write-off FACA - Avante Ltda. (2,500) - (-/+) Equity pickup (4,369) 837 (-) Amortization of goodwill from appreciation of fixed assets TGABC - (4,444) Balance on 06/30/ ,589 22,754 (+) Paid-up capital - CS Brasil 92,212 (+) Equity pickup 6,140 5,103 (-/+) Other (58) 64 (-) Decrease in investment (16,689) (29,378) (-) Decrease in capital stock (56,982) - (-) Write-off FACA - Yolanda - (200) (+) Investment in Work Container - 10 (-) Amortization of goodwill from appreciation of fixed assets TGABC - (13,732) Balance on 12/31/ ,833 (+) Equity pickup - 12,617 (+) Equity valuation - land TGABC - 4,654 (-) Decrease in investment - (1,062) (-) Amortization of goodwill from appreciation of fixed assets TGABC - (1,176) Balance on 06/30/ , Property, plant and equipment % - Annual rate Parent Company Consolidated Description of depreciation 06/30/ /31/ /30/ /31/2009 Vehicles (*) 8.1 1,292,547 1,081,027 1,346,561 1,145,439 Machinery and equipment (*) ,297 94, , ,024 Construction in progress (1) - 29,935 23,856 30,132 23,857 Leasehold improvements (2) 4 16,031 17,245 18,968 17,245 Computers and peripherals 20 6,305 5,609 8,067 7,212 Furniture and fixtures 10 4,115 3,891 5,299 4,997 Vessels (3) 5 2,080-2,079 - Properties ,155 7,155 Other ,794 2,200 3,923 Fixed assets cost - subtotal 1,534,381 1,228,087 1,610,209 1,310,852 ( - ) Accumulated depreciation (201,383) (173,230) (214,508) (190,743) ( - ) Impairment (4) - - (943) (943) ( - ) Fixed assets cost, net of accumulated depreciation 1,332,998 1,054,857 1,394,757 1,119,166 41/76

42 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 (*) Annual weighted average (1) Improvements related to the construction of the railway terminal located in Itaquaquecetuba, expected to finish in 2011; (2) Balances substantially composed of construction works corresponding to the Unileste/Poá garage reclassified to leasehold improvements as a result of the completion of the construction works at the end of 2009, which started to be amortized in 2010 according to the land lease term (5 years); (3) Refers to the assembly of a vessel to provide dredging services; and (4) Upon performing the annual review on the carrying value of its assets, the Company identified that, in 2008, the carrying values of part of the vehicles of its subsidiary Transportadora Grande ABC Ltda. exceeded the recoverable amount, determined at the net sales price of such assets. A provision was then set up to reduce the carrying values to the realization amount, with a contra entry in the income for the year, under cost of services sold. From January 1 to June 30, 2010, the Company and its subsidiaries acquired assets in the amount of R$366,020. These assets were partly acquired through Finame and lease operations in the conditions described in notes 16 and 18. In the same period, the Company disbursed R$13,294 (R$25,347 in the same period in 2009) to pay for its assets. Referring to working capital, part of costs with loans raised in 2008 and 2009 were capitalized due to works at the railway terminal of Itaquaquecetuba and the garage in Poá. The residual values of vehicles and machines, which comprise the cost of acquisition less depreciation accrued until the date of determination, are compared to their expected realization (sale) amounts, which are based on semi-new car price schedules by dealers and industry organizations such as FIPE and Molicar. Additionally, where the residual value of an asset exceeded its semi-new sales price, the Company reviewed the relevant customer services or lease agreements (cash-generating units) and obtained the prevailing amounts (present value of discounted future cash flows attached to said agreements), as directed by CPC 01 (IAS 36). 42/76

43 Notes to the separate and consolidated financial statements for the six-month period ended June 30, Changes in the period (acquisition cost) Description 12/31/2009 Addition Write-off Transfers Parent Company Special operations write-off (*) 06/30/2010 Vehicles 1,081, ,248 (53,664) - (18,064) 1,292,547 Machinery and equipment 94,665 89,359 (727) ,297 Construction in progress 23,856 7,905 (207) (1,618) - 29,935 Leasehold improvements 17,245 1, (2,939) 16,031 Computers and peripherals 5, ,305 Furniture and fixtures 3, (3) - - 4,115 Vessels ,543-2,080 Other 1, (1,773) (0) - 71 Fixed assets cost - subtotal 1,228, ,670 (56,374) - (21,003) 1,534,381 ( - ) Accumulated depreciation (173,230) (36,045) 7, (201,383) ( - ) Fixed assets cost, net of accumulated depreciation 1,054, ,625 (48,482) - (21,003) 1,332,998 (*) Refers to the increase of capital in subsidiary CS Brasil Transporte de Passageiros e Serviços Ambientais Ltda., as well as writing off assets made available for sale (fleet renovation). Description 01/01/2009 Addition Write-off Parent Company Special operations write-off (*) 06/30/2010 Vehicles 1,022,597 72,250 (75,343) 2,608 1,022,112 Machinery and equipment 55,231 29,669 (700) - 84,200 Construction in progress 9,465 9, ,472 Leasehold improvements 12,628 3, ,829 Computers and peripherals 5, (2) - 5,467 Furniture and fixtures 3, ,736 Other 4,100 - (2,000) - 2,100 Fixed assets cost - subtotal 1,112, ,802 (78,045) 2,608 1,151,917 ( - ) Accumulated depreciation (141,720) (38,401) 13,561 33,847 (132,713) ( - ) Fixed assets cost, net of accumulated depreciation 970,832 76,401 (64,484) 36,455 1,019,204 (*) Refer to the impact of transactions related to assets made available for sale (fleet renovation). 43/76

44 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 Description 12/31/2009 Addition Write-off Transfers Consolidated Special operations write-off (*) 06/30/2010 Vehicles 1,145, ,271 (63,029) - (1,120) 1,346,561 Machinery and equipment 101,024 89,450 (727) ,747 Construction in progress 23,857 7,905 (11) (1,618) - 30,132 Leasehold improvements 17,245 1, ,968 Computers and peripherals 7, ,067 Furniture and fixtures 4, (3) - - 5,299 Vessels ,543-2,079 Properties 7, ,155 Other 3, (1,773) - - 2,200 Fixed assets cost - subtotal 1,310, ,020 (65,543) - (1,120) 1,610,209 ( - ) Accumulated depreciation (190,743) (37,425) 13, (214,508) ( - ) Impairment (1) (943) (943) ( - ) Fixed assets cost, net of accumulated depreciation 1,119, ,595 (51,884) - (1,120) 1,394,757 (*) Refer to the impact of transactions related to assets made available for sale (fleet renovation). (1) Revaluation due to divestments. Description 01/01/2009 Addition Write-off Consolidated Special operations write-off (*) 06/30/2010 Vehicles 1,092,825 30,725 (87,874) 20,357 1,056,033 Machinery and equipment 56,956 30,472 (1,400) - 86,027 Construction in progress 10,164 9, ,687 Leasehold improvements 12,628 3, ,828 Computers and peripherals 6, (2) - 7,066 Furniture and fixtures 4, ,824 Properties 7, ,155 Other 4,837 - (608) - 4,229 Fixed assets cost - subtotal 1,195,728 74,649 (89,884) 20,357 1,200,850 ( - ) Accumulated depreciation (152,947) (39,243) 14,887 38,054 (139,250) ( - ) Impairment (943) (943) ( - ) Fixed assets cost, net of accumulated depreciation 1,041,838 35,405 (74,997) 58,411 1,060,657 (*) Refer to the impact of transactions related to assets made available for sale (fleet renovation). 44/76

45 Notes to the separate and consolidated financial statements for the six-month period ended June 30, Changes in the period (depreciation) Parent Company Description 12/31/2009 Addition Write-off 06/30/2010 Vehicles (154,335) (29,069) 7,721 (175,683) Machinery and equipment (11,883) (5,920) 82 (17,720) Computers and peripherals (3,799) (376) 3 (4,172) Furniture and fixtures (1,875) (174) 2 (2,047) Leasehold improvements (1,269) (413) - (1,682) Vessels - (31) 1 (30) Other (69) (62) 83 (47) Total accumulated depreciation (173,230) (36,045) 7,892 (201,383) (*) Refers to the increase of capital in subsidiary CS Brasil Transporte de Passageiros e Serviços Ambientais Ltda. Description 01/01/2009 Addition Write-off Parent Company Special operations (*) 6/30/2009 Vehicles (123,418) (35,568) 10,821 33,847 (114,318) Machinery and equipment (14,567) (1,401) 2,731 - (13,237) Computers and peripherals (1,987) (777) - - (2,764) Furniture and fixtures (1,162) (317) - - (1,479) Leasehold improvements (533) (305) - - (838) Properties - (34) 10 - (24) Other (53) (53) Total accumulated depreciation (141,720) (38,401) 13,561 33,847 (132,713) Consolidated Description 12/31/2009 Addition Write-off 06/30/2010 Vehicles (168,388) (30,068) 13,489 (184,967) Machinery and equipment (13,431) (6,153) 82 (19,501) Computers and peripherals (4,824) (452) 3 (5,273) Furniture and fixtures (2,449) (225) 2 (2,671) Leasehold improvements (1,269) (413) - (1,682) Vessels - (30) 1 (29) Properties (87) (1) - (88) Other (295) (84) 83 (296) Total accumulated depreciation (190,743) (37,426) 13,660 (214,508) 45/76

46 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 Description 01/01/2009 Addition Write-off Consolidated Special operations (*) 06/30/2010 Vehicles (132,575) (35,694) 12,145 38,054 (118,070) Machinery and equipment (14,795) (2,019) 2,734 - (14,080) Computers and peripherals (3,097) (777) - - (3,874) Furniture and fixtures (1,560) (402) - - (1,962) Leasehold improvements (578) (305) - - (883) Properties (68) (10) 0 - (77) Other (274) (37) 8 - (303) Total accumulated depreciation (152,947) (39,243) 14,887 38,054 (139,250) 14 Intangible assets Description Cost Parent Company 06/30/ /31/2009 Accumulated amortization Net Cost Accumulated amortization Goodwill from acquisition of Lubiani Transportes Ltda. (1) 73,011 (42,652) 30,359 73,011 (42,652) 30,359 Goodwill from acquisition of Transportadora Grande ABC Ltda. (1) 85,511 (2,451) 83,060 85,511 (2,451) 83,060 Goodwill from acquisition of Yolanda Logística Armazém Transporte e Serviços Gerais Ltda. (1) 6,233 (208) 6,025 6,233 (208) 6,025 Software (3) 5,089 (3,181) 1,907 4,648 (2,858) 1,790 Rights of use Trademarks and patents 164 (19) (18) 146 Total 170,105 (48,511) 121, ,663 (48,187) 121,476 Net Description Cost Consolidated 06/30/ /31/2009 Accumulated amortization Net Cost Accumulated amortization Goodwill from acquisition of Lubiani Transportes Ltda. (1) 73,011 (42,652) 30,359 73,011 (42,652) 30,359 Goodwill from acquisition of Transportadora Grande ABC Ltda. (1) 85,511 (2,451) 83,060 85,511 (2,451) 83,060 Goodwill from acquisition of Yolanda Logística Armazém Transporte e Serviços Gerais Ltda. (1) 6,233 (208) 6,025 6,233 (208) 6,025 Direito de concessão de transporte público em São José dos Campos (2) 4,257 (680) 3,577 4,257 (503) 3,754 Software (3) 5,343 (3,131) 2,212 4,865 (2,893) 1,972 Rights of use Trademarks and patents 171 (19) (18) 152 Total 174,622 (49,140) 125, ,143 (48,725) 125,418 Net (1) Goodwill in the acquisition of business, justified based on future profitability and amortized up to December 31, 2008; (2) Concession right acquired in 2008 for a 12-year period, amortized on a straight-line basis in this period; and 46/76

47 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 (3) Software assets have a useful life of 5 years and are amortized linearly over this period Changes Parent Company 12/31/ /30/2010 Description Balance Addition Write-off Amortization Balance Goodwill from acquisition of Lubiani Transportes Ltda. 30, ,359 Goodwill from acquisition of Transportadora Grande ABC Ltda. 83, ,060 Goodwill from acquisition of Yolanda Logística Armazém Transporte e Serviços Gerais Ltda. 6, ,025 Software 1, (773) 1,907 Rights of use Trademarks and patents Total 121, (773) 121,594 Parent Company 01/01/ /30/2010 Description Balance Addition Write-off Amortization Balance Goodwill from acquisition of Lubiani Transportes Ltda. 30, ,359 Goodwill from acquisition of Transportadora Grande ABC Ltda. 77,947 5, ,060 Goodwill from acquisition of Yolanda Logística Armazém Transporte e Serviços Gerais Ltda. 6, ,025 Public transport concession right in São José dos Campos 4,109 - (4,109) - - Software 2,579 - (183) (120) 2,276 Rights of use Trademarks and patents Total 121,203 5,126 (4,292) (120) 121,917 Consolidated 12/31/ /30/2010 Description Balance Addition Write-off Amortization Balance Goodwill from acquisition of Lubiani Transportes Ltda. 30, ,359 Goodwill from acquisition of Transportadora Grande ABC Ltda. 83, ,060 Goodwill from acquisition of Yolanda Logística Armazém Transporte e Serviços Gerais Ltda. 6, ,025 Public transport concession right in São José dos Campos 3, (88) 3,666 Software 1, (208) 2,212 Rights of use Trademarks and patents Total 125, (296) 125,571 47/76

48 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 Consolidated 01/01/ /30/2010 Description Balance Addition Write-off Amortization Balance Goodwill from acquisition of Lubiani Transportes Ltda. 30, ,359 Goodwill from acquisition of Transportadora Grande ABC Ltda. 77,947 5, ,060 Goodwill from acquisition of Yolanda Logística Armazém Transporte e Serviços Gerais Ltda. 6, ,025 Public transport concession right in São José dos Campos 4, (178) 3,932 Software 2, (183) (90) 2,387 Rights of use Trademarks and patents Total 121,232 5,178 (183) (267) 125, Impairment test on goodwill acquired on expected future profitability and assets with indefinite useful lives For impairment testing purposes, any goodwill acquired with business combinations and in connection with assets having indefinite useful lives were allocated to the Company since this business has only one business segment with one single cash-generating unit. The Company will test for impairment on December 31, Among other considerations, the Company relies on the relationship between its market capitalization and carrying value in order to identify evidence of impairment of the recoverable amount. Key assumptions adopted in estimating the recoverable amount based on the value in use are take into account past economy performance and reasonable macroeconomic assumptions, as follows: Revenues: projection considering an increase in customer base, revenues derived from fleet renovation efforts, improvement of market revenue levels relative to the GDP and the Company's share in this market. Costs and expenses: Projected costs and expenses in the same period reflect expected changes in customer base in keeping with past Company performance and revenue growth trends. Capital expenditures: Projected investments consider the infrastructure required to support our offer of services. and Discount rate: In determining the value in use, estimated future cash flows were discounted to their present value using an average discount rate based on a capital cost rate of 13.2%. 48/76

49 Notes to the separate and consolidated financial statements for the six-month period ended June 30, Loans and financing Parent Company Average Current Non current Type rate (%) Structure (%) Maturity 06/30/ /31/ /30/ /31/2009 Local currency Operating (Vehicles, machinery and equipment) Finame (1) 8.1 Fixed rate / TJLP ,358 85, , ,921 CCB 13.7 Fixed rate ,069-13, , , , ,640 Non operating CCB (2) Acquisitions CDI ,654 38,355 45,694 51,424 PEC (*) TJLP ,158-57,238 - CCB (**) CDI ,636-94,941 NCE export notes (3) CDI ,290 16,830 85,368 39,966 CCE export notes (4) of CDI ,670 16,750 20,692 Promissory notes of CDI ,145 Direct consumer credit - - 2, , , , , , , , ,808 The long-term portion is shown below, per maturity: 06/30/2010 Parent Company Maturity of installments Amount % , , , , , , onwards 22, Total non-current liabilities 660, /76

50 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 Consolidated Average Current Non current Type rate (%) Structure (%) Maturity 06/30/ /31/ /30/ /31/2009 Local currency Operating (Vehicles, machinery and equipment) Finame (1) 8.1 Fixed rate / TJLP , , , ,639 Working capital 13.7 Fixed rate ,355-96, , , , ,068 Non operating CCB (2) Acquisitions CDI ,654 43,580 45,694 51,528 PEC (*) TJLP ,158-57, CDI ,290 16,830 85,368 39,966 CCE export notes (4) of CDI ,670 16,750 20,692 Promissory notes of CDI ,145 Direct credit - cash - - 2, ,769 71, , , , , , ,399 The long-term portion is shown below, per maturity: 06/30/2010 Consolidated Maturity of installments Amount % , , , , , , onwards 22, Total non-current liabilities 662, (*) PEC Programa Especial de Crédito (Special Credit Program) (**) CCB Cédula de Crédito Bancário (Bank Bill of Credit) Loans and financing operating facility (1) Annual interest rates applying to the financing of investments in vehicles and equipment (Finame) average 8.1%, which already includes the long-term interest rates (TJLP) for the period; Loans and financing non-operating facility (2) The breakdown of financial charges applying to bank bills of credit is as follows: 50/76

51 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 Long-term interest rate 6.0% p.a. as per Provisional Measure No. 462/09 plus 3.5% p.a.; (3) Financial charges on export notes include annual interest rates averaging 2.1%, plus the variation of the Interbank Deposit Certificate rate (CDI); and (4) Financial charges on export notes included annual interest rates averaging 113% of the Interbank Deposit Certificate rate (CDI). Regarding existing loans, the Company is subject to certain restrictive covenants that may result in accelerated debt maturity in certain situations, such as without limitation: (i) the Company defaults or fails to pay any financial obligation when due; (ii) the Company will undergo significant changes in equity control, such as liquidation, dissolution, amalgamation, merger, sale, or corporate restructuring, without the prior approval of the creditor financial institution; (iii) impairment of certain other indicators and occurrence of certain events which, at the discretion of banks, may indicate a reduction in the Company's ability to honor the obligations undertaken. These commitments were honored on June 30, On November 25, 2009 the Company entered into a loan agreement by opening a credit line with the Brazilian Development Bank (BNDES) in the total amount of R$200,000, to be made available in installments in accordance with the Company's working capital requirements, out of which R$95,000 have been used up to June 30, BNDES interest and charges will be payable on a quarterly basis, on the 15th of March, June, September and December 2010, and monthly for 24 months beginning January 15, 2011, with 3.5% interest rate, 1% spread and long-term interest rate at 6% per year. The Company pledged bank guarantees in the amount of R$95,000 in connection with this type of loan agreement. 17 Debentures Parent Company Current Non current Type Avg. annual charges (%) Maturity 06/30/ /31/ /30/ /31/2009 Local currency Debentures (1 / 2) 123 of CDI and CDI /1.95/ ,566 44, ,660 33,713 8,566 44, ,660 33,713 The long-term portion is shown below, per maturity: 51/76

52 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 Parent Company / Consolidated 06/30/2010 Maturity of installments Total % Total current liabilities Until Jun/11 8, Jul/11 to Dec/11 10, , , , , , Total non-current liabilities 111, Total 120, (1) Corresponding to 120 non-convertible debentures in accordance with CVM Rule No. 476 of January 16, 2009, at R$1,000 each, totaling R$120,000, in a single series, not convertible into shares, with restricted placement efforts and with an additional actual guarantee (collateral) plus the pledge of receivables related to service agreements and vehicle lease. The debentures mature 78 months from the date of issuance (June 24, 2010), on December 24, 2016, and their value will be restated at a rate equivalent to one hundred twenty-three percentage points (123%) of the average daily rates of one-day interbank deposits (overnight deposit rate for unrelated financial institutions), expressed as percentage per year, considering 252 business days, calculated and disclosed on a daily basis by CETIP S.A.. Payment of interest will be made on a monthly basis, after the date of issuance. As provided in CPC 8 (IAS 39), transaction costs and premiums on the issuance of securities are: 52/76

53 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 Description Information/amount a. Nature of the transaction Financial institution Banco do Brasil S.A. Amount 120,000 Issuance 6/24/2010 Maturity 12/24/2016 Type Unsecured debentures b. Incurred transaction costs (28) Attorney's fees (11) Expenses with fiduciary agent (5) CETIP registration (10) Other costs (2) c. Premiums obtained N/A d. Effective rate (IRR) p.a. % 12.45% e. Total costs and premiums to be appropriated (2,188) Coordination commissions (0.5%)/ Underwriting guarantee (0.9%) / Placement (0.45%) (Banco do Brasil) (2,092) Expenses with fiduciary agent (96) Debentures issued by the Company are subject to covenants that may accelerate the maturity of the obligations, such as: (i) limited distribution of the profits and dividends of the Company, even in the form of interest on equity, except for minimum mandatory dividends established by the prevailing legislation and the Bylaws, unless authorized by the respective Financial Institution; (ii) omission or non-payment of any taxes and other tax obligations on the dates they are due by the Company; (iii) significant changes in the Company's shareholding control, such as liquidation, dissolution, amalgamation, merger, sale, or corporate restructuring involving the Company, at a percentage that represents at least 10% (ten percent) of its total consolidated assets, without the prior approval of the Financial Institution contracted; (iv) other indicators and events which, at the discretion of the banks, may indicate a reduction in the Company's ability to honor the obligations assumed. These commitments were fulfilled on June 30, 2010, except for the payment of extra dividends additional to the mandatory dividends in 2009, for which the Company obtained the formal consent of the creditor bank. The debentures issued by the Company are subject to certain restrictive covenants that may result in accelerated maturity of the corresponding obligations, such as without limitation: (i) failure to comply with financial ratio covenants (verifiable on a semi-annual basis): A net debt/ebitda added ratio no less than or equal to three (3) times. For the purposes of this item, the EBITDA added corresponds to EBITDA plus residual accounting cost of asset sales, which is not the same as cash disbursement but rather a mere accounting representation of the moment 53/76

54 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 when an asset is demobilized. (ii) Change of issuer into a limited liability company. (iii) The Company will undergo significant changes in equity control, such as liquidation, dissolution, amalgamation, merger, sale, or corporate restructuring, without the prior approval of debenture holders convened at a general meeting specially called upon to discuss the matter. (iv) Impairment of other indicators and occurrence of certain events which, at the discretion of banks, may indicate a reduction in the Company's ability to honor the obligations undertaken. These commitments were honored on June 30, Leases and commitments 18.1 Payable finance leases Refers to lease agreements (Finame leasing and finance lease) to maintain the Company's operating activity, at annual charges averaging 13.5%. They consist of the following: Parent Company Consolidated 06/30/ /31/ /30/ /31/2009 Banco Bradesco 44,518 54,078 44,518 54,224 Banco do Brasil 1,772 3,998 1,772 3,998 Banco HSBC 46,992 21,064 46,992 21,064 Banco Itaú 3,799 9,615 3,799 9,615 Banco Safra 9,437 15,592 10,180 16,207 Banco Unibanco 24,484 37,587 24,484 37,587 Banco Santander 22,248-26,805 - Other banks 1,749 2,751 1,749 3,860 Total 154, , , ,555 Current 92, ,693 95, ,208 Noncurrent 62,206 42,992 64,816 43,347 Total 154, , , ,555 The non-current portion has the following maturities: Year Parent Company 06/30/2010 Consolidated ,704 29, ,145 27, onwards 7,357 7,357 Total 62,206 64,816 54/76

55 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 Total net payments Parent Company Net present Net book value (1) value Total net payments Net present value (1) Consolidated Net book value Machinery and equipment 28,186 26,470 44,399 28,186 26,470 44,399 Light vehicles 102,047 98, , , , ,066 Heavy vehicles 30,904 29, ,909 31,634 29, ,647 Other , , , , , ,905 Total net payments Parent Company Net present value Total net payments Consolidated Net present value Up to one year 81,685 92,793 84,463 95,483 One to five years 80,257 62,206 82,932 64, , , , ,299 (1) For commitments of that nature, obligations payable are recorded at present value at the inception of the transaction considering the respective contractual interest rate, with a contra entry in the corresponding class of property, plant and equipment. Related financial charges are recognized as financial expenses (when incurred). The transactions are collateralized by the leased assets and collateral signatures of controlling shareholders Operating leases Minimum future rent amounts payable on account of non-cancellable operating leases as of June 30, 2010 are as follows: 06/30/2010 Parent Company Consolidated Up to one year 1,538 1,714 One to five years 9,002 15,605 Over five years 2,664 2,664 13,204 19,982 The Company entered into an operating lease agreement with Ribeira Imóveis Ltda. effective August 31, 2009, covering certain rent expenses (see Note 22.4). 19 Labor liabilities 55/76

56 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 Parent Company Consolidated Description 06/30/201 12/31/ /30/201 12/31/2009 Social provisions and charges 28,253 5,803 46,616 19,273 Salaries 10,414 8,568 13,417 11,227 INSS 10,138 6,342 11,842 7,211 FGTS 1,479 1,589 1,791 1,827 Other , ,764 Total 50,450 33,029 74,042 50, Taxes payable Parent Company Consolidated Description 06/30/ /31/ /30/ /31/2009 REFIS IV (1) 34,116 32,788 55,391 55,006 PIS, COFINS and ISS 5,799 5,893 8,391 9,494 ICMS 3,151 2,751 3,919 3,406 IRRF 1, ,477 1,386 Other tax liabilities 765 1,823 2,769 4,063 45,041 44,187 71,947 73,355 Current assets 12,265 12,981 26,646 26,382 Non current assets 32,776 31,206 45,301 46,973 Total 45,041 44,187 71,947 73,355 (1) The Company and its subsidiaries, based on Law 11,941, of May 27, 2009, and Joint Ordinance PGFN/RFB No. 06/09 "REFIS IV", opted to make an installment payment in up to 180 months. Therefore, all existing tax debts in previous tax payment installment plans (PAES and PAEX) were transferred into this new one, including other liabilities arising from the Company's withdrawing from tax, social security, administrative and judicial lawsuits, and their recalculations, in the amount of R$42,400 (Parent Company) and R$92,211 (consolidated). The legal obligations that had not been previously recognized were recorded as prior-year adjustments, and the adjustments were retrospectively recognized in the adjusted financial statements of prior periods. Due to reductions in fine and interest and offsetting of tax loss carryforwards, the total balance of said debt was reduced by R$9,278 (Parent Company) and R$31,322 (Consolidated). As a consequence of the Company's adhering to the REFIS IV tax debt refinancing plan of the Federal Revenue Service, the installment balance payable as of June 30, 2010 is R$34,116 (Parent Company) and R$55,391 (consolidated). This balance payable will be charged interest corresponding to the monthly variation of the base rate SELIC. The debts were measured and accounted for in accordance with the legal conditions established by the programs and the confirmation of the total obligations will depend on the completion of the analyses of the 56/76

57 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 debts informed. The maintenance of the payment terms and other benefits of the installment payment is conditioned on the timely payment of the installments. 06/30/2010 Parent Company Consolidated Principal Fine Interest Total Principal Fine Interest Total CSLL 3,371 1,685 2,148 7,204 2,517 1,258 1,605 5,380 IRPJ 8,629 4,328 2,843 15,800 6,443 3,231 2,124 11,798 IOF 2,035 1, ,869 1, ,889 PIS , ,512 COFINS 1, ,836 4,355 6,973 1,297 6,554 14,824 IRRF INSS 1, ,471 2,675 9, ,924 17,858 Total 16,620 7,296 10,200 34,116 28,826 7,817 18,748 55,391 The Company's current installment payments are not collateralized and will be paid as follows: 06/30/2010 Installments payable Parent Company Consolidated One to five years 23,598 32,617 Over 5 years 9,177 12,684 32,776 45, Accounts payable and advances from customers Parent Company Consolidated Description 06/30/ /31/ /30/ /31/2009 Accounts payable - CMT Consortium (1) 16,937 39,734 16,937 39,734 Dividends Payable - 25,562 1,170 25,562 Advances from customers (2) 12,788 19,466 18,864 23,154 Acquisitions of companies - Transportadora Grande ABC and Yolanda Logistica Ltda. 14,185 13,671 9,963 13,671 Purchase of property, plant and equipment 11,654 5, ,040 Freight payable 13,667 10,220 13,667 10,220 Other liabilities - 4,988-6,076 Accounts payable - Consórcio 123 5,083 8,305 5,083 8,305 Accounts payable 1,398 1,686 1,944 6,487 Transportation allowance to be transferred - Mogipasses - - 5,550 4,329 Interest on equity , , ,746 78, ,652 Short-term 64, ,027 61, ,601 Long-term 11,546 19,719 16,885 27,051 Total 75, ,746 78, ,652 57/76

58 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 (1) Balance corresponding to amounts maintained by urban passenger transportation entity Consórcio Metropolitano de Transportes for its operating activities. The Company's ownership interest in that entity is %; and (2) Amounts received in advance for vehicle sales and fleet renewal, commissions and ticket sales for collective passenger transportation. 22 Transactions with related parties Assets Parent Company Description 06/30/ /31/2009 Relationship Type Duration R$ - Cap Yolanda Logística Armazém Transporte e Serviços Gerais Ltda. 3,944 3,221 Subsidiary Loan 12/31/2011 5,000 Riograndense Navegação Ltda Subsidiary Loan 12/31/2011 4,000 J.S. Participações S/A - 45,308 Parent Company Loan 12/31/ ,000 Ribeira Imóveis Ltda. - 4,827 Sister company Loan 12/31/ ,000 Ponto Veículos Ltda - 4,305 Sister company Loan 12/31/2011 6,000 Transportadora Grande ABC Ltda 8,233 - Subsidiary Loan 12/31/ ,000 Original Cate Central Assist.Tec. Equip. Ltda 5 - Sister company Loan 12/31/ Consórcio Unileste 21 - Sister company Loan 12/31/ J.S. Táxi Aéreo Ltda Sister company Loan 12/31/2011 4,000 Total 12,203 59,112 Long-term assets (individuals) Julio Simões - 43 Elvira Simões Total Total - long-term assets 12,203 59,768 Consolidated Description 06/30/ /31/2009 Relationship Type Duration R$ - Cap J.S. Participações S/A - 48,578 Parent Company Loan 12/31/ ,000 Ribeira Imóveis Ltda. - 4,869 Sister company Loan 12/31/ ,000 Ponto Veículos Ltda - 4,305 Sister company Loan 12/31/2011 6,000 Consórcio Unileste 21 - Sister company Loan 12/31/ Original Cate Central Assist.Tec. Equip. Ltda 5 - Sister company Loan 12/31/ J.S. Táxi Aéreo Ltda Sister company Loan 12/31/2011 4,000 Total 26 58,688 Long-term assets (individuals) Julio Simões - 43 Elvira Simões Total Total - long-term assets 26 59,344 Amounts corresponding to loan agreements extended to related parties are subject to contractual charges based on interbank deposit rates. 58/76

59 Notes to the separate and consolidated financial statements for the six-month period ended June 30, Liabilities Parent Company Description 06/30/ /31/2009 Relationship Type Duration R$ - Cap CS Brasil Ltda. 36,946 21,623 Subsidiary Loan 12/31/ ,000 Mogipasses Com. Bilhetes Eletrônicos Ltda. 3,465 3,332 Subsidiary Loan 12/31/2011 4,000 JP Tecnolimp S/A 4, Subsidiary Loan 12/31/2011 5,000 Original Veículos Ltda Sister company Loan 12/31/2011 5,000 Work Container Ltda Affiliate Loan - - Consórcio Sister company Loan 12/31/2011 2,000 Total current 45,618 26,459 Consolidated Description 06/30/ /31/2009 Relationship Type Duration R$ - Cap Original Veículos Ltda Sister company Loan 12/31/ Work Container Ltda Affiliate Loan - Consórcio Sister company Loan 12/31/2011 2,000 Total Outstanding amounts arising from loans extended by related parties are subject to contractual charges based on interbank deposit rates Interest income and expenses Subsidiaries JSL CS Brasil Yolanda Revenues Expenses Sister companies JSL JS Participações Ribeira Imóveis Revenues Expenses Transactions with related parties have similar bases as those conducted with unrelated third parties, considering volumes, terms and risks involved. In addition, the Company made advance payments of real estate lease to related party Ribeira Imóveis Ltda. in the amount of R$10,273, referring to years 2010 and 2011, out of which R$3,180 was recognized as expense in the six-month period ended June 30, 2010 (in this same period of 2009, no amount was recognized, since the agreement was executed in 2009) and the balance is to be recognized in the proper periods. The advance was made through a discount calculated based on the variation of the base rate SELIC. 59/76

60 Notes to the separate and consolidated financial statements for the six-month period ended June 30, Provisions for court and administrative judgments and court deposits The Company is involved in certain civil, tax, and labor lawsuits that have arisen over the regular course of its business, some of which are still pending decision and have associated risks. Based on the opinion of its legal counsels, the Company set up provisions to cover for potential losses in the following amounts: Description Provision Parent Company 06/30/ /31/2009 Deposits in Deposits in court Net Provision court Net Labor (a) 16,382 (8,405) 7,978 12,494 (7,648) 4,846 Civil (b) 6,296 (1,250) 5,046 7,172 (2,122) 5,050 Tax (c) - (1,067) (1,067) - (1,067) (1,067) Total 22,678 (10,722) 11,956 19,666 (10,837) 8,829 Description Provision Consolidated 06/30/ /31/2009 Deposits in Deposits in court Net Provision court Net Labor (a) 18,795 (8,417) 10,378 14,245 (7,597) 6,648 Civil (b) 6,758 (2,759) 3,999 6,918 (2,120) 4,798 Tax (c) - (1,067) (1,067) 416 (1,120) (704) Total 25,553 (12,244) 13,309 21,579 (10,837) 10,742 (a) Labor contingencies refer to overtime, commute time, hazardous duty and health hazard premiums and occupational accidents; (b) Provision for risks arising from civil lawsuits related to traffic accidents requesting compensation for pain and suffering, aesthetic and material damage; and (c) The Company and its subsidiaries are parties to a total of 45 tax-related lawsuits (judicial and administrative), representing contingent liabilities in the estimated amount of R$50,745 (R$37,328 of which is regarded as possible loss and R$13,417 as a remote loss). 60/76

61 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 Among the main tax proceedings we emphasize: Tax assessment notices nº 3,117,378-0 a. Court State Finance Department of São Paulo b. Instance 2nd Administrative Stage c. Date filed August 2009 d. Parties to lawsuit Plaintiff: State Finance Department of São Paulo Defendant: Julio Simões Logística S/A e. Amounts, goods or rights in dispute f. Background and status of case g. Chance of loss Likely h. Impact in case of loss in the proceeding Cash disbursement i. Provisioned amount, if any Not applicable On 06/30/2010, R$6.5 million Tax deficiency notice which holds us jointly liable with our parent company - merging company of Lubiani Transportes Ltda. - for ICMS debts plus a fine, originally due by another company, as the goods the aforementioned company sold to Multiformas de Brasília would have been delivered at a place other than that mentioned in the tax documents. The first-instance administrative decision was unfavorable to our parent company and the lawsuit was filed for ordinary appeal at the tax court. Tax assessment notices nº 3,119,303-1 a. Court State Finance Department of São Paulo b. Instance 2nd Administrative Stage c. Date filed August 2009 d. Parties to lawsuit Plaintiff: State Finance Department of São Paulo Defendant: Julio Simões Logística S/A e. Amounts, goods or rights in dispute f. Background and status of case g. Chance of loss Likely h. Impact in case of loss in the proceeding Cash disbursement i. Provisioned amount, if any Not applicable On 06/30/2010, R$6.8 million A tax assessment notice levying a fine to our parent company, which merged the company Lubiani Transportes Ltda. - for having allegedly transported goods to a place other than that indicated in the tax documents; The decision of the lower administrative court did not favor our Parent Company and an ordinary appeal was filed with the taxes and fees court. In addition, for other lawsuits in progress, which, in the opinion of Management and its legal advisors are possible loss, no allowance has been recorded to possibly face their unfavorable outcomes. On June 30, 2010, these lawsuits amounted to R$48,677 (civil) and R$52,099 (labor). The income tax returns of the parent company and subsidiaries are open to review and final approval by tax authorities for five years. Other tax and social security charges, referring to variable periods, are also open to review and final approval by tax authorities. 61/76

62 Notes to the separate and consolidated financial statements for the six-month period ended June 30, Changes in provisions for court and administrative claims Parent Company Consolidated 06/30/ /30/ /30/ /30/2009 Balance in the beginning of the year 19,666 30,084 21,579 38,738 Additions 4,643 5,263 5,743 5,303 Write-offs (1,631) - (1,769) (1,479) Balance at the end of the period 22,678 35,348 25,553 42, Changes in deposits in court Parent Company Consolidated 03/31/ /31/ /31/ /31/2009 Balance in the beginning of the year (10,837) (17,372) (10,837) (17,372) Additions (1,864) (10,340) (3,386) (7,065) Write-offs 1,979 7,289 1,979 4,014 Balance at the end of the period (10,722) (20,423) (12,244) (20,423) 24 Shareholders equity Capital stock The Company's capital, fully subscribed and paid up on June 30, 2010 is R$603,526, divided into 198,889,656 non-par registered common shares. Throughout the years, searching for synergy in its service provision, commercial, operating and administrative structures, the Company carried out various corporate transactions. In line with that strategy, it has consolidated in a single company all corporate holdings aligned with its operating activities, and discontinued investments in subsidiaries whose operations were not aligned with its business strategy and withdrew from its net equity items not aligned with its strategic planning. Below we highlight the main corporate transactions carried out: In September 2009, the shareholders approved at an Extraordinary Meeting the transfer of investments in the subsidiaries listed below to Julio Simões Participações S/A and to individual investors of the Simões family, through a capital decrease in the amount of R$56,982. Such investments and related profit or loss were classified as investments in discontinued operations and related profit or loss. 62/76

63 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 Description R$ '000 % Interest Original Veículos Ltda. 41, Avante Veículos Ltda. 13, Ponto Veículos Ltda. 1, Corretora e Administradora de Seguros Vintage Ltda. (399) Total capital reduction 56,982 In July 2009, an Extraordinary General Meeting approved a partial spin-off whereby the Company transferred a portion of its assets ("spun-off assets") to the formation of related company CS Brasil Transportes de Passageiros e Serviços Ambientais Ltda., a subsidiary of Julio Simões Participações S/A, as follows: Assets Current 69,530 Non current 46,996 Total assets 116,526 Liabilities Current 24,314 Total liabilities 24,314 Total spun-off net assets 92,212 In July 2009 the first amendment to the operating agreement of CS Brasil Transportes de Passageiros e Serviços Ambientais Ltda. called for a transfer of 68,253,571 of its equity units to JSL S.A. The aggregate amount of this transaction was R$68,254, reflecting a fully paid-up par value of one real (R$1.00) for each unit. Individual members also assigned 23,958 units to JSL S.A. in an aggregate transaction amount of R$23,958, considering a unit par value of one real (R$ Changes in capital In April 2010, following the provisions of the CVM Rule No. 400 of December 29, 2003, as amended ("CVM Rule No. 400") and of the National Association of Investment Banks (ANBID) Code for Regulations and Best Practices in Public Offerings for the Sale and Purchase of Securities ("ANBID Code"), the Company made a primary public placement of 55,813,953 non-par book-entry registered common shares, free and unencumbered from any burdens or grievances ("Common Shares") with the exclusion of current Company shareholders' preemptive rights to buy shares, within the limits of the authorized capital in Brazil and with placement efforts overseas ("Offer ). The Offer included the primary public placement in non-organized over-the-counter market. 63/76

64 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 The total number of Common Shares in the Offering was incremented by a supplementary batch of up to 3,923,900 Common Shares to be issued by the Company, equivalent to 7.03% of the Common Shares initially offered. Number of shares Capital stock Balance on January 1, ,133, ,134 Capital increase as per EGM held September 30, 2009 (1) (56,981,977) (56,982) Balance December 31, ,151, ,152 Capital increase as per BODM held April 19, 2010 (2) 55,813, ,511 Capital increase as per BODM held May 20, 2010 (2) 3,923,900 31,392 Transaction costs, net - IPO - (13,529) Balance on December 31, ,889, ,526 (1) EGM - Extraordinary General Meeting Transaction cost As determined in CPC pronouncement No. 08 (IAS 39) - Transaction Cost and Securities Issuance Premiums, the Company recorded as reduction of capital the amounts paid in connection with the IPO, net of tax effects. The amounts recorded were as follows: Consolidated Transaction costs, net, on March 31, Transaction costs (20,499) Tax credits - income tax and social contribution 6,970 Transaction costs, net, in 2Q10 (13,529) Allocation of income Under our bylaws, shareholders are entitled to an annual mandatory dividend of at least 25% of net income for the year, with deductions or increases as follows: (i) 5% allocated to the formation of legal reserve, and (ii) sum earmarked for the formation of the contingency reserve and reversal of the same reserve formed in previous years. A portion of net income may also be retained based on a capital budget or to the set up of a statutory profit reserve called an "Investment reserve". 64/76

65 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 The amount to be actually distributed is approved at the Annual Shareholders' Meeting that approves management accounts for the previous year, based on the proposal presented by the Executive Board and approved by the Board of Directors, dividends are distributed as determined by the annual shareholders' meeting, which is held in the first four months of each year. Our bylaws also allow for the distribution of intercalary and interim dividends, which may be charged to the mandatory dividends. The Company's shareholders convened at an annual general meeting (AGM) held on February 8, 2010, and approved a distribution of the whole profits earned in 2009, in the amount of R$59,801. This distribution included the minimum statutory dividends already accounted for in 2009 in the amount of R$14,950, which were applied toward repayment of loans pending with related parties in the amount of R$55,400. The Company's shareholders convened at an annual general meeting held on March 10, 2010, to approve a distribution of interim dividends in the amount of R$35,000, which were charged to a portion of the profit reserve. The aggregate of the foregoing amount was applied to repay loans made with related parties, except our subsidiaries Comprehensive income statement For the periods ended June 30, 2010 and 2009, the Company's comprehensive income matched its net income in the amount of R$8,947 and R$6,147. Other comprehensive income (deemed cost realization) was recorded in the statement of changes in shareholders' equity in the amounts of R$10,898 for the six-month period ended June 30, 2010, and R$19,034 for the same period of However, since this income was realized against retained earnings, it did not result in any equity change and no impact on the comprehensive income for the periods of June 30, 2010 and 2009 was identified. 25 Provision for income tax and social contribution Deferred Deferred tax assets and liabilities were calculated based on balances of tax losses and temporary differences for income and social contribution taxes recoverable or taxable in the future. These are calculated and classified according to projected realization and future profitability of the Company and its subsidiaries. On June 30, 2010, income and social contribution tax losses carryforwards amounted to R$91,805 in the parent company and R$100,870 in the consolidated. The origin of deferred income and social contribution taxes is as follows: 65/76

66 Notes to the separate and consolidated financial statements for the six-month period ended June 30, Assets Parent Company Consolidated 06/30/ /31/ /30/ /31/2009 Tax loss carryforwards 30,220 21,386 30,220 21,386 Temporary additions: Provision for contingencies 10,053 6,325 10,053 6,325 Allowance for doubtful accounts 1,876 8,704 1,876 8,704 Provision for losses in investments - 9,178-9,178 Provision for stock issue transaction costs 6,969-6,969 - Other provisions 7,165-7,165 - Total 56,283 45,593 56,283 45,593 The expected realization of deferred income tax and social contribution assets as of June 30, 2010 is shown as follows: Parent Company 06/30/2010 Consolidated ,513 22, ,513 22, ,257 11,257 56,283 56, Liabilities Parent Company Consolidated 06/30/ /31/ /30/ /31/2009 Sale of assets (61,032) (45,876) (63,971) (48,221) Depreciation 108,108 93, ,580 99,585 APV reversal / restatement 4,449 3,115 6,068 5,025 APV formation (5,798) (4,221) (5,798) (4,221) Reversal of leasing operations 109,941 96, , ,286 Reversal of goodwill - other 7,676 5,946 7,676 5,946 Equity valuation - - 2,396-2,399 - Total 163, , , ,799 Mostly comprising temporary differences invested at 34% Reconciliation of income tax and social contribution provisions The current values are calculated based on current tax rates on taxable income increased or decreased by respective additions and deductions. 66/76

67 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 Parent Company Consolidated 06/30/ /30/ /30/ /30/2009 Earnings before income tax and social contribution 19, ,583 (19,505) Nominal rates 34% 34% 34% 34% IRPJ and CSLL at nominal rates (6,756) (74) (8,698) 6,629 Permanent additions (exclusions) Equity pick-up 4, Revenue from government bodies (346) 3, ,695 Provision for contingencies (2,943) (1,790) (3,372) (1,790) Allowance for doubtful accounts (1) (2) (2) (2) Claims and insurance Lease-back depreciation (397) (392) (397) (392) Goodwill amortization (Yolanda / TGABC) (401) (3,223) (401) (3,223) Traffic and tax fines (211) (555) (239) (566) Promotional items and donations (164) (254) (172) (260) 30% tax deduction including tax loss carryforwards 857 (3,380) 610 (3,429) Other additions (exclusions) (4,854) 12,210 (4,404) 25,425 Calculated IRPJ and CSLL (10,924) 6,362 (16,619) 26,088 Current - - (5,652) (1,172) Deferred (10,924) 6,362 (10,967) 27,260 IRPJ and CSLL in result (10,924) 6,362 (16,619) 26, Insurance coverage The parent company and its subsidiaries maintain insurance policies, with coverage deemed to be sufficient by management to cover any risks on their assets and/or liabilities. Insurance coverage includes: Civil liability against third parties It covers material damages, bodily injury, pain and suffering, and personal accidents for all operations carried out by the parent company and its subsidiaries: Description R$ '000 Duration Oct/9 to Oct/10 Annual premium R$ 5,640 Coverage Property 875 Bodily injury 1,900 Pain and suffering /76

68 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 Cargo transport - vehicles A significant portion of the vehicle transportation operation is insured directly by the customers. For all other cases, insurance coverages contracted vary according to the value of transported vehicles. Cargo transport - products Insurance coverage contracted for possible damages or losses in transportation vary according to the value of the transported loads: Description R$ '000 Details Duration May/10 to May/11 Annual premium R$ 5,545 Coverage Civil liability 5,000 Cap per vehicle Cargo deviation 1,100 per shipping Fleet We have contracted no insurance for our fleet, in view of high insurance costs and our low history of claims. Risk assumptions, given their nature, are out of the scope of the auditing of financial statements, and therefore were not examined by our auditors. 27 Management compensation Compensation with charges paid to executives and directors from January 1 to June 30, 2010 was R$1,655 (R$770 in the same period in 2009), both classified under "Short-term benefits to employees and executives. The cap to 2010 compensation, approved at the Shareholders' Meeting, was R$10, Financial instruments Financial instruments currently used by the Company and its subsidiaries are restricted to cash and cash equivalents, securities, accounts receivable, funding and financing for working capital and investments, under normal market conditions, and are recognized in the financial statements according to the criteria described in note 2. These instruments are managed pursuant to operating strategies, aimed at liquidity, profitability and minimization of risks. Fair value of financial assets and liabilities Following is a class-based comparison of the carrying and fair values of the Company's financial instruments presented on its financial statements. 68/76

69 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 Book value Fair value 06/30/ /31/ /30/ /31/2009 Financial assets Cash and cash equivalents 356, , , ,905 Securities 29,209 27,000 29,209 27,000 Accounts receivable 265, , , ,867 Other credits 40,950 58,583 40,950 58,583 Total 692, , , ,355 Financial liabilities Loans and financing 924, , , ,552 Debentures 120,226 78, ,226 78,665 Suppliers 54,461 50,749 54,461 50,749 Accounts receivable and advances from clients 78, ,652 78, ,652 Total 1,177,328 1,083,618 1,177,328 1,083,618 The fair value used for the purpose of accounting for financial investments was determined based on quotations of similar transactions taking place in active markets, ranking 1 in the fair value ranking system. The Company made no hedging or speculative investment in derivatives or any other risky assets. Financial Risk Goals and Management Policies The Company's key financial liabilities except derivatives include loans, leases, accounts payable, and other commitments. The primary purpose underlying these financial liabilities is to raise funds for our operations. The Company has loans and other credits, customer receivables and other accounts receivables, and demand and short-term deposits arising directly from its operations. The Company is exposed to market, credit, and liquidity risks. The Company's senior management monitors management of such exposures, being supported in this activity by a Financial and Sourcing Committee (created within its approved governance structure) which provides advice on financial risks. This committee supports and makes recommendations to the senior management so that any Company activity involving any kind of financial exposure is performed in compliance with the appropriate risk management policies and practices. The Company has a policy of not engaging in any derivative transaction for speculative purposes. It is the responsibility of our Board of Directors to decide on transactions involving any kind of derivative financial 69/76

70 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 instruments, which are defined as any agreement that may generate a financial asset or liability for the parties to such agreement, regardless of the market wherein they are traded, listed, or the type of such agreement. Market risks Market risks involve the potential fluctuation in the fair value of future cash flows derived from a given financial instrument in response to variations of its market price. Market prices typically involve three exposure categories: Interest rate risks, exchange risks, and price risks, which can be broken down further as commodity price, stock, or other price-related risks. (The Company is exposed to interest rate risks only.) Financial instruments affected by market risks include loan receivables and outstanding loans, deposits, financial instruments available for sale and measured at fair value by their yield. Interest rate risk Interest rate risks involve the potential fluctuation in the fair value of future cash flows derived from a given financial instrument in response to variations of market interest rates. The Company's exposures to risks associated with market interest rate fluctuations relate primarily with its long-term obligations accruing variable income. Interest rate sensibility The chart below discusses our sensibility to potential changes in annualized interest rates assuming all other variables remain unchanged as to the Company's pre-tax earnings. (This is affected by outstanding loans and financing, and cash and cash equivalents subject to variable interest rates). Concerning the Company's asset and liabilities, there is only one negligible impact. Operation Risk Scenario I Scenario II (Probable) Scenario III Position at 06/30/2010 3,528 5,512 7,496 Financial investments CDI 0.96% 1.50% 2.04% R$ 367,466 Operation Risk Scenario I Scenario II (Probable) Scenario III Position at 06/30/2010 4,785 7,477 10,169 Debt pegged to CDI CDI 0.96% 1.50% 2.04% R$ 498,474 Operation Risk Scenario I Scenario II (Probable) Scenario III Position at 06/30/2010 (1,765) - 1,765 Debt pegged to TJLP - longterm interest rates TJLP -0.25% 0.00% 0.25% R$ 706,109 70/76

71 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 The base-point change projected for the interest rate sensitivity analysis looks at the rates currently charged in a market environment, and thus indicate a volatility significantly higher than that identified in preceding years. Credit risks Credit risks involve the potential default of a counterpart to an agreement or financial instrument, and the ensuing financial loss. The Company is exposed to credit risks on account of its operations (specially in regard to its accounts receivable) and financing activities, including deposits held in banks and financial institutions, and other financial instruments. Accounts receivable The Company reviews its customer-related credit risks on a monthly basis subject to the relevant established procedures, controls, and policies addressing risks of this nature. Outstanding receivables are monitored very closely by the Company's executive board and senior management. Every month the Company will review the need to set up allowances for doubtful accounts on an individual basis for its key customers. In addition to the foregoing, we pool several similar low-amount accounts receivable for the purpose of estimating the recoverable loss collectively. This calculation relies on effective historical data. Financial instruments and cash deposits Credit risks associated with funds held in banks and financial institutions are managed by the Company's treasury in accordance with the relevant policy in effect. Surpluses are deposited only in approved institutions and in compliance with the limits set for each one, in order to minimize risk concentration and therefore mitigate potential financial losses in the event of any such institution going bankrupt. Liquidity risks The Company monitors risks associated with fund shortages on an ongoing basis through a recurring liquidity planning tool. The Company's purpose is to achieve a balance between fund continuity and flexibility through use of secured accounts, bank loans, debentures, as well as finance and operating lease transactions. The Company will assume medium-term indebtedness in an attempt to secure short-term liquidity by reviewing factors such as installment schedule, charges, and cash flow variables. Capital management The main purpose behind the Company's capital management policy is to ensure solid credit ratings and unencumbered capital ratios in support of its business and to maximize the valued delivered to our shareholders. 71/76

72 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 The Company manages its capital structure and will make adjustments in view of changes in economic circumstances. In order to maintain or adjust its capital structure, the Group may adjust the level of dividends paid to shareholders, return capital to shareholders, or make additional stock issues. The Company manages capital through leverage ratios and payment of minimum dividends to its shareholders. The Company's policy is to keep the leverage ratio at less than or equal to three times the EBITDA-A for the 12-month period. The Company includes in its net debt loans, financing, and yieldgenerating leases, less cash and cash equivalents, securities and bonds, except discontinued operations. EBITDA-A comprises the net income for the period plus income taxation, net interest income, depreciation and amortization, plus the cost of sales of assets used to provide our services. As of June 30, 2010, the ratio was Net operating revenues Parent Company Consolidated 06/30/ /30/ /30/ /30/2009 Sales revenue and services rendered 722, , , ,285 Revenue from sale of assets utilized in services rendered 48,082 61,719 50,798 76,810 ( - ) Revenue deductions Sales taxes (69,878) (56,579) (83,658) (64,677) 03.Returns (13,761) (894) (13,912) (1,357) 03.Discounts granted (3,560) (2,602) (4,284) (2,845) Total net revenue 683, , , ,217 No customer has contributed with more than 10% of our gross operating revenues in the periods ended June 30, 2010 and All amounts included in the net revenues are considered for the purpose of determining the taxable bases of the income tax and social contribution. Taxes levied on sales consist primarily of the ICMS (rates ranging from 7% to 19%), local service taxes (rates ranging from 2% to 5%), and the PIS (rates are either 0.65% or 1.65%) and Cofins (rates are either 3% or 7.6%) contributions. 30 Costs of sales and services sold 72/76

73 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 Parent Company Consolidated 06/30/ /30/ /30/ /30/2009 Personnel (185,603) (167,885) (225,952) (183,258) Related and third parties (129,310) (85,378) (142,696) (94,542) Fuels and lubricants (57,435) (65,658) (73,237) (71,795) Parts, tires and maintenance (67,892) (59,540) (74,161) (60,635) Depreciation (36,139) (37,612) (36,380) (38,356) Other (65,248) (74,001) (86,337) (81,411) Total cost of sales and services rendered (541,627) (490,075) (638,763) (529,996) 31 Administrative and selling expenses Parent Company Consolidated 06/30/ /30/ /30/ /30/2009 Salaries and payroll charges (12,870) (11,518) (17,709) (15,165) Services rendered (8,362) (5,195) (10,209) (6,235) Propaganda and marketing (2,958) (773) (3,113) (818) Lease of properties and third parties (2,517) (2,203) (2,829) (2,224) Depreciation (1,411) (1,346) (2,344) (1,539) Communication (1,345) (1,755) (1,533) (1,807) Trips, meals and accommodation (1,041) (2,269) (1,330) (2,406) Expenses with provision of losses estimated with allowance for doubtful accounts (212) (12,121) (991) (12,264) Other administrative and selling expenses (11,959) (7,731) (13,439) (8,562) Total administrative and selling expenses (42,675) (44,910) (53,498) (51,021) 32 Other operating income (expenses), net Parent Company Consolidated 06/30/ /30/ /30/ /30/2009 Expenses with provision for investment losses (3,307) (1,773) - (255) Reversal of expenses 3, , Provision for court and administrative claims (4,994) - (5,265) - Reversal of expenses - CSC 1,436-1,436 - Lease revenue Other operating revenues/expenses 3, ,645 1,664 Total other operating revenues (expenses) 1,457 (685) 5,304 1, Financial income 73/76

74 Notes to the separate and consolidated financial statements for the six-month period ended June 30, 2010 Parent Company Consolidated 06/30/ /30/ /30/ /30/2009 Revenues Investments yield 11,386 4,731 11,432 5,057 Discounts 2,221 1,547 2,292 1,643 APV - Clients 1,017 (1,378) 2,202 (1,378) APV - CIAP 1,249 1,122 1,249 1,122 Other financial income 1, , Interest receivable Monetary variation - 2,504-2,506 Financial income 17,409 9,607 18,908 10,058 Expenses Interest and bank charges (52,332) (47,996) (53,386) (48,214) Interest and monetary restatements (3,935) (2,159) (4,738) (4,302) Bank expenses (955) (1,602) (1,151) (1,721) Other financial expenses (34) (10) (73) (562) IOF - Tax on financial operations (901) (4,886) (1,042) (4,884) Financial expenses (58,156) (56,652) (60,391) (59,683) Financial result (40,747) (47,045) (41,484) (49,624) 34 Earnings per share The calculation of basic and diluted earnings per share is discussed below: 06/30/ /30/2009 Numerator: Net income (loss) for the year 8,948 6,147 Denominator: Weighted average number of shares 180,716, ,133,779 Basic and diluted earnings (losses) per share, net - R$ The Company did not have any transactions nor entered into any agreement covering shares of common stock or stock with a potential impact on the diluted earnings per share. 74/76

75 Mogi das Cruzes, August 10, 2010 Julio Simões Logística S/A, Brazil s largest Logistics Services Provider (LSP), in terms of net revenue, hereby presents its consolidated results for the 2Q10. Unless otherwise indicated, the presentation of the following financial and operational information is based on the consolidated figures and denominated in millions of reais, in accordance with the accounting practices adopted in Brazil. All comparisons relate to the 2Q09, unless otherwise stated. The company presently has more than 120 branches in Brazil and over 13,000 direct employees. CONTENTS MANAGEMENT COMMENTS P. 2 BUSINESS LINES PERFORMANCE P. 4 RESULTS ANALYSIS P. 6 INVESTMENT P. 11 Highlights of the 2 nd quarter of 2010: Gross revenue from services amounted to R$ million in the 2Q10, an increase of R$ 83.2 million, or 22.5%, compared to the same period of 2009 CAPITAL STRUCTURE P. 12 CAPITAL MARKETS P. 14 OUR BUSINEES MODEL P. 15 ASSITIONAL INFORMATION P. 21 ADDENDA P. 23 2Q10 Results Conference Call August 11, :00 a.m. (Brasília time) Portuguese: (11) English: (1) or Investor Relations ri@juliosimoes.com.br Total net revenue came to R$ million in the 2Q10, a rise of R$ 59.5 million, or 16.2%, in comparison with the same period of 2009 The EBITDA totaled R$ 55.0 million in the 2Q10, up 23.3% over the figure for the same period of 2009 The pre-tax income for the 2Q10 was R$ 16.8 million, up by R$ 0.1 million compared to the 2Q09; meanwhile, the net profit for the 2Q10 was R$ 6.7 million, less than that of the 2Q09, due to the recognition of deferred tax credits in the same period of last year The Intermodal Logistics Center, where building work is still going on, has already started its operations In the 1 st half of the year, additional contracts were closed for a total value of R$ 1.2 billion Financial Statement 2T10 2T09 r 1S10 1S09 r 12 meses (R$ million) Gross revenue % % 1,802.3 Services rendered % % 1,679.3 Sale of assets used in service rendering % % Net revenue % % 1,596.4 Income before tax provisions n.a (19.5) n.a Net income in the period % % 63.5 Margin 1.6% 4.6% -3,0 p.p. 1.1% 1.0% 0,1 p.p. 4.0% EBITDA % % Margin EBITDA 12.9% 12.1% 0,8 p.p. 13.1% 10.8% 2.3 p.p. 16.9% EBITDA-M * % % Margin EBITDA-M 19.4% 21.6% -2.2 p.p. 19.4% 20.3% -0,9 p.p. 20.1% * see additional informational section

76 I. MANAGEMENT COMMENTS During the first half of 2010, Julio Simões Logística closed additional contracts worth a total of around R$ 1.2 billion; equivalent to additional revenue of R$ 91.5 million, on average, per quarter. The greatest volume was in the management and outsourcing of vehicle fleets and equipment business area (57.1%), followed by dedicated services (39.5%) and passenger transportation (3.4%). Of the estimated quarterly revenue from the new contracts, roughly 21% was obtained in the 2Q10 and the shortfall of about 79% will be reduced in future periods, according to the pace of the implementation (for details, see the Additional Information section). The company brought forward, to August 2010, the start of activities at the Intermodal Logistics Center, in Itaquaquecetuba, even though the first phase is still under construction and completion is scheduled for the first half of The initial operations are devoted to the steel sector, and involve the transferring of iron and steel products from the customers units to the terminal, internal handling and storage, and subsequent delivery to the consumer. The operations are being carried out by road, until the rail link is completed. Comparing the 2Q10 with the 2Q09, Julio Simões Logística saw its gross revenue from services grow by 22.5% (2Q10 = R$452.3 million and 2Q09 = R$369.1 million). This R$ 83.2 million increase was derived as follows: 43.4% (R$ 36.1 million) through the increased volume of customer operations in the existing portfolio, and another 28.7% (R$ 23.9 million) in new operations for existing customers; new customers, meanwhile, accounted for 27.9% of the growth (R$ 23.2 million). The business area that showed the biggest growth in gross revenue from services, between the 2Q09 and the 2Q10, was dedicated supply chain services (+35.2%), followed by management and outsourcing of vehicle fleets and equipment (+13%). In comparison with the 1Q10, the company showed continued growth in its gross revenue from services, which were up by 11.3% (R$ 45.8 million) in the 2Q10, with new customers added to the portfolio accounting for R$ 13.0 million (28.4%), while customers that were already in the portfolio contributed R$32.8 million (71.6%), through the expansion of existing operations. Our gross revenue comprises revenue from the rendering of services and revenue from the sale of assets used in the operations. In the 2Q10, revenue from the latter totaled R$ 26.5 million, less than in the 2Q09 (R$ 36.1 million), due to the lower volume of assets available for sale. Hence, our total gross revenue for the 2Q10 amounted to R$ million, an increase of 18.2% in relation to the R$ million in the same period of the previous year. The total net revenue for the 2Q10 came to R$ million, representing an increase of 16.2% over the figure for the 2Q09. The net operating revenue, excluding financial income and expenses, and EBITDA were R$ 33.5 million and R$ 55.0 million, respectively, in the 2Q10, compared to R$ 22.5 million and R$ 44.6 million, respectively, in the same period of the previous year. The R$ 10.4 million increase in EBITDA was mainly due to the larger volume of business. The EBITDA for the last twelve months totaled R$ million, and it should be pointed out that the greater contribution to the annual EBITDA typically occurs in the second half of the year. The EBITDA-M, which in our opinion, given the business model, more closely reflects the 2

77 company s cash generation, in a simplified form, came to R$ million for the last twelve months (see Our Business Model section). The net financial expenses in the 2Q10, at R$ 16.8 million, were R$ 5.6 million lower than in the 2Q09, due to the proceeds from the initial public share offering, which totaled R$ million, before deducting the expenses and commissions involved in the operation, which were partially offset by the investments made during the period. Gross investment during the 2Q10 amounted to R$ million, with the management and outsourcing of vehicle fleets and equipment and dedicated supply chain services business areas receiving 58.2% and 39.3%, respectively, of that total, essentially for new business. The pre-tax income was up by R$16.7 million in the 2Q10, in relation to the 2Q09, largely due to the abovementioned factors; and the net profit for the 2Q10 was R$ 6.7 million, against R$ 17.0 million in the 2Q09. The difference was due to the recognition of deferred tax credits in the 2Q09, principally in relation to company acquisitions. 3

78 II. BUSINESS LINES PERFORMANCE Gross revenue from services by business line 2Q10 2Q09 r 1H10 1H09 r (R$ million) Dedicated supply chain services % % Fleet management and outsourcing % % Passenger transportation % % General cargo transportation % % Others % % Total % % Dedicated Supply Chain Services The gross revenue from this business area totaled R$ million in the 2Q10, an increase of R$ 61.8 million, or 35.2%, in comparison with the 2Q09. This growth was 53.6% attributable to a higher volume from existing operations, 27.0% from new operations at existing customers, and 19.4% from new customers. With regard to economic sector, the greatest contribution came from the pulp & paper sector, accounting for 37.9%, the automotive sector, with 25.0%, and the steel sector, with 10.9%. In the 1H10, the gross revenue from this area of business amounted to R$ million, an increase of R$ million, or 41.2%, in relation to the same period of the previous year. Management and Outsourcing of Fleets and Equipment The total gross revenue from this business area reached R$ 93.0 million in the 2Q10, representing an increase of R$ 10.7 million, or 13.0%, in relation to the same period of the previous year, largely due to the start up of equipment rental to the sugar & ethanol sector. The gross revenue in the 1H10 from this area of business came to a total of R$ million, an increase of R$ 24.6 million, or 16.5%, compared to the same period of last year. Passenger Transportation The total gross revenue in the 2Q10 from this area of business amounted to R$ 65.3 million, an increase of R$ 3.5 million, or 5.7%, in relation to the same period of the previous year. This rise was largely due to the 4.4% average fare increase per passenger for urban and intermunicipal transport, in comparison with the 2Q09 figure. The gross revenue in the 1H10 from this business area came to R$ million, an increase of R$ 10.6 million, or 9.0%, compared to the figure for the same period of last year. General Cargo Transportation The total gross revenue from this area of business grew by R$ 5.4 million, or 13.0%, from R$ 41.6 million in the 2Q09 to R$ 47.0 million in the 2Q10, due to a 15.1% increase in the total volume transported, from 515,600 tons to 593,600 tons. The gross revenue in the 1H10 from this business area amounted to R$ 89.5 million, an increase of R$ 8.2 million, or 10.1%, in relation to the same period of the previous year. 4

79 BREAKDOWN OF THE GROSS REVENUE FROM SERVICES IN THE 2Q10 General cargo Others transportation 2% 10% Passenger transportation 14% Fleet management and outsourcing 21% Dedicated supply chain services 53% BREAKDOWN OF THE GROSS REVENUE FROM SERVICES IN THE 1H10 General cargo Others transportation 2% 11% Passenger transportation 15% Fleet management and outsourcing 20% Dedicated supply chain services 52% 5

80 III. RESULTS ANALYSIS 1. Revenues Net revenue 2Q10 2Q09 r 1H10 1H09 r (R$ million) Gross revenue % % Services rendered % % Sale of assets used in service rendering % % Deductions from revenue (51.9) (37.8) 37.3% (101.9) (68.9) 47.9% Net revenue % % 1.1. Gross revenue from services rendered The revenue from services rendered totaled R$ million in the 2Q10, an increase of R$ 83.2 million, or 22.5%, compared to the 2Q09, when the figure was R$ million. The increase was due to the following: R$ 36.1 million of increased revenue from existing operations R$ 23.9 million from new operations for existing customers R$ 23.2 million from operations for new customers The gross revenue from services rendered during the 1H10 came to a total of R$ million, an increase of R$ million, or 26.1%, in comparison with the same period of the previous year Gross revenue from the sale of assets The gross revenue from the sale of assets used in rendering services amounted to R$ 26.5 million in the 2Q10, against R$ 36.1 million in the 2Q09, representing a 26.6% drop, due to the lower volume of operating assets available for sale Deductions from gross revenue The deductions from gross revenue increased by R$ 14.1 million, to R$ 51.9 million in the 2Q10, against R$ 37.8 million in the 2Q09, mainly as a result of the increase in gross revenue, but also due to the higher tax rate incurred by the change in the mix of services rendered (ICMS) and discounts given Net revenue Due to the abovementioned factors, the net revenue for the 2Q10 came to R$ million, an increase of R$ 59.5 million, or 16.2%, in comparison with the same period of The net revenue for the 1H10 amounted to R$ million, which was up by R$ million, or 17.2%, in relation to the same period of the previous year. 6

81 2. Costs and gross profit Gross income 2Q10 2Q09 r 1H10 1H09 r (R$ million) Service rendering costs (336.4) (254.4) 32.2% (638.7) (503.5) 26.9% Personnel (121.3) (97.2) 24.8% (224.2) (182.9) 22.6% Independent contractors / third parties (75.5) (51.6) 46.3% (142.7) (94.5) 51.0% Fuel and lubricants (37.8) (34.3) 10.2% (73.2) (71.8) 1.9% Parts / tire / maintenance (35.9) (31.3) 14.7% (74.6) (63.1) 18.2% Depreciation (19.8) (16.4) 20.7% (36.4) (38.3) -5.0% Others (46.2) (23.6) 95.8% (87.6) (52.9) 65.6% Costs related to sale of assets used in service rendering (27.9) (34.9) -20.1% (50.7) (65.5) -22.6% Total cost (364.3) (289.3) 25.9% (689.4) (569.0) 21.2% Gross income % % Margin 14.7% 21.3% -6.6 p.p. 14.7% 17.4% -2,7 p.p Cost of services rendered The cost of the services rendered in the 2Q10 amounted to R$ million, an increase of R$ 82.0 million, or 32.2%, compared to the same period of 2009, when the total was R$ million. Personnel costs rose by R$ 24.1 million, or 24.8%, from R$ 97.2 million in the 2Q09 to R$ million in the 2Q10, largely as a result of the collective agreement, which led to a 7.4% average pay rise, and the 15.3% increase in the average number of employees (1,568 more staff). The cost of independent tractor owners and other third parties increased by R$ 23.9 million, or 46.3%, from R$ 51.6 million in the 2Q09 to R$ 75.5 million in the 2Q10, mainly due to the greater cargo volume that they transported, particularly for the pulp & paper sector. The cost of fuels and lubricants increased by R$ 3.5 million, or 10.2%, from R$ 34.3 million in the 2Q09 to R$ 37.8 million in the 2Q10, due to the greater volume handled. The cost of parts, tires and maintenance increased by R$ 4.6 million, or 14.7%, from R$ 31.3 million in the 2Q09 to R$ 35.9 million in the 2Q10. This was mainly due to the overall increased activity and the maintenance of mining sector machinery and equipment, which accounted for R$ 1.8 million. Other costs increased by R$ 22.6 million, or 95.8%, from R$ 23.6 million in the 2Q09 to R$ 46.2 million in the 2Q10, due in large part to R$ 13.9 million of reclassifications (security, property rentals, and cleaning services, among others), which in the same period of last year amounted to R$ 10.6 million and were classified as administrative and commercial expenses; a R$ 1.8 million increase in highway toll fees; R$ 1.4 million in vehicle taxes (IPVA) and licensing fees; and R$ 1.1 million in insurance. 7

82 2.2. Cost of sales of assets used in rendering services The cost of the sales of assets used in rendering services fell by R$ 7.0 million, or 20.1%, from R$ 34.9 million in the 2Q09 to R$ 27.9 million in the 2Q10, due to the reduced number of vehicles and other assets available for sale during the period Gross profit As a result of the aforementioned factors, and particularly the reclassification of spending, greater participation of independent tractor owners and other third parties, the collective pay agreement and the implementing of new operations, the gross profit was down by R$ 15.5 million, or 19.8%, from R$ 78.1 million in the 2Q09 to R$ 62.6 million in the 2Q10. The gross margin reduced by 6.6 percentage points, from 21.3% in the 2Q09 to 14.7% in the 2Q Expenses and net income Net income 2Q10 2Q09 r 1H10 1H09 r (R$ million) Operating expenses and revenue (45.8) (78.0) -41.3% (92.8) (139.7) -33.6% Administrative and selling expenses (26.2) (44.1) -40.6% (53.5) (72.6) -26.3% Tax expenses (1.5) (7.4) -79.7% (2.2) (15.7) -86.0% Net financial expenses (16.8) (22.4) -25.0% (40.4) (44.7) -9.6% Other operating revenue (expenses) (1.3) (4.1) -68.3% 3.3 (6.7) 149.3% Income before tax provisions n.a (19.5) n.a. Provision for income tax and social contribution (13.2) (15.7) -15.9% (20.0) (19.0) 5.3% Deferred tax credits % % Minority Interest (0.0) (0.0) 0.0% (0.0) (0.0) 0.0% Net income in the period % % 3.1. Operating expenses The operating expenses were down by R$ 32.2 million, or 41.3%, from R$ 78.0 million in the 2Q09 to R$ 45.8 million in the 2Q10, allocated as follows: Administrative and commercial expenses fell by R$ 17.9 million, or 40.6%, from R$ 44.1 million in the 2Q09 to R$ 26.2 million in the 2Q10, largely due to an R$ 11.2 million reduction in the provision for doubtful debts and the reclassification of R$ 10.6 million to costs, partially offset by a R$ 1.6 million payroll increase, a R$ 1.0 million increase in relation to legal publications and publicity materials, and R$ 0.8 million in legal and administratve consulting services. Tax expenditures fell by R$ 5.9 million, or 79.7%, from R$ 7.4 million in the 2Q09 to R$ 1.5 million in the 2Q10. This decline is mainly due to a R$ 5.3 million reduction in the provision for contingencies, which has been reclassified to other operating expenses, and a reduction of R$ 0.4 million in the IOF tax on financial transactions. 8

83 The company had net financial expenses of R$ 16.8 million in the 2Q10, compared to R$ 22.4 million in the 2Q09, a decrease of R$ 5.2 million mainly due to higher average balance of financial investments, as a result of the resources obtained from the IPO settlement. Other net operating revenues and expenses were down by R$ 2.8 million, or 68.3%, from a net expense of R$ 4.1 million in the 2Q09 to a net expense of R$ 1.3 million in the 2Q10. This result was due, in large part, to a reduction of R$ 4.4 million in the goodwill amortization of the fixed asset premium; a R$ 1.4 million reduction in the expenses of the center for joint services; R$ 1.0 million in revenue from the Consorcio 123 ; and R$ 0.7 million in revenue from asset sales; partially offset by a R$ 3.9 million increase in the provision for contingencies, which was recorded under tax expenses in the accounts for the same period of last year (at R$ 5.3 million) Net income before tax provisions The net income before deducting tax provisions was up by R$ 16.7 million, from R$ 0.1 million in the 2Q09 to R$ 16.8 million in the 2Q10. The pre-tax net income for the 1H10 came to R$ 25.6 million, an increase of R$ 45.1 million, or 231.3%, compared to the figure for the same period of the previous year Provisions for income tax and social contribution, and deferred tax credits The balance of provisions for income tax and social contribution and deferred tax credits represented a net expense of R$ 10.1 million in the 2Q10, compared to a net credit of R$ million in the same period of last year, due to the recording of deferred tax credits in the 2Q09, particularly in relation to company acquisitions. The balance for the 1H10 represented an increase of R$ 42.7 million, from a net credit of R$ 26.1 million in the 2Q09 to a net expense of R$ 16.6 million in the 2Q Net profit The net profit for the 2Q10 came to R$ 6.7 million, representing a reduction of R$ 10.3 million in relation to the 2Q09, mainly due to changes in deferred income tax. The net profit for the 1H10 came to a total of R$ 9.0 million, an increase of R$ 2.4 million, or 36.4%, in comparison with that of the same period of last year. 9

84 4. EBITDA EBITDA 2Q10 2Q09 r 1H10 1H09 r 12Months (R$ million) Net income (loss) in the period % % 63.2 Net financial expenses % % 57.4 Income tax and social contribution (current and deferred) 10.1 (16.9) 159.8% 16.6 (26.1) 163.6% 70.7 Depreciation and amortization % % 78.1 EBITDA % % EBITDA Margin 12.9% 12.1% 0,8 p.p. 13.1% 10.8% 2.3 p.p. 16.9% Custo do ativo imobilizado (Cost of fixed asset) % % EBITDA-M % % EBITDA-M Margin 19.4% 21.6% -2.2 p.p. 19.4% 20.3% -0.9 p.p. 0.2 The traditional EBITDA calculation can distort this measurement s value as an alternative to operational cash generation and as a measurement of Julio Simões operational performance, since, at the end of the contract, the depreciated cost of the asset at the time of its sale is an accounting representation resulting from the disposal of the asset and, as such, does not reflect a cash outlay. We shall make an adjustment to the traditional EBITDA, adopting the EBITDA-M (EBITDA- Modified), in which we do not take into consideration the depreciated cost of the asset sold, thereby avoiding the possibility that a change in the accounting treatment of the depreciation distorts this measurement. The EBITDA increased by 23.3%, from R$ 44.6 million in the 2Q09 to R$ 55.0 million in the 2Q10. The EBITDA margin for the 2Q10 was 12.9%, up 0.8 percentage points from the 12.1% margin in the 2Q09. The EBITDA-M was up by 4.3%, from R$ 79.5 million in the 2Q09 to R$ 82.9 million in the 2Q10. The margin in the 2Q10 was 19.4%, up 2.2 percentage points over the 21.6% margin for the 2Q09, mainly due to the reduced number of vehicles and other assets available for sale during the period. Meanwhile, the EBITDA for the 1H10 totaled R$ million, an increase of R$ 31.3 million, or 42.0%, in relation to that of the same period of And the EBITDA margin was 13.1%, an increase of 3.7 percentage points in comparison to the same period of the previous year. The EBITDA-M * for the 1H10 came to a total of R$ million, an increase of R$ 16.5 million, or 11.8%, in comparison with the same period of the previous year. The EBITDA-M margin was 19.4%, 0.9 percentage points less than the figure for the same period of 2009, mainly due to the reduced number of vehicles and other assets available for sale during the period. * EBITDA-M (EBITDA Modified) Observation: EBITDA and EBITDA-M are used by the Julio Simões management as measurements of performance, but these are not measurements that are formally adopted under Brazilian or US Accounting Principles, do not represent the cash flow for the given periods and should not be considered as substitutes for net profit or cash flow as an indicator of operational performance or of liquidity. Julio Simões management believes that the EBITDA-M is a practical measurement for assessing its operational performance that allows a comparison to be made with other companies in the same segment. Using the EBITDA-M in isolation and without criteria is not recommended, however. 10

85 IV. CAPITAL EXPENDITURE INVESTMENT BY EQUIPMENT TYPE 1Q10 2Q10 1H10 Trucks Machine and Equipment Light Vehicles Buses Others TOTAL INVESTMENT INVESTMENT BY BUSINESS LINE 1Q10 2Q10 1H10 Services Dedicated to Supply Chain Fleet Management and Outsourcing Others TOTAL INVESTMENT INVESTMENT BY NATURE Share 1H10 Renewal 7.6% 29.7 Expansion New Businesses 92.4% TOTAL INVESTMENT 100.0% The net investment in the 2Q10 amounted to R$ million, an increase of R$ million over the R$ 25.4 million invested during the same period of last year. Capital expenditure during the 1H10 amounted to a total of R$ million, an increase of R$ million, or 175.4%, in relation to that of the same period of

86 V. CAPITAL STRUCTURE 1. Indebtedness At the end of the 2Q10, the company s total gross debt amounted to R$ 1,204.6 million, and net debt of R$ million, which was down by R$ million in relation to that at the end of the 1Q10, as shown in the table below: Indebtedness 2Q10 2Q09 r (R$ million) Cash and investments (385.3) (179.7) 114.4% Short term % Long term % Gross debt 1, , % Net debt , % The company s cash, cash equivalents and short-term marketable securities showed a balance of R$ million at the end of the 2Q10, an increase of R$ million compared to the balance at the end of the 1Q10. Of the company s total debt, 30.4% represents short-term borrowing and 69.6% is long term. It is worth pointing out that the balance of cash and short-term financial investments is sufficient to cover the company s short-term debt. The following chart shows the debt maturity profile and scheduled amortization: until Jun/11 Jul-Dec/ Up to 2016 Operating Loans (asset acquisition) Other Loans 12

87 1, Other Loans Operating Loans (asset acquisition) Total Debt Cash and Equivalents Net Debt 2. Leverage ratios The ratios of the company s leverage are shown below: TQ0 2Q10 Net Debt Net Operating Assets Saldos no final do período T10 2T10 Net Debt / Operating Assets 79% 83% 57% Net Debt / EBITDA * 3,8x 3,9x 3,0x Net Debt / EBTIDA-M * 2,5x 2,8x 2,2x Cash / Short Term Debt 0,3 0,4 1,1 * Last 12 months In its continual efforts to improve its debt profile, the company secured funding of R$ 60.0 million in August, with a two-year grace period and a for-year maturity. 13

88 VI. CAPITAL MARKETS The common shares issued by Julio Simões (JSLG3) began to be traded at the BM&FBOVESPA on April 22, 2010 and had appreciated in value by 2.5% up to June 30, 2010, when the stock quotation was R$ 8.20, representing a market capitalization of R$ 1.6 billion. The company s shares have been traded in every trading session. JSLG x Ibovespa Base 100 (04/20/2010) R$ 8.00 R$ % 69,318 pontos 60,935 pontos -12.1% 04/30/10 05/31/10 06/30/10 JSLG3 Ibovespa In July 2010, the company engaged the services of Bank Credit Suisse as a market maker. 14

89 VII. OUR BUSINESS MODEL I. JULIO SIMÕES BUSINESS MODEL The Julio Simões business model consists of a set of contracts for logistics, rental and transport services with validities ranging from 24 to 60 months, in general. At the beginning of a contract, the operational asset is acquired at a discount, in relation to the market price, and at the end of the contract it is usually sold at the prevailing market price, rather than being used under another contract with a different customer, nor is the operational asset reutilized, in the event of the contract being renewed. Ativo l 15

90 II. Example of a Julio Simões Services Contract The purpose of this exercise is to analyze the economic basis of a typical Julio Simões contract for the rendering of transport and logistics services and its accounting effects, and to this end, we have used a simplified illustrative example. Assumptions Contract Term 48 months Operating Costs BRL135,000 Asset s Acquisition Price BRL100,000 Taxes 34% Depreciation Rate 7% Asset s Selling Price BRL72,000 Net Revenues from services BRL Discount Rate 10% Observation: For the purpose of simplification, this example does not take into consideration the effects of monetary correction, working capital, tax deferments and asset financing. The numbers used in this example are not based on those of an authentic Julio Simões contract. The contracts are priced with the intention of obtaining a rate of return that is higher than the cost of capital. The investment (asset purchase) and divestment (asset sale after termination of the contract) are included in the pricing of the services and this is essential to the obtaining of the expected rate of return. 16

91 The contract is recorded in the accounts as follows: Year Financial Statements (BRL) Net Revenues from services (+)Sale of the operating asset (=) Net revenue (-)Cost of Asset Sold (-)Operating Costs (-)Depreciation (=)EBIT (-/+)Taxes (=)Net Profit Fixed Assets (BRL) Fixed Assets (-)Cumulated Depreciation (-)Asset Sale (=)Net Fixed Assets The traditional EBITDA calculation can distort this measurement s value as a representation of operational cash generation and as a measurement of Julio Simões operational performance, since, at the end of the contract, the depreciated cost of the asset at the time of its sale is an accounting representation resulting from the disposal of the asset and, as such, does not reflect a cash outlay. We shall make an adjustment to the traditional EBITDA, using the EBITDA-M*, in which we do not take into consideration the depreciated cost of the asset sold, thereby preventing a possible change in the accounting treatment of the depreciation from distorting this measurement. *EBITDA-M (EBITDA Modified) Year EBITDA and EBITDA-M (in R$) (=) EBIT 23,000 23,000 23,000 23,000 (+) Depreciation (non-cash) 7,000 7,000 7,000 7,000 (=) EBITDA 30,000 30,000 30,000 30,000 (+) Cost of Asset Sold (non-cash) 72,000 (=) EBITDA-M 30,000 30,000 30, ,000 17

92 Using the EBITDA-M to construct the cash flow: Year Free Cash Flow (in R$) EBITDA-M 30,000 30,000 30, ,000 (-) Taxes (7,820) (7,820) (7,820) (7,820) (-) Investment (100,000) (=) Free Cash Flow (100,000) 22,180 22,180 22,180 94,180 Discount Rate 10.00% 10.00% 10.00% 10.00% 10.00% Discount Factor Present Value of the Free Cash Flow -100,000 20,164 18,331 16,664 64,326 Present Value of the Contract 19,485 Contract Rate of Return 16.70% Or alternatively, based on the EBITDA, the cost of the asset sold would have to be reversed: Year Free Cash Flow (in R$) EBITDA 30,000 30,000 30,000 30,000 (-) Taxes (7,820) (7,820) (7,820) (7,820) (-) Investment (100,000) (+) Cost of Asset Sold (non-cash) 72,000 (=) Free Cash Flow (100,000) 22,180 22,180 22,180 94,180 Present Value of the Contract 19,485 Observation: EBITDA and EBITDA-M are used by the Julio Simões management as measurements of performance, but are not measurements formally adopted under Brazilian or US Accounting Principles, do not represent the cash flow for the given periods and should not be considered a substitute for net profit or cash flow as an indicator of operational performance or of liquidity. Julio Simões management believes that the EBITDA-M is a practical measurement for assessing its operational performance that allows a comparison to be made with other companies in the same segment. Using the EBITDA-M in isolation and without criteria is not recommended. 18

93 III. Economic Analysis using EVA Using the concept of EVA Economic Value Added to evaluate the economic result of the sample Julio Simões contract for logistics and fleet management services, we get: EVA = Net Operating Profit Less Added Tax WACC x Capital invested Ano EVA (in R$) Wacc 10,0% 10,0% 10,0% 10,0% 10,0% (*)Capital Invested (=)Cost of capital Net operating profit less added tax (NOPAT) (-)Cost of capital (t-1) (10.000) (9.300) (8.600) (7.900) (=)EVA ROIC 15,2% 16,3% 17,7% 19,2% Discount rate 10,0% 10,0% 10,0% 10,0% Discount factor 0,91 0,83 0,75 0,68 Present value of future EVA Total EVA at present value In the example, following the sale, the asset no longer forms part of the capital base and there are no further capital costs to be incurred. Note that the sum of the Present Values of the EVA is equal to the Net Present Value of the contract cas flows. Observation: EVA is a Stern Stewart registered trademark 19

94 IV. IMPORTANT NOTICE Stern Stewart Ltda. ( Stern Stewart ) has been hired by Julio Simões Logística S/A ( the Company or Julio Simões ) for the purpose of demonstrating, by means of an illustrative example that is not based on actual figures, the economic fundamentals and accounting effects of a typical Julio Simões contract for the rendering of transport and logistics services ( Material ). The Material prepared by Stern Stewart does not represent an assessment of the quality or suitability of any securities or investments whose fundamentals may be directly or indirectly affected by this study. The information required for the preparation of this Material was provided by the Company and has not been verified by Stern Stewart. We, Stern Stewart, are not responsible for said information being correct and complete. Hence, Stern Stewart, its administration, directors and/or anyone working on our behalf cannot be held responsible in relation to any or all losses arising from any lack of precision or completeness of the information provided by the Company and/or its affiliates that is contained in this Material. Stern Stewart further emphasizes that the figures used in this Material are purely illustrative and are not based on the Company s true figures. The numbers used in this example are simplified and do not represent those of an existing Júlio Simões contract for the rendering of services. Our premises and conclusions are valid only for the date that this work is presented, subject to the provisos contained herein. These premises and conclusions may change in the light of subsequent events of an economic, legal, fiscal or other nature. We are under no obligation to update the premises and conclusions contained herein, independent of any subsequent events that might occur. This Material was prepared independently and objectively and is for the exclusive use of the Company. It should not be used as a basis for taking any business, associative or investment decisions on the part of any third party. We do not make any pronouncements with regard to the financial statements of Julio Simões, nor about the legitimacy of the accounting practices reflected therein, which matters are beyond the scope of our work. This Notice is an integral part of the Material. 20