Valid Soluções e Serviços de Segurança em Meios de Pagamento e Identificação S.A.

Transcription

1 Valid Soluções e Serviços de Segurança em Meios de Pagamento e Identificação S.A. Convenience Translation into English from the Original Previously Issued in Portuguese) Individual and Interim Financial Information for the three month period ended September 30, 2014 and Report on Review of Interim Financial Information Deloitte Touche Tohmatsu Auditores Independentes

2 Deloitte Touche Tohmatsu Av. Presidente Wilson, º Rio de Janeiro RJ Brasil Tel: + 55 (21) Fax:+ 55 (21) (Convenience Translation into English from the Original Previously Issued in Portuguese) REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION To the Shareholders, Board of Directors and Management of Valid Soluções e Serviços de Segurança em Meios de Pagamento e Identificação S.A. Rio de Janeiro - RJ Introduction We have reviewed the accompanying individual and consolidated interim financial information of Valid Soluções e Serviços de Segurança em Meios de Pagamento e Identificação S.A. (the Company ), identified as and, respectively, included in the Interim Financial Information Form (ITR), for the three-month period ended September 30, 2014, which comprises the balance sheet as of September 30, 2014 and the related statements of income and of comprehensive income for the three and nine-month periods then ended and of changes in equity and of cash flows for the nine-month period then ended, including the explanatory notes. Management is responsible for the preparation of the individual interim financial information in accordance with CPC 21 (R1) - Interim Financial Reporting and the consolidated interim financial information in accordance with CPC 21 (R1) and IAS 34 - Interim Financial Reporting, issued by the International Accounting Standards Board - IASB, as well as for the presentation of such information in accordance with the standards issued by the Brazilian Securities Commission - CVM, applicable to the preparation of Interim Financial Information - ITR. Our responsibility is to express a conclusion on this interim financial information based on our review. Scope of review We conducted our review in accordance with Brazilian and international standards on review of interim financial information (NBC TR 2410 and ISRE Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with the standards on auditing and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion on the individual interim financial information Based on our review, nothing has come to our attention that causes us to believe that the accompanying individual interim financial information included in the ITR referred to above was not prepared, in all material respects, in accordance with CPC 21 (R1), applicable to the preparation of Interim Financial Information - ITR, and presented in accordance with the standards issued by the Brazilian Securities Commission. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its networ k of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Deloitte Touche Tohmatsu. All rights reserved.

3 Deloitte Touche Tohmatsu Conclusion on the consolidated interim financial information Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated interim financial information included in the ITR referred to above was not prepared, in all material respects, in accordance with CPC 21 (R1) and IAS 34 applicable to the preparation of Interim Financial Information - ITR, and presented in accordance with the standards issued by the Brazilian Securities Commission. Other matters Statements of value added We have also reviewed the individual and consolidated statements of value added (DVA) for the nine-month period ended September 30, 2014, prepared under the responsibility of the Company s Management, the presentation of which is required by the standards issued by the Brazilian Securities Commission CVM, applicable to the preparation of Interim Financial Information - ITR and is considered as supplemental information for International Financial Reporting Standards - IFRS, that does not require the presentation of DVA. These statements were subject to the same review procedures described above and, based on our review, nothing has come to our attention that causes us to believe that they were not prepared, in all material respects, in relation to the individual and consolidated interim financial information taken as a whole. The accompanying individual and consolidated interim financial information has been translated into English for the convenience of readers outside Brazil. Rio de Janeiro, November 7, 2014 DELOITTE TOUCHE TOHMATSU Auditores Independentes Paulo Roberto Marques Garrucho Engagement Partner 2014 Deloitte Touche Tohmatsu. All rights reserved. 2

4 (Convenience Translation into English from the Original Previously Issued in Portuguese) Valid Soluções e Serviços de Segurança em Meios de Pagamento e Identificação S.A. Balance Sheets as at September 30, 2014 and December 31, 2013 (In thousands of Brazilian reais - R$) Reviewed by independent auditors according to the report dated November 7, /30/ /31/ /30/ /31/2013 Assets Current assets Cash and cash equivalents (Note 4) 53,040 90, , ,203 Trade receivables (Note 5) 122, , , ,568 Allowance for doubtful debts (Note 5) (991) (189) (2,471) (1,439) Due from related parties (Note 16) 329 1, Recoverable taxes (Note 6) 12,105 12,547 24,319 19,548 Inventories (Note 7) 61,045 74, , ,058 Dividends receivable (Note 16) ,188 Other receivables 12,473 17,585 24,851 23,030 Prepaid expenses 1,323 1,381 6,026 7,846 Total current assets 261, , , ,002 Noncurrent assets Long-term assets 82,949 66,949 67,865 62,743 Escrow deposits (Note 8) 26,616 24,453 30,785 28,494 Recoverable taxes (Note 6) 8,228 5,140 8,325 5,237 Deferred income tax and social contribution (Note 9) 4,640 6,532 25,410 26,476 Other receivables 1,387 1,276 3,345 2,536 Due from related parties (Note 16) 42,078 29, Investments (Note 10) 383, ,431 16,289 24,048 Property, plant and equipment (Note 11) 225, , , ,013 Intangible assets (Note 10) 13,553 11, , ,150 Total noncurrent assets 705, , , ,954 Total assets 967, ,720 1,284,565 1,172,956 (Continues) 3

5 (Convenience Translation into English from the Original Previously Issued in Portuguese) Valid Soluções e Serviços de Segurança em Meios de Pagamento e Identificação S.A. Balance Sheets as at September 30, 2014 and December 31, 2013 (In thousands of Brazilian reais - R$) Reviewed by independent auditors according to the report dated November 7, /30/ /31/ /30/ /31/2013 Current liabilities Trade payables 22,752 31,000 76,022 64,028 Due to related parties (Note 16) Borrowings, financing, debentures and leasing payable (Note 12) 85,185 4, ,309 18,928 Payroll, accruals and related taxes 41,979 28,930 63,386 48,179 Taxes, fees and contributions payable (Note 14) 7,372 5,434 23,825 17,073 Dividends and interest on capital payable - 10,563-10,563 Payables for business acquisition (Note 10) ,826 Other payables 5,156 4,970 18,108 25,628 Total current liabilities 162,457 85, , ,225 Noncurrent liabilities Trade payables ,621 Borrowings, financing, debentures and leasing payable (Note 12) 204, , , ,164 Provisions (Note 15) 9,346 9,038 12,702 12,682 Deferred income tax and social contribution (Note 9) ,877 26,757 Other payables - - 3,906 4,037 Total noncurrent liabilities 214, , , ,261 Equity (Note 17) Capital 360, , , ,000 Treasury shares (2,682) (2,991) (2,682) (2,991) Capital reserves 8,164 7,902 8,164 7,902 Earnings reserves 157, , , ,568 Cumulative translation adjustments 7,455 13,039 7,455 13,039 Additional dividends proposed - 7,952-7,952 Retained earnings 60,042-60,042 - Total equity 590, , , ,470 Total liabilities and equity 967, ,720 1,284,565 1,172,956 The accompanying notes are an integral part of these interim financial information. 4

6 (Convenience Translation into English from the Original Previously Issued in Portuguese) Valid Soluções e Serviços de Segurança em Meios de Pagamento e Identificação S.A. Income Statement for the Nine-Month Periods Ended September 30, 2014 and 2013 (In thousands of Brazilian reais - R$, unless otherwise stated) Reviewed by independent auditors according to the report dated November 7, /30/ /30/ /30/ /30/2013 Net sales revenue (Note 24) 472, , , ,374 Costs of sales and services (Note 25) (374,116) (361,379) (678,462) (641,677) Gross profit 97,958 86, , ,697 Operating income (expenses) Selling expenses (Note 25) (34,780) (28,709) (73,105) (63,323) Administrative expenses (Note 25) (24,595) (24,790) (42,564) (35,561) Other operating income (expenses), net (542) (1,758) (3,222) (31,389) Equity in earnings of subsidiaries (Note 10) 62,727 39,843 (5,495) 3,315 Profit before finance income and costs 100,768 70, ,605 89,739 Finance income (Note 26) 16,780 27,117 15,280 23,246 Finance costs (Note 26) (31,987) (28,665) (35,858) (28,956) Pretax income 85,561 69, ,027 84,029 Current income tax and social contribution (Note 20) (571) (2,814) (28,743) (27,724) Deferred income tax and social contribution (Note 20) (1,892) 1,210 (2,186) 11,370 Profit for the period 83,098 67,675 83,098 67,675 Basic and diluted earnings per share (in Brazilian reais) The accompanying notes are an integral part of these interim financial information. 5

7 (Convenience Translation into English from the Original Previously Issued in Portuguese) Valid Soluções e Serviços de Segurança em Meios de Pagamento e Identificação S.A. Income Statement for the Periods from July 1, to September 30, 2014 and 2013 (In thousands of Brazilian reais - R$, unless otherwise stated) Reviewed by independent auditors according to the report dated November 7, /01/2014 to 09/30/ /01/2013 to 09/30/ /01/2014 to 09/30/ /01/2013 to 09/30/2013 Net sales revenue (Note 24) 175, , , ,813 Costs of sales and services (Note 25) (134,134) (119,670) (240,854) (229,444) Gross profit 41,005 32, ,942 86,369 Operating income (expenses) Selling expenses (Note 25) (12,160) (10,578) (24,759) (23,585) Administrative expenses (Note 25) (9,215) (5,997) (15,143) (10,987) Other operating income (expenses), net 180 (59) (1,360) (25,837) Equity in earnings of subsidiaries (Note 10) 24,147 8,072 (6,117) 2,279 Profit before finance income and costs 43,957 24,363 54,563 28,239 Finance income (Note 26) 8,505 11,042 8,461 7,679 Finance costs (Note 26) (10,023) (14,178) (10,803) (13,835) Pretax income 42,439 21,227 52,221 22,083 Current income tax and social contribution (Note 20) (571) (916) (10,388) (10,914) Deferred income tax and social contribution (Note 20) (5,676) 646 (5,641) 9,788 Profit for the period 36,192 20,957 36,192 20,957 Basic and diluted earnings per share (in Brazilian reais) The accompanying notes are an integral part of these interim financial information. 6

8 (Convenience Translation into English from the Original Previously Issued in Portuguese) Valid Soluções e Serviços de Segurança em Meios de Pagamento e Identificação S.A. Statement of Comprehensive Income for the Nine-Month Periods Ended September 30, 2014 and 2013 (In thousands of Brazilian reais - R$) Reviewed by independent auditors according to the report dated November 7, /30/ /30/ /30/ /30/2013 Profit for the period 83,098 67,675 83,098 67,675 Other comprehensive income Items that may be subsequently reclassified to the income statement Translation differences on foreign investments (5,584) 8,215 (5,584) 8,215 Total comprehensive income for the period 77,514 75,890 77,514 75,890 The accompanying notes are an integral part of these interim financial information. 7

9 (Convenience Translation into English from the Original Previously Issued in Portuguese) Valid Soluções e Serviços de Segurança em Meios de Pagamento e Identificação S.A. Statement of Comprehensive Income for the Periods from July 1, to September 30, 2014 and 2013 (In thousands of Brazilian reais - R$) Reviewed by independent auditors according to the report dated November 7, /01/2014 to 09/30/ /01/2013 to 09/30/ /01/2014 to 09/30/ /01/2013 to 09/30/2013 Profit for the period 36,192 20,957 36,192 20,957 Other comprehensive income Items that may be subsequently reclassified to the income statement Translation differences on foreign investments 4,156 3,641 4,156 3,641 Total comprehensive income for the period 40,348 24,598 40,348 24,598 The accompanying notes are an integral part of these interim financial information. 8

10 (Convenience Translation into English from the Original Previously Issued in Portuguese) Valid Soluções e Serviços de Segurança em Meios de Pagamento e Identificação S.A. Statement of Changes in Equity ( and ) for the Nine-Month Periods Ended September 30, 2014 and 2013 (In thousands of Brazilian reais - R$, unless otherwise stated) Reviewed by independent auditors according to the report dated November 7, 2014 Capital Capital reserves Treasury Recognized shares stock options Gain on sale of treasury shares Earnings reserves Legal reserve Investment reserve Cumulative translation adjustments Retained earnings Total Additional dividends proposed Total Balance at December 31, ,000 (2,991) 6,111 1,791 33, ,259 13, ,518 7, ,470 Payment of additional dividends proposed (gross amount of R$ per share) (7,952) (7,952) Treasury shares Other comprehensive income - exchange differences on translating foreign investment (Note 10) (5,584) - (5,584) - (5,584) Dividend payment (gross amount of R$ per share) (6,516) (6,516) - (6,516) Interest on capital payment (gross amount of R$ per share) (5,887) (5,887) - (5,887) Interest on capital payment (gross amount of R$ per share) (10,653) (10,653) - (10,653) Profit for the period ,098 83,098-83,098 Balance at September 30, ,000 (2,682) 6,111 2,053 33, ,259 7,455 60, , ,547 The accompanying notes are an integral part of these interim financial information. 9

11 (Convenience Translation into English from the Original Previously Issued in Portuguese) Valid Soluções e Serviços de Segurança em Meios de Pagamento e Identificação S.A. Statement of Changes in Equity ( and ) for the Nine-Month Periods Ended September 30, 2014 and 2013 (In thousands of Brazilian reais - R$, unless otherwise stated) Reviewed by independent auditors according to the report dated November 7, 2014 Capital Capital reserves Treasury Recognized shares stock options Gain on sale of treasury shares Earnings reserves Legal reserve Investment reserve Cumulative translation adjustments Retained earnings Total Additional dividends proposed Total Balance at December 31, ,000 (4,346) 6, , ,888 1, ,963 18, ,449 Payment of additional dividends proposed (gross amount of R$ per share) (18,486) (18,486) Treasury shares - 1,355-1, ,587-2,587 Other comprehensive income - exchange differences on translating foreign investment (Note 10) ,215-8,215-8,215 Dividend payment (gross amount of R$ per share) (5,559) (5,559) - (5,559) Interest on capital payment (gross amount of R$ per share) (12,438) (12,438) - (12,438) Interest on capital payment (gross amount of R$ per share) (11,773) (11,773) - (11,773) Profit for the period ,675 67,675-67,675 Balance at September 30, ,000 (2,991) 6,111 1,791 28, ,888 9,243 37, , ,670 The accompanying notes are an integral part of these interim financial information. 10

12 (Convenience Translation into English from the Original Previously Issued in Portuguese) Valid Soluções e Serviços de Segurança em Meios de Pagamento e Identificação S.A. Statement of Cash Flows for the Nine-Month Periods Ended September 30, 2014 and 2013 (In thousands of Brazilian reais - R$) Reviewed by independent auditors according to the report dated November 7, /30/ /30/ /30/ /30/2013 Cash flows from operating activities 75,616 70, , ,220 Profit for the period 83,098 67,675 83,098 67,675 Adjustments for Depreciation 24,970 20,008 41,726 35,494 Derecognized assets 344-2,941 - Amortization 2,847 2,194 2,990 2,319 Provisions 308 2, ,080 Allowance for doubtful debts 801 (156) 579 (174) Deferred income tax and social contribution 1,892 (1,210) 2,186 (11,370) Equity in subsidiaries (62,727) (39,843) 5,495 (3,315) Interest on debentures, borrowings and financing 20,635 19,913 25,628 23,073 Derivatives - (596) - (596) Exchange differences on translating advances and leases 3, , Changes in assets and liabilities (4,141) (59,306) (17,787) (79,468) Trade receivables (14,558) (17,640) (30,407) (56,375) Recoverable taxes (2,646) (5,581) (8,757) (9,837) Inventories 13,723 (5,694) (6,878) (20,513) Escrow deposits (2,163) (7,824) (2,291) (8,021) Other receivables (7,471) (22,682) (341) (582) Trade payables (6,769) (4,232) 12,175 1,319 Payroll, accruals and related taxes 13,620 2,764 16,264 7,839 Taxes, fees and contributions payable 1,938 1,654 34,308 28,646 Income tax (IR) and social contribution (CSLL) paid - (2,547) (27,774) (24,299) Other payables 185 2,476 (4,086) 2,355 Net cash generated by operating activities 71,475 10, ,324 35,752 Cash flows from investing activities Purchase of property, plant and equipment (45,702) (13,310) (81,854) (22,163) Purchase of investments and intangible assets (3,360) (7,443) (4,185) (6,316) Dividends and interest on capital received - 20,000 3,452 2,401 Disbursement of restricted cash - 102, ,924 Acquisition of ScreenCheck less net cash acquired (10,268) Settlement of the ScreenCheck contingent consideration - - (6,394) - Net cash generated by (used in) investing activities (49,062) 102,171 (88,981) 66,578 Cash flows from financing activities Dividends paid (25,031) (24,045) (25,031) (24,045) Interest on capital paid (16,540) (24,211) (16,540) (24,211) Lease payments (4,912) (1,449) (4,912) (1,449) Issue of debentures - 250, ,000 Payment of debentures - (166,000) - (166,000) Payment of interest on debentures (12,938) (9,009) (12,938) (9,009) Borrowings - - 5,000 9,500 Payment of interest on financing - - (1,243) (930) Borrowings , Payment of interests on borrowings - - (1,539) (1,394) Net cash generated by (used in) financing activities (59,421) 25,286 (34,843) 32,705 11

13 (Convenience Translation into English from the Original Previously Issued in Portuguese) Valid Soluções e Serviços de Segurança em Meios de Pagamento e Identificação S.A. Statement of Cash Flows - continued for the Nine-Month Periods Ended September 30, 2014 and 2013 (In thousands of Brazilian reais - R$) Reviewed by independent auditors according to the report dated November 7, /30/ /30/ /30/ /30/2013 Cumulative translation adjustments - - (179) 2,578 Increase (decrease) in cash and cash equivalents (37,008) 138,376 26, ,613 Cash and cash equivalents At the beginning of the period 90,048 30, , ,779 At the end of the period 53, , , ,392 Increase (decrease) in cash and cash equivalents (37,008) 138,376 26, ,613 The accompanying notes are an integral part of this interim financial information. 12

14 (Convenience Translation into English from the Original Previously Issued in Portuguese) Valid Soluções e Serviços de Segurança em Meios de Pagamento e Identificação S.A. Statement of Value Added for the Nine-Month Periods Ended September 30, 2014 and 2013 (In thousands of Brazilian reais - R$) Reviewed by independent auditors according to the report dated November 7, /30/ /30/ /30/ /30/2013 Revenue 539, ,657 1,030, ,684 Sale of goods and services, net of returns 540, ,312 1,029, ,740 Other income ,798 4,770 Allowance for doubtful debts (801) 156 (579) 174 Inputs purchased from third parties (209,060) (198,897) (411,093) (408,417) Costs of sales and services (185,880) (176,097) (359,561) (330,062) Materials, power, outside services and other services (23,180) (22,800) (51,532) (78,355) Gross value added 330, , , ,267 Depreciation and amortization (27,817) (22,202) (44,716) (37,813) Wealth created by the Company 303, , , ,454 Wealth received in transfer Equity in earnings of subsidiary 62,727 39,843 (5,495) 3,315 Finance income 16,780 27,117 15,280 23,246 Total wealth for distribution 382, , , ,015 Wealth distributed 382, , , ,015 Payroll and related taxes (except INSS) 154, , , ,065 Salaries and wages 109, , , ,841 Benefits 36,161 32,467 48,434 43,818 Severance pay fund (FGTS) 8,421 11,233 11,668 14,406 Taxes, fees and contributions 92,619 92, , ,816 Federal 73,277 71, , ,429 State 5,675 7,473 10,108 10,188 Municipal 13,667 12,672 18,782 17,199 Lenders and lessors 52,553 49,442 69,474 63,459 Interest 31,987 28,665 35,858 28,956 Rentals 20,566 20,777 33,616 34,503 Shareholders 83,098 67,675 83,098 67,675 Interest on capital 16,540 24,211 16,540 24,211 Dividends 6,516 5,559 6,516 5,559 Retained earnings 60,042 37,905 60,042 37,905 The accompanying notes are an integral part of these interim financial information. 13

15 (Convenience Translation into English from the Original Previously Issued in Portuguese) Valid Soluções e Serviços de Segurança em Meios de Pagamento e Identificação S.A. Notes to the Interim Financial Information as of September 30, 2014 and December 31, 2013 (In thousands of Brazilian reais - R$, unless otherwise stated) Reviewed by independent auditors according to the report dated November 7, General information Valid Soluções e Serviços de Segurança em Meios de Pagamento e Identificação S.A. ( Valid or Company ), headquartered at Avenida Presidente Wilson, nº º andar - Rio de Janeiro, operates in Brazil since 1993, when American Banknote Corporation acquired the Brazilian subsidiary of Thomas de La Rue, a company engaged in providing security printing services, operating in the Brazilian market for almost 50 years. The Company is engaged mainly in the printing industry in general, including security prints, lottery tickets and systems in general, including electronic, plastic, magnetic and inductive cards, encoding cards, and in the development, implementation and execution of electronic document management projects. The Company serves clients in both the private and public sectors, offering anti-fraud and anticounterfeiting products and services, as well as processes and technologies that hinder forgery. The Company s main customers are large financial institutions, telecommunication companies, as well as state governments and governmental agencies. The Company s products include credit and debit cards, prepaid and inductive telephone cards, driver s licenses, security prints, ID cards, as well as the processing and issuance of documents with security prints and fraud prevention, document logistics, graphic product supply management services, smart cards, stamps, contactless cards, digital certificates, checks, bank statements and public utility bills. On April 12, 2006, the Company was registered as a publicly-held company with the Brazilian Securities Commission ( CVM ), and was accepted in the Novo Mercado segment of the São Paulo Stock Exchange (BM&FBOVESPA). On October 8, 2010, the Company changed its name from American BankNote S.A. to Valid Soluções e Serviços de Seguranças em Meios de Pagamentos e Identificação S.A.. The Company s management authorized the conclusion of these interim financial information on October 21, Accounting policies The individual and consolidated interim financial statements have been prepared based on several measurement basis used in the accounting estimates. The accounting estimates used in preparing the interim financial information were based on objective and subjective factors, and judgment by Management is required to determine the appropriate amount to be reported in the interim financial information. 14

16 Significant items subject to these estimates and assumptions include the determination of the useful lives of property, plant and equipment and their recoverability through operations, measurement of financial assets at fair value and adjustment to present value, analysis of credit risk to determine the allowance for doubtful debts, as well as the analysis of other risks to determine other provisions, including the provision for contingencies. The settlement of transactions involving these estimates may result in amounts different from those reported in the interim financial information due to the inaccuracy inherent in the estimation process. The Company reviews its estimates and assumptions at least annually. The Company s interim financial statements, disclosed in the Interim Financial Information Form (ITR) for the quarter ended September 30, 2014, comprise: The consolidated interim financial information prepared in accordance with CPC 21 and IAS 34 - Interim Financial Reporting, issued by the International Accounting Standard Board (IASB), and presented consistently with the standards issued by the Brazilian Securities Commission, ) applicable to the preparation of Interim Financial Information (ITR). The individual interim financial information prepared in accordance with the accounting practices adopted in Brazil, which comprise the standards issued by the Brazilian Securities Commission (CVM) and the pronouncements issued by the Accounting Pronouncements Committee (CPC), which differ from the International Financial Reporting Standards, issued by the International Accounting Standard Board (IASB) only with respect to the measurement of investments in subsidiaries, associates and jointly controlled entities under the equity method, as required by ICPC 09 - Demonstrações Contábeis Individuais, Demonstrações Separadas, Demonstrações Consolidadas e Aplicação do Método de Equivalência Patrimonial ( ICPC 09 ) (Individual Financial Statements, Separate Financial Statements, Financial Statements, and Application of the Equity Method of Accounting), whereas for IFRS purposes these are measured at cost or fair value. The significant accounting policies applied when preparing these interim financial information are presented below: 2.1 Basis of consolidation The consolidated interim financial information include the operations of the Company and its direct and indirect subsidiaries (jointly referred to as Group ), whose percentage interests at the end of the reporting periods are summarized as follows: % equity interest 09/30/ /31/2013 Valid Participações Ltda. ( Valid Par ) Interprint Ltda. ( Interprint ) Valid Certificadora Digital Ltda. ( Certificadora ) (ii) 100 (ii) 100 Valid Soluciones Tecnológicas ( Valid Espanha ) Valid Soluciones y Servicios de Seguridad en Medios de Pago e Identificación S.A. ( Valid Argentina ) (i) 100 (i) 100 Trust Administração e Participações Ltda. ( Trust ) Valid USA, Inc. ( Valid USA ) (iii) 100 (iii) 100 Valid Secure Solutions, LLC ( Valid Solutions ) - (iii)

17 % equity interest 09/30/ /31/2013 ScreenCheck North America, LLC ( ScreenCheck ) (iii) Valid Soluciones y Servicios de Seguridad en Medios de Pago e Identificación S.A.S. ( Valid Colombia ) (iii) Solpyr Investment S.A. ( Valid Uruguai ) (ii) Valid Soluciones y Servicios de Seguridad en Medios de Pago e Identificación S.A.de C.V. ( Valid México ) (ii) (i) Direct and indirect interest. (ii) Indirect interest held through Interprint. (iii) Indirect interest held through Valid Espanha. The subsidiaries are fully consolidated from the date on which the Company obtained control and continue to be consolidated through the date in which such control ceases. The subsidiaries financial statements are prepared for the same reporting period as the Company's, using consistent accounting policies. All intragroup balances, income, expenses and unrealized gains and losses arising from intragroup transactions are fully eliminated from the consolidated information. 2.2 Business combinations Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the sum of the consideration transferred, based on the fair value on acquisition date, and the amount of any noncontrolling interest in the acquiree. The acquirer must measure noncontrolling interests in the acquiree at fair value or based on its interest in the acquiree s identified net assets for each business combination. Costs directly attributable to the acquisition should be accounted for as expense when incurred. When acquiring a business, the Company measures the assets acquired and liabilities assumed for the purpose of classifying and allocating them according to the contractual terms, the economic circumstances, and the conditions prevailing at the acquisition date. Goodwill is initially measured as the excess of the consideration transferred in relation to the net assets acquired (identifiable assets acquired less the liabilities assumed) and if lower a gain on bargain purchase is recognized in profit or loss at the acquisition date. After the initial recognition, goodwill is measured at cost less any accumulated impairment losses. For impairment testing, after the acquisition date, the goodwill acquired in a business combination is allocated to each of the Company s cash-generating units that are expected to benefit from the combination synergies. 2.3 Investments in associate The investment held by the direct subsidiary Interprint in associate Multidisplay Comércio e Serviços Tecnológicos S.A. ( Multidisplay ) is accounted for under the equity method. An associate is an entity over which the Company has significant influence, but not the control. Under the equity method, the investment in the associate is measured based on the percentage of interest held in the associate multiplied by its equity. 16

18 The income statement reflects the Company s share of the gains or losses generated by the associates operations under the equity method. When a change is directly recognized in the associate s equity, the Company recognizes its share of the changes and reports this fact in the statement of changes in equity, when applicable. Unrealized gains and losses arising from transactions between the Company and the associate are eliminated based on the interest held in the associate. The associate s financial statements have been prepared for the same reporting period of Valid. The accounting policies are adjusted to conform to the accounting policies adopted by the Company, when necessary. After applying the equity method of accounting, the Company determines if it is necessary to recognize an additional impairment loss on the Company s investment in its associate. The Company determines, at the end of the reporting period, if there is objective evidence that the investment in the associate is impaired. If yes, the Company calculates the impairment loss as the difference between the associate s recoverable amount and its carrying amount, and recognizes the amount in the income statement. When there is loss of significant influence over the associate, the Company measures and recognizes the investment at fair value. Any difference between the associate s carrying amount at the time significant influence is lost and the fair value of the remaining investment and any gain or loss on sale is recognized in profit or loss. 2.4 Joint ventures Valid holds an interest in Incard, an entity governed by a contractual arrangement that establishes the venturers joint control over this investee. Valid recognizes its interests in Incard under the equity method. Incard s financial statements have been prepared for the same reporting period of Valid. The accounting policies are adjusted to conform to the accounting policies adopted by the Company, when necessary. In case of loss of joint control, and provided that the investee does not become a subsidiary or an associate, Valid shall measure this investment at fair value as from that date. On the loss of joint control, any difference between the carrying amount of the former investment and the fair value of the investment, as well any gain or loss on the sale of this venture is recognized in the income statement. When the remaining investment maintains significant influence, it will be accounted for as investment in an associate, as described above. 2.5 Foreign currency translation The individual and consolidated interim financial information are presented in Brazilian reais, which is the s functional currency. Each Group entity determines its own functional currency and the interim financial information that use a functional currency other than the Brazilian real are translated into Brazilian reais, assets and liabilities using the period-end exchange rate and profits or losses at the average exchange rate, as provided for by CPC 02 (R2). 17

19 a) Transactions and balances Foreign currency transactions are initially recorded using the exchange rate of the functional currency prevailing at the transaction date. Monetary assets and liabilities denominated in foreign currency are translated at the exchange rate prevailing at the end of the reporting period. Any exchange differences are recognized in equity. Nonmonetary items measured based on the historical cost in foreign currency are translated using the exchange rate prevailing at the date of initial transactions. b) Group companies The financial statements of subsidiaries Valid Argentina, Valid Espanha, Valid USA, Valid Solutions, ScreenCheck, Valid Colômbia, Valid Uruguai and Valid México, located in Argentina, Spain, United States, Colombia, Uruguay and Mexico, respectively, have been prepared using the functional currency of each subsidiary. The subsidiaries functional currencies are as follows: Group company Valid Par Interprint Certificadora Valid Espanha Valid Argentina Trust Valid USA Valid Solutions ScreenCheck Valid Colômbia Valid Uruguai Valid México Functional currency Brazilian real Brazilian real Brazilian real Euro Argentine peso Brazilian real US dollar US dollar US dollar Colombian peso Uruguayan peso Mexican peso The assets and liabilities of these foreign subsidiaries are translated into Brazilian reais at exchange rate prevailing at the end of the reporting period and the corresponding income statements are translated at the average monthly rate for the transaction date. The exchange differences arising on such translation are recognized separately, in equity. If a foreign subsidiary is sold, the accumulated deferred amount recognized in equity related to such foreign subsidiary is recognized in the income statement. Possible goodwill arising on the acquisition of a foreign subsidiary beginning January 1, 2009 and possible fair value adjustments of the carrying amounts of the assets and liabilities resulting from such acquisition are treated as the foreign subsidiary s assets and liabilities and translated at the end of the reporting period. The exchange differences arising on translating goodwill are recognized in equity. 2.6 Revenue recognition Revenue is recognized to the extent it is probable that economic benefits will flow into the Group and its amount can be reliably measured. Revenue is measured based on the fair value of the consideration received, less any discounts, rebates and taxes or charges on sales. The Group assesses its revenue transactions according to specific criteria to determine whether it is acting as an agent or a principal, and in the end concluded that it is acting as a principal in all its revenue arrangements. The following specific criteria should also be met before revenue can be recognized: 18

20 Sale of goods Sales revenue is recognized when all significant risks and rewards of ownership are transferred to the buyer, which generally takes place when the goods are delivered. Interest income Interest income and expenses are recognized under the effective interest method in line item Finance income (costs). 2.7 Taxes Current income tax and social contribution Current tax assets and liabilities for the last year and prior years are stated at the amount that is expected to be recovered from or paid to the tax authorities. The tax rates and tax laws used to calculate the amount are those that are enacted or substantially enacted at the end of the reporting period in the countries where the Company operates and recognizes taxable income. Deferred income tax and social contribution Deferred taxes arise from temporary differences between asset and liability tax basis and their carrying amounts at the end of the reporting period. Deferred tax assets are recognized for all deductible temporary differences and unutilized tax credits and tax losses, to the extent that it is probable that sufficient taxable income will be available against which deductible temporary differences can be utilized. The carrying amount of deferred tax assets is reviewed at the end of the reporting period and derecognized to the extent that it is no longer probable that taxable income will be available to allow the utilization of all or part of the deferred tax assets. Deferred tax assets and liabilities are measured using the tax rate applicable for the year in which the asset is expected to be realized or the liability is expected to be settled, based on the tax rates (and tax law) enacted and prevailing at the end of the reporting period. Deferred tax assets and liabilities are stated at their net amounts if there is a legal or contractual right to offset the tax asset against the tax liability, and deferred taxes are related to the same taxable entity and subject to the same tax authority. Under Law 11941/09, the Company adopts the Transitional Tax Regime (RTT) to determine taxable income, so that any changes in the criteria for recognition of revenues, costs and expenses used in the computation of profit for the year have no effect for purposes of computation of taxable income of the legal entity subject to the RTT, it being taken into consideration, for tax purposes, the accounting methods and criteria effective as at December 31,

21 Provisional Act 627/13 was enacted on November 11, 2013 to repeal the Transitional Tax Regime (RTT) and introduce other provisions, including: (i) amendment to Decree Law 1598/77, which addresses corporate income tax and which also amends the social contribution law; (ii) establishes that the change or the adoption of accounting methods and criteria through administrative acts issued based on a commercial law that are issued subsequently to the publication of this Provisional Act will not have any implication in determining federal taxes until a tax law regulating the matter is enacted; (iii) includes a specific treatment on the potential taxation of profits or dividends; (iv) includes provisions on the calculation of interest on capital; and (v) includes considerations on the investments valued under the equity method of accounting. The conversion of Provisional Act 627/13 3 into Law was published on the Federal Official Gazette on May 14, The statute approved by the Federal Government maintains the tax provisions set forth in Provisional Act 627, mainly with respect to the early adoption of the RTT discontinuation in 2014, which continues to be optional, without, however, any relation with the past profit sharing, investment measurement under the equity method, and interest on capital events; accordingly, it does not result in tax effects for those that did not elect to adopt this option. The Company is assessing the impacts of this law in order to decide on its early adoption in Taxes on sales Revenues, expenses and assets are recognized net of taxes on sales, except: when taxes on purchases of goods or services cannot be recovered from tax authorities, in which case taxes on sales are recognized as part of the acquisition cost of the asset or expense item, as applicable; when the amounts receivable and payable are presented together with taxes on sales; and the recoverable or payable net amount of the taxes on sales is included as a component of receivables or payables, in the balance sheet. 2.8 Financial instruments a) 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 or available-for-sale financial assets, if applicable. The Company classifies its financial assets upon initial recognition, when it becomes a party to the underlying contract. Financial assets are initially stated at their fair values plus transaction costs directly attributable to the purchase of a financial asset, in the case of investments not stated at fair value through profit or loss. 20

22 The Group s financial assets comprise cash and cash equivalents, trade receivables, dividends receivable, and other receivables. Subsequent measurement The subsequent measurement of financial assets depend on their classification as follows: 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 stated at fair value through profit or loss on initial recognition. Financial assets are classified as held for trading if they have been acquired for the purpose of selling them in the short term. Financial assets at fair value through profit or loss are stated in the balance sheet at fair value, with corresponding gains or losses recognized in the income statement. Loans and receivables Loans and receivables are represented by nonderivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, these financial assets are stated at amortized cost, using the effective interest method (effective interest rate), less impairment losses. The amortized cost is calculated considering any discount or premium on acquisition and fees or costs incurred. The amortization of the effective interest method is recognized in line item Finance income in the income statement. Impairment losses are recognized as finance costs in the income statement. Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to maturity when the Company has the intention and financial capacity to hold them to maturity. After initial recognition, held-to-maturity investments are stated at amortized cost using the effective interest method, less impairment losses. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are not classified as: (a) loans and receivables; (b) held-to-maturity investments; or (c) financial assets at fair value through profit or loss. After initial measurement, available-for-sale financial assets are stated at fair value, with unrealized gains and losses recognized directly in other comprehensive income (loss) until the investment is written off, except for impairment losses, interest calculated using the effective interest method and exchange gains or losses on monetary assets, which are recognized directly in profit or loss for the period. When the investment is derecognized or when an impairment loss is recognized, cumulative gains or losses previously recognized in other comprehensive income (loss) should be recognized in profit or loss. 21

23 Derecognition of financial assets A financial asset (or, where applicable, part of a financial asset or part of a group of similar financial assets) is written off when: The rights to receive cash flows from the asset have expired; The Group transfers its rights to receive cash flows from the asset or assumes an obligation to pay cash flows received in full, with no significant delay, to a third party under a transfer arrangement; and (i) the Group substantially transfers all risks and rewards of the asset, or (ii) the Group neither transfers nor retains substantially all the risks and rewards incidental to the asset but it transfers control over the asset. When the Group has transferred its rights to receive cash flows from an asset or has entered into a transfer arrangement, and has neither transferred nor retained substantially all the risks and rewards incidental to the asset, the asset is recognized to the extent of the Group s continuing involvement with the asset. In this case, the Group also recognizes a corresponding liability. The transferred asset and corresponding liability are measured based on the rights and obligations retained by the Group. The continuing involvement as guarantee for the transferred asset is stated at the lower of the original carrying amount or the maximum consideration payable by the Company. b) Financial liabilities Initial recognition and measurement Financial liabilities are classified as financial liabilities at fair value through profit or loss or other financial liabilities, as applicable. The Group determines the classification of its financial liabilities on initial recognition. Financial liabilities are initially stated at fair value and, in the case of borrowings and financing, are increased by directly related transaction costs. The Group s financial liabilities include trade payables, other payables, borrowings and financing, and debentures, classified as other liabilities. Subsequent measurement The measurement of financial liabilities depends on their classification as follows: Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities at fair value through profit or loss on initial recognition. Financial liabilities are classified as held for trading if they have been acquired for the purpose of selling them in the short term. Gains and losses on liabilities held for trading are recognized in the income statement. The Group did not recognize any financial liability at fair value through profit or loss as at September 30, 2014 and December 31, 2013, except for the derivative settled on August 5,

24 Other liabilities After initial recognition, interest-bearing borrowings and financing and debentures are subsequently measured at amortized cost, using the effective interest method. Any gains and losses are recognized in the income statement when liabilities are derecognized, as well as during the amortization process under the effective interest method. Derecognition of financial liabilities A financial liability is derecognized when the obligation is revoked, discharged or expires. When an existing financial liability is replaced with another from the same lender with terms and conditions substantially different, or the terms of an existing liability are significantly modified, such replacement or modification is recognized as write-off of the original liability and recognition of a new liability, and the difference in the carrying amounts is recognized in the income statement. c) Derivative financial instruments The Group contracts derivative financial instruments in order to reduce its exposure to market risk arising from exchange fluctuations related to the debt denominated in foreign currencies. Derivatives are initially recognized at fair value. The changes in the fair value of any of these derivative instruments are recognized directly in profit or loss. The Company and its subsidiaries have not used hedge accounting in the periods reported. The Group settled its derivative financial instruments on August 5, d) Fair value of financial instruments The fair value of financial instruments actively traded in organized financial markets is determined based on trading prices quoted in the market on closing of business at the end of the reporting period, without deducting transaction costs. The fair value of financial instruments for which there is no active market is determined using valuation techniques. These valuation techniques may include the use of recent market transactions (without interest); reference to the current fair value of another similar instrument; analysis of discounted cash flow or other valuation models. 2.9 Adjustment to present value of assets and liabilities Long-term monetary assets and liabilities are adjusted for inflation and, therefore, adjusted to their present value. The adjustment to present value of short-term monetary assets and liabilities is calculated, and only recognized, if it is considered as relevant with respect to the financial statements taken as a whole. The adjustment to present value is calculated considering contractual cash flows and the explicit, and in certain cases, implicit interest rates of the related assets and liabilities for purposes of recognition and determination of significance. Based on the conducted analyses and Management s best estimate, the Company concluded that the adjustment to present value of current monetary assets and liabilities is immaterial in relation to the financial statements taken as a whole and, accordingly, it did not record any adjustment. 23