Itr 3Q13

(A free translation of the original in Portuguese)
Klabin S.A.
Interim Financial Statements for the nine-month period ended September 30, 2013 and Independent Auditors Report
PricewaterhouseCoopers Auditores Independentes
Independent auditors report

To the Board of Directors and Stockholders Klabin S.A.
Introduction We have audited the accompanying interim financial statements of Klabin S.A. ("Company" or "Parent Company"), which comprise the balance sheet as at September 30, 2013 and the statements of income, comprehensive income, changes in equity and cash flows for the nine-month period then ended, and a summary of significant accounting policies and other explanatory information. We have also audited the accompanying consolidated interim financial statements of Klabin S.A. and its subsidiaries ("Consolidated"), which comprise the consolidated balance sheet as at September 30, 2013 and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the nine-month period then ended, and a summary of significant accounting policies and other explanatory information. Management's responsibility for the financial statements Management is responsible for the preparation and fair presentation of the parent company interim financial statements in accordance with accounting practices adopted in Brazil, and for the consolidated interim financial statements in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and accounting practices adopted in Brazil, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's responsibility Our responsibility is to express an opinion on these interim financial statements based on our audit. We conducted our audit in accordance with Brazilian and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion on the parent company financial statements In our opinion, the parent company interim financial statements referred to above present fairly, in all material respects, the financial position of Klabin S.A. as at September 30, 2013, and its financial performance and its cash flows for the nine-month period then ended, in accordance with CPC 21. Opinion on the consolidated financial statements In our opinion, the consolidated interim financial statements referred to above present fairly, in all material respects, the financial position of Klabin S.A. and its subsidiaries as at September 30, 2013, and their financial performance and their cash flows for the nine-month period then ended, in accordance with CPC 21 and IAS 34. Emphasis of matter As discussed in Note 2.1 to these financial statements, the parent company interim financial statements have been prepared in accordance with accounting practices adopted in Brazil. In the case of Klabin S.A., these practices differ from IFRS applicable to separate interim financial statements only in relation to the measurement of investments in subsidiaries, associates and jointly-controlled entities based on equity accounting, while IFRS requires measurement based on cost or fair value. Our opinion is not qualified in respect of this matter. Other matters Supplementary information - Statements of value added We have also audited the parent company and consolidated statements of value added for the ninemonth period ended September 30, 2013, which are the responsibility of the Company's management. The presentation of this statement is required by the Brazilian corporate legislation for listed companies, but it is considered supplementary information for IFRS. These statements were subject to the same audit procedures described above and, in our opinion, are fairly presented, in all material respects, in relation to the financial statements taken as a whole.
Audit of prior-period information The interim financial statements for the nine-month period ended September 30, 2012, presented for comparison purposes, were not audited by us or other independent auditors. Consequently, we do not express an opinion on those financial statements. So Paulo, November 1, 2013
PricewaterhouseCoopers Auditores Independentes CRC 2SP000160/O-5
Tadeu Cendn Ferreira Contador CRC 1SP188352/O-5
Supervisory Boards Opinion

By virtue of the powers conferred on them by law and the Companys bylaws and in accordance with article 163 of Law 6,404/76 and subsequent amendments thereto, the undersigned members of the Supervisory Board of KLABIN S.A. have examined the parent company and consolidated interim financial statements prepared in accordance with the legislation in force, which comprise the balance sheet as at September 30, 2013 and the statements of income, comprehensive income, changes in equity and cash flows for the period from January 1 to September 30, 2013, accompanied by the related explanatory information. Based on the documents examined, the clarifications provided by representatives of the Companys management and the unqualified report issued by PricewaterhouseCoopers Auditores Independentes on the Financial Statements, they are of the unanimous opinion that the documents referred to above present fairly the financial position and the activities of the Company at September 30, 2013.
So Paulo, November 1, 2013 Joo Alfredo Dias Lins Paulo Roberto Araujo de Almeida Wolfgang Eberhard Rohrbach Lus Eduardo Pereira de Carvalho Vivian do Valle Souza Leo Mikui
(A free translation of the original in Portuguese) Page 7 8 9 10 11 12 13 14 15 24 24 25 25 27 29 29 30 32 33 35 38 40 40 42 45 46 46 46 48 49 52 57 58 58
CONTENTS ASSETS LIABILITIES AND EQUITY STATEMENT OF INCOME STATEMENT OF COMPREHENSIVE INCOME STATEMENT OF CHANGES IN EQUITY STATEMENT OF CASH FLOWS STATEMENT OF VALUE ADDED 1 2 3 4 5 6 7 8 GENERAL INFORMATION BASIS OF PRESENTATION OF THE INTERIM FINANCIAL STATEMENTS AND MAIN ACCOUNTING POLICIES CONSOLIDATED INTERIM FINANCIAL STATEMENTS CASH AND CASH EQUIVALENTS MARKETABLE SECURITIES TRADE RECEIVABLES RELATED PARTIES INVENTORY
9 TAXES RECOVERABLE 10 INCOME TAX AND SOCIAL CONTRIBUTION 11 INTERESTS IN SUBSIDIARIES AND JOINTLY-CONTROLLED SUBSIDIARIES 12 PROPERTY, PLANT AND EQUIPMENT 13 BIOLOGICAL ASSETS 14 BORROWINGS 15 TRADE PAYABLES 16 TAX, SOCIAL SECURITY, LABOR AND CIVIL PROVISIONS 17 EQUITY 18 NET SALES REVENUE 19 EXPENSES / INCOME BY NATURE 20 FINANCE INCOME AND COSTS 21 STOCK OPTION PLAN 22 EARNINGS PER SHARE 23 OPERATING SEGMENTS 24 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS 25 EMPLOYEE BENEFITS AND PRIVATE PENSION PLAN 26 INSURANCE COVERAGE 27 EVENTS AFTER THE REPORTING PERIOD
(A free translation of the original in Portuguese) BALANCE SHEETS AT SEPTEMBER 30. 2013 AND DECEMBER 31. 2012 (All amounts in thousands of reais)
Parent 12/31/2012 Consolidated 12/31/2012
Note ASSETS Current assets Cash and cash equivalents Marketable securities Accounts receivable: . Trade receivables . Provision for impairment of trade receivables . Receivables from related parties Inventory Taxes recoverable Prepaid expenses related parties Prepaid expenses - third parties Other Total current assets Non-current assets Long-term receivables Receivables from related parties Judicial deposits Taxes recoverable Other Investments: . Interests in subsidiaries . Other Property. plant and equipment Biological assets Intangible assets Total non-current assets Total assets 4 5 6 6 7 8 9 7
09/30/2013
09/30/2013
1,896,127 243,870 901,635 (47,120) 328,386 453,431 96,835 3,023 14,213 21,521 3,911,921
2.157.148 240.077 801.004 (45.187) 402.798 438,091 130,441 7,775 14,557 60,465 4,207,169
2.174.176 243.870 1.119.278 (47.269) 489,805 102,116 3,023 14,223 21,884 4,121,106
2.517.312 240.077 1.027.649 (45.663) 473,658 135,310 7,775 14,557 61,415 4,432,090
7 16 9
64,950 89,922 116,412 158,168 429,452 1,324,231 11,542 5,349,271 2,797,739 8,456 9,491,239 9,920,691 13,832,612
1,687 85,691 128,402 151,864 367,644 1,267,255 11,542 5,003,707 2,944,187 8,486 9,235,177 9,602,821 13,809,990
91,354 116,412 163,356 371,122 452,726 11,542 5,798,805 3,392,538 8,624 9,664,235 10,035,357 14,156,463
146 87,123 128,402 158,374 374,045 450,651 11,542 5,379,426 3,441,495 8,654 9,291,768 9,665,813 14,097,903
11 12 13
(continued) BALANCE SHEET AT SEPTEMBER 30, 2013 AND DECEMBER 31, 2012 (All amounts in thousands of reais)
Note LIABILITIES AND EQUITY Current liabilities Borrowings Trade payables Tax obligations Provision for income tax and social contribution Social and labor obligations Payables to related parties Enrollment in Tax Debt Refinancing Program (REFIS) Other payables and provisions Total current liabilities Non-current liabilities Borrowings Deferred income tax and social contribution Tax, social security, labor and civil provisions Payables - investors in SPCs Enrollment in Tax Debt Refinancing Program (REFIS) Other payables and provisions Total non-current liabilities Total liabilities Equity Share capital Capital reserves Revaluation reserves Revenue reserves Carrying value adjustments Retained earnings Treasury shares Total equity Total liabilities and equity 14 15 10 7 16 1,128,506 381,655 51,802 37,131 128,261 53,835 25,746 53,066 1,860,002 4,888,701 1,066,531 93,505 393,082 64,466 6,506,285 8,366,287 2,271,500 4,417 49,447 2,094,146 1,069,795 129,105 (152,085) 5,466,325 13,832,612 1,120,770 313,559 52,919 54,553 123,934 9,665 39,383 39,699 1,754,482 4,914,334 1,190,673 83,189 389,793 56,598 6,634,587 8,389,069 2,271,500 1,423 49,980 2,170,215 1,081,379 (153,576) 5,420,921 13,809,990 1,128,466 391,830 56,264 38,298 130,572 3,378 25,746 70,409 1,844,963 4,884,241 1,287,082 93,506 123,826 393,082 63,438 6,845,175 8,690,138 2,271,500 4,417 49,447 2,094,146 1,069,795 129,105 (152,085) 5,466,325 14,156,463 1,120,770 318,077 57,095 54,387 125,807 2,693 39,383 49,177 1,767,389 4,914,334 1,392,257 83,189 69,214 389,793 60,806 6,909,593 8,676,982 2,271,500 1,423 49,980 2,170,215 1,081,379 (153,576) 5,420,921 14,097,903 09/30/2013 Parent 12/31/2012 09/30/2013 Consolidated 12/31/2012
14 10 16 16
17
The accompanying notes are an integral part of these interim financial statements.
(A free translation of the original in Portuguese) STATEMENT OF INCOME FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2013 AND 2012 (All amounts in thousands of reais unless otherwise stated)
1/1 to 09/30/2013 3,278,889 283,813 (2,335,521) 1,227,181 (241,319) (199,650) 12,173 (428,796) 50,223 848,608 20 20 179,733 (674,540) (494,807) 353,801 10 10 (162,641) 77,417 (85,224) 268,577 22 22 0.2844 0.3128 Parent 1/1 to 09/30/2012 Unaudited 2,993,443 314,878 (2,090,084) 1,218,237 (210,197) (196,518) 3,484 (403,231) 334,588 1,149,594 246,884 (694,121) (447,237) 702,357 (1,231) (95,676) (96,907) 605,450 0.6412 0.7054 1/1 to 09/30/2013 3,363,116 279,927 (2,361,884) 1,281,159 (265,861) (203,860) 12,814 (456,907) 17,375 841,627 186,723 (677,238) (490,515) 351,112 (169,768) 87,233 (82,535) 268,577 0.2844 0.3128 Consolidated 1/1 to 09/30/2012 Unaudited 3,085,306 772,578 (2,098,211) 1,759,673 (258,616) (200,272) (4,164) (463,052) 25,329 1,321,950 253,669 (723,063) (469,394) 852,556 (45,181) (201,925) (247,106) 605,450 0.6412 0.7054
Note Net sales revenue Changes in the fair value of biological assets Cost of sales Gross profit Operating income (expenses) Selling expenses General and administrative expenses Other operating income (expenses). net Equity in the results of investees Profit before finance result and taxes Finance result Finance income Finance costs Profit before taxes on income Income tax and social contribution . Current . Deferred Profit for the period Basic/diluted earnings per share (common shares) R$ Basic/diluted earnings per share (preferred shares) R$ 18 13 19
19 19 19 11
(A free translation of the original in Portuguese) STATEMENT OF COMPREHENSIVE INCOME FOR THE NINE-MONTH PERIODS ENDED SETPEMBER 30, 2013 AND 2012 (All amounts in thousands of reais) Parent and consolidated 1/1 to 1/1 to 09/30/2013 09/30/2012 Unaudited 268,577 605,450 (3,539) (7,841) 257,197 (327) 605,123
Profit for the period Other comprehensive income: . Foreign currency translation adjustments . Actuarial liability restatement Total comprehensive income for the period, net of taxes
10
(A free translation of the original in Portuguese) STATEMENT OF CHANGES IN EQUITY FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2013 AND 2012 (All amounts in thousands of reais)
Parent and consolidated Revaluation reserve Share capital 2,271,500 Capital reserves Own assets 50,691 Legal reserve 9,783 Biological assets 1,219,591 Proposed dividends 79,998 Revenue reserves Investment and working capital 383,170 Carrying value adjustments 1,085,045 (327) (327)
At December 31. 2011 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Realization of revaluation reserves Purchase of treasury shares Supplementary dividends for 2011 - approved at the General Meeting of Stockholders Dividends prepaid in the year Stock option plan: . Disposal of treasury shares . Award of treasury shares . Recognition of the stock option plan remuneration At September 30. 2012 - Unaudited At December 31. 2012 Profit for the period Other comprehensive income for the period Total comprehensive income for the period Realization of revaluation reserve Supplementary dividends for 2012 - approved at the General Meeting of Stockholders Purchase of treasury shares Dividends prepaid in the year Stock option plan: . Disposal of treasury shares . Award of treasury shares . Recognition of the stock option plan remuneration At September 30. 2013
Treasury shares (141,476)
Retained earnings 605,450
Total 4,958,302 605,450 (327) 605,123 (8,002) (80,005) (119,996) 3,713 347 5,359,482 5,420,921 268,577 (11,380) 257,197 (76,069) (2,999) (140,005) 4,894 2,386 5,466,325
(533)
(8,002)
605,450 533
(79,998) 1423 2,271,500 2,271,500 1,423 1,423 50,158 49,980 9,783 47,381 1,219,591 1,578,337 76,002
(7) (119,996) 2291 347 1,087,356 1,081,379 (11,380) (11,380) 2,290 (2,291) (149,479) (153,576) 485,987 268,577
383,163 468,495
(533)
(76,002)
(67)
268,577 533
(2,999) 2,994 2,271,500 4,417 49,447 47,381 1,578,337 468,428 1,900 2,590 (152,085)
(140,005)
(2,590) 2,386 1,069,795
129,105
11
(A free translation of the original in Portuguese) STATEMENT OF CASH FLOWS FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2013 AND 2012 (All amounts in thousands of reais)
1/1 to 09/30/2013 Net cash provided by operating activities Cash flows from operations Profit for the period Depreciation and amortization Changes in the fair value of biological assets Depletion of biological assets Deferred income tax and social contribution Interest and exchange variation on borrowings Payment of interest on borrowings Accrued interest - REFIS Result of sale of assets and subsidiaries Equity in the results of investees Income tax and social contribution paid Other Changes in assets and liabilities Trade receivables and related parties Inventory Taxes recoverable Marketable securities Prepaid expenses Other assets Trade payables Tax obligations Social and labor obligations Other liabilities Net cash used in investment activities Purchase of property. plant and equipment (i) Planting cost of biological assets (i) Proceeds from sale of assets and subsidiaries Acquisition of and capital investment in subsidiaries Dividends received from subsidiaries Net cash (used in) provided by financing activities Borrowings Repayment of borrowings Purchase of treasury shares Disposal of treasury shares Addition of new investors - SPCs Withdrawal of investors - SPCs Dividends paid Increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period (i) Net of recoverable taxes 792,790 708,175 268,577 173,143 (283,813) 347,837 (77,417) 620,995 (235,253) 26,341 3,651 (50,223) (81,264) (4,399) 84,615 (26,219) (15,340) 126,860 (3,793) 5,096 (34,854) 30,242 (18,539) 4,327 16,835 (435,993) (493,429) (39,039) 14,189 (10,559) 92,845 (617,818) 426,140 (829,779) (2,999) 4,894 (216,074) (261,021) 2.157.148 1.896.127 Parent 1/1 to 09/30/2012 Unaudited 265,468 683,578 605,450 161,655 (314,878) 116,440 95,676 624,492 (218,472) 36,885 363 (334,588) (73,579) (15,866) (418,110) (331,809) 23,640 36,329 (14,765) 9,917 (22,541) (99,747) 15,663 21,836 (56,633) (292,068) (299,660) (54,041) 9,291 (2,680) 55,022 332,825 1,237,237 (700,122) (8,002) 3,713 (200,001) 306,225 2.146.456 2.452.681 1/1 to 09/30/2013 815,348 758,935 268,577 174,228 (279,927) 375,576 (87,233) 620,798 (235,253) 26,341 3,651 (17,375) (82,701) (7,747) 56,413 (91,629) (16,147) 127,885 (3,793) 5,086 30,464 35,899 (16,920) 4,765 (19,197) (586,151) (561,364) (54,276) 14,189 15,300 (572,333) 421,836 (829,778) (2,999) 4,894 50,000 (212) (216,074) (343,136) 2.517.312 2.174.176 Consolidated 1/1 to 30/09/2012 Unaudited 629,211 750,766 605,450 164,643 (772,578) 259,309 201,925 624,492 (218,472) 36,885 363 (25,329) (118,349) (7,573) (121,555) (150,160) 27,591 82,229 (14,765) 10,784 (26,174) (101,842) 1,443 22,052 27,287 (381,006) (300,967) (88,483) 9,291 (847) 325,294 1,237,237 (700,122) (8,002) 3,713 (7,531) (200,001) 573,499 2.341.064 2.914.563
12
(A free translation of the original in Portuguese) STATEMENT OF VALUE ADDED FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2013 AND 2012 (All amounts in thousands of reais)
1/1 to 9/30/2013 Revenue . Sale of goods . Changes in the fair value of biological assets . Other revenue . Provision for impairment of trade receivables Inputs acquired from third parties . Cost of sales . Materials, energy, outsourced services and other Gross value added Retentions . Depreciation, amortization and depletion Net value added generated by the Company Value added received through transfers . Equity in the results of investees . Finance income, including exchange variations Total value added to distribute Distribution of value added: Personnel . Direct remuneration . Benefits . Government Severance Indemnity Fund for Employees (FGTS) Taxes and contributions . Federal . State . Municipal Remuneration of third-party capital . Interest Remuneration of own capital . Dividends . Profits reinvested for the period 4,141,592 283,813 14,189 (1,933) 4,437,661 (1,452,724) (696,767) (2,149,491) 2,288,170 (520,980) 1,767,190 50,223 179,733 229,956 1,997,146 Parent 1/1 to 9/30/2012 Unaudited 3,766,337 314,878 9,291 (12,337) 4,078,169 (1,538,236) (676,503) (2,214,739) 1,863,430 (278,095) 1,585,335 334,588 246,884 581,472 2,166,807 1/1 to 9/30/2013 4,241,136 279,927 14,189 (1,605) 4,533,647 (1,451,569) (725,929) (2,177,498) 2,356,149 (549,804) 1,806,345 17,375 186,723 204,098 2,010,443 Consolidated 1/1 to 9/30/2012 Unaudited 3,871,250 772,578 9,291 (12,336) 4,640,783 (1,404,727) (735,343) (2,140,070) 2,500,713 (423,952) 2,076,761 25,329 253,669 278,998 2,355,759
380,363 87,927 28,925 497,215 415,521 134,029 7,264 556,814 674,540 674,540 (140,005) 408,582 268,577 1,997,146
336,317 70,609 27,676 434,602 381,856 44,071 6,707 432,634 694,121 694,121 119,996 485,454 605,450 2,166,807
391,561 88,297 28,995 508,853 414,482 134,029 7,264 555,775 677,238 677,238 (140,005) 408,582 268,577 2,010,443
344,882 70,904 27,762 443,548 532,920 44,071 6,707 583,698 723,063 723,063 119,996 485,454 605,450 2,355,759
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Klabim S.A.
Notes to the financial statements at September 30, 2013
All amounts in thousands of reais unless otherwise stated
GENERAL INFORMATION
Klabin S.A. (the "Company") and its subsidiaries operate in the following segments of the paper and pulp industry serving the domestic and foreign markets: supplying wood, packaging paper, paper sacks, and corrugated cardboard boxes. Their operations are integrated, from forestation to the manufacture of final products. Klabin S.A. is a publicly-traded corporation whose shares are traded on the So Paulo Commodities, Futures and Stock Exchange (BM&FBOVESPA). The Company is domiciled in Brazil and headquartered in So Paulo. The parent company (Klabin S.A.) also has investments in Special Partnership Companies ("SPCs") for the specific purpose of raising funds from third parties to support reforestation projects. The Company, as an ostensible partner, has contributed forest assets, mainly forests and land, through granting usage rights, while the other investing stockholders have contributed cash to these SPCs. These SPCs give Klabin S.A. the preemptive right to acquire forestry products at market prices and conditions. The Company also has ownership interests in other companies (Notes 3 and 11), whose operational activities are related to the Company's business objectives. These interim financial statements were approved by the Board of Directors on November 1, 2013. 1.1 Corporate restructuring of subsidiaries At the Extraordinary General Meeting of Stockholders held on May 31, 2012, the stockholders of the subsidiary Centaurus approved a partial split-off with the transfer of part of its equity relating to Vale do Corisco. As a result, the stockholders Klabin and Arauco now hold direct and joint interests in Vale do Corisco, of 51% and 49%, respectively. As a consequence of the reorganization, the subsidiary Centaurus began to be fully consolidated from that date, whereas the jointly-controlled subsidiary Vale do Corisco is currently accounted for using the equity accounting method. 1.2 Creation of the Special Partnership Company (SPC) CG Forest On October 19, 2012, the Company established a new SPC called CG Forest, for the specific purpose of raising funds from third parties to support reforestation projects. The Company, as an ostensible partner, contributed R$ 53 million in forest assets and land use rights for the establishment of this new SPC, while the other investing stockholders contributed R$ 25 million in cash. The SPC gives Klabin S.A. the preemptive right to acquire forestry products at market prices and conditions. 1.3 Dissolution of SPC Leal At December 31, 2012, the operations of SPC Leal were terminated. Upon the dissolution, SPC Leal paid R$ 162 million to the investing stockholders according to their interests. The remaining assets and liabilities, mainly comprised of land and forests, were merged into the parent company Klabin S.A.
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Klabim S.A.
1.4 Constitution of Klabin Celulose S.A. The Company established a new wholly-owned subsidiary in 2012 named "Klabin Celulose S.A.", which will receive allocations of future investments in the industrial development project of a plant for pulp production. The subsidiary is included in the Company's consolidated interim financial statements. 1.5 Approval of pulp-related project (Puma Project) According to the Significant Event Notices released, the Company's Board of Directors decided on October 21, 2013 to proceed with the capital raising process to finance the construction of a new plant in the city of Ortigueira, State of Paran, for the production of pulp, with a capacity of 1.5 million metric tons per year, as approved by management on June 11, 2012. The cost of the project is estimated at R$ 5.8 billion. In addition, expenditure is estimated at R$ 0.8 billion for taxes recoverable on machinery and equipment and at R$ 0.6 billion for infrastructure construction work, also recoverable through ICMS tax credits, pursuant to an agreement with the Paran State Government. The resources to finance the project will come from the issue of shares or convertible securities or both after obtaining the proper approval from the relevant agencies. The remainder of the funds will be obtained from lines of credit with the National Bank for Economic and Social Development (BNDES) as well as with multinational import agencies. In the third quarter of 2013, the Puma Project became eligible for a financing facility estimated at R$ 4.0 billion from the BNDES and US$ 0.3 billion from the International Development Bank (IDB). Additionally, the approved proposal for the project includes the Company being listed in the Level 2 segment of the Securities, Commodities and Futures Exchange (BM&FBOVESPA) as well as the granting of a tag-along of 100% of non-controlling common stockholders and holders of preferred shares. Some of these proposals are subject to the approval of the stockholders meeting. 1.6 Creation of the Special Partnership Company (SPC) Monte Alegre On September 18, 2013 the Company established a new company named Monte Alegre with the specific aim of raising funds from third parties to finance reforestation projects. The Company, as an ostensible partner, contributed R$ 122 million in forest assets and land use rights for the establishment of this new SPC, while the other investing stockholders contributed R$ 50 million in cash. The SPC gives Klabin S.A. the preemptive right to acquire forestry products at market prices and conditions. 2 BASIS OF PRESENTATION OF THE INTERIM FINANCIAL STATEMENTS AND MAIN ACCOUNTING PRACTICES
2.1 Basis of presentation of the financial information The Company presents the consolidated interim financial statements in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and accounting practices adopted in Brazil, based on the technical pronouncements issued by the Brazilian Accounting Pronouncements Committee (CPC), which are fully convergent with IFRS, and the standards issued by the Brazilian Securities and Exchange Commission (CVM).
15
Klabim S.A.
The parent company interim financial statements have been prepared in accordance with accounting practices adopted in Brazil, which differ from the International Financial Reporting Standards (IFRS) only in relation to the measurement of investments in subsidiaries using the equity accounting method, instead of at cost or fair value in accordance with IFRS. 2.2 Summary of significant accounting practices adopted The main accounting practices adopted by the Company and its subsidiaries are set out below. a) Functional currency and foreign currency translation The interim financial statements are presented in Brazilian reais (R$), which is the functional and presentation currency of the Company and its subsidiaries, except for the subsidiary Klabin Argentina (Note 3) which has the Argentine Peso (A$) as its functional currency. (i) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the translation of assets and liabilities in foreign currency at the end of the reporting period are recognized in the Company's statement of income. (ii) Foreign subsidiaries Foreign subsidiaries with the characteristics of a branch have the same functional currency as the Company. The exchange differences arising in a subsidiary which has a different functional currency, resulting from the translation of its interim financial statements, are recorded separately in an equity account named "carrying value adjustments" (comprehensive income). Upon the sale of a foreign subsidiary, the accumulated deferred amount recognized in equity relating to this foreign subsidiary is recognized in the statement of income. The assets and liabilities of this foreign subsidiary are translated using the exchange rate prevailing at the end of the reporting period. Income and expenses are translated at the exchange rates prevailing at the dates of the transactions. b) Cash and cash equivalents Cash and cash equivalents include cash on hand, bank deposits and highly-liquid short term investments, which are readily convertible into a known amount of cash and are subject to immaterial risk of changes in value. c) Financial instruments Financial instruments are initially recognized at fair value plus, in the case of financial assets or financial liabilities not carried at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. They are subsequently measured at the end of each reporting period based on the classification of financial instruments in to the following categories: 1) financial assets: (i) measured at fair value through profit or loss, (ii) loans and receivables, and (iii) available for sale; 2) financial liabilities: (i) measured at fair value through profit or loss, and (ii) other financial liabilities.
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Klabim S.A.
(i) Marketable securities Securities are considered available-for-sale and are recognized at fair value plus finance income (costs). (ii) Borrowings The balance of borrowings refers to the amount of funds raised, plus interest and charges proportional to the period incurred, less installments paid, and includes the exchange variation on the liability, if applicable. Interest is measured using the effective interest rate method and recognized as "finance costs", as are the monetary and exchange variations of the balance of outstanding borrowings. d) Trade receivables Trade receivables are stated at the original amounts of the invoices for sales of products, plus exchange variations when applicable. A provision for the impairment of trade receivables is recorded based on an individual analysis of the receivables, at an amount considered by management to be sufficient to cover probable losses on their realization, which can be modified as a result of the recovery of receivables from defaulting customers or a change in a customer's financial situation. The adjustment to present value of trade receivables is not material due to their short terms of realization. e) Inventory Inventory is stated at its average cost, net of taxes to be offset, when applicable, or in the case of biological assets, at their fair value at the cut-off date, which are both lower than the respective net realizable values. Finished products inventory is valued based on the cost of processed raw materials, direct labor and other production costs. When necessary, inventory is reduced by a provision for losses, which is set up in cases of inventory devaluation, obsolescence of products and physical inventory losses. In addition, because of the nature of the Company's products, obsolete finished products may be able to be recycled for reuse in production. f) Income tax and social contribution The Company calculates corporate income tax (IRPJ) and social contribution on net income (CSLL), current and deferred, using a rate of 15%, plus a 10% surcharge on taxable profits exceeding R$ 240 for income tax and 9% on taxable profit for social contributions. The balances are recognized in the Company's statement of income on an accruals basis. The tax rates currently used to determine deferred taxes are the same as for current taxes. The deferred income tax and social contribution are recorded in the balance sheet at their net amounts in non-current assets or liabilities, and derive mainly from temporarily non-deductible provisions and taxes under litigation, the deferred exchange variations of the parent company, and adjustments included in the Transition Tax Regime (RTT) such as: deemed cost of property, plant and equipment (land), fair value measurement of biological assets (Note 13), changes in the depreciation rates of property, plant and equipment (Note 12) and amortization of deferred charges.
17
Klabim S.A.
Subsidiaries have their taxes calculated and accrued in accordance with the legislation of their respective countries and/or their specific tax systems, including, in some cases, presumed profits. The provision for current income tax and social contribution for the period is stated in the balance sheet net of tax prepayments made during the period. g) Investments These refer to investments in subsidiaries and jointly-controlled subsidiaries accounted for using the equity method, based on the Company's ownership interest in these companies. The interim financial statements of subsidiaries and jointly-controlled subsidiaries are prepared for the same reporting period as that adopted by the Company. When necessary, adjustments are made to bring the accounting policies into line with those adopted by the Company. Unrealized gains and losses resulting from transactions between the Company and its subsidiaries and jointly-controlled subsidiaries are eliminated for equity accounting purposes in the parent company balance sheet, as well as for consolidation purposes. At the end of each reporting period, the Company determines if there is objective evidence that the investments in the subsidiaries or jointly-controlled subsidiaries are impaired. If there is an indication of impairment, the Company calculates the amount of the impairment loss and recognizes it in the statement of income. Exchange variations on investments in foreign subsidiaries, recognized in "Comprehensive income", are classified as carrying value adjustments and are realized simultaneously with the realization of the respective investments. In the consolidated interim financial statements, the investors' interest in SPCs (Notes 3 and 11) is presented in the balance sheet in liabilities, under "Other payables - investors in SPCs. The Company's management treats Special Partnerships as independent entities with the characteristics of subsidiaries, and they are recorded in the parent company interim financial statements using the equity accounting method. h) Property, plant and equipment Property, plant and equipment are stated at acquisition or construction cost, less taxes to be offset, when applicable, and accumulated depreciation. Based on the option exercised by the Company on the first-time adoption of IFRS, the deemed cost of property, plant and equipment (land) was determined based on the adoption of the deemed cost for this class of assets. Depreciation is calculated on a straight line basis taking into consideration the estimated useful lives of the assets, based on the expected future economic benefits, except for land, which is not depreciated. The estimated useful lives of assets are reviewed annually and adjusted, if necessary, and may vary based on technological updates at each unit. The useful lives of the Company's assets are stated in Note 12. The costs of maintaining the Company's assets are allocated directly to the profit for the period in which they are realized. Finance charges are capitalized as part of property, plant and equipment, when incurred on construction in progress, if applicable.
18
Klabim S.A.
i) Impairment of assets Property, plant and equipment and other assets are tested for impairment on an annual basis or whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. When this is the case, the recoverable amount is calculated to determine whether the assets are impaired. The recoverable amount of an asset is the higher of the net sales price and the value in use of the asset or its Cash-Generating Unit (CGU), and is determined individually for each asset, unless the asset does not generate cash inflows that are independent from those of other assets or groups of assets. In estimating the value in use, estimated future cash flows are discounted its present value, using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognized at the amount by which the asset's carrying amount exceeds its recoverable amount, which is the higher of the assets net sales price and its value in use. j) Biological assets Biological assets refer to eucalyptus and pine forests, which are used for the production of packaging paper, paper sacks and corrugated cardboard boxes as well as being sold to third parties. Harvesting and replanting have an approximate cycle of 7 - 14 years, which varies based on the crop and genetic material. Biological assets are measured at fair value, less estimated selling costs, at the point of harvest. The significant assumptions used in determining the fair value of biological assets are stated in Note 13. The valuation of biological assets is carried out on a quarterly basis by the Company, and any gain or loss on the change in the fair value of biological assets is recognized in the statement of income in the period in which it occurs, in a specific line item named "Change in the fair value of biological assets". The increase or decrease in fair value is determined based on the difference between the fair values of biological assets at the beginning and at the end of the valuation period. The depletion of biological assets is measured based on the amount of wood cut, carried at fair value. k) Intangible assets Intangible assets are stated at cost less accumulated amortization, calculated on a straight line basis based on their estimated useful lives. Expenditure on research into new products and techniques used by the Company is recognized as an expenses as incurred. l) Non-current assets and liabilities Non-current assets and liabilities include receivables and payables maturing 12 months after the end of the reporting period, plus the corresponding charges and monetary and exchange variations incurred, if applicable, through the end of the reporting period. m) Provisions A provision is recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated.
19
Klabim S.A.
The expenses related to any provision are presented in the statement of income, net of any reimbursement. If the time effect of the amount is material, the provision is discounted using a discount rate that reflects the risks specific to the obligation, if applicable. Among the provisions recorded by the Company are provisions for tax, social security, labor and civil claims, which are accrued when lawsuits are assessed by the Company's legal counsel and management as being likely to result in losses. This assessment is made taking into account the nature of the lawsuits, similarities with prior lawsuits and the progress of pending litigation. When the Company expects that the amount of provision will be fully or partially reimbursed, this asset is recognized only when realization is considered clear and certain, with no recognition of assets in scenarios of uncertainty. n) Sales revenue Sales revenue is stated net of taxes, discounts and rebates, and is recognized when all of the risks and rewards of ownership of the product are transferred to the buyer, to the extent that it is probable that economic benefits will be generated and will flow to the Company and its subsidiaries and jointly-controlled subsidiaries, and when it can be reliably measured based on the fair value of the consideration received or receivable, net of discounts, rebates and taxes or charges on sales. o) Employee benefits and private pension plan The Company grants employee benefits such as life insurance, health care, profit sharing and other benefits, which are recognized on an accruals basis and are discontinued at the end of the employment relationship with the Company. Additionally, the Company grants a private pension and health care plan to former employees who retired by 2001. In relation to these benefits the Company adopts practices for the recognition of the liability and the result based on an actuarial valuation prepared by an independent expert. Gains and losses on the actuarial valuation of benefits generated by changes in actuarial assumptions and commitments on the actuarial liability are recognized in an account in equity named "Carrying value adjustments" (comprehensive income). p) Stock option plan The stock option plan offered by the Company is measured at its fair value on the grant date and the related expenses are recognized in the statement of income during the period in which the granting right is acquired, against equity in the "Carrying value adjustments" group. q) Significant accounting judgments, estimates and assumptions In the preparation of the interim financial statements, accounting judgments, estimates and assumptions have been used to account for certain assets, liabilities and transactions and to recognize income and expenses for the periods. The accounting judgments, estimates and assumptions adopted by management are made using the best information available at the date of the interim financial statements, and involve experience of past events, forecasts of future events and the assistance of experts, when applicable. The interim financial statements include various estimates, including, but not limited to, the realization of deferred tax assets, the fair value measurement of biological assets, and the provision for tax, social security, civil and labor claims.
20
Klabim S.A.
Actual results may differ from those estimates made based on accounting judgments, estimates and assumptions, and the Company may be exposed to material losses. r) Earnings per share The Company calculates earnings per share based on the profit for the period attributed to each class of shares issued by the Company, weighting the number of shares outstanding during the period. s) Statement of value added Brazilian corporate legislation requires listed companies to present a statement of value added as part of the interim financial statements presented by the Company. This statement is intended to provide evidence of the wealth created by the Company and its distribution during the periods presented. 2.3 Adoption of new technical pronouncements, revisions and interpretations issued The following new technical pronouncements, revisions and interpretations, effective as of January 1, 2013, were approved by IASB and regulated by CPC and CVM: - CPC 18/ IAS 28 (R2) Investment in Associates, Subsidiaries and Joint Ventures - CPC 19/ IFRS 11 Joint Arrangements - CPC 26/ IAS 1 (R1) Presentation of Financial Statements - CPC 33/ IAS 19 (R1) Employee Benefits - CPC 36/ IFRS 10 (R3) Consolidated Financial Statements - CPC 45/ IFRS 12 Disclosure of Interests in Other Entities - CPC 46/ IFRS 13 Fair Value Measurement The effects of their adoption are highlighted below: a) CPC 33/ IAS 19 (R1) Employee Benefits Although the accounting practice used by the Company was to record actuarial gains and losses using the "corridor method", the total amounts involved are not relevant. Following the revision of the pronouncement, the actuarial gains and losses are fully recognized in equity in the group "carrying value adjustments" (comprehensive income). Therefore, the adoption of the pronouncement did not have any relevant impact on the Company's financial information. b) CPC 46/ IFRS 13 Fair Value Measurement The new pronouncement basically determines new disclosure criteria for the measurement at fair value of the Company's assets and liabilities, such as the hierarchical level at which the calculation of fair value, calculation assumptions and sensitivity analysis are classified. c) CPC 19/ IFRS 11 Joint Arrangements The Company evaluated this pronouncement and concluded that the only company to fall within the scope of this pronouncement is Florestal Vale do Corisco S.A. The conclusion is that this jointlycontrolled subsidiary is a joint venture and, accordingly, it shall be accounted for in equity. Since the Company already accounted for that investment using the equity method, the adoption of the new pronouncement did not produce any new impact.
21
Klabim S.A.
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Subsidiaries are fully consolidated as at the date of the acquisition of control and continue to be consolidated until the date on which such control ceases to exist, except for joint ventures, which are accounted for using the equity accounting method both in the parent company and in the consolidated interim financial statements. The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using accounting policies consistent with the policies adopted by the parent company. The following criteria are adopted for consolidation purposes: (i) investments in subsidiaries and equity in the results of investees are eliminated, (ii) profits from intercompany transactions and the related assets and liabilities are also eliminated, and (iii) the amount of non-controlling interest is calculated and shown separately. The consolidated interim financial statements comprising Klabin S.A. and its subsidiaries at September 30, 2013 and 2012 and December 31, 2012, are as follows:
Country Subsidiaries: Klabin Argentina S.A. Klabin Ltd. . Klabin Trade Klabin Forest Products Company IKAP Empreendimentos Ltda. Klabin do Paran Produtos Florestais Ltda. Klabin Florestal Ltda. Centaurus Holdings S.A. (i) Klabin Celulose S.A. (iii) Special partnership companies: Correia Pinto Leal (ii) CG Forest (iii) Monte Alegre (iii) Joint ventures (unconsolidated): Florestal Vale do Corisco S.A. (i) Argentina Cayman Islands England United States Brazil Brazil Brazil Brazil Brazil Brazil Brazil Brazil Brazil Brazil Activity Industrial sacks Interest in other companies Sale of products in the foreign market Sale of products in the foreign market Hotel Manufacture of phytotherapic products Forestry Holding interests in companies Pulp Reforesting Reforesting Reforesting Reforesting Reforesting Investment Direct/indirect Direct Indirect Direct Direct Direct Direct Direct Direct Direct Direct Direct Direct Direct Ownership interest - % 9/30/2013 12/31/2012 9/30/2012 100 100 100 100 100 100 100 100 100 90 64 65 51 100 100 100 100 100 100 100 100 91 68 51 100 100 100 100 100 100 100 91 88 51
(i) See Note 1. (ii) The operations of this subsidiary were discontinued, as disclosed in Note 1. (iii) New subsidiary established, as disclosed in Note 1.
Investment in joint ventures The investment in Florestal Vale do Corisco S.A., classified as a joint venture, has not been consolidated using the proportional consolidation method. The investment is recorded based on the equity accounting method from the date when joint control was acquired. 4 CASH AND CASH EQUIVALENTS
In accordance with its policy, the Company has made low-risk investments with no significant risk of changes in value with financial institutions considered by management as prime banks both in Brazil and abroad, based on their ratings from risk rating agencies. Management considers these financial assets as cash and cash equivalents due to their immediate liquidity with financial institutions.
22
Klabim S.A.
Cash and banks Investments in local currency Investments in foreign currency
9/30/2013 10,177 1,885,950 1,896,127
Parent 12/31/2012 14,366 2,142,782 2,157,148
9/30/2013 85,713 2,030,167 58,296 2,174,176
Consolidated 12/31/2012 41,940 2,238,192 237,180 2,517,312
Financial investments in local currency, relating to Bank Deposit Certificates (CDBs) and other repurchase transactions, are indexed to the variations of the Interbank Deposit Certificate (CDI) with an average annual yield of 8.86% (7.01% at December 31, 2012), and financial investments in foreign currency, relating to time deposits in US Dollars, have an average annual yield of 0.21% (0.21% at December 31, 2012). The investments have daily liquidity guaranteed by the financial institutions. 5 MARKETABLE SECURITIES
Marketable securities are connected to Financial Treasury Bills (LFTs), with yields indexed to the variations of the basic interest rate (SELIC). At September 30, 2013, the balance of these securities is R$ 243,870 (R$ 240,077 at December 31, 2012). Management classified these securities as available-for-sale financial assets. The original maturities are through the end of 2015. However, there is an active trading market for these securities and their fair value basically represents the principal plus interest, as originally established. 6 TRADE RECEIVABLES
9/30/2013 Customers . Domestic . Foreign Total trade receivables Provision for impairment of trade receivables Overdue % of total portfolio 01 to 10 days 11 to 30 days 31 to 60 days 61 to 90 days Over 90 days Not yet due Total portfolio 828,136 73,499 901,635 (47,120) 854,515 62,244 6,90% 1,953 4,129 3,689 1,604 50,869 839,391 901,635 Parent 12/31/2012 785,853 15,151 801,004 (45,187) 755,817 64,569 8,06% 6,991 5,969 3,385 2,420 45,804 736,435 801,004 9/30/2013 828,574 290,704 1,119,278 (47,269) 1,072,009 70,513 6,30% 1,953 8,854 5,382 1,741 52,583 1,048,765 1,119,278 Consolidated 12/31/2012 785,927 241,722 1,027,649 (45,663) 981,986 71,804 6,99% 6,991 8,505 4,400 4,166 47,742 955,845 1,027,649
The average collection period of trade receivables is approximately 90 days for domestic market sales and approximately 120 days for foreign market sales, and interest is charged after the contractual maturity date. As mentioned in Note 24, the Company has rules for monitoring receivables and past-due notes as well as for monitoring the risk of not receiving the amounts arising from credit sale transactions.
23
Klabim S.A.
The provision for the impairment of trade receivables is considered sufficient to cover any losses on the outstanding receivables. The changes in the provision for the impairment of trade receivables were as follow:
Balance at December 31, 2011 Provisions for the year Reversal of receivables Balance at September 30, 2012 Unaudited Balance at December 31, 2012 Provisions for the period Reversal of receivables Balance at September 30, 2013 Parent (33,665) (16,906) 4,749 (45,822) (45,187) (6,414) 4,481 (47,120) Consolidated (33,791) (16,909) 4,753 (45,947) (45,663) (6,538) 4,932 (47,269)
The balance of the provision for the impairment of trade receivables relates mainly to trade notes overdue for more than 90 days. The expenses on the recognition of provision for the impairment of trade receivables are recorded in the statement of income under "Selling expenses".
24
Klabim S.A.
RELATED PARTIES
a) Balances and transactions with related parties

9/30/2013 Klabin Trade (i) Subsidiary 325,508 44,640 4,460 622,416 (196) 990 Klabin Argentina (i) Subsidiary 540 64,027 5,840 507 2,474 400,419 1,324,637 Klabin Celulose (vii) Subsidiary SPC Correia Pinto (ii) and (v) Subsidiary 2,338 Monteiro Aranha S.A. (iii) Stockholder Klabin Irmos & Cia. (iii),(iv)and(viii) Stockholder 3,023 923 414 12/31/2012 Parent 9/30/2012 Unaudited Total
Type of relationship Balances Current assets Non-current assets Current liabilities Non-current liabilities Transactions Sales revenue Purchases Interest expenses on financing Guarantee commission expenses Royalty expenses (i) (ii) (iii) (iv) (v) (vi) (vii) (viii)
BNDES (vi) Stockholder
Other (viii)
Total
Total
331,409 64,950 454,294 1,329,097 632,676 (29,147) (81,958) (11,274) (27,904)
410,573 1,687 369,177 1,225,793 605,363 144,343 93,135 15,094 25,434
9,270 (29,147) (4,187) (11,274) (20,432)
(81,762) (3,285)
Balance receivable from sales of products conducted at prices and conditions agreed upon between the parties Purchase of timber at usual market prices, terms and conditions Brand licensing Prepaid expenses for guarantee commission, calculated on the balance of the financing from BNDES at 1% semiannually Supply of seedlings, seeds and services at usual market prices, terms and conditions Loans obtained under usual market conditions Advance for future capital payment Other
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Klabim S.A.
9/30/2013 Monteiro Aranha S.A. (i) Stockholder Klabin Irmos & Cia. (i), (ii)and(iv) Stockholder 3,023 507 2,474 400,419 1,324,637 (81,762) (4,187) (11,274) (20,432) (3,285) 397 BNDES (iii) Stockholder Other (iv) Total
12/31/2012 Total
Consolidated 9/30/2012 Unaudited Total
Type of relationship Balances Current assets Non-current assets Current liabilities Non-current liabilities Transactions Interest expenses on financing Guarantee commission expenses Royalty expenses (i) (ii) (iii) (iv)
3,023 403,797 1,324,637 (81,762) (11,274) (27,904)
7,775 146 362,205 1,225,793 96,404 19,128 23,075
Brand licensing Prepaid expenses for guarantee commission, calculated on the balance of the financing from BNDES at 1% semiannually Loans obtained under usual market conditions Other
b) Management remuneration and benefits Management remuneration is determined by the stockholders at the Annual General Meeting, in accordance with Brazilian corporate legislation and the Company's bylaws. Accordingly, at the Annual General Meeting held on April 2, 2013, the stockholders established the overall amount of the annual remuneration of the members of the Board of Directors and Supervisory Board at up to R$ 34,200 for 2013. The remuneration approved for 2012 amounted to R$ 30,000. The table below shows the remuneration of the members of the Board of Directors and Supervisory Board:
Short term 9/30/2013 9/30/2012 Board of Directors and Supervisory Board Unaudited 20,920 21,656 527 Long term 9/30/2013 9/30/2012 Unaudited 502 21,447 Parent and consolidated Total benefits 9/30/2013 9/30/2012 Unaudited 22,158
Management remuneration includes the fees of the Board members, along with the fees and variable remuneration of officers. Long-term benefits relate to contributions made by the Company to the pension plan. These amounts are mainly recorded under "Administrative expenses". The Company grants a stock option plan to the statutory officers and other executives, as described in Note 21.
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Klabim S.A.
INVENTORY
9/30/2013 90,854 127,833 109,791 4,979 123,816 (20,261) 16,419 453,431 Parent 12/31/2012 101,771 105,774 99,999 6,133 120,878 (11,625) 15,161 438,091 9/30/2013 114,307 137,141 109,791 4,979 125,886 (20,291) 17,992 489,805 Consolidated 12/31/2012 123,358 115,924 99,999 6,133 122,355 (11,625) 17,514 473,658
Finished products Raw materials Timber and logs Fuel and lubricants Maintenance supplies Provision for losses Other
Raw material inventory includes paper rolls transferred from paper units to conversion units. The expenses on the recognition of the provision for inventory losses are recorded in the statement of income under "Cost of sales". During the nine month periods ended September 30, 2013 and 2012, the net effect of the provision for inventory losses was an increase in the provision by R$ 8,636 and R$ 3,416, respectively. The Company does not have any inventory pledged as collateral. 9 TAXES RECOVERABLE
Current assets 36,189 614 4,723 21,749 4,367 29,193 96,835 5,281 102,116 9/30/2013 Non-current assets 36,368 8,784 51,499 19,761 116,412 116,412 Current assets 8,422 18,971 2,460 11,322 80,740 8,526 130,441 4,869 135,310 12/31/2012 Non-current assets 48,887 8,680 50,739 20,096 128,402 128,402
Value-added Tax on Sales and Services (ICMS) Excise Tax (IPI) Social Integration Program (PIS) Social Contribution on Revenues (COFINS) Income tax (IR)/Social Contribution (CS) Other Parent Subsidiaries Consolidated
The Company recognized credits from taxes and contributions levied on purchases of property, plant and equipment, as permitted by prevailing legislation, which are being utilized for future offsetting against taxes payables, whether of the same nature or otherwise. Based on analyses and the budget projection approved by management, the Company does not foresee any risk of non-realization in relation to these tax credits. PIS/COFINS and ICMS on current assets are expected to be offset against the same types of taxes payable in the next 12 months, according to management's estimates.
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Klabim S.A.
10
INCOME TAX AND SOCIAL CONTRIBUTION
a) Nature and expected realization of deferred taxes At September 30, 2013 and December 31, 2012, the effects of deferred tax assets and liabilities are as follow:
9/30/2013 27,229 12,841 294,675 17,004 49,953 401,702 673,596 210,653 471,515 45,249 25,474 41,746 1,468,233 Parent 12/31/2012 24,394 14,957 203,894 12,964 41,403 297,612 710,421 178,248 471,515 46,366 25,749 55,986 1,488,285 9/30/2013 27,229 12,841 109 294,675 17,004 49,953 401,811 800,029 210,653 565,742 45,249 25,474 41,746 1,688,893 Consolidated 12/31/2012 24,394 14,957 114 203,894 12,964 41,403 297,726 817,892 178,248 565,742 46,366 25,749 55,986 1,689,983
Tax, social security, labor and civil provisions Write-off of deferred charges (adoption of RTT) Income tax and social contribution losses Deferred exchange variations (*) Actuarial liability Other temporary differences Non-current assets Fair value of biological assets Revision of useful lives of property, plant and equipment (adoption of RTT) Deemed cost of property, plant and equipment (land) Adjustment to present value of balances Asset revaluation reserve Other temporary differences Non-current liabilities
Net balance in the balance sheet (liabilities) 1,066,531 1,190,673 1,287,082 1,392,257 (*) Management opted for the tax recognition of the exchange variations of its foreign currency receivables and payables on a cash basis, thereby generating temporary differences arising from exchange variation, which will be taxed according to the settlement of the receivables and payables in foreign currency.
Since 2008 the Company has adopted the Transition Tax Regime (RTT) established by Law 11,941/09, for the tax treatment of income tax and social contribution on the effects arising from the adoption of CPCs. Management, based on the budgets approved by the Board of Directors, estimates that tax credits arising from temporary differences will be realized as follow:
Parent 71,698 88,124 88,318 42,729 110,833 401,702 9/30/2013 Consolidated 71,698 88,124 88,318 42,729 110,942 401,811
2013 2014 2015 2016 2017 onwards
The above projection of the realization of the balance might not materialize if the estimates used in the preparation of the interim financial statements differ from the actual amounts.
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Klabim S.A.
Information on the Company's taxes under litigation is disclosed in Note 16. b) Tax expense in the statement of income The current and deferred tax expense in the statement of income for the nine-month periods ended September 30, 2013 and 2012 can be summarized as follow:
1/1 to 9/30/2013 Current tax expense Prior year adjustment Current Recognition and reversal of temporary differences Revision of useful lives of property, plant and equipment Changes in the fair value and depletion of biological assets Deferred (180,602) 17,961 (162,641) 101,805 (32,352) 7,964 77,417 Parent 1/1 to 9/30/2012 Unaudited (1,231) (1,231) 17,758 (40,763) (72,671) (95,676) 1/1 to 9/30/2013 (187,729) 17,961 (169,768) 101,723 (32,352) 17,862 87,233 Consolidated 1/1 to 9/30/2012 Unaudited (45,181) (45,181) 27,361 (40,763) (188,523) (201,925)
c) Reconciliation of income tax and social contribution expenses with the amounts based on the statutory tax rate
1/1 to 9/30/2013 Profit before taxation Income tax and social contribution at the statutory rate of 34% Tax effect on permanent differences: Difference in taxation - subsidiaries Equity in the results of investees Other effects Income tax and social contribution . Current . Deferred Income tax and social contribution expenses in the statement of income 353,801 (120,292) 17,076 17,992 (85,224) (162,641) 77,417 (85,224) Parent 1/1 to 9/30/2012 Unaudited 702,357 (238,801) 113,760 28,134 (96,907) (1,231) (95,676) (96,907) 1/1 to 9/30/2013 351,112 (119,378) 7,803 5,908 23,132 (82,535) (169,768) 87,233 (82,535) Consolidated 1/1 to 9/30/2012 Unaudited 852,556 (289,869) 7,212 8,612 26,939 (247,106) (45,181) (201,925) (247,106)
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Klabim S.A.
11
INTERESTS IN SUBSIDIARIES AND JOINTLY-CONTROLLED SUBSIDIARIES

Klabin Klabin Argentina S.A. 38,259 Centaurus Holdings S.A. (iii) 606,487 2,680 (2,644) (450,304) 45,833 202,052 205,686 2,262 8,300 216,248 201,423 53,976 147,447 8,300 Florestal Vale do Corisco S.A. (iii) Special Partnership Correia Pinto 400,317 (18,977) 450,304 (150) 450,154 450,651 (15,300) 17,375 452,726 1,165,014 277,315 887,699 28,281 29,213 410,553 429,510 (17,026) 2,927 415,411 631,369 145,003 486,366 26,899 52,736 92,578 238 92,816 171,868 29,053 142,815 238 Special Partnership CG Forest (vi) Special Partnership Mt Alegre (vii) Special Partnership Leal 1,182,035 (36,045) 226,108 1,372,098 (257) 9,253 8,491 7,302 (2,367) 13,426 Other 9,510 Total 2,276,348 2,680 (55,022) (2,644) 334,588 (331) 2,555,619 1,267,255 103,137 (92,845) 50,223 (3,539) 1,324,231
At December 31, 2011 Acquisitions and capital contribution Dividends received Losses on changes in ownership percentages Split-offs / mergers (v) Equity in the results of investees (ii) Exchange variation on foreign investments At September 30, 2012 - Unaudited At December 31, 2012 Acquisitions and capital contribution Dividends received Equity in the results of investees (ii) Exchange variation on foreign investments At September 30, 2013
Ltd. (i) 39,740
28,287 68,027 76,912 995 (60,519 ) 20,510 37,898
5,554 (331) 43,482 43,269
7,338 (3,539) 47,068 57,764 8,883 48,881 7,338
(4,098) 48,638 84,010 10,373 73,637 (4,098)
Summary of the financial information of subsidiaries at September 30, 2013: Total assets 36,903 Total liabilities Equity 36,903 Profit (loss) for the period 19,006
(i) Parent company of Klabin Trade (ii) Includes the effects of change in and realization of fair value of biological assets (Note 13) (iii) As mentioned in Notes 1 and 3, Centaurus Holdings S.A. was a jointly-controlled subsidiary and parent company of Florestal Vale do Corisco until May 2012, and became the Company's wholly-owned subsidiary in June 2012 (iv) Refers to the corporate restructuring of subsidiaries, as stated in Notes 1 and 3 (v) Refers to the dissolution of SPC Leal, as mentioned in Notes 1 and 3 (vi) Refers to the formation of a new subsidiary named CG Forest, as mentioned in Notes 1 and 3 (vii) Refers to the formation of a new subsidiary named Monte Alegre, as mentioned in Notes 1 and 3
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Klabim S.A.
12
PROPERTY, PLANT AND EQUIPMENT
a) Property, plant and equipment are composed of the following:

9/30/2013 Parent Land Buildings and construction Machinery, equipment and facilities Construction in progress Other (i) Consolidated Land Buildings and construction Machinery, equipment and facilities Construction in progress Other (i) Cost 1,639,145 609,785 4,032,661 479,139 714,774 7,475,504 Accumulated depreciation (190,821) (1,751,190) (184,222) (2,126,233) Net 1,639,145 418,964 2,281,471 479,139 530,552 5,349,271 12/31/2012 Net 1,639,159 420,754 2,307,403 270,682 365,709 5,003,707
2,012,894 2,012,894 2,002,793 617,451 (193,632) 423,819 425,976 4,052,697 (1,765,796) 2,286,901 2,313,454 542,344 542,344 270,927 718,983 (186,136) 532,847 366,276 7,944,369 (2,145,564) 5,798,805 5,379,426 (i) Refers to leasehold improvements, vehicles, furniture and fittings, and IT equipment. This also includes advances made to suppliers for the acquisition or construction of property, plant and equipment.
The information on property, plant and equipment pledged as collateral in transactions carried out by the Company is disclosed in Note 14, and information on the insurance coverage of assets is disclosed in Note 26. b) Summary of changes in property, plant and equipment
Parent Land 966,697 786 967,483 1,639,159 (14) 1,639,145 Buildings and construction 405,818 (15,652) 6,540 396,706 420,754 (76) (16,801) 15,087 418,964 Machinery, equipment and facilities 2,197,031 (908) (130,418) 194,939 (192) 2,260,452 2,307,403 (2,739) (146,158) 123,261 (296) 2,281,471 Construction in progress 242,916 288,687 (235,717) (2,778) 293,108 270,682 297,803 (87,462) (1,884) 479,139 Other 191,416 117,234 (84) (13,495) 33,452 15 328,538 365,709 233,480 (52) (17,494) (50,886) (205) 530,552 Total 4,003,878 405,921 (992) (159,565) (2,955) 4,246,287 5,003,707 531,283 (2,881) (180,453) (2,385) 5,349,271
Balance at December 31, 2011 Additions Disposals Depreciation Internal transfers Other Balance at September 30, 2012 Unaudited Balance at December 31, 2012 Additions Disposals Depreciation Internal transfers Other Balance at September 30, 2013
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Klabim S.A.
Consolidated Land 1,867,086 132 786 131,860 617 2,000,481 2,002,793 2,291 (14) 7,824 2,012,894 Buildings and construction 411,463 1 (15,798) 6,540 (44) 402,162 425,976 (76) (16,943) 15,086 (224) 423,819 Machinery, equipment and facilities 2,203,676 331 (908) (131,217) 195,375 (246) 2,267,011 2,313,454 303 (2,781) (146,955) 123,344 (464) 2,286,901 Construction in progress 242,917 289,370 (1) (236,153) (2,807) 293,326 270,927 360,965 (87,544) (2,004) 542,344 Other 191,941 117,394 (90) (15,538) 33,452 1,929 329,088 366,276 235,659 (56) (17,640) (50,886) (506) 532,847 Total 4,917,083 407,228 (999) (162,553) 131,860 (551) 5,292,068 5,379,426 599,218 (2,927) (181,538) 4,626 5,798,805
Balance at December 31, 2011 Additions Disposals Depreciation Internal transfers Consolidation of subsidiary (i) Other Balance at September 30, 2012 Unaudited Balance at December 31, 2012 Additions Disposals Depreciation Internal transfers Other Balance at September 30, 2013
(i) Refers to the consolidation of subsidiary Centaurus Holdings S.A. from June 2012, as mentioned in Notes 1 and 3
Depreciation was mainly allocated to the production costs for the period. c) Useful lives and depreciation method The table below shows the annual depreciation rates calculated using the straight line method, which were applicable for the periods ended September 30, 2013 and 2012, defined based on the economic useful lives of assets: Rate - % 2.86 to 3.33 2.86 to 10 (*) 4 to 20
Buildings and construction Machinery, equipment and facilities Other

(*) Prevailing rate of 6%.
At the end of 2012, management reviewed the useful lives of the Company's property, plant and equipment and decided to maintain the depreciation rates used in 2011. d) Construction in progress The balance of construction in progress at September 30, 2013 relates to the following main projects: (i) remodeling of the lime kiln and power boiler at the Monte Alegre (Paran State) unit, (ii) ground-leveling works in the area of the pulp-related project, (iii) expansion of the evaporation system at the Otaclio Costa (Santa Catarina State) unit, (iv) biomass boiler at the Correia Pinto (Santa Catarina State) unit, (v) expansion project at Correia Pinto (Santa Catarina State) with the installation of a new paper machine, (vi) new recycled paper machine for the unit in Goiana (Pernambuco State), and (vii) current investment in the continuing operations of the Company. e) Impairment of property, plant and equipment The Company did not identify any indications of the impairment of its assets in the periods ended September 30, 2013 and 2012, based on its analyses of the value in use utilizing discounted cash flows prepared in accordance with the budget projections approved by management.
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Klabim S.A.
13
BIOLOGICAL ASSETS
The Company's biological assets comprise the planting and growing of pine and eucalyptus trees for the supply of raw materials to produce the pulp used in paper production and for sales of timber to third parties. Including its interest in the forestry area of its jointly-controlled subsidiary Florestal Vale do Corisco, the Company owned 238 thousand hectares of planted area at September 30, 2013 (242 thousand hectares at December 31, 2012), not including the permanent preservation areas and legal reserve that are maintained in compliance with Brazilian environmental legislation. The balance of the Company's biological assets consists of the cost of growing forests, and the fair value difference on the growing costs, less the costs necessary to prepare the assets for use or sale, so that the balance of biological assets as a whole is recorded at fair value, as follows:
9/30/2013 832,530 1,965,209 2,797,739 Parent 12/31/2012 870,671 2,073,516 2,944,187 9/30/2013 1,055,467 2,337,071 3,392,538 Consolidated 12/31/2012 1,051,887 2,389,608 3,441,495
Growing cost of biological assets Fair value adjustments of biological assets
The fair value measurement of biological assets considers certain estimates, such as the price of wood, the discount rate, the harvesting plan for the forests and productivity level, all of which are subject to uncertainty, and may have an impact on the Company's future results due to their fluctuations. There are no biological assets pledged as collateral for transactions carried out by the Company. Information on the insurance of biological assets and the financial risks of forestry operations is disclosed in Note 26. a) Assumptions regarding the recognition of the fair value of biological assets In accordance with CPC 29 (equivalent to IAS 41) - Biological Assets and Agricultural Products, the Company recognizes its biological assets at fair value, adopting the following assumptions in its calculation: (i) Eucalyptus forests are maintained at historical cost through the third year of planting and pine forests through the fifth year of planting, based on management's understanding that, during that period, the historical costs of biological assets approximate their fair values. (ii) After the third and fifth years of planting, eucalyptus and pine forests, respectively, are measured at fair value, which reflects the sales price of the asset less the costs necessary to prepare the assets for the intended use or sale. (iii) The methodology used in the fair value measurement of biological assets relates to the discounted future cash flows estimated according to the projected productivity cycle of the forests, taking into consideration price variations and the growth of biological assets. (iv) The discount rate used for cash flows is the Company's Weighted Average Cost of Capital (WACC), which is periodically reviewed.
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Klabim S.A.
(v) The projected productivity volumes of forests are determined using a stratification based on forest type, genetic material, handling system, productive potential, rotation and age. These characteristics form an index named Average Annual Growth, expressed in cubic meters/ hectare/year, which is used as the basis of productivity projections. The Company's harvesting plan varies from six to seven years for eucalyptus trees and fourteen to fifteen years for pine trees. (vi) The prices of biological assets, denominated in R$/cubic meter, are obtained using market price surveys issued by specialized firms, and the prices charged by the Company on sales to third parties. The prices obtained are adjusted by deducting the capital costs relating to land, since they relate to assets that contribute to the planting of forests, and to other costs necessary to prepare the assets for sale or consumption. (vii) Planting expenses relate to the costs of the development of biological assets. (viii) The depletion of biological assets is calculated based on the fair value of biological assets harvested in the period. (ix) The Company has decided to review the fair value of its biological assets on a quarterly basis since it believes that this period is sufficiently short to prevent any significant gaps in the fair values of the biological assets recorded in its interim financial statements. b) Reconciliation and movement in fair value variations
Balance at December 31, 2011 Planting Depletion: . Historical costs . Fair value adjustments Changes in fair value due to: . Price . Growth Consolidation of subsidiary (i) Transfers Balance at September 30, 2012 - Unaudited Balance at December 31, 2012 Planting Depletion: . Historical costs . Fair value adjustments Changes in fair value due to: . Price . Growth Capital contribution to a new company (ii) Transfers Balance at September 30, 2013 Parent 1,361,751 54,041 (15,438) (101,002) 89,655 225,223 (79) 1,614,151 2,944,187 39,039 (40,594) (307,243) 204,439 79,374 (121,463) 2,797,739 Consolidated 2,715,769 88,483 (38,698) (220,611) 251,473 521,105 86,921 2,567 3,407,009 3,441,495 54,276 (43,106) (332,470) 191,441 88,486 (7,584) 3,392,538
(i) Relates to the consolidation of subsidiary Centaurus Holdings S.A. as from June 2012, as mentioned in Notes 1 and 3 (ii) Relates to the dissolution of the special partnership company Leal, as mentioned in Notes 1 and 3
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Klabim S.A.
The variations in fair value in 2013 were mainly due to the increase in the prices charged and the review of the discount rate during the first quarter of the year, pursuant to an internal policy, which increased the discount rate utilized in calculating the discounted cash flow and decreased the fair value of assets, as reflected in the growth variation for the period. The depletion of biological assets in the periods presented was mainly allocated to production costs, after allocation to inventory through the harvesting of forests and their use in the production process or sale to third parties. c) Sensitivity analysis In accordance with the hierarchy of CPC 46 (equivalent to IFRS 13) Fair Value Measurement, the calculation of biological assets is classified at Level 3 due to its complexity and calculation structure. Assumptions used include sensitivity to the prices used in the evaluation and the discount rate used in the discounted cash flow. Prices correspond to the prices obtained in the regions in which the Company is located. The discount rate corresponds to the Company's Weighted Average Cost of Capital (WACC), taking into consideration the basic interest rate (SELIC) and inflation levels. Significant increases (decreases) in the prices used in the evaluation would result in an increase (decrease) in the measurement at fair value of biological assets. The average price used in the evaluation of the biological assets in the period ended September 30, 2013 was equivalent to R$68.27/m3 (R$62.62/m3 at December 31, 2012). The significant increase (decrease) effects on the discount rate of the rate used in the measurement of the fair value of biological assets would result in a decrease (increase) in the values measured. The Company's WACC is updated on an annual basis, and the new rate is applied as from the date of the first-quarter evaluation for each year, and the rate used in the calculation for the first quarter remains the same for the other. The discount rate used in the evaluation of the biological assets for the period ended September 30, 2013 was 5.7% in constant currency (5.5% at December 31, 2012).
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Klabim S.A.
14
BORROWINGS
a) Borrowings consist of the following:

Annual interest rate % Current In local currency . BNDES - Project MA1100 . BNDES - Other . Working capital . Other In foreign currency (ii) . BNDES - Other . Export prepayments . Export credit notes Total consolidated Subsidiaries: . Export prepayments with subsidiaries (ii) Total parent Long-Term Interest Rate (TJLP) + 4.5 and basket(i) + 1.5 TJLP + 0.0 to 4.8 Interbank Deposit Certificate rate (CDI) + 0.6 1.0 to 6.8 USD + 5.7 to 6.3% USD + 6M Libor + 1.1 to 6.4 USD + 3.9 to 8.1 263,109 125,359 18,284 40,649 447,401 11,951 566,223 102,891 681,065 1,128,466 406,060 812,178 41,667 89,993 1,349,898 106,399 2,345,399 1,082,545 3,534,343 4,884,241 669,169 937,537 59,951 130,642 1,797,299 118,350 2,911,622 1,185,436 4,215,408 6,012,707 Non-current 9/30/2013 Total
USD + 3.1
40 1,128,506
4,460 4,888,701
4,500 6,017,207 12/31/2012
Annual interest rate % Current In local currency . BNDES - Project MA1100 . BNDES - Other . Working capital . Other In foreign currency (ii) . BNDES - Other . Export prepayments . Export credit notes Total parent and consolidated (i) Currency basket basically comprising US Dollars (ii) In US Dollars TJLP + 4.8 and basket(i) + 2.0 TJLP + 0.0 to 4.8 CDI + 0.6 1.0 to 6.8 USD + 5.8 USD + 6M Libor + 1.0 to 6.4 USD + 3.9 to 8.1 260,884 87,254 16,957 22,024 387,119 11,374 623,333 98,944 733,651 1,120,770 Non-current 639,174 507,390 50,000 82,098 1,278,662 79,229 2,510,326 1,046,117 3,635,672 4,914,334
Total 900,058 594,644 66,957 104,122 1,665,781 90,603 3,133,659 1,145,061 4,369,323 6,035,104
National Bank for Economic and Social Development (BNDES) The Company has agreements with the National Bank for Economic and Social Development (BNDES) for the financing of industrial development projects, such as the expansion project in the paper segment (MA 1100), which will be settled through January 2017. This financing is repaid monthly, along with the related interest. Export prepayments and export credit notes Export prepayment and credit note transactions were carried out with major banks for the purposes of working capital management and the development of the Company's operations. These agreements will be settled through May 2022.
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Klabim S.A.
b) Schedule of non-current maturities The maturity dates of the Company's financing at September 30, 2013, classified in non-current liabilities, are as follow:
2021 onwards 211,698
Year Amount
2014 221,199
2015 1,046,066
2016 697,880
2017 942,696
2018 741,613
2019 650,697
2020 372,392
Total 4,884,241
c) Summary of changes in borrowings

Balance at December 31, 2011 New borrowings Accrued interest Foreign exchange and monetary variations Amortization and payment of interest Balance at September 30, 2012 - Unaudited Balance at December 31, 2012 New borrowings Accrued interest Foreign exchange and monetary variations Amortization and payment of interest Balance at September 30, 2013 Parent 5,297,336 1,237,237 230,875 393,617 (918,594) 6,240,471 6,035,104 426,140 229,316 391,679 (1,065,032) 6,017,207 Consolidated 5,297,336 1,237,237 230,875 393,617 (918,594) 6,240,471 6,035,104 421,836 229,282 391,516 (1,065,031) 6,012,707
d) Guarantees The financing agreements with BNDES are guaranteed by the land, buildings, improvements, machinery, equipment and facilities of the plants in Correia Pinto (Santa Catarina State), and Monte Alegre (Paran State), of which the carrying amount, net of depreciation, was R$ 2,063,256 at September 30, 2013. The financing is also guaranteed by escrow deposits and sureties from the controlling stockholders. Export credits, export prepayment, and working capital loans are not collateralized. e) Restrictive covenants At the end of the reporting period, the Company and its subsidiaries did not have any financing agreements containing restrictive covenants requiring compliance with financial ratios on contracted transactions, where non-compliance could accelerate the maturity of the debt.
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Klabim S.A.
15
TRADE PAYABLES
9/30/2013 364,794 16,861 381,655 Parent 12/31/2012 303,958 9,601 313,559 9/30/2013 371,211 20,619 391,830 Consolidated 12/31/2012 304,873 13,204 318,077
Local currency Foreign currency
The Company's average payment term for suppliers is approximately 45 days. 16 TAX, SOCIAL SECURITY, LABOR AND CIVIL PROVISIONS
a) Risks provided for Based on the individual analysis of lawsuits filed against the Company and its subsidiaries and the opinion of their legal counsel, provisions are recorded in non-current liabilities for losses considered probable, as follow:
Restricted judicial deposits 10,671 3,066 13,737 18,297 767 32,801 9/30/2013 Unrestricted judicial deposits 25,252 31,869 57,121 57,121
In the parent company: Tax: . PIS/COFINS . IR/CS . OTHER Labor Civil
Amount of the provision (13,420) (3,066) (16,486) (69,183) (7,836) (93,505)
Net liability (2,749) (2,749) (50,886) (7,069) (60,704)
In subsidiaries: Other Consolidated
(1) (93,506)
32,801
(1) (60,705)
1,432 58,553
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Klabim S.A.
In the parent company: Tax: . PIS/COFINS . IR/CS . OTHER Labor Civil
Amount of the provision (11,442) (3,291) (14,733) (61,479) (6,977) (83,189)
Restricted judicial deposits 10,202 3,396 13,598 16,880 767 31,245
Net liability (1,240) 105 (1,135) (44,599) (6,210) (51,944)
12/31/2012 Unrestricted judicial deposits 24,446 469 29,531 54,446 54,446
In subsidiaries: Other Consolidated
(83,189)
31,245
(51,944)
1,432 55,878
The risks provided for by the Company at September 30, 2013 relate to tax lawsuits, mainly challenges regarding income tax and social contribution on monetary restatements under Law 8,200/91, labor lawsuits filed by former employees of the Company's plants claiming labor rights (severance pay, overtime, hazardous duty and health hazard premiums), indemnities and joint liability, and civil lawsuits relating mainly to compensation claims for property damage and/or pain and suffering resulting from accidents. b) Summary of changes in the provision
Tax (1,985) (24) (2,009) (1,135) 140 (1,754) (2,749) Labor (44,442) 1,380 597 (42,465) (44,599) 1,418 (7,705) (50,886) Civil (3,686) (913) (4,599) (6,210) (859) (7,069) Parent and consolidated Net exposure (50,113) 1,380 (340) (49,073) (51,944) 1,558 (10,318) (60,704)
Balance at December 31, 2011 New lawsuits/increases and monetary restatements (Provisions)/reversals Balance at September 30, 2012 - Unaudited Balance at December 31, 2012 New lawsuits/increases and monetary restatement/derecognition (Provisions)/reversals Balance at September 30, 2013
c) Tax, social security, labor and civil provisions not recognized The Company and its subsidiaries are parties to other tax, labor and civil lawsuits for which the risks of loss were assessed as "possible", involving the following approximate amounts: R$ 522,969 (tax), R$ 75,138 (labor) and R$ 52,192 (civil). Based on the individual analysis of lawsuits and the opinion of the Company's legal counsel, management understands that no provision is required for these lawsuits, since the likelihood of loss is assessed as only possible.
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Klabim S.A.
d) Lawsuits filed by the Company At September 30, 2013, the Company was a plaintiff in lawsuits for which there is no provision in its interim financial statements and where the assets are to be recognized only after a final and unappealable decision is rendered and a gain is virtually certain. The Company's legal counsel assessed the likelihood of a favorable outcome in some of the lawsuits as "probable". These lawsuits relate to the requirement for presumed credits of IPI (Excise Tax) on purchases of electric power, fuel oil and natural gas used in the production process. e) Enrollment in Tax Debt Refinancing Program (REFIS) The REFIS balance payable recorded in the parent company and consolidated accounts totaled R$ 418,828 at September 30, 2013 (R$ 429,176 at December 31, 2012), restated at the effective interest rate that reflects the future values and the variation in the basic interest rate (SELIC), and is being paid in monthly installments, with 133 remaining outstanding at the reporting date of these interim financial statements. f) Commitments The Company and its subsidiaries did not have any material future commitments at the end of the reporting period that have not been disclosed in the interim financial statements. 17 EQUITY
a) Capital The Company's subscribed and paid-up capital was R$ 2,271,500 at September 30, 2013 and December 31, 2012, comprising 917,683,296 shares, without par value, held as follow:
Common shares 63,458,605 163,797,753 24,699,654 64,871,551 316,827,563 9/30/2013 Preferred shares 79,647,040 56,502,205 16,453,878 30,073,798 388,065,312 30,113,500 600,855,733 Common shares 63,458,605 163,797,753 24,699,654 64,871,551 316,827,563 12/31/2012 Preferred shares 79,647,040 56,246,305 20,650,016 30,103,191 383,420,181 30,789,000 600,855,733
Stockholders BNDESPAR The Bank of New York Department Monteiro Aranha S.A. Klabin Irmos & Cia (i) Niblak Participaes S.A (i) BlackRock Inc. Other Treasury shares
(i) See corporate restructuring in Note 27.
Preferred shares are non-voting but have priority for capital reimbursement in the event of the liquidation of the Company and receive dividends 10% higher than those attributed to common shares.
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Klabim S.A.
b) Treasury shares The Extraordinary Meeting of the Board of Directors held on October 11, 2012 approved the buyback of up to 44,320,575 preferred shares in the Company (equivalent to 10% of the shares of this class outstanding on the market at that date) for a 365-day period, to be held in treasury for subsequent sale or cancelation without capital reduction. The Company bought back 222,800 of its own preferred shares in May 2013, at the average price of R$ 13.46 per share, totaling R$ 2,999. In accordance with the stock option plan described in Note 21, granted as long-term remuneration to the Company's officers, in March and June 2013, 380,900 preferred treasury shares were sold, and the right to use the same amount of shares was granted. Therefore, 517,400 preferred shares were written off from treasury shares. The Company maintained 30,113,500 preferred shares of its own issue in treasury at September 30, 2013. The price of this class of shares (PN) on the So Paulo Stock Exchange was R$ 11.66 each at that date. c) Reserves Capital reserve The reserve was set up with the proceeds from the sale of shares held in treasury, which are not run through the statement of income. The balance can be utilized to offset losses, repurchase shares or for the payment of dividends on preferred shares, or can be incorporated into capital. Revaluation reserve Based on CVM Resolution 27/86, this balance relates to the revaluation of property, plant and equipment in 1988, based on the depreciation or sale of revalued assets. The balance is net of the applicable income tax and social contribution. Revenue reserves (i) Legal reserve Under Brazilian corporate legislation, the Company should allocate 5% of profit for a year, not exceeding 20% of capital, to the legal reserve. The Company may not set up the legal reserve in a year in which the balance of this reserve, plus the amount of the capital reserve, exceeds 30% of the capital. The purpose of the legal reserve is to ensure the integrity of the Company's capital and it can be used only to offset losses or increase capital, as determined at the Stockholders' Meeting. (ii) Investment and working capital reserve The statutory reserve, comprised of the variable portion of annual profit adjusted as required by law and between 5% and 75% of profit according to the Company's bylaws, is intended to ensure the availability of funds for investment in property, plant and equipment and to improve working capital.
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Klabim S.A.
(iii) Biological assets reserve The biological assets reserve, as required by the Company's bylaws, will be allocated to profit for the year at its total amount, net of taxes. It is set up every year, with income from the fair value measurement of biological assets. It is reversed to retained earnings as an expense on the fair value measurement of biological assets and is realized through the depletion of the fair value of biological assets, limited to the existing balance in retained earnings. The effect of biological assets being included in such a reserve is that they relate to the biological assets of the Company and its subsidiaries, as reflected in equity in the results of investees. (iv) Reserve for proposed dividends The reserve for proposed dividends was set up based on management's proposal for dividend distribution from the portion exceeding the mandatory minimum dividend, which is contingent upon the approval of the General Meeting of Stockholders. d) Carrying value adjustments Created by Law 11,638/07, the group "Carrying value adjustments" in the Company's equity includes adjustments related to increases and decreases in assets and liabilities that are not computed in the results for the year, up to their effective realization. The balance maintained by the Company corresponds to the adoption of the deemed cost of property, plant and equipment for the forest land, an option exercised upon the initial adoption of the new accounting pronouncements in convergence with IFRS at January 1, 2009, the foreign exchange variations of the subsidiaries abroad with a functional currency different from the parent company (Note 1), balances relating to the stock option plan granted to executives (Note 21), and actuarial liability restatements (Note 25).
Parent and consolidated 9/30/2013 12/31/2012 1,098,205 1,098,205 (18,769) (15,230) (7,841) (1,800) (1,596) 1,069,795 1,081,379
Deemed costs of property, plant and equipment (land) Foreign exchange variation - foreign subsidiaries Actuarial liability Stock option plan
e) Dividends Dividends represent the portion of the profits earned by the Company that is distributed to the stockholders as the return on capital invested in the fiscal year. All stockholders are entitled to receive dividends, proportionally to their ownership interest, as assured by Brazilian corporate legislation and the Company's bylaws. The bylaws also determine that management has the option to prepay interim dividends during the year, "ad referendum" of the Ordinary General Meeting held to examine the accounts for the year. The Extraordinary General Meeting held on December 20, 2011 approved the alteration of the calculation basis of the mandatory dividends defined in the Company's bylaws, to the effect that it will be adjusted in accordance with the recognition, realization and reversal, in the related year, of the Biological Assets Reserve, entitling the Company's stockholders to receive, every year, a mandatory minimum dividend of 25% of the annual adjusted profit.
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Klabim S.A.
According to the stockholders' approval, issued at the Annual General Meeting held on April 2, 2013, the Company distributed supplementary dividends for 2012 of R$ 76,069, corresponding to R$ 80,52 per thousand registered common shares and R$ 88.57 per thousand registered preferred shares, with payment made on April 23, 2013. The balance of supplementary dividends is maintained in a specific account in equity named "Reserve for dividends proposed" until its approval and payment. The allocation of profit from the balance of retained earnings is recorded only at the end of the reporting period. Under the Company's bylaws, management may decide on the early distribution of interim dividends during the year. At the Extraordinary Meeting of the Board of Directors held on July 25, 2013, the Board approved the distribution of interim dividends for the fiscal year 2013 amounting to R$ 140,005, corresponding to R$ 148.21 per thousand registered common shares and R$ 163.03 per thousand registered preferred shares, with payment made on August 15, 2013. In addition, as mentioned in Note 27, at the Extraordinary Meeting of the Board of Directors held on October 30, 2013, the Board approved the distribution of interim dividends for the fiscal 2013 amounting to R$85,000, corresponding to R$89.98 per thousand registered common shares and R$98.98 per thousand registered preferred shares, with payment to be made on November 22, 2013. 18 NET SALES REVENUE
The Company's net revenue includes only sales of its products and is made up as follows:
1/1 to 9/30/2013 Gross sales Discounts and rebates Taxes on sales . Domestic market . Foreign market Net sales revenue 3,963,676 (9,415) (675,372) 3,278,889 2,531,275 747,614 3,278,889 Parent 1/1 to 9/30/2012 Unaudited 3,598,453 (6,636) (598,374) 2,993,443 2,361,638 631,805 2,993,443 1/1 to 9/30/2013 4,068,619 (14,822) (690,681) 3,363,116 2,527,004 836,112 3,363,116 Consolidated 1/1 to 9/30/2012 Unaudited 3,702,632 (5,910) (611,416) 3,085,306 2,351,808 733,498 3,085,306
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Klabim S.A.
19
EXPENSES / INCOME BY NATURE

1/1 to 9/30/2013 Parent 1/1 to 9/30/2012 Unaudited (1,255,829) (501,121) (278,095) (124,136) (1,797) (171,366) 1,291 (1,654) (160,608) (2,493,315) 1/1 to 9/30/2013 (1,214,468) (521,526) (549,804) (165,812) (23,072) (187,716) 14,189 (17,840) (152,742) (2,818,791) Consolidated 1/1 to 9/30/2012 Unaudited (1,111,486) (509,620) (423,952) (150,390) (19,981) (173,097) 1,291 (1,654) (172,374) (2,561,263)
Variable costs (raw materials and consumables) Personnel expenses Depreciation, amortization and depletion Freight Commission Services contracted Revenue from sales of property, plant and equipment Cost of sales and write-off of property, plant and equipment Other
(1,243,615) (516,311) (530,597) (162,465) (4,677) (185,839) 14,189 (17,840) (117,162) (2,764,317)
20
FINANCE INCOME AND COSTS

1/1 to 9/30/2013 Parent 1/1 to 9/30/2012 Unaudited 177,900 31,864 37,120 246,884 (238,062) (36,885) (22,818) (396,356) (694,121) (447,237) 1/1 to 9/30/2013 135,117 13,037 38,569 186,723 (229,282) (26,341) (5,192) (42,868) (373,555) (677,238) (490,515) Consolidated 1/1 to 9/30/2012 Unaudited 184,692 31,877 37,100 253,669 (238,062) (36,885) (35,130) (23,515) (389,471) (723,063) (469,394)
Finance income . Income from financial investments . Other . Exchange variation on assets Finance costs . Interest on financing . Interest on REFIS (Note 16) . Compensation of investors - SPCs . Other . Exchange variation on liabilities Finance result, net
128,207 12,996 38,530 179,733 (229,316) (26,341) (41,704) (377,179) (674,540) (494,807)
21
STOCK OPTION PLAN
At the Extraordinary General Meeting of Stockholders held on July 10, 2012, the stockholders approved the Stock Option Plan (the "Plan") as a benefit for the members of the Executive Board and the Company's key personnel. The CVM authorized the Company, through Circular Letter/CVM/SEP/GEA-2/221/2012, to carry out the private transactions included in the incentive plan for its officers and employees, except for the controlling stockholders, through the private transfer of treasury shares. Pursuant to this Plan, the Company established that its statutory and non-statutory officers could utilize between 25% and 70% of their variable remuneration for the acquisition of preferred treasury shares, and that the Company would grant the right to use the same amount of shares to the acquirers for three years, transferring to them the ownership of the shares after three years, provided that the clauses established in the Plan were complied with.
44
Klabim S.A.
The Plan does not establish the acquisition of shares by the Company's key personnel, but only the granting of a certain number of shares via the granting regime for three years, of which the naked ownership is transferred to the beneficiary, provided that the established clauses are met. The right of use grants to the beneficiary the right to the dividends distributed in the period during which the benefit is valid. The value of the acquisition of treasury shares by the beneficiaries of the Plan will be obtained based on the lower of the average of the market value quotations in the last 60 trading sessions of the Company's preferred shares or their quotation on the acquisition date. The value of shares granted with right of use corresponds to the quotation of shares traded on the BM&FBOVESPA on the transaction date. The clauses that grant the transfer of shares establish the continuing employment of the beneficiary with the Company, and stipulate that the shares acquired upon adhesion to the Plan may not be sold. The shares granted can also be immediately assigned in the case of the termination of employment by the Company, or the retirement or death of the beneficiary, in which case the right to the shares becomes part of the estate of the deceased. The shares granted and the expenses, proportional to the grant term, recorded in the statement of income, are accumulated in equity in the "Carrying value adjustments" group, up to the end of the grant, which could occur due to the three-year maturity or to any other clause of the Plan that could terminate the grant. The table below presents the information of the plans agreed upon: a) Statutory and non-statutory Board members
Start of the plan Final grant date Treasury shares acquired by the beneficiaries Purchase value per share (R$) Treasury shares granted with right of use Value of the right of use per share (R$) Accumulated expense of the plan Expense of the plan - 1/1 to 9/30/2013 Plan 2011 10/7/2012 10/7/2015 475,000 7,82 475,000 8,77 1,736 1,041 Plan 2012 1/3/2013 1/3/2016 380,900 12,84 380,900 13,36 989 989 Total 855,900 855,900 2,725 2,030
b) Key personnel
Start of the plan (i) Final grant date Treasury shares granted with right of use Value of the right of use per share (R$) Accumulated expense of the plan Expense of the plan - 1/1 to 9/30/2013 Plan 2012 1/3/2013 1/3/2016 136,500 13,36 355 355
(i) The 2012 Plan was granted in June 2013 on a retrospective basis.
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Klabim S.A.
22
EARNINGS PER SHARE
Basic earnings per share are calculated by dividing the profit for the period attributable to holders of the Company's common and preferred shares by the weighted average number of common and preferred shares available during the period. In the Company's case, diluted earnings per share are equal to basic earnings per share since it does not have potentially dilutive common or preferred shares. As mentioned in Notes 17 and 21, in March 2013 the Company sold and granted the right to use 761,800 preferred shares. In May 2013, the Company acquired 222,800 preferred shares and, in June 2013, the Company granted the right to use 136,500 preferred shares, thus reducing the number of treasury shares to 30,113,500 (December 31, 2012 - 30,789,000). This transaction affected the weighted average number of preferred shares held in treasury in the calculations for the nine month period ended September 30, 2013. The weighted average number used in the calculation of earnings per share was determined as follows:
Weighted average number of treasury shares September 30, 2013 Jan to Feb 30,789,000 x 2/9 + Mar to Apr 30,027,200 x 2/9 + May 30,250,000 x 1/9 + Jun 30,113,500 x 4/9 = 9 Months 2013 30,259,600
In the nine month period ended September 30, 2012, the Company bought back 1,000,000 of its own preferred shares in January and February, and sold and granted the right to use 950.000 preferred shares in July, thus increasing the number of shares held in treasury to 30,050,000, from 30,000,000 previously held. This transaction affected the weighted average number of preferred shares held in treasury in the calculation for the nine month period ended September 30, 2012. The weighted average number used in the calculation of earnings per share was determined as follows:
Weighted average number of treasury shares September 30, 2012 Jan 30,000,000 x 1/9 + Feb 30,628,700 x 1/9 + Mar to Jun 31,000,000 x 4/9 + Jul to Sep 30,050,000 x 3/9 = 9 Months 2012 30,530,967
The table below, presented in R$, reconciles the profit for the nine month periods ended September 30, 2013 and 2012 to the amounts used in the calculation of basic and diluted earnings per share:
Parent and consolidated 1/1 to 9/30/2013 Preferred shares (*) Total 600,855,733 (30,259,600) 570,596,133 66.45% 178,482,664 570,596,133 0.3128 917,683,296 (30,259,600) 887,423,696 100% 268,577,000 887,423,696
Common shares Denominator Weighted average number of shares Weighted average number of treasury shares Weighted average number of outstanding shares % of shares in relation to the total (i) Numerator Profit attributable to each class of shares (R$) Weighted average number of outstanding shares Basic and diluted earnings per share (R$) 316,827,563 316,827,563 33.55% 90,094,336 316,827,563 0.2844
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Klabim S.A.
Common shares Denominator Weighted average number of shares Weighted average number of treasury shares Weighted average number of outstanding shares % of shares in relation to the total (i) Numerator Profit attributable to each class of shares (R$) Weighted average number of outstanding shares Basic and diluted earnings per share (R$) 316,827,563 316,827,563 33,56% 203,162,820 316,827,563 0.6412
Parent and consolidated 1/1 to 9/30/2012 - Unaudited Preferred shares (*) Total 600,855,733 (30,530,967) 570,324,766 66,44% 402,287,180 570,324,766 0.7054 917,683,296 (30,530,967) 887,152,329 100% 605,450,000 887,152,329
(i) Preferred shares receive dividends 10% higher than those attributable to common shares.
23
OPERATING SEGMENTS
a) Criteria for the identification of operating segments The Company's operating structure is divided into segments according to the way management manages the business. The operating segments defined by management are as follow: (i) Forestry segment - involves operations for planting and growing pine and eucalyptus trees to supply the Company's paper plants. Also involves selling timber (logs) to third parties on the domestic market. (ii) Paper segment - mainly involves the production and sale of cardboard, kraftliner and recycled paper rolls on the domestic and foreign markets. (iii) Conversion segment - involves the production and sale of corrugated cardboard boxes, corrugated cardboard and industrial sacks on the domestic and foreign markets.
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Klabim S.A.
b) Consolidated information on operating segments

Consolidated 1/1 to 9/30/2013 Forestry Net revenue: .Domestic market .Foreign market Revenue from sales to third parties Intersegment revenue Total net sales Changes in fair values of biological assets Cost of sales Gross profit Operating expenses Operating profit before finance result Sale of products (metric tons) .Domestic market .Foreign market .Intersegment Sale of timber (metric tons) .Domestic market .Intersegment Investments in the period Depreciation, depletion and amortization Total assets - 9/30/2013 Total liabilities - 9/30/2013 Equity - 9/30/2013 231,890 231,890 417,688 649,578 279,927 (739,647) 189,858 (19,696) 170,162 Paper 900,621 728,965 1,629,586 716,820 2,346,406 (1,542,952) 803,454 (232,743) 570,711 Conversion 1,393,567 107,147 1,500,714 9,375 1,510,089 (1,209,459) 300,630 (158,969) 141,661 Corporate/ eliminations 926 926 (1,143,883) (1,142,957) 1,130,174 (12,783) (28,124) (40,907) Total 2,527,004 836,112 3,363,116 3,363,116 279,927 (2,361,884) 1,281,159 (439,532) 841,627
2,123,987 5,479,965 7,603,952 84,043 (394,793) 6,517,270 1,604,941 4,912,329
421,932 372,592 541,327 1,335,851 408,392 (126,389) 4,465,963 546,351 3,919,612
493,509 24,551 1,397 519,457 52,553 (26,521) 1,088,037 182,526 905,511
(542,724) (542,724) (5,479,965) (5,479,965) 70,652 (2,101) 2,085,193 6,356,320 (4,271,127)
915,441 397,143 1,312,584 2,123,987 2,123,987 615,640 (549,804) 14,156,463 8,690,138 5,466,325
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Klabim S.A.
Forestry Net revenue: .Domestic market .Foreign market Revenue from sales to third parties Intersegment revenue Total net sales Changes in fair values of biological assets Cost of sales Gross profit Operating expenses Operating profit before finance result Sale of products (metric tons) .Domestic market .Foreign market .Intersegment Sale of timber (metric tons) .Domestic market .Intersegment Investments in the period Depreciation, depletion and amortization 233,333 233,333 362,180 595,513 772,578 (597,554) 770,537 (13,511) 757,026
Paper 881,934 641,035 1,522,969 660,306 2,183,275 (1,448,216) 735,059 (226,043) 509,016
Conversion 1,236,198 92,463 1,328,661 11,447 1,340,108 (1,079,810) 260,298 (159,437) 100,861
Consolidated 1/1 to 9/30/2012 - Unaudited Corporate/ eliminations Total 343 343 (1,033,933) (1,033,590) 1,027,369 (6,221) (38,732) (44,953) 2,351,808 733,498 3,085,306 3,085,306 772,578 (2,098,211) 1,759,673 (437,723) 1,321,950
2,197,970 5,311,350 7,509,320 134,544 (274,894)
424,779 387,811 507,607 1,320,197 244,244 (125,859)
452,377 24,122 2,501 479,000 93,094 (20,171)
(510,108) (510,108) (5,311,350) (5,311,350) 25,857 (3,028)
877,156 411,933 1,289,089 2,197,970 2,197,970 497,739 (423,952)
The balance in the column Corporate/eliminations relates to the corporate unit's expenses which are not apportioned among the other segments; eliminations relate to adjustments of operations among the other segments. The information on the finance result and income tax was not disclosed in the segment reporting because management does not utilize this data on a segment basis, and these data are instead managed and analyzed on a consolidated basis. c) Information on net sales revenue The Company's net revenue from sales to foreign market customers in consolidated profit for the nine month period ended September 30, 2013 amounted to R$ 836,112 (R$ 733,498 for the nine month period ended September 30, 2012 - unaudited). The table below shows the distribution of net revenue by country:
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Klabim S.A.
Consolidated 1/1 to 9/30/2013 Country Argentina China Singapore Spain Germany Italy France South Africa Uruguay Venezuela Other Total revenue (R$/million) 338 118 109 43 39 29 23 16 12 9 100 836 % of total net revenue 10.1% 3.5% 3.2% 1.3% 1.2% 0.9% 0.7% 0.5% 0.4% 0.3% 3.0% 25% Country Argentina China Singapore Italy Ecuador Spain Nigeria Belgium France Germany Other
Consolidated 1/1 to 9/30/2012 - Unaudited Total revenue % of total net (R$/million) revenue 235 7.6% 94 3.0% 65 2.1% 35 1.1% 34 1.1% 29 0.9% 25 0.8% 25 0.8% 23 0.7% 21 0.7% 147 4.8% 733 24%
The Company's net revenue from sales to domestic market customers, in consolidated profit for the nine month period ended September 30, 2013, amounted to R$ 2,527,004 (R$ 3,351,808 for the nine month period ended September 30, 2012 - unaudited). Concerning the paper segment, for the nine month period ended September 30, 2013, a single customer for cardboard represented approximately 22% of the Company's net revenue, corresponding to approximately R$ 737,000 (R$ 653,000 for the nine month period ended September 30, 2012 - unaudited). The remaining customer base is diluted, as none of the other customers individually accounts for a material share (above 10%) of the Company's net sales revenue. 24 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
a) Risk management The Company and its subsidiaries enter into transactions involving financial instruments, all recorded in balance sheet accounts, in order to meet their operational needs and reduce exposure to financial risks, mainly relating to credit and the investment of funds, market risks (foreign exchange and interest rate risk) and liquidity risks, to which the Company understands that it is exposed based on the nature of its business and operating structure. These risks are managed through strategies prepared and approved by the Company's management, linked to the establishment of control systems and determination of limits. The Company does not enter into transactions involving financial instruments for speculative purposes. Management also performs prompt assessments of the Company's consolidated position, monitoring the financial results obtained, analyzing future projections, ensuring compliance with the business plan defined, and monitoring the risks to which it is exposed.
50
Klabim S.A.
The main risks to which the Company is exposed are described below: Market risk Market risk is the risk that the fair value of the future cash flows of a financial instrument will fluctuate due to changes in market prices. Market prices are affected by two types of risk: interest rate risk and foreign exchange risk. The financial instruments affected by market risk are financial investments, trade receivables, trade payables, loans payable, available-for-sale instruments, and derivatives. (i) Foreign exchange risk The Company has transactions denominated in foreign currencies (mainly in US Dollars), which are exposed to market risks arising from fluctuations in foreign exchange rates. Any fluctuation in a foreign exchange rate may increase or reduce their balances. This exposure is as follows:
9/30/2013 122,900 290,300 (8,300) (4,215,408) (3,810,508) Consolidated 12/31/2012 263,300 241,700 (1,300) (4,369,323) (3,865,623)
Bank deposits and financial investments Trade receivables (net of provision for impairment of trade receivables) and other assets Other assets and liabilities Export prepayments (financing) Net exposure
The balance of this net exposure at September 30, 2013 is as follows:

Year Amount 2013 202,428 2014 (582,618) 2015 (543,151) 2016 (479,454) 2017 (775,329) 2018 (579,604) 2019 (533,407) 2020 onwards (519,373) Total (3,810,508)
The Company did not have derivative contracts to hedge against long-term foreign exchange exposure at September 30, 2013. However, in order to hedge against this net liability exposure, the Company has a sales plan under which the projected flow of export revenue is approximately USD 500 million annually and its receipts, if realized, would exceed or approximate the flow of payments of the related liabilities, offsetting the cash effect of this foreign exchange exposure in the future. (ii) Interest rate risk The Company has loans indexed to the variation of the Long-term Interest Rate (TJLP), London Interbank Offered Rate (LIBOR) and Interbank Deposit Certificate (CDI) and financial investments indexed to the variations of the CDI and basic interest rate (SELIC), which expose these assets and liabilities to fluctuations in interest rates as shown in the interest sensitivity analysis below. The Company does not have derivative contracts to swap/hedge against exposure to these market risks and maintains only one outstanding rate swap transaction (a synthetic financial instrument), in order to reduce the effective interest rate, together with an export prepayment transaction. The transaction carried out by the Company is as follows: (a) Export prepayment has been contracted with Banco Ita BBA S.A. amounting to USD 25 million, subject to interest at the six-month LIBOR plus a fixed rate of 1.36% p.a. Interest is paid semiannually and the principal is being repaid in nine installments, beginning October 2011 and ending October 2015.
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Klabim S.A.
(b) In order to reduce the fixed interest rate of this prepayment, the Company has contracted an interest rate swap transaction, with the features of a synthetic financial instrument, with the counterparty connected to the prepayment, Banco Ita BBA S.A. The swap was contracted under the following conditions: (a) asset position in the amount (notional amount) in US Dollars of the prepayment above and with the same maturity dates, subject to six-month LIBOR plus 1.40% p.a., and (b) liability position in the amount in US Dollars of the prepayment above, subject to six month LIBOR plus 1.15% p.a. Repayments are made on the same dates set out in the prepayment agreement previously described. Therefore, in the event of the same variables occurring in the asset and liability positions (US Dollar and LIBOR), this swap is intended only to reduce the effective interest rate of the prepayment transaction by 0.25% p.a., generating revenue of approximately R$ 110 each year. The transaction will mature in 2015. Beyond the interest rate swap transaction mentioned above, the policy of the Company is to continuously monitor market interest rates in order to assess the need to contract additional derivatives to hedge against the risk of volatility of these rates. The Company considers that the high costs associated with entering into transactions at fixed interest rates in the Brazilian macroeconomic scenario justify its choice of floating rates. The interest rate risk is as follows:
9/30/2013 2,030,167 243,870 2,274,037 (59,951) (1,606,706) (2,911,622) (4,578,279) Consolidated 12/31/2012 2,238,192 240,077 2,478,269 (66,957) (1,494,702) (3,133,659) (4,695,318)
Financial investments - CDI Financial investments SELEC Asset exposure Financing CDI Financing TJLP Financing - LIBOR Liability exposure
Credit risk and risk relating to use of funds Credit risk is the risk that the counterparty of a business will not fulfill an obligation established in a financial instrument or a contract with a customer, leading to a financial loss. The Company is exposed to credit risk in relation to its operating activities (mainly in connection with trade receivables) and to the risk relating to the use of funds, including deposits in banks and financial institutions, foreign exchange transactions, financial investments and other financial instruments contracted. At September 30, 2013, the maximum amount exposed to credit risk is the carrying amount of trade receivables shown in Note 6. In terms of the risk relating to the use of funds, the exposed amount relates mainly to financial investments and transactions involving securities, which are described in Notes 4 and 5. Credit risk in the Company's operating activities is managed according to specific rules on the acceptance of customers, credit analysis and the establishment of exposure limits for each customer, which are periodically reviewed. Overdue receivables are followed up swiftly to ensure their realization. Additionally, there are specific analyses and rules approved by management for financial investments in financial institutions with good ratings granted by risk rating agencies and for the types of investments offered in the financial market, in order to invest funds in a conservative and safe manner.
52
Klabim S.A.
Liquidity risk The Company monitors the risk of shortages of funds, managing its capital through a recurring liquidity-planning tool, so that it has funds available for the fulfillment of its obligations, mainly concentrated on financing from financial institutions. The table below shows the maturities of the financial liabilities contracted by the Company in the consolidated balance sheet, where the reported amounts include the principal and future interest to be charged on transactions, calculated based on the rates and indices prevailing at September 30, 2013:
2013 (391,830) (280,176) (672,006) 2014 (1,224,642) (1,224,642) 2015 (1,222,279) (1,222,279) 2016 (821,806) (821,806) 2017 (1,084,156) (1,084,156) 2018 (781,295) (781,295) 2019 (853,863) (853,863) 2020 onwards (703,274) (703,274) Total (391,830) (6,971,491) (7,363,321)
Trade payables Financing Total
The budget projection approved by the Board of Directors shows the ability to meet these obligations, if they materialize. Capital management The Company's capital structure comprises net debt, consisting of borrowings (Note 14) less cash and cash equivalents and securities (Notes 4 and 5), and equity, including the balance of issued capital and all reserves set up. The Company's net indebtedness over equity is made up as follows:
9/30/2013 2,418,046 (6,012,707) (3,594,661) 5,466,325 (0.66) Consolidated 12/31/2012 2,757,389 (6,035,104) (3,277,715) 5,420,921 (0.60)
Cash and cash equivalents and securities Borrowings Net indebtedness Equity Debt to net assets ratio
b) Financial instruments The Company has financial instruments that meet the criteria for Level I classification, in accordance with the method of evaluation of the hierarchical level of CPC 40 - Financial Instruments: Disclosure. Loans and receivables and other financial liabilities The financial instruments included in this group refer to balances arising from normal transactions, such as trade receivables, trade payables, borrowings, financial investments and cash and cash equivalents. All of them are recorded at their notional amounts plus, when applicable, contractual charges and interest rates, of which the related income and expenses are recognized in profit (loss) for the period. Available-for-sale financial assets The Company classifies the securities that comprise Financial Treasury Bills (LFTs) (Note 5) as financial assets available for sale, since they can be traded in the future and were recorded at the invested amount plus interest on the transaction. Due to the liquidity of these assets, their fair value approximates their amortized cost, not generating an effect on the Company's equity. The balance of these securities at September 30, 2013 in the consolidated balance sheet is R$ 243,870.
53
Klabim S.A.
c) Sensitivity analysis The Company presents below the sensitivity analyses of foreign exchange and interest rate risks to which the Company is exposed, considering that any effects would impact on future results, based on the exposure at September 30, 2013: (i) Foreign exchange exposure The Company has assets and liabilities indexed to a foreign currency in the balance sheet at September 30, 2013 and for sensitivity analysis purposes the Company adopted as Scenario I the future market rate in effect at the end of the reporting period. For Scenarios II and III this rate was adjusted by 25% and 50%, respectively. It is important to point out that most of the financing maturities will not occur in 2013 according to the maturity schedule shown in Note 14, and therefore exchange variations will not have an effect on the cash resulting from this analysis. On the other hand, the Company's exports should have already felt the impact of the exchange variations. The sensitivity analysis of the exchange variation is calculated on the net foreign exchange exposure (basically borrowings, trade receivables and trade payables in foreign currency), not considering the effect on the scenarios of projected export sales that, as previously mentioned, will offset any future exchange losses. Accordingly, the table below shows a simulation of the effect of the exchange variations on the future results for the next 12 months, with all other variables held constant:
At 9/30/2013 US$ Assets Cash and cash equivalents Trade receivables, net of provision for the impairment of trade receivables Other assets and liabilities Financing Net effect on finance result and equity 55,112 130,179 (3,721) (1,890,317) Rate 2.29 2.29 2.29 2.29 Scenario I R$ gain (loss) 3,307 7,811 (224) (113,419) (102,525) Rate 2.86 2.86 2.86 2.86 Scenario II R$ gain (loss) 34,721 82,013 (2,344) (1,190,900) (1,076,510) Rate Scenario III R$ gain (loss) 66,686 157,517 (4,504) (2,287,284) (2,067,585)
3.44 3.44 3.44 3.44
(ii) Interest rate exposure Financial investments and financing, except those subject to TJLP and LIBOR, are subject to the CDI floating interest rate. For sensitivity analysis purposes, the Company adopted the rates prevailing on dates close to the reporting dates, using the same rate for SELIC, LIBOR and CDI due to their close dates in the projection of scenario I. For Scenarios II and III these rates were adjusted by 25% and 50%, respectively.
54
Klabim S.A.
Accordingly, the table below shows a simulation of the effects of the interest rate variations on the future results for the next 12 months, with all other variables held constant:
At 9/30/2013 R$ Financial investments CDBs LFTs Financing Working capital BNDES Export prepayment Net effect on finance result and equity CDI Selic CDI TJLP Libor 2,030,167 243,870 (59,951) (1,606,706) (2,911,622) Rate 9.75% 9.75% 9.75% 5.00% 0.36% Scenario I R$ gain (loss) 15,226 1,829 (450) 90 16,695 Rate 12.19% 12.19% 12.19% 6.25% 0.46% Scenario II R$ gain (loss) 64,712 7,773 (1,911) (20,084) (2,562) 47,928 Rate Scenario III R$ gain (loss) 114,197 13,718 (3,372) (40,168) (5,215) 79,160
14.63% 14.63% 14.63% 7.50% 0.55%
25
EMPLOYEE BENEFITS AND PRIVATE PENSION PLAN
The Company grants its employees life insurance, health-care and pension plan benefits. These benefits are recognized on an accruals basis, and their granting is discontinued at the end of the employment relationship. a) Private pension plan Klabin S.A.'s pension plan - the Prever Plan, administered by Ita Vida e Previdncia S.A. - was established in 1986 as a defined benefit plan. In 1998 the plan was restructured to become a defined contribution plan. In November 2001, a new pension plan was established, Plano de Aposentadoria Complementar Klabin (PACK) (Complementary Pension Plan), also administered by Bradesco Vida e Previdncia S.A. and structured as a plan/life insurance plan (PGBL). The participants in the Prever Plan were offered the option to migrate to the new plan. In neither plan does the Company assume any responsibility for guaranteeing minimum benefit levels for retiring participants. b) Health-care Under the agreement entered into with the Union of the So Paulo State Pulp and Paper Workers, the Company pays for a lifetime health care plan (Hospital SEPACO, main plan) for its former employees who retired by 2001, as well as for their dependents (until they reach the age of majority) and spouses. New beneficiaries are not allowed. The Company understands that this health-care benefit is considered a defined benefit plan in accordance with the accounting practices adopted in Brazil and, for this reason, maintains provision for the estimated actuarial liability in the amount of R$ 50,011 at September 30, 2013 (R$ 38,130 at December 31, 2012), in non-current liabilities, under "Other payables and provisions". In the actuarial valuation, the following economic and biometric assumptions were used: nominal discount rate of 9.00% p.a., nominal growth rate for variable medical costs starting at 13.2% p.a. in 2013 and falling to 6.7% p.a. in 2025, long-term inflation of 5.2% p.a., and biometric mortality table RP-2000. Actuarial restatements are maintained in equity in the group "Carrying value adjustments" (comprehensive income), as required by CPC 33 (R1) - Employee Benefits.
55
Klabim S.A.
An increase or decrease of one percentage point in the rates used in the actuarial calculations does not have any material effect on the Company's interim financial statements. This plan does not have any assets to be disclosed.
26
INSURANCE COVERAGE
At September 30, 2013, the Company has insurance against fire, lightning, explosion, electrical damage and windstorm for its industrial and administrative facilities and inventory. The Company also has general civil liability and directors and officers, auto, and multiperil insurance for its chattels, amounting to R$ 2,900,104. In view of the nature of its activities, the distribution of forests cross different areas, and the preventive measures adopted against fire and other forest risks, the Company has decided not to contract insurance against damage caused to forests, opting for the adoption of protection policies that, historically, have proven to be highly effective and have not impaired the Company's activities or financial position. Accordingly, management believes that its financial risk management structure in relation to forest activities is appropriate to ensure its continuation as a going concern. 27 EVENTS AFTER THE REPORTING PERIOD
Funding for Puma Project As mentioned in Note 1 and disclosed in the Significant Event Notice, management approved on October 21 the continuation of the process of raising funds to finance the construction of a plant for the production of pulp. Corporate restructuring of controlling stockholders On October 30, the controlling stockholders Klabin Irmos & Cia and Niblak Participaes S.A. transferred to their wholly-owned subsidiaries the registered common shares held in the Company (see Note 17). A total of 163,797,753 common shares held by Klabin Irmos & Cia in the Company were contributed to Comodoro Participaes S.A. and a total of 24,699,654 common shares held by Niblak Participaes S.A. were contributed to Rioprima Participaes S.A. Even after the corporate restructuring undertaken by the controlling stockholders, Klabin Irmos & Cia and Niblak Participaes S.A. remain stockholders of the Company in an indirect manner, since they own a 100% stake in the companies to which the shares were transferred. Distribution of interim dividends At the Meeting of the Board of Directors held on October 30, 2013, the Board approved the distribution of interim dividends for the fiscal year 2013 amounting to R$ 85,000, corresponding to R$ 89.98 per thousand registered common shares and R$ 98.98 per thousand registered preferred shares, with payment to be made on November 22, 2013.
56
KLABIN S.A. CNPJ 89.637.490/0001-45 Publicly-traded company BOARD OF DIRECTORS Chairman Miguel Lafer Members Armando Klabin Celso Lafer Daniel Miguel Klabin Israel Klabin Lilia Klabin Levine Olavo Egydio Monteiro de Carvalho Paulo Srgio Coutinho Galvo Filho Pedro Franco Piva Roberto Luiz Leme Klabin Rui Manuel de Medeiros DEspiney Patrcio Vera Lafer SUPERVISORY BOARD Alessandro Golombiewski Teixeira Antonio Marcos Vieira Santos Joo Alfredo Dias Lins Lus Eduardo Pereira de Carvalho Wolfgang Eberhard Rohrbach
EXECUTIVE BOARD Fabio Schvartsman Antonio Sergio Alfano Paulo Roberto Petterle Francisco Cezar Razzolini Arthur Canhisares Cristiano Cardoso Teixeira Chief Executive Officer Financial and Investor Relations Officer Operations Officer Planning, Project and Technology Officer Industrial Officer for Monte Alegre Officer
Pedro Guilherme Zan Controller CT-CRC-1SP168918/O-9
Angel Alvarez Nez Accountant TC-CRC-1SP157878/O-3
57

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(A free translation of the original in Portuguese)

PricewaterhouseCoopers Auditores Independentes

(A free translation of the original in Portuguese)

Independent auditors report

PricewaterhouseCoopers Auditores Independentes CRC 2SP000160/O-5

Tadeu Cendn Ferreira Contador CRC 1SP188352/O-5

(A free translation of the original in Portuguese)

Supervisory Boards Opinion

(A free translation of the original in Portuguese) Page 7 8 9 10 11 12 13 14 15 24 24 25 25 27 29 29 30 32 33 35 38 40 40 42 45 46 46 46 48 49 52 57 58 58

Treasury shares (141,476)

Retained earnings 605,450

(2,590) 2,386 1,069,795

(A free translation of the original in Portuguese)

CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Cash and banks Investments in local currency Investments in foreign currency

9/30/2013 10,177 1,885,950 1,896,127

Parent 12/31/2012 14,366 2,142,782 2,157,148

9/30/2013 85,713 2,030,167 58,296 2,174,176

Consolidated 12/31/2012 41,940 2,238,192 237,180 2,517,312

a) Balances and transactions with related parties

BNDES (vi) Stockholder

331,409 64,950 454,294 1,329,097 632,676 (29,147) (81,958) (11,274) (27,904)

410,573 1,687 369,177 1,225,793 605,363 144,343 93,135 15,094 25,434

9,270 (29,147) (4,187) (11,274) (20,432)

Consolidated 9/30/2012 Unaudited Total

3,023 403,797 1,324,637 (81,762) (11,274) (27,904)

7,775 146 362,205 1,225,793 96,404 19,128 23,075

INCOME TAX AND SOCIAL CONTRIBUTION

2013 2014 2015 2016 2017 onwards

INTERESTS IN SUBSIDIARIES AND JOINTLY-CONTROLLED SUBSIDIARIES

Ltd. (i) 39,740

28,287 68,027 76,912 995 (60,519 ) 20,510 37,898

5,554 (331) 43,482 43,269

7,338 (3,539) 47,068 57,764 8,883 48,881 7,338

(4,098) 48,638 84,010 10,373 73,637 (4,098)

PROPERTY, PLANT AND EQUIPMENT

a) Property, plant and equipment are composed of the following:

Buildings and construction Machinery, equipment and facilities Other

Growing cost of biological assets Fair value adjustments of biological assets

a) Borrowings consist of the following:

4,500 6,017,207 12/31/2012

c) Summary of changes in borrowings

Local currency Foreign currency

In the parent company: Tax: . PIS/COFINS . IR/CS . OTHER Labor Civil

Amount of the provision (13,420) (3,066) (16,486) (69,183) (7,836) (93,505)

Net liability (2,749) (2,749) (50,886) (7,069) (60,704)

In subsidiaries: Other Consolidated

In the parent company: Tax: . PIS/COFINS . IR/CS . OTHER Labor Civil

Amount of the provision (11,442) (3,291) (14,733) (61,479) (6,977) (83,189)

Restricted judicial deposits 10,202 3,396 13,598 16,880 767 31,245

Net liability (1,240) 105 (1,135) (44,599) (6,210) (51,944)

12/31/2012 Unrestricted judicial deposits 24,446 469 29,531 54,446 54,446

In subsidiaries: Other Consolidated

(i) See corporate restructuring in Note 27.

EXPENSES / INCOME BY NATURE

FINANCE INCOME AND COSTS

STOCK OPTION PLAN

EARNINGS PER SHARE

b) Consolidated information on operating segments

2,123,987 5,479,965 7,603,952 84,043 (394,793) 6,517,270 1,604,941 4,912,329

421,932 372,592 541,327 1,335,851 408,392 (126,389) 4,465,963 546,351 3,919,612

493,509 24,551 1,397 519,457 52,553 (26,521) 1,088,037 182,526 905,511