Bermuda
|
2860
|
Not
Applicable
|
(State
or Other Jurisdiction
of
Incorporation or Organization)
|
(Primary
Standard Industrial
Classification
Code Number)
|
(I.R.S.
Employer Identification Number)
|
|
||
Av.
Juscelino Kubitschek, 1726 – 6th floor
São
Paulo, SP 04543-000, Brazil
(55)(11)
3897-9797
(Address,
including zip code, and telephone number, including area code, of
registrant’s principal executive offices)
|
||
CT
Corporation System
111
Eighth Avenue
New
York, NY 10011
(800)
223-7564
|
||
(Name,
address, including zip code, and telephone number, including area
code, of
agent for service)
|
||
Copy
to:
|
||
Diane
G. Kerr
Manuel
Garciadiaz
Davis
Polk & Wardwell
450
Lexington Avenue
New
York, New York 10017
(212)
450-4000
|
CALCULATION
OF REGISTRATION FEE
|
||||
Title
of each class of securities to be registered
|
Amount
to be
registered
(1)
|
Proposed
maximum
offering
price per share(2)
|
Proposed
maximum
aggregate
offering price (2)
|
Amount
of
registration
fee (3)
|
Class
A common shares, par value $0.01 and class B Series 2 common shares,
par
value $0.01
|
92,554,316
|
$15.4817
|
$1,432,893,653.67
|
$43,989.84
|
(1)
|
92,554,316
is the maximum number of Cosan Limited shares expected to be issued
to
security holders of Cosan pursuant to the exchange offer. Class
B series 2 common shares are convertible into class A common shares
pursuant to their terms.
|
(2)
|
Proposed
maximum aggregate offering price (estimated solely for the purpose
of
computing the amount of the registration fee pursuant to Rule 457(f)
under
the Securities Act) was calculated in accordance with the exchange
ratio
of one class A common share or one class B series 2 common share
to be
received for every one Cosan common share in the exchange offer and
based
on the market value of Cosan common shares, calculated pursuant to
Rule
457(c) by taking the average of the high and low prices of Cosan
common
shares as reported on the São Paulo Stock Exchange on October 31, 2007,
converted into U.S. dollars based on an exchange rate of R$1.7440
to
US$1.00, the exchange rate reported by the Central Bank of Brazil
on
October 31, 2007.
|
(3)
|
Computed
in accordance with Rule 457(f) of the Securities Act by multiplying
the
proposed maximum aggregate offering price by
0.0000307.
|
The
information in this prospectus
is not complete and may be changed. We may not sell these securities
until
the registration statement filed with the Securities and Exchange Commission
is
effective. This prospectus
is not an offer to sell
these securities and it is not soliciting an offer to buy these
securities in any
state
or jurisdiction where the
offer or
sale is not
permitted.
|
Page
|
|
Summary
|
1
|
Risk
Factors
|
15
|
Forward-Looking
Statements
|
32
|
Presentation
of Financial and Other Information
|
33
|
Market
Information
|
35
|
Exchange
Rates
|
40
|
The
Exchange Offer
|
42
|
Appraisal
Report
|
59
|
Selected
Financial and Other Data
|
65
|
Unaudited
Pro Forma Consolidated Financial Information
|
69
|
Notes
to the Unaudited Pro Forma Consolidated Financial
Information
|
72
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
73
|
Our
Industry
|
105
|
Business
|
117
|
Management
|
143
|
Principal
Shareholders
|
151
|
Related
Party Transactions
|
156
|
Description
of Share Capital
|
157
|
Comparison
of Shareholders’ Rights
|
166
|
Dividends
and Dividend Policy
|
176
|
Taxation
|
179
|
Expenses
|
183
|
Legal
Matters
|
184
|
Experts
|
185
|
Where
You Can Find More Information
|
186
|
Enforcement
of Civil Liabilities
|
187
|
Index
to financial statements
|
F-1
|
Annex
A – Appraisal Report
|
A-1
|
·
|
Sugarcane:
the largest grower and processor of sugarcane in the world, having
crushed
36.2 million tons in fiscal year 2007 and 27.9 million tons of sugarcane
in fiscal year 2006 (planted on approximately 572,000 hectares, of
which
approximately 50% is leased by us, 40% is supplier owned and 10%
is
company owned);
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·
|
Ethanol:
the largest ethanol producer in Brazil and the second largest in
the
world, having produced 326.7 million gallons (1.2 billion liters)
in
fiscal year 2007 and 241.7 million gallons (915.0 million liters)
in
fiscal year 2006, and the largest exporter of ethanol in the world,
having
exported 72.6 million gallons (274.7 million liters) in fiscal year
2007
and 61.0 million gallons (230.9 million liters) in fiscal year 2006;
and
|
·
|
Sugar:
the largest sugar producer in Brazil and one of the three largest
sugar
producers in the world, having produced 3.2 million tons in fiscal
year
2007 and 2.3 million tons of sugar in fiscal year 2006, and the largest
exporter of sugar in the world, having exported 2.8 million tons
in fiscal
year 2007 and 2.1 million tons in fiscal year
2006.
|
The
Exchange Offer
|
We
hereby offer to exchange shares of our class
A common shares for each outstanding Cosan common share that is not
owned
by us or one of our affiliates or, at the option of the holder, but
solely
in the case of a holder who is a July Cosan Shareholder,
shares of our class B series 2 common
shares. We also hereby offer to exchange all of the shares of any
Holding
Entity for the number of shares of our class A common shares that
the
Holding Entity would have received in the exchange offer if the Holding
Entity had exchanged all of its Cosan shares for our class A common
shares
or, at the option of the tendering shareholder, but only in the case
of a
person tendering shares of a Holding Entity that is a July Cosan
Shareholder, the number of shares of our class B series 2 common
shares
that the Holding Entity would have received in the exchange offer
if it
had elected to tender all of its Cosan shares in exchange for class
B
series 2 common shares.
|
|
Conditions
|
The
exchange offer is not conditioned upon the tender of any minimum
number of
Qualifying Shares or upon receipt of any financing. However, our
obligation to exchange our shares for Qualifying Shares in the exchange
offer is subject to the other conditions. See “The Exchange Offer –
Conditions to Completion of the Exchange Offer”.
|
|
Proration
|
Depending
on the number of Qualifying Shares tendered in the
|
exchange offer, Qualifying Shares properly tendered and not properly withdrawn prior to the expiration date may be subject to proration. | ||
Expiration
Date
|
Subject
to the exceptions and conditions described in this prospectus, the
exchange offer will expire at p.m. New York
time ( p.m. São Paulo time) on
, 2007 (such date as it may be extended by
us, the “expiration date”), unless the exchange offer is extended or
earlier terminated. However, Holding Entity shares may only be tendered
through the tender agent and if you wish to tender Holding Entity
shares
or if you wish to tender Cosan shares through the tender agent, you
must
deliver all required documentation to the tender agent
by p.m. on
, 2007 (such date as it may be extended by
us, the “tender agent deadline”), unless the exchange offer is extended or
earlier terminated. In accordance with applicable Brazilian regulations,
the Cosan shares to be exchanged in the exchange offer will be tendered
and exchanged though the Auction currently scheduled to occur on
the
Auction Date and the Holding Entity shares to be exchanged will be
tendered and exchanged on the Auction Date in the manner described
in this
prospectus.
|
|
Procedures
for Tendering
|
If
you hold Cosan shares, you may participate in the exchange offer
either by
tendering your Cosan shares through , who we
have appointed to act as the tender agent for the offer or by tendering
your Cosan shares directly in the exchange offer in Brazil. If you
hold
Holding Entity shares you must tender your shares through the tender
agent. You should follow the instructions for your particular
circumstances set forth under “The Exchange Offer – Procedures for
Tendering”.
|
|
Withdrawal
|
You
may withdraw your tender of shares at any time prior to
, 2007, the expiration date of the exchange
offer. If you tender your Qualifying Shares through the tender agent,
you
must withdraw your shares through the tender agent and you must do
so by
the tender agent deadline. If you tender shares directly in the exchange
offer, you may also withdraw your tender of shares after the expiration
date but prior to a.m. New York time
( p.m. São Paulo time) on the Auction Date.
See “The Exchange Offer – Withdrawal
Rights”.
|
What
is the purpose of the exchange offer?
|
The
exchange offer is the third stage in a broader reorganization of
Cosan and
its controlling and controlled companies, designed to position us
to take
advantage of favorable global industry trends and opportunities in
the
ethanol and sugar markets through a global platform. See “The Exchange
Offer – Background to the Exchange Offer”.
|
|
What
shares are being sought in the exchange offer?
|
We
are offering to exchange common shares of our subsidiary Cosan held
by
shareholders other than ourselves and our affiliates, as well as
the
shares of any Holding Entity.
|
|
Can
I tender my shares in Brazil?
|
You may tender your Cosan shares either directly in Brazil by |
|
following
the procedures described under “The Exchange Offer – Procedures For
Tendering – Tendering Directly in Brazil” or by delivering your Cosan
shares to the tender agent and requesting that the tender agent tender
you
shares in the exchange offer. You must tender your Holding Entity
shares
through the tender agent. If you wish to tender your Qualifying Shares
through the tender agent, you should follow the procedures described
under
“The Exchange Offer – Procedures for Tendering – Tendering Through the
Tender Agent”.
|
|
What
will I receive in the exchange offer?
|
For
every one Cosan common share you tender in the offer, you are entitled
to
receive either shares of our class A common
shares or, if you are a July Cosan Shareholder, you may elect to
instead
receive shares of our class B series 2
common shares for every common share of Cosan tendered. Before electing
to
receive class B series 2 common shares, you should carefully consider
the
risk factors discussed under “Risk Factors – Risks Related to the
Corporate Restructuring and the Exchange Offer – There will be no market
for our class B series 2 common shares and you may be unable to sell
the
Class A common shares into which our class B series shares may
convert”.
Persons
who elect to tender the shares of a Holding Entity will receive the
same
number of our class A common shares or class B series 2 common shares
in
accordance with the exchange ratios described above that the Holding
Entity would have received if it had tendered its Cosan shares directly
in
the exchange offer.
|
|
Why
is the right to receive class B series 2 common shares limited to
shareholders of record as of July 26, 2007?
|
July
26, 2007 was the day before we announced that we were going to offer
the
opportunity for holders of Cosan shares to elect to receive our class
B
series 2 common shares in the exchange offer.
|
|
What
is the difference between the class A common shares and the class
B series
2 common shares?
|
The
primary differences between our class A common shares and our class
B
series 2 common shares are:
·
Holders
of our class A common shares have one vote per share, while holders
of our
class B series 2 common shares have ten votes per share. Holders
of our
class B series 1 common shares also have ten votes per share.
· Our
class A common shares are listed on the NYSE. Brazilian Depositary
Receipts representing our class A common shares are listed on the
BOVESPA.
The class B series 2 common shares will not be listed on the NYSE,
the
BOVESPA or any other securities exchange.
· Our
class A common shares are not convertible and are freely transferable,
subject to applicable law.
· Each
of our class B series 2 common shares is convertible at any time
at the
option of the holder into one class A common share and automatically
converts into one class A common share (1) upon any transfer of the
class
B series 2 common share, (2) if our class B series 1 common shares
represent less than 45% of the voting power of the issued and outstanding
share capital in our
|
|
company,
or (3) if all of our class B series 1 common shares convert into
class A
common shares.
See
“Description of Share Capital” and “Risk Factors – Risks Related to the
Corporate Restructuring and the Exchange Offer – There will be no market
for our class B series 2 common shares and you may be unable to
sell the
class A common shares into which
o
|
If
I tender my Cosan shares in the exchange offer, how will my rights
as a
shareholder change?
|
As
a
holder of Cosan shares your rights as a shareholder are governed
by
Brazilian law. Since we are a Bermuda company, if you tender your
shares
in the exchange offer, then your rights as a shareholder will be
governed
by Bermuda law. There are numerous differences between the rights
of a
shareholder in our company, as a Bermuda company, and the rights
of a
shareholder in Cosan, as a Brazilian company. See “Comparison of
Shareholders’ Rights”. Additionally, your rights will vary depending on
which class of our shares you elect to receive in exchange for your
Qualifying Shares. Currently, our controlling shareholder holds indirectly
all of our issued class B common shares, and thus holds 90.1% of
the
aggregate voting power in our company and 48.7% of our issued and
outstanding share capital and has the power to elect all of our directors
and determine the outcome of substantially all matters submitted
to our
shareholders for a vote or other approval. Our controlling shareholder
will continue to have this power after the exchange offer. If you
exchange
Qualifying Shares in the exchange offer, you will become a minority
shareholder in a company controlled by our controlling
shareholder.
|
|
If
I decide not to tender, how will consummation of the exchange offer
affect
my Cosan shares?
|
The
exchange of Cosan shares in the exchange offer may reduce substantially
the number of shares publicly traded in Brazil, may reduce the number
of
holders of Cosan shares and may result in Cosan’s common shares being
delisted from the Novo Mercado segment of the BOVESPA. These
reductions in would likely adversely affect the liquidity, marketability
and market value of the Cosan shares. If, upon completion of the
exchange
offer, the free float shares of Cosan represent less than 10% of
its total
share capital, we will delist the Cosan shares from the Novo
Mercado segment of the BOVESPA.
|
|
Has
the board of directors of Cosan made any recommendation to its
shareholders in connection with the exchange
offer?
|
The
board of directors of Cosan, a majority of the members of which are
representatives of the Company, has not made any recommendation to
shareholders in connection with the exchange offer. Under U.S. law,
within
ten business days after the commencement of the exchange offer, Cosan
is
required to file with the SEC and distribute to its shareholders
a
statement indicating whether it recommends in favor of the exchange
offer,
recommends against the exchange offer or takes no position in connection
with the exchange offer. Cosan is a Brazilian company and Brazilian
law
governs the duties and obligations of Cosan’s board of directors and does
not impose any fiduciary or other duty on the Cosan board, or on
Cosan, to
approve a disapprove the exchange offer or to make any recommendation
in
connection with the exchange offer. Accordingly, we do not expect
the
Cosan board to take a position on the exchange
|
offer and we expect that the statement that Cosan files with the SEC and distributes to its shareholders will reflect this fact. | ||
How
many shares will you exchange?
|
We
will exchange any and all Qualifying Shares that are properly and
timely
tendered and not properly withdrawn, upon the terms and subject to
the
conditions of the exchange offer. However, depending on the number
of
shares tendered in the exchange offer, shares properly and timely
tendered
and not properly withdrawn may be subject to proration as described
below
and in “The Exchange Offer –Number of Shares Exchanged;
Proration”.
|
|
Is
there a minimum number of shares that must be tendered for you to
exchange
any shares?
|
No.
The exchange offer is not conditioned on any minimum number of shares
being tendered.
|
|
Will
tendered shares be subject to proration?
|
In
accordance with the rules of the CVM, if more than one-third but
less than
two-thirds of the common shares held by existing minority shareholders
of
Cosan are tendered in the exchange offer, we will only exchange common
shares representing one-third of the Cosan shares held by existing
minority shareholders, on a pro rata basis. However, if more than
two-thirds of the common shares held by existing minority shareholders
of
Cosan are tendered in the exchange offer, we will accept for exchange
all
Cosan shares tendered. If less than one-third of the common shares
held by
existing minority shareholders of Cosan are tendered in the exchange
offer, we will accept for exchange all Cosan
shares tendered. For purposes of determining the number of Cosan
shares
tendered pursuant to the exchange offer and for purposes of determining
proration, we will treat the tender of the shares of a Holding Entity
as a
tender by that Holding Entity of the total number of Cosan shares
held by
the Holding Entity.
|
|
Do
I have appraisal rights with respect to the exchange
offer?
|
There
are no appraisal or similar rights available in connection with the
exchange offer. However, if upon completion of the exchange offer
more
than two-thirds of the common shares held by existing minority
shareholders of Cosan are tendered, we will be required by the rules
of
the CVM, for an additional three-month period, to provide non-tendering
Cosan minority shareholders another opportunity to tender their common
shares at the exchange ratios established for the exchange offer,
as
discussed above and in “The Exchange Offer – Shareholder Put Right”. You
should note that tenders of Holding Entity shares will not be accepted
during the additional three-month period.
|
|
Will
Cosan be delisted in Brazil following the completion of the exchange
offer?
|
If
more than two-thirds of the common shares held by existing minority
shareholders of Cosan are tendered in the exchange offer and, as
a result,
the free float shares of Cosan represent less than 10% of its share
capital, we will delist Cosan’s common shares from the Novo
Mercado segment of the BOVESPA. In order to delist from the Novo
Mercado, Cosan will have to comply with specific requirements of the
Novo Mercado rules. After delisting from the Novo
Mercado, Cosan’s common shares would continue to be bound by the CVM
rules.
|
|
Do you require any approvals from your | We do not need any approval from our shareholders in order to |
shareholders,
any governmental authorities, Cosan or any third parties in order
to
acquire Cosan shares to effect the exchange
offer?
|
complete
the exchange offer. The exchange offer is subject to the condition
that
all of the approvals necessary in order for us to acquire Cosan shares
pursuant to the exchange offer have been obtained and remain effective.
The request for approval of the exchange offer from the CVM was filed
on
October 10, 2007. We also need certain other Brazilian governmental
approvals, including approvals from the Central Bank of Brazil with
respect to foreign exchange transactions. We are not aware that any
approvals, other than the Brazilian approvals, the effectiveness
of the
registration statement of which this prospectus forms a part, and
the
approval of the listing on the NYSE of the class A common shares
to be
issued in connection with the exchange offer, are
required.
|
|
What
will be the accounting treatment for the exchange
offer?
|
In
connection with the exchange offer, we will conduct a capital increase,
corresponding to the number of new Cosan Limited shares that will
be
required to be issued in order to exchange all of the Qualifying
Shares
for our common shares. The exchange will be accounted for using the
purchase method in accordance with SFAS 141 “Business Combinations” and
there will be no gain or loss recorded upon the retirement of the
Cosan
shares received. Goodwill will be recognized based on the excess
of Cosan
Limited’s acquisition cost over the fair value of net assets acquired and
liabilities assumed. Goodwill is subject to annual impairment
tests.
|
|
What
will my tax consequences be if I participate in the exchange
offer?
|
U.S.
Tax Considerations. The exchange offer is the third step in a series
of steps in our corporate restructuring which should be treated as
an
exchange of shares pursuant to a plan that qualifies as a tax-free
incorporation under Section 351 of the Code. Accordingly, if you
are a
“U.S. Holder” (as defined below under “Taxation – Material U.S. Federal
Income Tax Considerations”) who exchanges Qualifying Shares for our new
common shares pursuant to the exchange offer, you should not recognize
gain or loss. If the exchange offer were not treated as an exchange
of
shares pursuant to an overall plan governed by Section 351, however,
the
exchange of Qualifying Shares for our new common shares would be
taxable
to you if you are a U.S. Holder. For a discussion of certain other
U.S.
tax matters that may be relevant to U.S. Holders, see “Taxation – Material
U.S. Federal Income Tax Considerations”.
Brazilian
Tax Considerations. The final tax treatment of exchange offer has not
been agreed by Brazilian tax authorities, without consolidated
jurisprudence on the matter. However, provided that a shareholder
maintains, as the cost of acquisition of our new common shares, the
cost
of acquisition of Cosan shares for Brazilian tax purposes, the exchange
of
shares in the exchange offer should not result in a taxable gain
for such
holder. See “Taxation – Brazilian Tax Consequences”.
Bermuda
Tax Considerations. At the present time there is no Bermuda income or
profits tax, withholding tax, capital gains tax, capital transfer
tax,
estate duty or inheritance tax payable by us or our shareholders
(other
than shareholders ordinarily resident in Bermuda) in respect of our
shares. See “Taxation – Bermuda Tax
Consequences”.
|
You
are urged to consult your own tax advisor with respect to your personal
tax consequences of the exchange offer, which may vary for investors
in
different tax situations.
|
||
How
do I tender my Cosan shares directly in the exchange
offer?
|
If
you wish to tender your Cosan shares directly in the exchange offer,
you
must, no later then the expiration date (i) contact and register
with
, the Brazilian broker that we have
appointed for purposes of the offer (the “Brazilian Broker”) or with any
other broker authorized to conduct trades on the São Paulo Stock Exchange,
(ii) present certain required documentation, including an exchange
offer
qualification form, (iii) pay certain fees charged by the São Paulo Stock
Exchange and CBLC and (iv) ask the broker to tender your Cosan shares
in
the Auction on your behalf. To tender your Cosan shares, your broker
must,
no later then a.m. New York time, on the
Auction Date, present a sale order on your behalf through the São Paulo
Stock Exchange electronic trading system. If you have invested in
Cosan
shares under Resolution No. 2,689/00 of the National Monetary Council
of
Brazil (“Resolution 2,689”), your shares are registered at CBLC and you
should ask your Brazilian representative for purposes of Resolution
2,689
to contact your broker on your behalf. If your Cosan shares are held
through Banco Itaú, Cosan’s custodian and transfer agent, your shares are
not registered at CBLC and you should ask your broker to request
the
transfer of your Cosan shares to the custody of CBLC in order to
enable
your broker to tender your Cosan shares in the Auction. It is your
responsibility to contact and register with the Brazilian Broker
or
another Brazilian broker sufficiently in advance of the expiration
date to
ensure that Banco Itaú can transfer your Cosan shares to the custody of
CBLC before the expiration date.
Any
holder that does not know whether it holds Cosan shares through CBLC
or
Banco Itaú should ask its custodian, representative, broker or other
nominee.
A
beneficial owner of Cosan shares registered in the name of a broker,
dealer, commercial bank or other nominee must contact that entity
if that
beneficial owner decides to participate in the exchange
offer.
See
“The Exchange Offer – Procedures for Tendering – Tendering Directly in
Brazil.”
|
|
How
do I tender my Qualifying Shares through the tender
agent?
|
If
your Cosan shares are not already in the custody of CBLC, prior to
the
tender agent deadline, you must cause your Cosan shares to be transferred
to the custody of CBLC as indicated above and you must deliver any
Holding
Entity shares that you are tendering to the tender agent. Also prior
to
the tender agent deadline, you must:
1. complete
and sign a U.S. form of acceptance appointing the tender agent as
your
agent for purposes of participating in the exchange offer and have
your
signature guaranteed or notarized in accordance with the instructions
in
the form;
2. send
to the tender agent by mail at the address shown on the back cover
of this
prospectus or, preferably, by hand delivery during normal business
hours
to the same address, the U.S. form of acceptance and all other documents
that the U.S. form of acceptance
|
requires
you to deliver to the tender agent; and
3. pay
certain fees charged by the São Paulo Stock Exchange and
CBLC.
The
exchange offer qualification form and the U.S. form of acceptance
will be
furnished to you and are also available from
(the “Intermediary Institution”), from the
information agent and from Cosan at www.cosan.com.br.
See
“The Exchange Offer – Procedures for Tendering – Tendering Through the
Tender Agent.”
|
||
Can
I change my mind and decide not to participate in the exchange offer
after
I tender my shares?
|
Yes.
If you tender your Cosan shares directly in the exchange offer, you
may
withdraw your tender of Cosan shares at any time before
, 2007, the expiration date of the exchange
offer. If you elect to tender your Cosan shares through the tender
agent,
you may withdraw your tender of Cosan shares at any time before the
tender
agent deadline. You may withdraw your tender of Holding Entity shares
at
any time prior to the tender agent deadline. If the exchange offer
is
extended, you may also withdraw your tendered shares during the extension
period.
Under
Brazilian regulations, you also may withdraw your tender of Cosan
shares
after the expiration date but prior to the Auction, but for such
a
withdrawal to be effective you must have instructed the Brazilian
broker
to with draw your tender and you must have provided any documentation
that
the Brazilian broker may require prior to
a.m. New York time ( p.m. São Paulo time) on
the Auction Date. If you wish to be able to withdraw your tender
of Cosan
shares after the expiration date, you must tender your shares directly
in
the exchange offer and not through the tender agent.
|
|
When
will I know whether you will continue to exchange Cosan shares during
the
three- month period following the expiration
date?
|
We
will announce whether or not we will continue to exchange Cosan shares
during the three-month period following the expiration date at the
same
time that we announce the results of the exchange
offer.
|
|
How
do I tender my shares during the additional three-month
period?
|
We
will announce the procedures applicable to tenders of shares during
the
additional three-month period at the same time that we announce whether
or
not this additional three-month period will be offered.
|
|
Will
the terms of the exchange offer be the same during the additional
three-
month period as during the offer period?
|
Yes,
except that there will be no right of withdrawal during this three-month
period.
|
|
Are
there any conditions to the obligation of the company to complete
the
exchange offer?
|
Yes.
The exchange offer is subject to a number of conditions,
including:
· the
absence of any legal restraints on the exchange offer;
· the
absence of material adverse changes relating to the business of Cosan,
or
in certain stock prices, or stock market
indices;
|
· the
absence of any suspension in trading on certain stock exchanges;
and
· the
prior receipt of required governmental approvals, including obtaining
all
of the approvals necessary in order for us to acquire Cosan shares
pursuant to the exchange offer, receipt of foreign exchange transaction
approvals from the Central Bank and the approval for listing by the
NYSE
of our class A common shares to be issued in connection with the
exchange
offer, and such approvals remaining effective.
See
“The Exchange Offer – Conditions to Completion of the Exchange
Offer”.
|
||
Can
the exchange offer be extended and under what
circumstances?
|
Yes.
Subject to the applicable rules and regulations of the CVM, BOVESPA
and
the SEC, we may extend the exchange offer at any time and for any
reason,
including if, at the time the exchange offer is scheduled to expire
(including at the end of an earlier extension), any of the exchange
offer
conditions is not satisfied (or waived by us) or if we are required
to
extend the exchange offer by the rules of the CVM, BOVESPA or the
SEC.
During any extension of the exchange offer, all shares previously
tendered
and not withdrawn will remain subject to the terms of the exchange
offer,
including the right of a tendering holder to withdraw its shares
from the
exchange offer. An extension of the exchange offer will require the
approval of the CVM and under Brazilian law, the period between the
publication of the exchange offer and the Auction Date may not exceed
45
days.
|
|
How
will you notify me if you extend the exchange
offer?
|
If
we decide to extend the period of time during which the exchange
offer is
open and thereby delay acceptance for exchange of tendered shares,
we will
make a public announcement no later than 9:00 a.m., New York time,
on the
next day after the previously scheduled expiration
date.
|
|
When
will I know the outcome of the exchange offer?
|
We
will issue a press release announcing the results of the exchange
offer
promptly after the expiration date.
|
|
When
will I receive my new shares?
|
Assuming
the exchange offer is completed, we will deliver the class A common
shares
and class B series 2 common shares, as applicable, to be issued in
exchange for properly tendered Qualifying Shares within four business
days
after the Auction Date.
|
|
Will
I have to pay brokerage commissions?
|
Each
holder that tenders Cosan shares directly in the exchange offer must
pay a
combined fee to the São Paulo Stock Exchange and CBLC in an amount equal
to 0.035% of the value of the class A common shares and class B series
2
common shares received by it. For purposes of calculating this fee
each
class A common share and each class B series 2 common share will
be valued
at . In addition, the broker that tenders
shares on behalf of a Cosan shareholder may charge a fee or commission
for
doing so.
Each
holder that tenders Qualifying Shares through the tender agent will
be
charged the combined fee of 0.035% of the value of the class A common
shares or class B series 2 common shares received by it that is payable
to
the São Paulo Stock Exchange and the CBLC as
|
described
above. You also will be responsible for any fees or commissions charged
by
your broker or nominee.
Each
tendering shareholder should consult its broker or nominee
to determine what fees or commissions may apply.
We
will pay the fees of the tender agent and all fees and
expenses associated with the issuance of our class A common shares
and our
class B series 2 common shares.
|
||
Whom
may I contact if I have questions about the exchange
offer?
|
You
may contact the information agent, the tender agent or our Brazilian
broker for information regarding the exchange offer at the addresses
and
phone numbers listed below:
The
U.S. information agent for the exchange offer
is:
Our
Brazilian broker for the exchange offer
is:
The
tender agent for the exchange offer is:
|
At
and for Three Months
Ended
July 31, (Unaudited)
|
At
and for Fiscal Year
Ended
April 30,
|
|||||||||||||||||||
Cosan
– Historical
|
2007
|
2006
|
2007
|
2006
|
2005
|
|||||||||||||||
(US$
thousands, except for share data)
|
||||||||||||||||||||
Net
income (loss)
|
2,442
|
85,285
|
346,471
|
(72,292 | ) |
22,700
|
||||||||||||||
Weighted
number of shares outstanding:
|
||||||||||||||||||||
Basic
|
188,886,360
|
187,753,653
|
188,254,660
|
156,037,234
|
105,312,115
|
|||||||||||||||
Diluted
|
192,127,535
|
190,584,190
|
191,059,957
|
158,404,884
|
—
|
|||||||||||||||
(US$/share)
|
||||||||||||||||||||
Income
(losses) per share:
|
||||||||||||||||||||
Basic
|
0.01
|
0.45
|
1.84
|
(0.47 | ) |
0.22
|
||||||||||||||
Diluted
|
0.01
|
0.45
|
1.81
|
(0.46 | ) |
—
|
||||||||||||||
Shareholders’
equity per share
|
5.35
|
3.42
|
4.92
|
3.07
|
1.59
|
|||||||||||||||
Dividends
declared per share
|
—
|
—
|
0.20
|
—
|
0.00
|
At
and for Three Months
Ended
July 31,
(Unaudited)
|
At
and for Fiscal Year
|
|||||||||||
Cosan
Limited – Pro Forma
|
2007
|
2006
|
Ended
April 30, 2007
|
|||||||||
(US$/share)
|
||||||||||||
Pro
forma net income per share
|
0.01
|
0.21
|
0.85
|
|||||||||
Equivalent
pro forma net income per share
|
0.01
|
0.28
|
1.15
|
|||||||||
(US$
thousands, except for share data)
|
||||||||||||
Pro
forma net income (1)
|
1,245
|
43,495
|
176,700
|
|||||||||
Add
back Cosan minority interest (1)
|
1,197
|
41,790
|
169,771
|
|||||||||
Equivalent
pro forma net income.
|
2,442
|
85,285
|
346,471
|
|||||||||
Pro
forma shares outstanding (2)
|
208,010,044
|
208,010,044
|
208,010,044
|
|||||||||
Shares
issued in the exchange offer (3)
|
92,554,316
|
92,554,316
|
92,554,316
|
|||||||||
Equivalent
pro forma shares outstanding.
|
300,564,360
|
300,564,360
|
300,564,360
|
Cosan
Limited – Pro Forma
|
As
of July 31, 2007
(Unaudited)
|
|||
(US$/share)
|
||||
Pro
forma shareholders’ equity per share
|
7.91
|
|||
Equivalent
pro forma shareholders’ equity per share
|
9.33
|
|||
|
(US$
thousands, except for share
data)
|
|||
Pro
forma shareholders’ equity (1)
|
515,170
|
|||
Net
proceeds from the global initial public offering
|
1,131,203
|
|||
Subtotal
(4)
|
1,646,373
|
|||
Cosan
minority interest acquired (5)
|
1,156,466
|
|||
Equivalent
pro forma shareholders’ equity
|
2,802,839
|
|||
Equivalent
pro forma shares outstanding.
|
300,564,360
|
(1)
|
From
Unaudited Pro Forma Consolidated Financial Information included herein,
other than with respect to three months ended July 31, 2007, which
pro
forma information is not included herein.
|
(2)
|
After
the contribution of 51.0% of Cosan’s shares and the global initial public
offering of our shares on August 16,
2007.
|
(3)
|
Assuming
an exchange ratio of one share issued for every one share tendered
in the
exchange offer.
|
(4)
|
After
the contribution of 51.0% of Cosan’s shares and the global initial public
offering of our shares on August 16,
2007.
|
(5)
|
Calculated
using a share price of $12.50, being a simple average of the daily
prices
of Cosan Limited shares from October 26, 2007 to October 31,
2007.
|
·
|
our
class A common shares as reported on the
NYSE;
|
·
|
Cosan’s
common shares as reported on the BOVESPA;
and
|
·
|
Cosan’s
common shares as reported on the BOVESPA, on an equivalent per share
basis, calculated by multiplying the closing price of our class A
common
shares on such date by the exchange ratio for the exchange
offer;
|
Company
Class A Common Shares
|
Cosan
Common Shares
|
Exchange
Rate
|
Cosan
Common Shares
|
Equivalent
Per Share Value of Cosan Common Shares exchanged for Company Class
A
Common Shares
|
||||||||||||||||
NYSE
(US$/share)
|
BOVESPA
(R$/share)
|
(R$/US$)
|
(US$/share)
|
(US$/share)
|
||||||||||||||||
June
22, 2007
|
—
|
35.61
|
1.9334
|
18.42
|
—
|
|||||||||||||||
October
31, 2007
|
12.70
|
27.22
|
1.7440
|
15.61
|
12.70
|
·
|
have
not discussed the exchange offer or negotiated the terms of the exchange
offer with the directors of Cosan or with any other person acting
on their
behalf; and
|
·
|
do
not expect the board of directors of Cosan to request a fairness
opinion.
|
·
|
a
classified board of directors with staggered three-year
terms;
|
·
|
restrictions
on the time period in which directors may be
nominated;
|
·
|
the
affirmative vote of a majority of our directors in office and a majority
of all votes attaching to all shares then in issue or, if not approved
by
a majority of the directors in office, at least 66- 2/3% of all votes
attaching to all shares then in issue for amalgamation and other
business
combination transactions; and
|
·
|
the
tag-along rights described under “Description of Share Capital – Tag-along
Rights”.
|
·
|
fluctuations
in gasoline prices;
|
·
|
variances
in the production capacities of our competitors;
and
|
·
|
the
availability of substitute goods for the ethanol and sugar products
we
produce.
|
·
|
changes
in economic, political or regulatory
conditions;
|
·
|
difficulties
in managing geographically diverse
operations;
|
·
|
changes
in business regulation, including policies governing ethanol technological
standards;
|
·
|
effects
of foreign currency movements;
|
·
|
difficulties
in enforcing contracts; and
|
·
|
cultural
and language barriers.
|
·
|
the
generation, storage, handling, use and transportation of hazardous
materials;
|
·
|
the
emission and discharge of hazardous materials into the ground, air
or
water; and
|
·
|
the
health and safety of our employees.
|
·
|
expropriation
of the port concession in the public
interest;
|
·
|
default
by Cosan Portuária in the performance of its obligations under the port
concession agreement, including the payment of concession fees or
failure
to comply with other legal and regulatory
obligations;
|
·
|
Cosan
Portuária’s failure to comply with determinations by the granting
authority; or
|
·
|
bankruptcy
or dissolution of Cosan Portuária.
|
·
|
elect
a majority of our directors and appoint our executive officers, set
our
management policies and exercise overall control over our company
and
subsidiaries;
|
·
|
agree
to sell or otherwise transfer his controlling stake in our company;
and
|
·
|
determine
the outcome of substantially all actions requiring shareholder approval,
including transactions with related parties, corporate reorganizations,
acquisitions and dispositions of assets, and
dividends.
|
·
|
exchange
rate movements;
|
·
|
exchange
control policies;
|
·
|
expansion
or contraction of the Brazilian economy, as measured by rates of
growth in
gross domestic product, or “GDP”;
|
·
|
inflation;
|
·
|
tax
policies;
|
·
|
other
economic, political, diplomatic and social developments in or affecting
Brazil;
|
·
|
interest
rates;
|
·
|
liquidity
of domestic capital and lending markets;
and
|
·
|
social
and political instability.
|
·
|
general
economic, political, demographic and business conditions in Brazil
and in
the world and the cyclicality affecting our selling
prices;
|
·
|
our
ability to implement our expansion strategy in other regions of Brazil
and
international markets through organic growth and
acquisitions;
|
·
|
competitive
developments in the ethanol and sugar
industries;
|
·
|
our
ability to implement our capital expenditure plan, including our
ability
to arrange financing when required and on reasonable
terms;
|
·
|
our
ability to compete and conduct our businesses in the
future;
|
·
|
changes
in customer demand;
|
·
|
changes
in our businesses;
|
·
|
technological
advances in the ethanol sector and advances in the development of
alternatives to ethanol;
|
·
|
government
interventions and trade barriers, resulting in changes in the economy,
taxes, rates or regulatory
environment;
|
·
|
inflation,
depreciation and devaluation of the
real;
|
·
|
other
factors that may affect our financial condition, liquidity and results
of
our operations; and
|
·
|
other
risk factors discussed under “Risk
Factors”.
|
NYSE
(USD
per common share)
|
||||||||
High
|
Low
|
|||||||
Fiscal
Year(1)
|
||||||||
2008
(through October 31, 2007)
|
US$
|
13.28
|
US$
|
10.05
|
||||
Fiscal
Quarter
|
||||||||
First
Fiscal Quarter 2008
|
—
|
—
|
||||||
Second
Fiscal Quarter 2008
|
13.28
|
10.05
|
||||||
Month
|
||||||||
August
2007
|
11.30
|
10.50
|
||||||
September
2007
|
12.93
|
10.05
|
||||||
October
2007
|
13.28
|
12.00
|
(1)
|
Our
fiscal year ends on April 30.
|
BOVESPA
(reais
per BDR)
|
||||||||
High
|
Low
|
|||||||
Fiscal
Year
|
||||||||
2008
(through October 31, 2007)
|
R$
|
24.12
|
R$
|
19.90
|
||||
Fiscal
Quarter
|
||||||||
First
Fiscal Quarter 2008
|
—
|
—
|
||||||
Second
Fiscal Quarter 2008
|
24.12
|
19.90
|
||||||
Month
|
||||||||
August
2007
|
22.29
|
20.65
|
||||||
September
2007
|
23.70
|
19.90
|
||||||
October
2007
|
24.12
|
21.52
|
NYSE
Average
Daily Trading Volume |
||||
Fiscal
Quarter
|
(in
millions of US$)
|
|||
First
Fiscal Quarter 2008
|
—
|
|||
Second
Fiscal Quarter 2008
|
11.87
|
BOVESPA
Average
Daily Trading Volume |
||||
Fiscal
Quarter
|
(in
millions of R$)
|
|||
First
Quarter 2008
|
—
|
|||
Second
Quarter 2008
|
3.92
|
BOVESPA
(reais
per common share)
|
||||||||
High
|
Low
|
|||||||
Fiscal
Year
|
||||||||
2007
|
R$
|
59.42
|
R$
|
27.46
|
||||
2008
(through October 31, 2007)
|
41.78
|
21.21
|
||||||
Fiscal
Quarter
|
||||||||
First
Fiscal Quarter 2007
|
59.42
|
38.35
|
||||||
Second
Fiscal Quarter 2007
|
48.09
|
27.46
|
||||||
Third
Fiscal Quarter 2007
|
46.57
|
35.26
|
||||||
Fourth
Fiscal Quarter 2007
|
43.46
|
35.93
|
||||||
First
Fiscal Quarter 2008
|
41.78
|
30.32
|
||||||
Second
Fiscal Quarter 2008
|
33.09
|
21.21
|
BOVESPA
(reais
per common share)
|
||||||||
High
|
Low
|
|||||||
Month
|
||||||||
April
2007
|
R$
|
43.46
|
R$
|
36.54
|
||||
May
2007
|
41.78
|
37.51
|
||||||
June
2007
|
39.17
|
30.63
|
||||||
July
2007
|
35.06
|
30.32
|
||||||
August
2007
|
33.09
|
21.80
|
||||||
September
2007
|
25.60
|
21.21
|
||||||
October
2007
|
28.40
|
25.21
|
Average
Daily Trading Volume
|
||||
Fiscal
Quarter
|
(in
millions of R$)
|
|||
First
Fiscal Quarter 2007
|
33.69
|
|||
Second
Fiscal Quarter 2007
|
31.05
|
|||
Third
Fiscal Quarter 2007
|
36.97
|
|||
Fourth
Fiscal Quarter 2007
|
37.07
|
|||
First
Fiscal Quarter 2008
|
48.49
|
|||
Second
Quarter 2008
|
32.84
|
·
|
appoint
at least one representative in Brazil with powers to take actions
relating
to the investment;
|
·
|
appoint
an authorized custodian in Brazil for the investments, which must
be a
financial institution duly authorized by the Central Bank and the
CVM;
and
|
·
|
through
its representative, register itself as a foreign investor with the
CVM and
register the investment with the Central
Bank.
|
Period-end
|
Average
for
Period
|
Low
|
High
|
|||||||||||||
(reais
per U.S. dollar)
|
||||||||||||||||
Fiscal
Year Ended:
|
||||||||||||||||
April
30, 2002
|
R$
|
2.3625
|
R$
|
2.4522
|
R$
|
2.1957
|
R$
|
2.8007
|
||||||||
April
30, 2003
|
2.8898
|
3.2648
|
2.3770
|
3.9552
|
||||||||||||
April
30, 2004
|
2.9447
|
2.9108
|
2.8022
|
3.0740
|
||||||||||||
April
30, 2005
|
2.5313
|
2.8450
|
2.5195
|
3.2051
|
||||||||||||
April
30, 2006
|
2.0892
|
2.2841
|
2.0892
|
2.5146
|
||||||||||||
April
30, 2007
|
2.0339
|
2.1468
|
2.0231
|
2.3711
|
||||||||||||
Month
Ended:
|
||||||||||||||||
January
2007
|
2.1247
|
2.1385
|
2.1247
|
2.1556
|
||||||||||||
February
2007
|
2.1182
|
2.0963
|
2.0776
|
2.1182
|
||||||||||||
March
2007
|
2.0504
|
2.0887
|
2.0504
|
2.1388
|
||||||||||||
April
2007
|
2.0339
|
2.0320
|
2.0231
|
2.0478
|
||||||||||||
May
2007
|
1.9289
|
1.9816
|
1.9289
|
2.0309
|
||||||||||||
June
2007
|
1.9262
|
1.9319
|
1.9047
|
1.9638
|
||||||||||||
July
2007
|
1.8776
|
1.8828
|
1.8448
|
1.9176
|
||||||||||||
August
2007
|
1.9620
|
1.9660
|
1.8729
|
2.1124
|
||||||||||||
September
2007
|
1.8389
|
1.8996
|
1.8389
|
1.9640
|
||||||||||||
October
2007
|
1.7440
|
1.8010
|
1.7440
|
1.8284
|
·
|
Aguassanta
Participações S.A., or “Aguassanta” and Usina Costa Pinto S.A. Açúar e
Álcool, or “Costa Pinto”, controlling shareholders of Cosan and both
indirectly controlled by our chairman and chief executive officer,
Mr.
Rubens Ometto Silveira Mello, contributed their common shares of
Cosan to
us in exchange for 96,332,044 of our class B series 1 common shares.
The
common shares contributed to us by Aguassanta and Costa Pinto consist
of
96,332,044 common shares of Cosan, representing 51.0% of Cosan’s
outstanding common shares. The remaining outstanding common shares
in
Cosan continue to be held by the public;
and
|
·
|
Aguassanta
then contributed our class B series 1 common shares to Queluz Holdings
Limited, its newly created British Virgin Islands subsidiary, which
is
also indirectly controlled by our chairman and chief executive officer,
Mr. Rubens Ometto Silveira Mello, in a manner that resulted in Queluz
Holdings Limited and Costa Pinto being our direct shareholders. We
currently own 96,332,044 common shares of Cosan, representing 51.0%
of
Cosan’s outstanding common shares.
|
(1)
|
Shares
held through Queluz Holdings Limited, a British Virgin Islands company,
and Usina Costa Pinto S.A. Açúcar e Álcool, a Brazilian corporation, both
indirectly controlled by our controlling
shareholder.
|
(2)
|
Assuming
that all of Cosan’s shareholders exchange common shares issued by Cosan
for our class A common shares. If all of the Cosan shareholders were
to
exchange their shares for our class B series 2 common shares, instead
of
our class A common shares, 51.6% of the voting power of our share
capital
would be held by the public, with the remaining 48.4% held by Mr.
Rubens
Ometto Silveira Mello. Based on the facts and circumstances, this
would
not represent a change of control under U.S.
GAAP.
|
·
|
shares
of our class A common shares; or
|
·
|
at
the option of the tendering holder, but only if the tendering holder
was a
holder of record of the tendered Cosan shares as of the close of
our
business on July 26, 2007, as reflected in the books and records
of Banco
Itaú, the depositary for the Cosan shares, or CBLC (a “July Cosan
Shareholder”),
shares
of our class B series 2 common
shares.
|
·
|
the
number of our class A common shares that the Holding Entity would
have
received in the exchange offer if it had elected to exchange all
of its
Cosan shares for our class A common shares;
or
|
·
|
at
the option of the tendering holder, but only if the tendering holder
is
tendering shares of a Holding Entity that is a July Cosan Shareholder,
the
number of our class B series 2 common shares that the Holding Entity
would
have received in the exchange offer if it had elected to exchange
all of
its Cosan shares for our class B series 2 common
shares.
|
·
|
if
fewer than one-third of the common shares held by existing minority
shareholders of Cosan are validly tendered in the exchange offer,
we will
accept for exchange all Qualifying Shares tendered. The minimum free
float
level required by the Novo Mercado listing rules will be
maintained, and Cosan will remain listed on the Novo Mercado
segment of the BOVESPA;
|
·
|
if
more than one-third and fewer than two-thirds of the common shares
held by
existing minority shareholders of Cosan are validly tendered in the
exchange offer, we will only be able to exchange Qualifying Shares
representing one-third of the Cosan shares held by existing minority
shareholders on a pro rata basis. The minimum free float level required
by
the Novo Mercado listing rules will be maintained, and Cosan will
remain listed on the Novo Mercado segment of the BOVESPA;
and
|
·
|
if
more than two-thirds of the common shares held by existing minority
shareholders of Cosan are validly tendered in the exchange offer,
we will
be able to accept for exchange all Qualifying Shares tendered. In
that
case, however, we will, for an additional three-month period, agree
to
exchange Cosan shares (but not Holding Entity Shares) for class A
common
shares of Cosan Limited or,
solely for tendering
holders who are July Cosan Shareholders, class B series
2 common
shares. If
following completion of the
exchange offer, the free float shares of Cosan represent less than
10% of its share capital, we will delist Cosan’s common shares from the
Novo Mercado segment of the BOVESPA. In order to delist from the
Novo Mercado, Cosan will have to comply with specific
requirements of the Novo Mercado rules. After delisting from the
Novo Mercado, Cosan’s common shares would continue to be bound by
the CVM rules.
|
·
|
make
a material change in the terms of the exchange offer, other than
a change
in either of the exchange ratios;
|
·
|
make
a material change in the information concerning the exchange offer;
or
|
·
|
waive
a material condition of the exchange
offer.
|
·
|
we
have not accepted for exchange Qualifying Shares;
and
|
·
|
any
of the conditions listed under “Conditions to Completion of the Exchange
Offer” has not been satisfied.
|
·
|
extend
the period of time during which the exchange offer is open;
or
|
·
|
are
unable to accept for exchange or to exchange Qualifying Shares under
the
exchange offer for any reason.
|
(1)
|
a change in the business, conditions, income, operations or share ownership of the company, Cosan or any of their respective direct or indirect subsidiaries that is materially adverse to the |
company,
Cosan or any of their respective direct or indirect consolidated
subsidiaries, if such change shall result from any of the following
unforeseeable events:
|
· |
the
issuance, by any federal, state or local Brazilian or U.S. governmental
authority of the Executive, Legislative or Judiciary branches,
of any
decree, order, judgment or act that:
|
|||
·
|
questions,
restricts or limits our ability to carry out the exchange offer
for the
common shares of Cosan, to hold common shares of Cosan, to acquire
additional common shares of Cosan, or to exercise the rights inherent
therein or to receive distributions in respect thereof;
|
|||
·
|
orders
the termination or amendment of the terms and conditions of any
license,
authorization or concession granted for the conduct of the business
of
Cosan or any of its direct or indirect subsidiaries;
|
|||
·
|
orders
the expropriation, confiscation or limitation on the free disposal
of the
assets of Cosan or any of its direct or indirect subsidiaries;
or
|
|||
·
|
suspends,
restricts or limits transactions in the foreign exchange market
or the
flow of funds into or out of Brazil;
|
|||
|
·
|
the occurrence of war or grave civil or political unrest, in Brazil, or in any other country which impacts the Company or Cosan; or | ||
|
·
|
the
occurrence of a natural event (including, without limitation, an
earthquake, flood or other similar event) or any other external
factor
that causes significant damage to the assets of Cosan or any of
its direct
or indirect subsidiaries in a manner that affects the ordinary
course of
its business;
|
(2)
|
a
suspension or material limitation in trading of securities in general
on
the NYSE or on the BOVESPA for more than 24 hours;
|
|
(3)
|
at
the closing of any trading session, a decrease of the BOVESPA index
(“IBOVESPA”) expressed in U.S. dollars (converted at the average exchange
rate for purchase and sale furnished by the Central Bank, Transaction
PTAX800, Option 5, published by the Brazilian Central Bank Information
System (“SISBACEN”) at 6:00 p.m. on such date) by at least 20% in relation
to the index of June 25, 2007, the date of the statement of material
fact
announcing the exchange offer, which value was 27,886.4 points
in
dollars;
|
|
(4)
|
at
the closing of the foreign exchange market on any date, a decrease
(converted at the average exchange rate for purchase and sale furnished
by
the Central Bank, Transaction PTAX800, Option 5, published by the
SISBACEN
at 6:00 p.m. on such date) in the value of reais in relation to
the U.S. dollar by at least 20% compared to the exchange rate of
June 25,
2007, the date of the statement of material fact announcing the
exchange
offer, which value was 1.9379;
|
|
(5)
|
the
occurrence of any substantial change in the rules applicable to
the
Brazilian or U.S. capital markets or to exchange offers or other
transactions similar to the exchange offer, or an increase or change
in
tax rates or applicable taxes, that adversely affects or impedes
the
consummation of the exchange offer by us; or
|
|
(6)
|
any
governmental approvals or authorizations required to be obtained
before
completion of the exchange offer have not been obtained or, if
obtained,
do not remain in full force and effect including, but not limited
to:
|
|
·
|
registration
of the exchange offer with the CVM;
|
|
·
|
all
approvals necessary in order for us to acquire Qualifying Shares
pursuant
to the exchange offer, including from the Central Bank concerning
foreign
exchange transactions;
|
|
·
|
declaration
by the SEC of the effectiveness of the registration statement of
which
this prospectus is a part; and
|
||
·
|
the
approval for listing by the NYSE of our class A common shares to
be issued
in connection with the exchange
offer.
|
·
|
irrevocable
instructions to have your Cosan shares withdrawn from your account
with
Banco Itaú or CBLC and transferred to the CBLC offer account and frozen,
on the Auction Date upon commencement of the Auction for trading
up to the
date of settlement. In completing the qualification form, you will
be
considered:
|
·
|
to
have provided irrevocable instructions to
(the
“Intermediary Institution”) and CBLC to transfer the Cosan shares into the
exchange offer on the settlement date;
and
|
·
|
to
have allowed us, Cosan, Banco Itaú or CBLC to inform the Intermediary
Institution, which will in turn inform the Central Bank and any other
institution involved in the exchange offer or the settlement of the
exchange offer, the number of Cosan shares exchanged by you in the
exchange offer and any other relevant information about
you;
|
·
|
a
statement from you indicating the number of Cosan shares to be tendered
in
the exchange offer and, if applicable, your election as to whether
you
wish to receive our class A common shares or class B series 2 common
shares in exchange for your tendered Cosan
shares;
|
·
|
if
you hold your Cosan shares under Resolution 2,689, a power of attorney
granting powers to the Brazilian Broker or your broker to sign all
documents and take any actions required to engage in any foreign
exchange
transactions on your account, which may be required in connection
with the
settlement of the exchange of your Cosan shares in the exchange
offer;
|
·
|
if
you elect to receive our class A common shares in the exchange offer,
an
account number maintained directly or indirectly by you with a member
of
the NYSE to which such class A common shares may be delivered upon
issuance thereof, as well as the contact information of such institution
(the names of at least two authorized representatives and their telephone
and fax numbers and e-mail addresses) and a statement by such institution
confirming that it is eligible to receive such class A common shares;
and
|
·
|
if
you elect to receive our class B series 2 common shares in the exchange
offer, (1) authorization for the registrar of our class B series
2 common
shares to register your ownership of such shares in book entry form
and
that such entry be evidence of the settlement of the exchange offer
and
(2) proof that you are a July Cosan
Shareholder.
|
·
|
A shareholder
that is a natural person must present certified copies of his or
her:
|
||
·
|
identity
card or passport;
|
||
·
|
taxpayer
registration card (CPF); and
|
||
·
|
a
document proving his or her residence.
|
||
·
|
A
shareholder that is a legal entity must present certified copies
of:
|
||
·
|
its
certificate of incorporation and bylaws, or other organizational
documents;
|
||
·
|
its
taxpayer registration card (CPNJ);
|
||
·
|
a
corporate document granting powers of representation to the officer
or
other person acting on its behalf; and
|
||
·
|
the
identity card or passport, taxpayer registration card (CPF) and
document
proving residence of the person acting on its
behalf.
|
·
|
originals
or certified copies of the personal documents mentioned above for
the
representative itself;
|
|
·
|
in
the case of a representative of an estate, minor or incapacitated
person,
originals or certified copies of the judicial authorizations that
grant it
powers of representation; and
|
|
·
|
in
the case of a representative of an estate, minor or incapacitated
person
or a proxy, originals or certified copies of the documents that
grant it
powers of representation.
|
(1)
|
if
you are tendering Cosan shares, request that your Cosan shares be
withdrawn from your account at Banco Itaú or CBLC, as applicable, and be
transferred to the exchange offer account, and frozen, on the third
business day after the Auction Date for trading up to the date of
settlement and cause such withdrawal and transfer to be
completed;
|
(2)
|
if
you are tendering the shares of a Holding Entity, deliver to the
tender
agent certificates representing such shares duly endorsed for transfer
according to the instructions set forth in the U.S. form of
acceptance;
|
(3)
|
complete
and sign a U.S. form of acceptance appointing the tender agent as
your
agent for purposes of participating in the exchange offer and have
your
signature guaranteed or notarized in accordance with the instructions
in
the form;
|
(4)
|
send
to the tender agent by mail at the address shown on the back cover
of this
prospectus or, preferably, by hand delivery during normal business
hours
to the same address, the U.S. form of acceptance and all other documents
that the U.S. form of acceptance requires you to deliver to the tender
agent including, without limitation, the identification documents
listed
under “Tendering Procedures –Tendering Directly in Brazil”;
and
|
(5)
|
pay
the fees described under “Brokerage Costs and
Fees”.
|
·
|
if
you are tendering Cosan shares, you accept the exchange offer in
respect
of the number of Cosan shares stated in the U.S. form of acceptance
on the
terms and subject to the conditions set forth in this prospectus
and the
U.S. form of acceptance and you will execute all other documents
and take
all other actions required to enable us to receive all rights to,
and
benefits of, these shares on these terms and
conditions;
|
·
|
if
you are tendering the shares of a Holding Entity, you accept the
exchange
offer in respect of all issued and outstanding shares of such Holding
Entity on the terms and subject to the conditions set forth in this
|
·
|
subject
only to your right to withdraw your shares, your acceptance is
irrevocable;
|
·
|
you
are exchanging your Qualifying Shares free and clear of all liens,
equities, charges and encumbrances and together with all rights that
they
now have or may acquire in the future, including all voting and dividend
rights;
|
·
|
unless
you withdraw your shares in accordance with the terms of the exchange
offer, you are irrevocably appointing any of the tender agent, the
Brazilian Broker, the Intermediary Institution, us and our directors
and
agents as your attorney-in-fact to:
|
·
|
execute
and deliver, on your behalf, all forms of transfer and/or other documents,
including documents of title, and
|
·
|
take
all other actions as your attorney-in-fact considers necessary or
expedient to vest in us or our nominees title to the Qualifying Shares
that you tender or otherwise in connection with your acceptance of
the
exchange offer;
|
·
|
you
or your agent holds title to the Qualifying Shares being tendered,
or if
you are tendering Qualifying Shares on behalf of another person,
the other
person holds title to the Qualifying Shares that you are
tendering;
|
·
|
if
you are tendering Cosan shares, your Cosan shares being tendered
are or
will be prior to the tender agent deadline, in the custody of CBLC
and in
the CBLC offer account;
|
·
|
neither
you nor any of your agents nor any person on whose behalf you are
tendering Qualifying Shares has granted to any person any right to
acquire
any of the Qualifying Shares that you are tendering or any other
right
with respect to these Qualifying
Shares;
|
·
|
unless
you withdraw your shares in accordance with the terms of the exchange
offer, you are irrevocably authorizing and
requesting:
|
·
|
the
tender agent, the Brazilian Broker and the Intermediary Institution
to
procure the registration of the transfer of your shares pursuant
to the
exchange offer and the delivery of these shares to us or as we may
direct;
|
·
|
the
Brazilian Broker and/or the Intermediary Institution to close any
necessary foreign exchange contracts related to the exchange
offer;
|
·
|
the
Brazilian Broker and/or the Intermediary Institution to represent
you
before the Central Bank of Brazil to request amendments to the certificate
of registration issued by the Central Bank of Brazil evidencing the
foreign investment in Cosan; and
|
·
|
us
or our agents to record and act upon any instructions with respect
to
notices and payments relating to your shares which have been recorded
in
the books and records of Cosan; and
|
·
|
you
are a U.S. resident or you are tendering the shares in a Holding
Entity;
|
·
|
you
have full power and authority to tender, exchange, sell, assign and
transfer the Qualifying Shares tendered hereby, and any and all other
Qualifying Shares or other securities issued or issuable in respect
thereof respect;
|
·
|
when
the Qualifying Shares are exchanged by us, we will acquire good and
unencumbered title to the tendered shares, free and clear of all
liens,
restrictions, charges and encumbrances, together with all
rights
|
|
now
or hereafter attaching to them, including voting rights and rights
to all
dividends, other distributions and payments hereafter declared,
made or
paid, and the same will not be subject to any adverse
claim;
|
·
|
unless
you deliver a certificate of registration issued by the Central Bank
of
Brazil evidencing a direct foreign investment in Cosan to the U.S.
receiving agent, you are not required by applicable law to hold such
a
certificate to tender your shares in the exchange
offer;
|
·
|
you
will ratify each and every act which may be done or performed by
us or any
of our directors or agents or Cosan or any of their directors or
agents as
permitted under the terms of the exchange offer;
and
|
·
|
if
you are tendering the shares of a Holding
Entity:
|
·
|
the
total number of issued and outstanding shares of the Holding Entity
is as
set forth in your U.S. form of acceptance and the Holding Entity
shares
you are tendering represent 100% of the issued and outstanding share
capital of the Holding Entity;
|
·
|
the
Holding Entity owns the number of Cosan shares set forth in your
U.S. form
of acceptance;
|
·
|
the
Holding Entity is a corporation or similar entity duly organized,
validly
existing and in good standing under the laws of the jurisdiction
of its
incorporation and has all requisite corporate power and authority
required
to own its Cosan shares and the ownership by the Holding Entity does
not
violate any applicable law, regulation, rule, order, judgment, decree,
injunction or any other requirement of any executive, judicial,
legislative or administrative body or
agency;
|
·
|
there
are no outstanding (i) securities of the Holding Entity convertible
into
or exchangeable for shares of capital stock or voting securities
of such
Holding Entity or (ii) options or other rights to acquire from the
Holding
Entity, or other obligation of the Holding Entity to issue, any capital
stock, voting securities or securities convertible into or exchangeable
for capital stock or voting securities of any Subsidiary of the Company
(the items in (i) and (ii) being referred to collectively as the
“Holding
Entity Securities”). There are no outstanding obligations of the Holding
Entity to repurchase, redeem or otherwise acquire any outstanding
Holding
Entity Securities;
|
·
|
the
Holding Entity was formed solely for the purpose of holding Cosan
shares
and has engaged in no other business activities;
and
|
·
|
except
for the Cosan shares it holds, the Holding Entity has no assets or
liabilities or obligations of any nature (whether known or unknown
and
whether absolute, accrued, contingent, determined, determinable or
otherwise).
|
|
·
|
we
will be entitled to direct the exercise of any votes attaching to
the
Qualifying Shares in respect of which the exchange offer has been
accepted
or is deemed to have been accepted and any other rights and privileges
attaching to the Qualifying Shares, including any right to call a
meeting
of shareholders; and
|
|
·
|
the
execution of the U.S. form of acceptance and its delivery to the
tender
agent will constitute:
|
|
·
|
an
authorization from you to send any notice, circular, document or
other
communications which may be required to be sent to you to us at our
registered office;
|
|
·
|
an
authorization to us to sign any consent to execute a form of proxy
for the
Qualifying Shares in respect of which the exchange offer has been
accepted
or is deemed to have been accepted appointing any person nominated
by us
to attend general meetings of shareholders of Cosan and to exercise
the
votes attaching to those shares on your
behalf;
|
|
·
|
an
irrevocable authorization and appointment of the Brazilian Broker,
tender
agent and the Intermediary Institution as your true and lawful agents
and
attorneys-in-fact for these Qualifying Shares, and any such other
securities or rights, with full power of substitution, such power
of
attorney being deemed to be an irrevocable power coupled with an
interest,
to:
|
|
·
|
deliver
these shares, and any such other securities or rights issued or issuable
in respect of these shares, or transfer the ownership of these shares,
and
any such other securities or rights issued or issuable in respect
of these
shares on the account books maintained by Cosan, together, in any
such
case, with all accompanying evidences of transfer and authenticity,
to us;
and
|
|
·
|
receive
all benefits and otherwise exercise all rights of beneficial ownership
of
these shares, and any such other securities or rights issued or issuable
in respect of these shares, all in accordance with the terms of the
exchange offer; and
|
|
·
|
your
agreement not to exercise any of these rights without our consent
and your
irrevocable undertaking not to appoint a proxy for or to attend general
meetings of shareholders.
|
|
·
|
name
of the persons who tendered the Qualifying Shares to be
withdrawn;
|
|
·
|
number
of Qualifying Shares to be withdrawn;
and
|
|
·
|
name
of the registered holder of the Qualifying Shares, if different from
that
of the person who tendered the Qualifying
Shares.
|
|
·
|
The
company urges you to read carefully the entire appraisal report,
which is
contained in Annex A of this prospectus and is incorporated by reference
in this summary and which you can obtain as described in “Where You Can
Find More Information”. The description of Deloitte Consultores’
Valuations set forth below is qualified in its entirety by reference
to
the full text of the appraisal
report.
|
|
·
|
Pursuant
to the requirements of CVM Instruction No. 361/02, the Valuations
evaluate
each of Cosan and the company within a range of minimum and maximum
values, the difference between which values may not exceed
10%.
|
|
·
|
The
appraisal report is intended solely for the use of the management
of Cosan
and the company and the shareholders of Cosan in order for them to
evaluate the exchange offer. The Valuations do not constitute Deloitte
Consultores’ recommendation or opinion to the shareholders of Cosan with
respect to whether the exchange offer is advisable for any shareholder
or
the fairness of the exchange offer from a financial point of view,
and
should not be used as such. Furthermore, the Valuations do not express
any
judgment in relation to the distribution of economic value among
the
company’s different classes of shares. All shareholders should conduct
their own analysis of the exchange offer and should rely on their
own
financial, tax and legal advisors and not the Valuations in evaluating
the
exchange offer.
|
|
·
|
the
business plan of Cosan for harvest years 2007/2008 to 2016/2017,
prepared
by Cosan’s management;
|
|
·
|
historical
operating and financial information of
Cosan;
|
|
·
|
the
amounts of net indebtedness of Cosan and its equity stakes in other
companies;
|
|
·
|
public
information regarding the industry in which Cosan operates;
and
|
|
·
|
information
related to the book value, number of shares and financial applications
provided by the company’s
management.
|
|
·
|
the
weighted average quotation price of Cosan’s shares traded on the BOVESPA
(1) in the twelve months immediately prior to the announcement of
the
exchange offer (June 25, 2007), (2) between the date of the announcement
of the exchange offer and the date of the appraisal report and (3)
between
the initial public offering of the company’s shares (August 16, 2007) and
the date of the appraisal report;
|
|
·
|
the
weighted average quotation price of the company’s class A common shares
traded on the NYSE from the initial public offering of the company’s
shares through the date of the appraisal
report;
|
|
·
|
book
value per share for the Cosan and company shares;
and
|
|
·
|
economic
value per share for the Cosan and company shares, calculated on a
discounted cash flow basis or on a multiple
basis.
|
|
·
|
Discounted
cash flow method with projections of operating results (debt-free
model),
adjusted by the non-operating assets and liabilities in nominal
reais.
|
|
·
|
The
base date for the appraisal was July 31,
2007.
|
|
·
|
The
projections were based on Cosan’s business plan for the period from August
1, 2007 through April 30, 2017 (the end of harvest year 2016/2017).
The
macroeconomic assumptions and prices for VHP sugar quoted on the
international market were based on market projections and Deloitte
Consultores’ analyses.
|
|
·
|
Perpetual
growth figures were calculated based on the Gordon Growth Model.
The
projected cash flow harvest year 2016/2017 was adjusted for income
tax and
social contribution resulting from an expectation for the reduction
in
depreciation, considering a perpetual estimated growth rate of 5.0%,
including inflation of 4.0%.
|
|
·
|
The
discount rate used was 12.08% in nominal
reais.
|
(1)
|
Economic
value per share based on the discounted cash flow method, with a
minimum
and maximum value range of 10%, pursuant to CVM Instruction No.
361/02.
|
(2)
|
Market
value per share based on the weighted average price for
shares:
|
|
(i)
|
R$39.49
per share in the 12 months prior to the announcement of the exchange
offer
(June 25, 2007).
|
|
(ii)
|
R$27.57
per share from the announcement of the exchange offer (June 25, 2007)
through the date of the appraisal report (October 22,
2007).
|
|
(iii)
|
R$24.50
per share from the initial public offering of the company’s shares (August
16, 2007) through the date of the appraisal report (October 22,
2007).
|
(3)
|
Book
value per share as of July 31, 2007, based on 188,886,360 shares,
as
stated in Cosan’s quarterly financial information as of July 31,
2007.
|
(1)
|
Economic
value per share based on the assets approach, with the investment
in Cosan
estimated on a discounted cash flow basis, with a minimum and maximum
value range of 10%, pursuant to CVM Instruction No.
361/02.
|
(2)
|
Assets
approach with the investment in Cosan being estimated on the weighted
average price for shares in Cosan:
|
|
(i)
|
R$29.10
per share, for the average value of R$39.49 per Cosan share in the
12
months prior to the announcement of the exchange offer (June 25,
2007).
|
|
(ii)
|
R$23.58
per share, for the average value of R$27.57 per Cosan share from
the
announcement of the exchange offer (June 25, 2007) through the date
of the
appraisal report (October 22,
2007).
|
|
(iii)
|
R$22.16
per share, for the average value of R$24.50 per Cosan share from
the
initial public offering of the company’s shares (August 16, 2007) through
the date of the appraisal report (October 22,
2007).
|
(3)
|
Market
value per share based on the weighted average price for shares from
the
initial public offering of the company’s shares (August 16, 2007) through
the date of the appraisal report (October 22,
2007).
|
(4)
|
Book
value per share, based on 208,010,044 shares as of September 10,
2007,
according to information made available by company
management.
|
|
·
|
its
professionals involved in preparing the appraisal report do not own
any
shares in either the company or Cosan, nor do they conduct discretionary
management services with respect to such
shares;
|
|
·
|
there
is no conflict of interest that could decrease the independence required
in order for it to perform its functions as an independent appraisal
firm;
|
|
·
|
the
cost to prepare the appraisal report was R$350,000, net of
taxes;
|
|
·
|
besides
the amount received mentioned above, in the past twelve months it
has
received R$1,179,016.49 relating to (1) advisory services in negotiating
Cosan’s payroll, (2) preparation of an economic-financial appraisal
report, as well as evaluation of its property and organization of
fixed
assets and (3) tax planning; and
|
|
·
|
notwithstanding
the relationship described above, it does not have any other commercial
and credit information of any kind with respect to Cosan and the
company
that might impact the appraisal
report.
|
|
·
|
it
and its affiliates may also provide consulting services to each of
the
Cosan companies and their affiliates in the future. In connection
with
these services, compensation may be received;
and
|
|
·
|
in
its opinion, notwithstanding any statement made herein, neither the
controlling shareholders nor the management of the company or Cosan
directed, limited, complicated or practiced any act that have or
could
have compromised the access, utilization or understanding of information,
assets, documents or work methodologies relevant for the quality
of the
Valuations.
|
For
Three Months Ended
July
31, (Unaudited)
|
For
Fiscal Year Ended April 30,
|
|||||||||||||||||||
2007
|
2006
|
2007
|
2006
|
2005
|
||||||||||||||||
(in
millions of US$)
|
||||||||||||||||||||
Statement
of Operations Data:
|
||||||||||||||||||||
Net
sales
|
US$
|
301.3
|
|
|
US$
|
425.0
|
|
|
US$
|
1,679.1
|
|
|
US$
|
1,096.6
|
|
|
US$
|
644.4
|
|
|
Sugar
|
190.9
|
275.2
|
1,031.7
|
660.5
|
415.8
|
|||||||||||||||
Ethanol
|
84.7
|
126.6
|
551.5
|
378.4
|
178.4
|
|||||||||||||||
Other
products and services
|
25.7
|
23.3
|
95.8
|
57.8
|
50.1
|
|||||||||||||||
Cost
of goods sold
|
(288.2 | ) | (263.3 | ) | (1,191.3 | ) | (796.3 | ) | (456.6 | ) | ||||||||||
Gross
profit
|
13.1
|
161.8
|
487.8
|
300.3
|
187.8
|
|||||||||||||||
Selling
expenses
|
(32.0 | ) | (27.9 | ) | (133.8 | ) | (97.8 | ) | (57.8 | ) | ||||||||||
General
and administrative expenses
|
(30.1 | ) | (21.9 | ) | (121.1 | ) | (72.0 | ) | (40.0 | ) | ||||||||||
Operating
income (loss)
|
(49.0 | ) |
112.0
|
232.9
|
130.5
|
90.0
|
||||||||||||||
Other
income (expenses):
|
||||||||||||||||||||
Financial
income
|
136.0
|
152.5
|
555.6
|
186.5
|
76.8
|
|||||||||||||||
Financial
expenses
|
(82.3 | ) | (129.7 | ) | (266.2 | ) | (413.1 | ) | (115.9 | ) | ||||||||||
Other
income (expenses)
|
(0.5 | ) | (1.4 | ) |
16.3
|
(5.5 | ) | (16.4 | ) | |||||||||||
Income
(loss) before income taxes, equity in income of affiliates and minority
interest
|
4.2
|
133.4
|
538.5
|
(101.6 | ) |
34.5
|
||||||||||||||
Income
taxes (expense)/benefit
|
(1.7 | ) | (47.4 | ) | (188.8 | ) |
29.7
|
(14.9 | ) | |||||||||||
Income
(loss) before equity in income of affiliates and minority
interest
|
2.5
|
86.0
|
349.7
|
(71.8 | ) |
19.6
|
||||||||||||||
Equity
in income of affiliates
|
(0.2 | ) |
0.1
|
(0.0 | ) |
1.6
|
3.4
|
|||||||||||||
Minority
interest in net (income) loss of subsidiaries
|
0.2
|
(0.8 | ) | (3.2 | ) | (2.6 | ) | (0.4 | ) | |||||||||||
Net
income (loss)
|
US$
|
2.4 |
|
|
US$
|
85.3 |
|
|
US$
|
346.5 |
|
|
US$
|
(72.8 | ) |
|
US$
|
22.7 |
|
|
Balance
Sheet Data:
|
||||||||||||||||||||
Cash
and cash equivalents
|
US$
|
307.7 |
|
|
US$
|
81.0 |
|
|
US$
|
316.5 |
|
|
US$
|
29.2 |
|
|
US$
|
13.2 |
|
|
Marketable
securities
|
124.5
|
291.1
|
281.9
|
368.8
|
2.0
|
|||||||||||||||
Inventories
|
415.9
|
402.6
|
247.5
|
187.2
|
122.2
|
|||||||||||||||
Property,
plant, and equipment, net
|
1,311.0
|
941.2
|
1,194.1
|
1,008.1
|
401.8
|
|||||||||||||||
Goodwill
|
527.7
|
473.5
|
491.9
|
497.9
|
166.6
|
|||||||||||||||
Total
assets
|
3,529.1
|
2,712.7
|
3,253.4
|
2,691.8
|
960.2
|
|||||||||||||||
Current
liabilities
|
418.5
|
407.8
|
274.2
|
397.1
|
207.8
|
|||||||||||||||
Estimated
liability for legal proceedings and labor claims
|
417.8
|
433.4
|
379.2
|
462.2
|
101.7
|
|||||||||||||||
Long-term
debt
|
1,357.2
|
933.0
|
1,342.5
|
941.7
|
314.7
|
For
Three Months Ended
July
31, (Unaudited)
|
For
Fiscal Year Ended April 30,
|
|||||||||||||||||||
2007
|
2006
|
2007
|
2006
|
2005
|
||||||||||||||||
(in
millions of US$)
|
||||||||||||||||||||
Minority
interest in consolidated subsidiaries
|
9.0
|
5.6
|
8.5
|
4.9
|
0.5
|
|||||||||||||||
Total
shareholders equity
|
US$
|
1,010.1 |
|
|
US$
|
642.7 |
|
|
US$
|
928.7 |
|
|
US$
|
577.0 |
|
|
US$
|
190.3 | ||
Other
Financial and Operating Data:
|
||||||||||||||||||||
Depreciation
and amortization
|
US$
|
75.2 |
|
|
US$
|
37.0 |
|
|
US$
|
187.4 |
|
|
US$
|
98.6 |
|
|
US$
|
41.7 | ||
EBITDA(1)
|
25.7
|
146.9
|
433.3
|
222.7
|
118.4
|
|||||||||||||||
EBITDA
margin(2)
|
8.5
|
34.6
|
25.8
|
20.3
|
18.4
|
|||||||||||||||
Net
debt(3)
|
886.0
|
535.5
|
697.9
|
517.4
|
287.0
|
|||||||||||||||
Net
debt/EBITDA(4)
|
2.8
|
n.a.
|
1.6
|
2.3
|
2.4
|
|||||||||||||||
Working
capital(5)
|
810.4
|
674.0
|
865.3
|
563.2
|
84.7
|
|||||||||||||||
Cash
flow provided by (used in):
|
||||||||||||||||||||
Operating
activities
|
(44.0 | ) | (6.4 | ) |
284.0
|
86.0
|
7.6
|
|||||||||||||
Investing
activities
|
55.3
|
111.8
|
(251.6 | ) | (825.5 | ) | (62.7 | ) | ||||||||||||
Financing
activities
|
US$
|
(47.1 | ) |
|
US$
|
(57.7 | ) |
|
US$
|
222.8 |
|
|
US$
|
725.9 |
|
|
US$
|
33.6 | ||
Crushed
sugarcane (in million tons)
|
14.9
|
16.8
|
36.2
|
27.9
|
24.3
|
|||||||||||||||
Own
sugarcane (in million tons)
|
9.2
|
10.5
|
21.6
|
17.2
|
15.0
|
|||||||||||||||
Growers
sugarcane (in million tons)
|
5.7
|
6.3
|
14.5
|
10.7
|
9.3
|
|||||||||||||||
Sugar
production (in thousand tons)
|
1,128.3
|
1,448.7
|
3,182.3
|
2,328.4
|
2,121.5
|
|||||||||||||||
Ethanol
production (in million liters)
|
547.1
|
545.3
|
1,236.6
|
915.0
|
741.3
|
(1)
|
We
define and calculate EBITDA using the line items contained in our
statement of operations and statement of cash-flows as follows: net
income
(loss) plus depreciation and amortization less financial
income plus financial expenses plus/less income taxes
expense (benefit).
|
|
We
believe that the presentation of EBITDA and EBITDA margin provides
useful
information to investors regarding our operational performance because
it
enhances an investor’s overall understanding of the financial performance
and prospects of our business. Our management uses EBITDA and EBITDA
margin as one of the primary measures for planning and forecasting
in
future periods, including for purposes of analyzing the operating
performance of our business from period-to-period without the effect
of
expenses and gains (losses) that are unrelated to the day-to-day
performance of our business.
|
|
We
use EBITDA as a supplemental measure of financial performance as
well as
of our ability to generate cash from operations. EBITDA, which is
not a
U.S. GAAP measure, does not have a standardized meaning, and our
definition of EBITDA may not be comparable to EBITDA as used by other
companies. We understand that although EBITDA is frequently used
by
securities analysts, lenders and others in their evaluation of companies,
EBITDA has limitations as an analytical tool, and should not be considered
in isolation, or as a substitute for analysis of our results as reported
under U.S. GAAP. These limitations include the
following:
|
|
·
|
EBITDA
does not reflect our cash expenditures, or future requirements for
capital
expenditures or contractual
commitments;
|
|
·
|
EBITDA
does not reflect changes in, or cash requirements for, our working
capital
needs;
|
|
·
|
EBITDA
does not include income taxes, which are a necessary and ongoing
cost of
our operations;
|
|
·
|
EBITDA
does not reflect the significant interest expense, or the cash
requirements necessary to service interest or principal payments,
on our
debts;
|
|
·
|
Although
depreciation is a non-cash charge, the assets being depreciated will
often
have to be replaced in the future, and EBITDA does not, therefore,
reflect
any cash requirements for such replacements;
and
|
|
·
|
EBITDA
can be affected by the lease rather than purchase of fixed
assets.
|
For
Three Months Ended
July
31, (Unaudited)
|
For
Fiscal Year Ended April 30,
|
|||||||||||||||||||
2007
|
2006
|
2007
|
2006
|
2005
|
||||||||||||||||
(in
millions of US$)
|
||||||||||||||||||||
Net
income (loss)
|
US$
|
2.4
|
US$
|
85.3
|
US$
|
346.5
|
US$
|
(72.8
|
) |
US$
|
22.7
|
|||||||||
Depreciation
and amortization
|
75.2
|
37.0
|
187.4
|
98.6
|
41.7
|
|||||||||||||||
Financial
income
|
(136.0 | ) | (152.5 | ) | (555.6 | ) | (186.5 | ) | (76.8 | ) | ||||||||||
Financial
expenses
|
82.3
|
129.7
|
266.2
|
413.1
|
115.9
|
|||||||||||||||
Income
taxes expense (benefit)
|
1.7
|
47.4
|
188.8
|
(29.7 | ) |
14.9
|
||||||||||||||
EBITDA
|
US$
|
25.7
|
|
US$
|
146.9
|
US$
|
433.3
|
US$
|
222.7
|
US$
|
118.4
|
For
Three Months Ended
July
31, (Unaudited)
|
For
Fiscal Year Ended April 30,
|
|||||||||||||||||||
2007
|
2006
|
2007
|
2006
|
2005
|
||||||||||||||||
(in
millions of US$)
|
||||||||||||||||||||
Net
cash provided by (used in) operating activities
|
US$
|
(44.0
|
) |
US$
|
(6.4
|
) |
US$
|
284.0
|
US$
|
86.0
|
US$
|
7.6
|
||||||||
Increase/decrease
in operating assets and liabilities
|
65.6
|
231.6
|
342.8
|
(70.4 | ) |
72.8
|
||||||||||||||
Current
income and social contribution taxes
|
10.3
|
5.0
|
38.6
|
23.3
|
17.2
|
|||||||||||||||
Minority
interest in net income of subsidiaries
|
0.2
|
(0.8 | ) | (3.2 | ) | (2.6 | ) | (0.4 | ) | |||||||||||
Other
financial expenses
|
(6.4 | ) | (82.4 | ) | (228.9 | ) |
186.4
|
21.2
|
||||||||||||
EBITDA
|
US$
|
25.7
|
US$
|
146.9
|
US$
|
433.3
|
US$
|
222.7
|
US$
|
118.4
|
(2)
|
EBITDA
divided by net sales.
|
(3)
|
Net
debt consists of current and non-current long-term debt, net of cash
and
cash equivalents, marketable securities and CTNs (Brazilian Treasury
bills) recorded in the financial statements as other non-current
assets.
Net debt is not a U.S. GAAP
measurement.
|
(4)
|
Net
debt/EBITDA is net debt at a particular date divided by EBITDA for
the
twelve months ended at that date. We believe the presentation of
net debt
and net debt/EBITDA provides useful information to investors regarding
our
liquidity position because it enhances an investor’s overall understanding
of our ability to service our debt
obligations.
|
(5)
|
Working
capital consists of current assets less current
liabilities.
|
For
Fiscal Year Ended April 30,
|
||||||||||||||||||||||||
2007
|
2007(4)
|
2006(4)
|
2005(4)
|
2004(4)
|
2003(4)
|
|||||||||||||||||||
(in
millions
of
US$)(1)
|
(in
millions of R$)
|
|||||||||||||||||||||||
Statement
of Operations Data:
|
||||||||||||||||||||||||
Net
operating revenue
|
US$
|
1,772.4
|
R$
|
3,605.1
|
R$
|
2,477.9
|
R$
|
1,900.4
|
R$
|
1,586.1
|
R$
|
1,409.6
|
||||||||||||
Cost
of goods sold and services rendered
|
(1,219.9 | ) | (2,481.1 | ) | (1,721.3 | ) | (1,338.5 | ) | (1,078.9 | ) | (873.3 | ) | ||||||||||||
Gross
profit
|
552.6
|
1,123.9
|
756.6
|
561.8
|
507.1
|
536.3
|
||||||||||||||||||
Operating
(expenses) income:
|
||||||||||||||||||||||||
Selling
expenses
|
(138.7 | ) | (282.0 | ) | (217.1 | ) | (171.7 | ) | (144.3 | ) | (113.7 | ) |
For
Fiscal Year Ended April 30,
|
||||||||||||||||||||||||
2007
|
2007(4)
|
2006(4)
|
2005(4)
|
2004(4)
|
2003(4)
|
|||||||||||||||||||
(in
millions
of
US$)(1)
|
(in
millions of R$)
|
|||||||||||||||||||||||
General
and administrative expenses(2)
|
(121.0 | ) | (246.2 | ) | (150.0 | ) | (121.9 | ) | (111.7 | ) | (100.0 | ) | ||||||||||||
Financial
expenses, net
|
77.7
|
158.0
|
(245.2 | ) | (102.0 | ) | (132.1 | ) | (170.9 | ) | ||||||||||||||
Earnings
on equity investments
|
(0.0 | ) | (0.1 | ) |
0.6
|
—
|
7.9
|
16.8
|
||||||||||||||||
Goodwill
amortization
|
(110.0 | ) | (223.7 | ) | (142.8 | ) | (93.2 | ) | (140.6 | ) | (30.0 | ) | ||||||||||||
Other
operating income (expenses), net
|
17.4
|
35.3
|
(11.8 | ) | (39.7 | ) |
2.3
|
(24.4 | ) | |||||||||||||||
Expenses
from placement of shares
|
—
|
—
|
(52.8 | ) |
—
|
—
|
—
|
|||||||||||||||||
Operating
income (loss)
|
277.9
|
565.3
|
(62.5 | ) |
33.3
|
(11.4 | ) |
114.1
|
||||||||||||||||
Non-operating
result
|
1.0
|
2.0
|
(1.0 | ) |
2.7
|
52.6
|
(23.5 | ) | ||||||||||||||||
Income
(loss) before income and social contribution taxes
|
278.9
|
567.3
|
(63.5 | ) |
36.0
|
41.2
|
90.6
|
|||||||||||||||||
Income
and social contribution taxes
|
(100.2 | ) | (203.9 | ) |
5.8
|
(22.2 | ) | (7.8 | ) | (80.9 | ) | |||||||||||||
Income
(loss) before minority interest
|
178.7
|
363.4
|
(57.7 | ) |
13.8
|
33.4
|
9.7
|
|||||||||||||||||
Minority
shareholders interest
|
(3.0 | ) | (6.2 | ) | (6.9 | ) |
3.3
|
(1.0 | ) |
15.8
|
||||||||||||||
Net
income (loss)
|
US$
|
175.7
|
R$
|
357.3
|
R$
|
(64.6
|
) |
R$
|
17.1
|
R$
|
32.3
|
R$
|
25.5
|
At
April 30,
|
||||||||||||||||||||||||
2007
|
2007(4)
|
2006(4)
|
2005(4)
|
2004(4)
|
2003(4)
|
|||||||||||||||||||
(in
millions
of
US$)(1)
|
(in
millions of R$)
|
|||||||||||||||||||||||
Balance
Sheet Data:
|
||||||||||||||||||||||||
Cash
and cash equivalents
|
US$
|
316.5
|
R$
|
643.8
|
R$
|
61.0
|
R$
|
35.2
|
R$
|
68.0
|
R$
|
52.3
|
||||||||||||
Marketable
securities
|
281.9
|
573.3
|
770.5
|
3.9
|
30.9
|
13.8
|
||||||||||||||||||
Inventories
|
247.5
|
503.4
|
390.8
|
339.8
|
287.0
|
251.2
|
||||||||||||||||||
Property,
plant and equipment, net
|
989.8
|
2,013.1
|
1,656.4
|
1,481.6
|
1,321.6
|
954.9
|
||||||||||||||||||
Goodwill
|
557.1
|
1,133.2
|
1,353.0
|
357.6
|
354.0
|
396.4
|
||||||||||||||||||
Total
assets
|
3,079.5
|
6,263.4
|
5,604.8
|
2,684.8
|
2,473.3
|
2,131.1
|
||||||||||||||||||
Current
liabilities
|
290.9
|
591.7
|
670.0
|
494.1
|
973.1
|
846.5
|
||||||||||||||||||
Provision
for contingencies
|
357.9
|
728.0
|
907.4
|
245.9
|
168.2
|
127.0
|
||||||||||||||||||
Long-term
debt(3)
|
1,389.2
|
2,825.5
|
2,070.5
|
846.5
|
385.2
|
419.1
|
||||||||||||||||||
Minority
interest
|
9.9
|
20.2
|
14.0
|
3.5
|
33.3
|
(8.2 | ) | |||||||||||||||||
Shareholders
equity
|
US$
|
804.9
|
R$
|
1,631.0
|
R$
|
1,355.4
|
R$
|
762.9
|
R$
|
601.0
|
R$
|
375.1
|
(1)
|
Translated
for convenience only using the selling rate as reported by the Central
Bank at April 30, 2007 for reais into U.S. dollars of R$2.0339 to
US$1.00.
|
(2)
|
Includes
amounts disclosed in the Brazilian GAAP consolidated financial statements
as management fees.
|
(3)
|
Includes
amounts disclosed in the Brazilian GAAP consolidated financial statements
as loans and financings, promissory notes and debentures
payable.
|
(4)
|
Any
comparisons among fiscal years 2003, 2004, 2005, 2006 and 2007 are
necessarily affected by acquisitions and other transactions in these
years. See “Business – Acquisitions, Partnerships and
Restructurings”.
|
|
·
|
An
unaudited pro forma consolidated income statement for the three-month
period ended July 31, 2007, that gives effect to the incorporation
of our
company and the contribution into our company of 51.0% of the common
shares of Cosan as if it had occurred on May 1,
2007;
|
|
·
|
An
unaudited pro forma consolidated income statement for the fiscal
year
ended April 30, 2007, that gives effect to the incorporation of our
company and the contribution into our company of 51.0% of the common
shares of Cosan as if it had occurred on May 1, 2006;
and
|
|
·
|
An
unaudited pro forma consolidated balance sheet at July 31, 2007,
that
gives effect to the contribution by Aguassanta and Costa Pinto of
51.0% of
the common shares of Cosan into our company as if it had occurred
on that
date.
|
|
·
|
Cosan’s
audited consolidated financial statements for the three fiscal years
ended
April 30, 2007 and Cosan’s unaudited condensed consolidated financial
statements at and for the three months ended July 31, 2007 and
2006;
|
|
·
|
our
audited opening balance sheet at April 30, 2007 and our unaudited
consolidated balance sheet at July 31, 2007;
and
|
|
·
|
“Management’s
Discussion and Analysis of Financial Condition and Results of
Operations”.
|
For
Three-Month Period Ended July 31, 2007
|
||||||||||||||||||||||||
Cosan
Limited
|
Adjustments
|
Adjusted
Cosan
Limited
|
Cosan
|
Adjustments
|
Pro
Forma
|
|||||||||||||||||||
(in
millions of US$)
|
||||||||||||||||||||||||
Statement
of Operations Data:
|
||||||||||||||||||||||||
Net
sales
|
US$
|
—
|
US$
|
—
|
US$
|
—
|
US$
|
301.3
|
US$
|
—
|
US$
|
301.3
|
||||||||||||
Sugar
|
190.9
|
—
|
190.9
|
|||||||||||||||||||||
Ethanol
|
84.7
|
—
|
84.7
|
|||||||||||||||||||||
Other
|
25.7
|
—
|
25.7
|
|||||||||||||||||||||
Cost
of goods sold
|
—
|
—
|
—
|
(288.2 | ) |
—
|
(288.2 | ) | ||||||||||||||||
Gross
profit
|
—
|
—
|
—
|
13.1
|
—
|
13.1
|
||||||||||||||||||
Selling
expenses
|
—
|
—
|
—
|
(32.0 | ) |
—
|
(32.0 | ) | ||||||||||||||||
General
and administrative expenses
|
—
|
—
|
—
|
(30.1 | ) |
—
|
(30.1 | ) | ||||||||||||||||
Operating
loss
|
—
|
—
|
—
|
(49.0 | ) |
—
|
(49.0 | ) | ||||||||||||||||
Other
income (expenses):
|
For
Three-Month Period Ended July 31, 2007
|
||||||||||||||||||||||||
Cosan
Limited
|
Adjustments
|
Adjusted
Cosan
Limited
|
Cosan
|
Adjustments
|
Pro
Forma
|
|||||||||||||||||||
(in
millions of US$)
|
||||||||||||||||||||||||
Financial
income
|
—
|
—
|
—
|
136.0
|
—
|
136.0
|
||||||||||||||||||
Financial
expenses
|
—
|
—
|
—
|
(82.3 | ) |
—
|
(82.3 | ) | ||||||||||||||||
Other
income
|
—
|
—
|
—
|
(0.5 | ) |
—
|
(0.5 | ) | ||||||||||||||||
Income
before income taxes, equity in income of affiliates and minority
interest
|
—
|
—
|
—
|
4.2
|
—
|
4.2
|
||||||||||||||||||
Income
taxes expense
|
—
|
—
|
—
|
(1.7 | ) |
—
|
(1.7 | ) | ||||||||||||||||
Income
before equity in income of affiliates and minority
interest
|
—
|
—
|
—
|
2.5
|
—
|
2.5
|
||||||||||||||||||
Equity
in income of affiliates
|
—
|
—
|
—
|
(0.2 | ) |
—
|
(0.2 | ) | ||||||||||||||||
Minority
interest in net income of subsidiaries
|
—
|
—
|
—
|
0.2
|
(1.2 | )(a) | (1.0 | ) | ||||||||||||||||
Net
income
|
US$
|
—
|
US$
|
—
|
US$
|
—
|
US$
|
2.4
|
US$
|
(1.2
|
) |
US$
|
1.2
|
For
Fiscal Year Ended April 30, 2007
|
||||||||||||||||||||||||
Cosan
Limited
|
Adjustments
|
Adjusted
Cosan Limited
|
Cosan
|
Adjustments
|
Pro
Forma
|
|||||||||||||||||||
(in
millions of US$)
|
||||||||||||||||||||||||
Statement
of Operations Data:
|
||||||||||||||||||||||||
Net
sales
|
US$
|
—
|
US$
|
—
|
US$
|
—
|
US$
|
1,679.1
|
US$
|
—
|
US$
|
1,679.1
|
||||||||||||
Sugar
|
1,031.7
|
—
|
1,031.7
|
|||||||||||||||||||||
Ethanol
|
551.5
|
—
|
551.5
|
|||||||||||||||||||||
Other
|
95.8
|
—
|
95.8
|
|||||||||||||||||||||
Cost
of goods sold
|
—
|
—
|
—
|
(1,191.3 | ) |
—
|
(1,191.3 | ) | ||||||||||||||||
Gross
profit
|
—
|
—
|
—
|
487.8
|
—
|
487.8
|
||||||||||||||||||
Selling
expenses
|
—
|
—
|
—
|
(133.8 | ) |
—
|
(133.8 | ) | ||||||||||||||||
General
and administrative expenses
|
—
|
—
|
—
|
(121.1 | ) |
—
|
(121.1 | ) | ||||||||||||||||
Operating
income
|
—
|
—
|
—
|
232.9
|
—
|
232.9
|
||||||||||||||||||
Other
income (expenses):
|
||||||||||||||||||||||||
Financial
income
|
—
|
—
|
—
|
555.6
|
—
|
555.6
|
||||||||||||||||||
Financial
expenses
|
—
|
—
|
—
|
(266.2 | ) |
—
|
(266.2 | ) | ||||||||||||||||
Other
income
|
—
|
—
|
—
|
16.3
|
—
|
16.3
|
||||||||||||||||||
Income
before income taxes, equity in income of affiliates and minority
interest
|
—
|
—
|
—
|
538.5
|
—
|
538.5
|
||||||||||||||||||
Income
taxes expense
|
—
|
—
|
—
|
(188.8 | ) |
—
|
(188.8 | ) | ||||||||||||||||
Income
before equity in income of affiliates and minority
interest
|
—
|
—
|
—
|
349.7
|
—
|
349.7
|
||||||||||||||||||
Equity
in income of affiliates
|
—
|
—
|
—
|
(0.0 | ) |
—
|
(0.0 | ) | ||||||||||||||||
Minority
interest in net income of subsidiaries
|
—
|
—
|
—
|
(3.2 | ) | (169.8 | )(a) | (173.0 | ) | |||||||||||||||
Net
income (loss)
|
US$
|
—
|
US$
|
—
|
US$
|
—
|
US$
|
346.5
|
US$
|
(169.8
|
) |
US$
|
176.7
|
As
of July 31, 2007
|
||||||||||||||||||||||||
Cosan
Limited
|
Adjustments
|
Adjusted
Cosan
Limited
|
Cosan
|
Adjustments
|
Pro
Forma
|
|||||||||||||||||||
(in
millions of US$)
|
||||||||||||||||||||||||
Balance
Sheet Data:
|
||||||||||||||||||||||||
Assets
|
||||||||||||||||||||||||
Current
assets:
|
||||||||||||||||||||||||
Cash
and cash equivalents
|
US$
|
0.0
|
US$
|
(0.0
|
)(b) |
US$
|
—
|
US$
|
307.7
|
US$
|
—
|
US$
|
307.7
|
|||||||||||
Restricted
cash
|
—
|
—
|
—
|
49.2
|
—
|
49.2
|
||||||||||||||||||
Marketable
securities
|
—
|
—
|
—
|
124.5
|
—
|
124.5
|
||||||||||||||||||
Trade
accounts receivable.
|
—
|
—
|
—
|
74.6
|
—
|
74.6
|
||||||||||||||||||
Inventories
|
—
|
—
|
—
|
415.9
|
—
|
415.9
|
||||||||||||||||||
Advances
to suppliers
|
—
|
—
|
—
|
163.5
|
—
|
163.5
|
||||||||||||||||||
Other
current assets
|
—
|
—
|
—
|
93.5
|
—
|
93.5
|
||||||||||||||||||
0.0
|
(0.0 | ) |
—
|
1,228.9
|
—
|
1,228.9
|
||||||||||||||||||
Property,
plant, and equipment, net
|
—
|
—
|
—
|
1,311.0
|
—
|
1,311.0
|
||||||||||||||||||
Goodwill
|
—
|
—
|
—
|
527.7
|
—
|
527.7
|
||||||||||||||||||
Investment
in subsidiary
|
—
|
515.2 | (c) |
515.2
|
—
|
(515.2 | )(d) |
—
|
||||||||||||||||
Intangible
assets, net
|
—
|
—
|
—
|
99.7
|
—
|
99.7
|
||||||||||||||||||
Accounts
receivable from federal government
|
—
|
—
|
—
|
169.6
|
—
|
169.6
|
||||||||||||||||||
Other
non-current assets
|
—
|
—
|
—
|
192.3
|
—
|
192.3
|
||||||||||||||||||
—
|
515.2
|
515.2
|
2,300.3
|
(515.2 | ) |
2,300.3
|
||||||||||||||||||
Total
assets
|
US$
|
0.0
|
US$
|
515.2
|
US$
|
515.2
|
US$
|
3,529.1
|
US$
|
(515.2
|
) |
US$
|
3,529.1
|
|||||||||||
Liabilities
and shareholders equity
|
||||||||||||||||||||||||
Current
liabilities:
|
||||||||||||||||||||||||
Trade
accounts payable
|
US$
|
— |
|
|
US$
|
— |
|
|
US$
|
— |
|
|
US$
|
166.6 |
|
|
US$
|
— |
|
|
US$
|
166.6 | ||
Advances
from customers
|
—
|
—
|
—
|
21.9
|
—
|
21.9
|
||||||||||||||||||
Taxes
payable
|
—
|
—
|
—
|
64.8
|
—
|
64.8
|
||||||||||||||||||
Salaries
payable
|
—
|
—
|
—
|
47.9
|
—
|
47.9
|
||||||||||||||||||
Current
portion of long-term debt
|
—
|
—
|
—
|
51.8
|
—
|
51.8
|
||||||||||||||||||
Derivative
financial instruments
|
—
|
—
|
—
|
15.0
|
—
|
15.0
|
||||||||||||||||||
Dividends
payable
|
—
|
—
|
—
|
40.4
|
—
|
40.4
|
||||||||||||||||||
Other
liabilities
|
—
|
—
|
—
|
10.2
|
—
|
10.2
|
||||||||||||||||||
418.5
|
418.5
|
|||||||||||||||||||||||
Long-term
liabilities:
|
||||||||||||||||||||||||
Long-term
debt
|
—
|
—
|
—
|
1,357.2
|
—
|
1,357.2
|
||||||||||||||||||
Estimated
liability for legal proceedings and labor claims
|
—
|
—
|
—
|
417.8
|
—
|
417.8
|
||||||||||||||||||
Taxes
payable
|
—
|
—
|
—
|
115.7
|
—
|
115.7
|
||||||||||||||||||
Advances
from customers
|
—
|
—
|
—
|
8.3
|
—
|
8.3
|
||||||||||||||||||
Deferred
income taxes
|
—
|
—
|
—
|
142.2
|
142.2
|
|||||||||||||||||||
Other
long-term liabilities
|
—
|
—
|
—
|
50.3
|
—
|
50.3
|
||||||||||||||||||
2,091.5
|
2,091.5
|
|||||||||||||||||||||||
Minority
interest in consolidated subsidiaries
|
—
|
—
|
—
|
9.0
|
495.0 | (d) |
504.0
|
|||||||||||||||||
Shareholders
equity:
|
||||||||||||||||||||||||
Common
shares
|
0.0
|
(0.0 | )(b) |
—
|
535.1
|
(535.1 | )(d) |
—
|
||||||||||||||||
Additional
paid-in capital
|
—
|
515.2 | (c) |
515.2
|
162.6
|
(162.6 | )(d) |
515.2
|
||||||||||||||||
Accumulated
other comprehensive income
|
—
|
—
|
—
|
149.3
|
(149.3 | )(d) |
—
|
|||||||||||||||||
Retained
earnings
|
—
|
—
|
—
|
163.1
|
(163.1 | )(d) |
—
|
|||||||||||||||||
Total
shareholders equity
|
0.0
|
515.2
|
515.2
|
1,010.1
|
(1,010.1 | ) |
515.2
|
|||||||||||||||||
Total
liabilities and shareholders equity
|
US$
|
0.0
|
US$
|
515.2
|
US$
|
515.2
|
US$
|
3,529.1
|
US$
|
(515.2
|
) |
US$
|
3,529.1
|
|
·
|
Sugarcane:
the largest grower and processor of sugarcane in the world, having
crushed
36.2 million tons in fiscal year 2007 and 27.9 million tons in fiscal
year
2006 (planted on approximately 572,000 hectares, of which approximately
50% is leased by us, 40% is supplier owned and 10% is company
owned);
|
|
·
|
Ethanol:
the largest ethanol producer in Brazil and the second largest in
the
world, having produced 326.7 million gallons (1.2 billion liters)
in
fiscal year 2007 and 241.7 million gallons (915.0 million liters)
in
fiscal year 2006, and the largest exporter of ethanol in the world,
having
exported 72.6 million gallons (274.7 million liters) in fiscal year
2007
and 61.0 million gallons (230.9 million liters) in fiscal year 2006;
and
|
|
·
|
Sugar:
the largest sugar producer in Brazil and one of the three largest
sugar
producers in the world, having produced 3.2 million tons in fiscal
year
2007 and 2.3 million tons of sugar in fiscal year 2006, and the largest
exporter of sugar in the world, having exported 2.8 million tons
in fiscal
year 2007 and 2.1 million tons in fiscal year
2006.
|
|
·
|
In
December 2004, Cosan acquired, through FBA—Franco Brasileira S.A. Açúcar e
Álcool, or “FBA”, controlling interests in the Destivale Group (which
consists of Destilaria Vale do Tietê, or “Destivale”, Destiagro Destivale
Agropecuária Ltda., or “Destiagro”, Agrícola Destivale Ltda., or “Agrícola
Destivale”, and Auto Posto Destivale Ltda., or “Auto Posto Destivale”) for
an aggregate purchase price of US$36.7 million. The Destivale Group
has
1.0 million tons of sugarcane crushing capacity. In March 2006, Destivale
and Destiagro were merged into Açucareira Corona S.A., or
“Corona”.
|
|
·
|
In
May 2005, Cosan acquired from Tereos do Brasil Participações Ltda. and
Sucden Investimentos S.A., for US$100.9 million the remaining 52.5%
of the
outstanding shares of FBA, generating goodwill in the amount of US$32.9
million.
|
|
·
|
In
July 2005, Cosan transferred all of its ownership interest in Amaralina
to
Cosan’s shareholders, valued at US$118.6
million.
|
|
·
|
In
December 2005, Cosan indirectly acquired 100% of the common shares
of
Mundial Açúcar e Álcool S.A., or “Mundial”, and of Alcomira S.A. The
purchase price was US$29.2 million in cash plus the assumption of
certain
existing liabilities of Mundial in an amount of US$23.0 million.
Cosan
recorded US$52.2 million in goodwill related to this acquisition.
At the
time of the acquisition, Mundial was located in Mirandópolis, São Paulo,
and had an annual sugarcane crushing capacity of approximately 1.3
million
tons of sugarcane.
|
|
·
|
In
February 2006, Cosan purchased all of the equity capital of Corona
from
Aguassanta Comercial Exportadora e Importadora S.A., or “Aguassanta
Comercial” (a company indirectly controlled by our chairman and chief
executive officer), S.A. Fluxo Comércio e Assessoria Internacional, or
“Fluxo” and certain individuals, for US$180.6 million (generating goodwill
in an aggregate amount of US$196.4 million, due to liabilities assumed
in
an aggregate amount of US$15.9 million). Corona owns approximately
14,500
hectares of land located in the Ribeirão Preto region in the State of São
Paulo and two mills (Bonfim and Tamoio) with a total annual sugarcane
crushing capacity of approximately 6.0 million
tons.
|
|
·
|
In
March 2006, Cosan merged Usina da Barra S.A.—Açúcar e Álcool, and FBA,
among other subsidiaries, into Corona and changed Corona’s name to Usina
da Barra S.A.—Açúcar e Álcool, or “Usina da
Barra”.
|
|
·
|
In
April 2006, Cosan acquired controlling interests in Usina Açucareira Bom
Retiro S.A., or “Bom Retiro” for an aggregate purchase price of US$51.1
million (generating goodwill in an aggregate amount of US$16.4 million).
At the time of the acquisition, Bom Retiro owned one mill (Bom Retiro)
with an annual sugarcane crushing capacity of 1.2 million
tons.
|
|
·
|
In
October 2006, Mundial and Bom Retiro, among other subsidiaries, merged
into Cosan.
|
|
·
|
In
April 2007, Cosan, together with São Martinho S.A. and Santa Cruz S.A.
Açúcar e Álcool acquired Usina Santa Luiza and Agropecuária Aquidaban
Ltda. for an aggregate purchase price of US$112.0 million, of which
US$39.4 million was paid by Cosan. The acquisition was carried out
through
Etanol Participações S.A., a holding company formed by Usina São Martinho
S.A. (a wholly-owned subsidiary of São Martinho S.A.), Cosan and Santa
Cruz S.A. Açúcar e Álcool, with respective interests of 41.67%, 33.33% and
25.00%, and which will be managed on a joint basis, with representatives
of each shareholder on the board of directors and the executive board.
Usina Santa Luiza is located in the City of Motuca, in the State
of São
Paulo.
|
|
·
|
In
August 2007:
|
|
·
|
Aguassanta
Participações S.A., or “Aguassanta” and Usina Costa Pinto S.A. Açúcar e
Álcool, or “Costa Pinto”, controlling shareholders of Cosan and both
indirectly controlled by our chairman and chief executive officer,
Mr.
Rubens Ometto Silveira Mello, contributed their common shares of
Cosan to
us in exchange for 96,332,044 of our class B series 1 common shares.
The
common shares contributed to us by Aguassanta and Costa Pinto consist
of
96,332,044 common shares of Cosan, representing 51.0% of Cosan’s
outstanding common shares; and
|
|
·
|
Aguassanta
then contributed our class B series 1 common shares to Queluz Holdings
Limited, its newly created British Virgin Islands subsidiary, which
is
also indirectly controlled by our chairman and chief executive officer,
Mr. Rubens Ometto Silveira Mello, in a manner that resulted in Queluz
Holdings Limited and Costa Pinto being our direct shareholders. As
a
result we currently own 96,332,044 common shares of Cosan, representing
51.0% of Cosan’s outstanding common
shares.
|
|
·
|
On
August 22, 2007, Cosan Limited completed its initial public offering
and
listed its class A common shares on the NYSE. Cosan Limited received
US$1.1 billion in aggregate
proceeds.
|
|
·
|
Cosan
acquired Açucareira Corona S.A., Mundial Açúcar e Álcool S.A, Alcomira
S.A. and Usina Açucareira Bom Retiro S.A. during fiscal year 2006;
and
|
|
·
|
Cosan
increased its ownership in FBA—Franco Brasileira S.A. Açúcar e Álcool from
47.5% to 99.9% in fiscal year 2006.
|
Sugar
NY11 (US$/lb)
|
||||||||||||||||||||||||
Fiscal
Year Ended April 30,
|
For
Three Months Ended
July
31,
|
|||||||||||||||||||||||
2007
|
2006
|
2005
|
2004
|
2007
|
2006
|
|||||||||||||||||||
Initial
quote
|
0.1713
|
0.0861
|
0.0658
|
0.0720
|
0.0924
|
0.1713
|
||||||||||||||||||
Closing
quote
|
0.0924
|
0.1713
|
0.0861
|
0.0658
|
0.1033
|
0.1491
|
||||||||||||||||||
Daily
average quote
|
0.1247
|
0.1269
|
0.0827
|
0.0633
|
0.0928
|
0.1601
|
||||||||||||||||||
Monthly
average quote
|
0.1249
|
0.1275
|
0.0824
|
0.0638
|
0.0950
|
0.1582
|
||||||||||||||||||
High
quote
|
0.1791
|
0.1930
|
0.0932
|
0.0735
|
0.1033
|
0.1791
|
||||||||||||||||||
Low
quote
|
0.0924
|
0.0823
|
0.0629
|
0.0536
|
0.0845
|
0.1471
|
Source:
NYBOT.
|
Sugar LIFE
(US$/ton)
|
||||||||||||||||||||||||
Fiscal
Year Ended April 30,
|
For
Three Months Ended
July
31,
|
|||||||||||||||||||||||
2007
|
2006
|
2005
|
2004
|
2007
|
2006
|
|||||||||||||||||||
Initial
quote
|
470.00
|
247.80
|
228.30
|
213.10
|
308.00
|
470.00
|
||||||||||||||||||
Closing
quote
|
308.00
|
470.00
|
247.80
|
228.30
|
309.40
|
439.50
|
||||||||||||||||||
Daily
average quote
|
386.26
|
336.65
|
244.30
|
197.63
|
320.50
|
457.83
|
||||||||||||||||||
Monthly
average quote
|
383.52
|
341.05
|
245.98
|
200.21
|
319.23
|
451.48
|
||||||||||||||||||
High
quote
|
489.00
|
479.20
|
275.50
|
232.20
|
341.90
|
489.00
|
||||||||||||||||||
Low
quote
|
300.40
|
238.50
|
211.70
|
173.50
|
304.40
|
430.00
|
Source:
LIFFE.
|
Hydrous
Ethanol Esalq
(US$/thousand
liters)
|
||||||||||||||||||||||||
Fiscal
Year Ended April 30,
|
For
Three Months Ended
July
31,
|
|||||||||||||||||||||||
2007
|
2006
|
2005
|
2004
|
2007
|
2006
|
|||||||||||||||||||
Initial
quote
|
433.59
|
270.26
|
136.72
|
281.69
|
451.53
|
433.59
|
||||||||||||||||||
Closing
quote
|
451.53
|
433.59
|
270.26
|
136.72
|
310.59
|
410.94
|
||||||||||||||||||
Daily
average quote
|
386.90
|
377.92
|
248.46
|
183.46
|
324.77
|
394.99
|
||||||||||||||||||
Monthly
average quote
|
394.59
|
369.98
|
243.80
|
183.71
|
343.20
|
405.72
|
||||||||||||||||||
High
quote
|
475.19
|
579.86
|
304.48
|
282.14
|
428.15
|
415.83
|
||||||||||||||||||
Low
quote
|
337.12
|
231.83
|
134.21
|
106.64
|
299.27
|
372.68
|
Source:
ESALQ.
|
Anhydrous
Ethanol Esalq
(US$/thousand
liters)
|
||||||||||||||||||||||||
Fiscal
Year Ended April 30,
|
For
Three Months Ended
July
31,
|
|||||||||||||||||||||||
2007
|
2006
|
2005
|
2004
|
2007
|
2006
|
|||||||||||||||||||
Initial
quote
|
498.36
|
308.54
|
154.62
|
329.04
|
528.96
|
498.36
|
||||||||||||||||||
Closing
quote
|
528.96
|
498.36
|
308.54
|
154.62
|
353.94
|
473.40
|
Anhydrous
Ethanol Esalq
(US$/thousand
liters)
|
||||||||||||||||||||||||
Fiscal
Year Ended April 30,
|
For
Three Months Ended
July
31,
|
|||||||||||||||||||||||
2007
|
2006
|
2005
|
2004
|
2007
|
2006
|
|||||||||||||||||||
Daily
average quote
|
432.22
|
413.33
|
287.26
|
212.53
|
387.12
|
453.24
|
||||||||||||||||||
Monthly
average quote
|
443.02
|
406.45
|
281.23
|
212.18
|
404.54
|
468.43
|
||||||||||||||||||
High
quote
|
537.59
|
569.90
|
356.03
|
337.06
|
524.69
|
478.06
|
||||||||||||||||||
Low
quote
|
370.03
|
265.57
|
154.98
|
125.78
|
343.79
|
426.04
|
Source:
ESALQ.
|
|
·
|
reducing
our real-denominated net sales as a result of the translation of
those results into U.S. dollars for consolidation
purposes;
|
|
·
|
reducing
our real-denominated costs of goods sold, selling, general and
administrative expenses, as well as other real-denominated
operating costs as a result of the translation of those amounts for
consolidation purposes into U.S.
dollars;
|
|
·
|
generating
foreign exchange transaction gains on U.S. dollar-denominated monetary
assets and foreign exchange liabilities on U.S. dollar-denominated
liabilities of our Brazilian subsidiaries, which are reflected in
our
consolidated statement of
operations;
|
|
·
|
generating
financial losses based on changes in market value of our financial
derivatives; and
|
|
·
|
indirectly
affecting the international market price of
sugar.
|
|
·
|
hedging
transactions (as discussed under “Hedging Transactions and
Exposures”);
|
|
·
|
trade
barriers in U.S., European and other markets that currently limit
access
to their domestic sugar industry through quotas, subsidies and
restrictions on imports;
|
|
·
|
the
evolving use of ethanol as an alternative to oil derivatives and
as a
cleaner-burning fuel, derived from renewable
sources;
|
|
·
|
movements
in oil price levels;
|
|
·
|
the
growth rate of the global economy and its resulting corresponding
growth
in worldwide sugar consumption;
|
|
·
|
the
growth rate of Brazil’s gross domestic product, which impacts the demand
for our products and, consequently, our sales volume in Brazil;
and
|
|
·
|
the
tax policies adopted by the Brazilian federal government and the
governments of the Brazilian states in which we operate, and our
resulting
tax obligations.
|
For
Three-Month Period Ended July 31,
|
||||||||||||
2007
|
2006
|
%
Variation
|
||||||||||
(in
millions of US$, except percentages)
|
||||||||||||
Statement
of Operations:
|
||||||||||||
Net
sales:
|
US$
|
301.3
|
US$
|
425.0
|
(29.1 | )% | ||||||
Sugar
|
190.9
|
275.2
|
(30.6 | ) | ||||||||
Ethanol
|
84.7
|
126.6
|
(33.1 | ) | ||||||||
Other
products and services
|
25.7
|
23.3
|
10.6
|
|||||||||
Cost
of goods sold
|
(288.2 | ) | (263.3 | ) |
9.5
|
|||||||
Gross
profit
|
13.1
|
161.8
|
(91.9 | ) | ||||||||
Selling
expenses
|
(32.0 | ) | (27.9 | ) |
14.6
|
For
Three-Month Period Ended July 31,
|
||||||||||||
2007
|
2006
|
%
Variation
|
||||||||||
(in
millions of US$, except percentages)
|
||||||||||||
General
and administrative
expenses
|
(30.1 | ) | (21.9 | ) |
37.7
|
|||||||
Operating
income (loss)
|
(49.0 | ) |
112.0
|
*
|
||||||||
Other
income (expenses):
|
||||||||||||
Financial
income, net
|
53.7
|
22.8
|
135.5
|
|||||||||
Other
expenses, net
|
(0.5 | ) | (1.4 | ) | (60.5 | ) | ||||||
Income
before income taxes, equity in income of affiliates and minority
interest
|
4.2
|
133.4
|
(96.9 | ) | ||||||||
Income
taxes expense
|
(1.7 | ) | (47.4 | ) | (96.4 | ) | ||||||
Income
before equity in income of affiliates and minority
interest
|
2.5
|
86.0
|
(97.1 | ) | ||||||||
Equity
in income (loss) of affiliates
|
(0.2 | ) |
0.1
|
*
|
||||||||
Minority
interest in (net income) loss of subsidiaries
|
0.2
|
(0.8 | ) |
*
|
||||||||
Net
income
|
US$
|
2.4
|
US$
|
85.3
|
(97.1 | ) |
|
·
|
ICMS
taxes. ICMS is a state value-added tax assessed on our gross sales
in
the Brazilian market at a rate that vary by state and
product.
|
|
·
|
PIS
and COFINS taxes. PIS and the COFINS taxes are federal social
contribution taxes assessed on our gross sales in the Brazilian market
at
rates that vary by product.
|
|
·
|
IPI
taxes. IPI is a federal value-added tax assessed on our gross sales
in the Brazilian market at rates that vary by
product.
|
|
·
|
INSS
taxes. INSS taxes are federal social contribution taxes assessed
on
our gross sales in the Brazilian market at a rate of
2.85%.
|
|
·
|
a
42.1% decrease in market daily average prices for raw sugar as measured
by
contract number 11 of NYBOT, to US$0.0928 per pound in the three-month
period ended July 31, 2007 from US$0.1601 per pound in the three-month
period ended July 31, 2007; 30.0% decrease in market daily average
prices
for white refined sugar as measured by contract number 5 of LIFFE,
to
US$320.50 per ton in the three-month period ended July 31, 2007 from
US$457.83 per ton in the three-month period ended July 31, 2006;
40.2%
decrease in market daily average prices for Brazilian Crystal sugar
as
measured by ESALQ/CEPEA, to US$13.45 per 50 kilogram bag in the
three-month period ended July 31, 2007, from US$22.47 per 50 kilogram
bag
in the three-month period ended July 31, 2006; 17.8% decrease in
market
weekly average prices for Brazilian hydrous ethanol as measured by
ESALQ/CEPEA, to US$0.3248 per liter in the three-month period ended
July
31, 2007 from US$0.3950 per liter in the three-month period ended
July 31,
2006; 14.6% decrease in market weekly average prices for Brazilian
unhydrous ethanol as measured by ESALQ/CEPEA, to US$0.3871 per liter
in
the three-month period ended July 31, 2007 from US$0.4532 per liter
in the
three-month period ended July 31, 2006;
and
|
|
·
|
an
18.3% decrease in our ethanol sales volumes, to 62.9 million gallons
(238.2 million liters) in the three-month period ended July 31, 2007
from
77.0 million gallons (291.6 million liters) in the three-month period
ended July 31, 2006, although partially offset by 11.1% increase
in our
sugar sales volumes, to 832.7 thousand tons in the three month period
ended July 31, 2007, from 749.3 thousand tons in the three-month
period
ended July 31, 2006.
|
|
·
|
a
37.6% decrease in the average realized price per ton (including all
of the
types of sugar that we produce) to US$229.2 per ton in the three-month
period ended July 31, 2007 from US$367.3 per ton in the three-month
period
ended July 31, 2006;
|
|
·
|
an
11.1% increase in Cosan’s sugar sales volume to 832.7 thousand tons in the
three-month period ended July 31, 2007 from 749.3 thousand tons in
the
three-month period ended July 31,
2006.
|
|
·
|
an
18.3% decrease in Cosan’s ethanol sales volume to 62.9 million gallons
(238.2 million liters) in the three-month period ended July 31, 2007
from
77.0 million gallons (291.6 million liters) in the three-month period
ended July 31, 2006, mainly as a result of reduction in the sales
effort
in order to avoid market low prices;
and
|
|
·
|
an
18.1% decrease in Cosan’s average realized unit price to US$1.3463 per
gallon (US$355.7 per thousand liters) in the three-month period ended
July
31, 2007 from US$1.6429 per gallon (US$434.0 per thousand liters)
in the
three-month period ended July 31, 2006, due to the decreased average
price
in the Brazilian and international
markets.
|
|
·
|
the
net effect of foreign exchange variation on the dollar-denominated
debt,
which represented financial income of US$66.8 million in the three-month
period ended July 31, 2007, compared to financial expense of US$30.9
million in the three-month period ended July 31,
2006;
|
|
·
|
an
increase in interest, earnings from marketable securities and monetary
variation expenses, net, to US$27.0 million in the three-month period
ended July 31, 2007, from US$7.0 million in the three-month period
ended
July 31, 2006, primarily because in this period financial income
of
US$19.8 million was recorded in connection with the partial reversal
of
amounts related to inflation adjustments and interest on provisions
recorded in connection with the IAA
litigation;
|
|
·
|
a
decrease in financial income from derivative transactions, to US$17.2
million in the three-month period ended July 31, 2007, from US$52.0
million in the three-month period ended July 31, 2006, as a result
of the
mark-to-market method of accounting for derivative transactions related
to
sugar prices and currency exchange rates fluctuations;
and
|
|
·
|
a
decrease in financial income from discounts obtained, not recorded
in the
three-month period ended July 31, 2007, from US$12.1 million recorded
in
the three-month period ended July 31, 2006, primarily comprising
US$11.6
million resulting from renegotiation of promissory notes issued in
connection with our acquisition of Usina da
Barra.
|
For
Fiscal Year Ended April 30,
|
||||||||||||
2007
|
2006
|
%Variation
|
||||||||||
(in
millions of US$, except percentages)
|
||||||||||||
Statement
of Operations:
|
||||||||||||
Net
sales:
|
US$
|
1,679.1
|
US$
|
1,096.6
|
53.1 | % | ||||||
Sugar
|
1,031.7
|
660.5
|
56.2
|
|||||||||
Ethanol
|
551.5
|
378.4
|
45.8
|
|||||||||
Other
products and services
|
95.8
|
57.8
|
65.8
|
|||||||||
Cost
of goods sold
|
(1,191.3 | ) | (796.3 | ) |
49.6
|
|||||||
Gross
profit
|
487.8
|
300.3
|
62.4
|
|||||||||
Selling
expenses
|
(133.8 | ) | (97.8 | ) |
36.7
|
|||||||
General
and administrative expenses
|
(121.1 | ) | (72.0 | ) |
68.2
|
|||||||
Operating
income
|
232.9
|
130.5
|
78.5
|
|||||||||
Other
income (expenses):
|
||||||||||||
Financial
income (expenses), net
|
289.4
|
(226.6 | ) |
*
|
||||||||
Other
income (expenses)
|
16.3
|
(5.5 | ) |
*
|
||||||||
Income
(loss) before income taxes, equity in income of affiliates and minority
interest
|
538.5
|
(101.6 | ) |
*
|
||||||||
Income
taxes (expense) benefit
|
(188.8 | ) |
29.7
|
*
|
||||||||
Income
(loss) before equity in income of affiliates and minority
interest
|
349.7
|
(71.8 | ) |
*
|
||||||||
Equity
in income of affiliates
|
—
|
1.6
|
*
|
|||||||||
Minority
interest in net (income) loss of subsidiaries
|
(3.2 | ) | (2.6 | ) |
26.0
|
|||||||
Net
income (loss)
|
US$
|
346.5
|
US$
|
(72.8
|
) |
*
|
*
Not a meaningful comparison.
|
|
·
|
ICMS
taxes. ICMS is a state value-added tax assessed on our gross sales
in
the Brazilian market at a rate that vary by state and
product.
|
|
·
|
PIS
and COFINS taxes. PIS and the COFINS taxes are federal social
contribution taxes assessed on our gross sales in the Brazilian market
at
rates that vary by product.
|
|
·
|
IPI
taxes. IPI is a federal value-added tax assessed on our gross sales
in the Brazilian market at rates that vary by
product.
|
|
·
|
INSS
taxes. INSS taxes are federal social contribution taxes assessed
on
our gross sales in the Brazilian market at a rate of
2.85%.
|
|
·
|
30.1%
and 31.2% increases in our ethanol and sugar sales volumes, respectively,
to 349.3 million gallons (1,322.1 million liters) and 3,240.5 thousand
tons, respectively, in fiscal year 2007 from 268.4 million gallons
(1,016.0 million liters) and 2,469.5 thousand tons, respectively,
in
fiscal year 2006, primarily as a result of the impact of the acquisition
of Corona, Mundial and Bom Retiro, which contributed to 18.4% of
the total
sugarcane crushed in fiscal year 2007;
and
|
|
·
|
4.6%
and 2.4% increases in average Brazilian ethanol anhydrous and hydrous
prices, respectively, to US$1.6361 per gallon (US$432.22 per thousand
liters) and US$1.4646 per gallon (US$386.90 per
thousand
|
|
|
liters),
respectively, as quoted by the ESALQ/CEPEA in fiscal year 2007
from
US$1.5646 per gallon (US$413.33 per thousand liters) and US$1.4306
per
gallon (US$377.92 per thousand liters), respectively, in the previous
fiscal year.
|
|
·
|
a
31.2% increase in Cosan’s sugar sales volume to 3,240.5 thousand tons in
fiscal year 2007 from 2,469.5 thousand tons in fiscal year 2006,
in
connection with the 27% increased crushing capacity due to the
acquisitions of Mundial, Corona and Bom Retiro at the end of fiscal
year
2006; and
|
|
·
|
a
19.0% increase in the average realized price per ton (including all
of the
types of sugar that we produce) to US$318.4 in fiscal year 2007 from
US$267.4 in fiscal year 2006.
|
|
·
|
a
30.1% increase in Cosan’s ethanol sales volume to 349.3 million gallons
(1,322.1 million liters) in fiscal year 2007 from 268.4 million gallons
(1,016.0 million liters) in fiscal year 2006, mainly as a result
of the
above-mentioned 27% increased crushing capacity due to the acquisitions
of
Mundial, Corona and Bom Retiro; and
|
|
·
|
a
12.0% increase in Cosan’s average realized unit price to US$1.5790 per
gallon (US$417.1 per thousand liters) in fiscal year 2007 from US$1.4098
per gallon (US$372.4 per thousand liters) in fiscal year 2006, due
to the
increased average price in the Brazilian market and the higher prices
for
the ethanol exported to the United
States.
|
|
·
|
financial
income of US$190.6 million resulting from derivative transactions
in
fiscal year 2007, compared to a US$209.4 million financial expense
from
derivative transactions in fiscal year 2006 as a result of the
mark-to-market method of accounting for derivative transactions related
to
sugar prices and currency exchange rates
fluctuations;
|
|
·
|
financial
income of US$149.1 million resulting from monetary adjustment of,
and
interest on, the original amount of the damages sought by one of
our
subsidiaries against the Brazilian federal government for setting
prices
for its products below the established price control guidelines,
which was
recorded as accounts receivable from the federal government in the
fourth
quarter of fiscal year 2007. Brazilian courts reached a final decision
favorable to us in the third quarter of fiscal year
2007;
|
|
·
|
financial
income of US$32.2 million related to discounts on São Paulo VAT penalty
and interest amounts following a tax amnesty granted by the state
authorities for 90% of penalty amounts and 50% of interest on VAT
amounts
owed to the state of São Paulo consisting of: (i) US$20.7 million related
to a discount granted to our subsidiary Da Barra for prepaying taxes
recorded under taxes payable as Special State Tax Payment Program
(State
REFIS) in the amount of US$37.4 million and taxes payable in the
amount of
US$8.4 million; and (ii) US$11.5 million resulting from the settlement
for
US$68.3 million in cash of US$99.9 million in tax debts recorded
under
estimated liability for legal proceedings and labor
claims;
|
|
·
|
financial
income of US$19.8 million in connection with the partial reversal
of
amounts related to inflation adjustments and interest on provisions
recorded in connection with the IAA litigation. Such financial income
was
recorded as a deduction to tax debts recorded under the caption estimated
liability for legal proceedings and labor claims. See “Business – Legal
Proceedings – Tax Proceedings”. Da Barra is a party to several federal tax
proceedings deriving from the default by Açucareira Nova Tamoio S.A.
(which was subsequently merged into Da Barra) on payments under
cross-border loans guaranteed by the Brazilian federal government;
and
|
|
·
|
financial
income of US$11.6 million resulting from renegotiation of promissory
notes
issued in connection with our acquisition of Usina da
Barra.
|
|
·
|
the
net effect of foreign exchange variation on the dollar-denominated
debt,
which represented financial income of US$19.4 million in fiscal year
2007,
compared to financial income of US$72.6 million in fiscal year
2006.
|
For
Fiscal Year Ended April 30,
|
||||||||||||
2006
|
2005
|
%Variation
|
||||||||||
(in
millions of US$, except percentages)
|
||||||||||||
Statement
of Operations:
|
||||||||||||
Net
sales:
|
US$
|
1,096.6
|
US$
|
644.4
|
70.2 | % | ||||||
Sugar
|
660.5
|
415.8
|
58.8
|
|||||||||
Ethanol
|
378.4
|
178.4
|
112.1
|
|||||||||
Other
products and services
|
57.8
|
50.1
|
15.3
|
|||||||||
Cost
of goods sold
|
(796.3 | ) | (456.6 | ) |
74.4
|
|||||||
Gross
profit
|
300.3
|
187.8
|
59.9
|
|||||||||
Selling
expenses
|
(97.8 | ) | (57.8 | ) |
69.3
|
|||||||
General
and administrative expenses
|
(72.0 | ) | (40.0 | ) |
80.1
|
|||||||
Operating
income
|
130.5
|
90.0
|
44.9
|
|||||||||
Other
income (expenses):
|
||||||||||||
Financial
expenses, net
|
(226.6 | ) | (39.2 | ) |
478.6
|
|||||||
Other
income (expenses)
|
(5.5 | ) | (16.4 | ) | (66.7 | ) | ||||||
(Loss)
income before income taxes, equity in income of affiliates and minority
interest
|
(101.6 | ) |
34.5
|
*
|
||||||||
Income
taxes benefit (expense)
|
29.7
|
(14.9 | ) |
*
|
||||||||
(Loss)
income before equity in income of affiliates and minority
interest
|
(71.8 | ) |
19.6
|
*
|
||||||||
Equity
in income of affiliates
|
1.6
|
3.4
|
(53.7 | ) | ||||||||
Minority
interest in net (income) loss of subsidiaries
|
(2.6 | ) | (0.4 | ) |
586.3
|
|||||||
Net
(loss) income
|
US$
|
(72.8
|
) |
US$
|
22.7
|
*
|
*
Not a meaningful comparison.
|
|
·
|
39.1%
and 7.3% increases in the annual volume of ethanol and sugar sold
to 268.4
million gallons (1,016.0 million liters) and 2,469.5 thousand tons
of
sugar in fiscal year 2006 from 193.0 million gallons (730.6 million
liters) and 2,302.4 thousand tons of sugar in fiscal year 2005, mainly
related to the acquisition and consolidation of FBA and Destivale,
which
together added 27% increase in crushing capacity;
and
|
|
·
|
a
53.6% increase in average international raw sugar prices to US$0.1269
per
pound as quoted by the NY11 on the New York Board of Trade’s Coffee, Sugar
and Cocoa Exchange in fiscal year 2006 from US$0.0827 per pound for
fiscal
year 2005.
|
|
·
|
a
7.3% increase in the annual volume sold to 2,469.5 thousand tons
of sugar
in fiscal year 2006 from 2,302.4 thousand tons of sugar in fiscal
year
2005, primarily as a result of Cosan’s acquisition of 52.5% of the
remaining capital stock of FBA and 100% of the share capital of the
Destivale Group, which together added a 27% increase in the existing
crushing capacity; and
|
|
·
|
a
48.1% increase in Cosan’s average realized unit price per ton of sugar
(including all of the types of sugar that we produce) to US$267.4
per ton
in fiscal year 2006 from US$180.6 in the previous fiscal year, following
the 53.6% increase in average international raw sugar prices as quoted
by
the NY11 as mentioned above.
|
|
·
|
a
39.1% increase in the volume sold in fiscal year 2006 to 268.4 million
gallons (1,016.0 million liters) from 193.0 million gallons (730.6
million
liters) in fiscal year 2005, resulting principally from the consolidation
of FBA and Destivale; and
|
|
·
|
a
52.5% increase in ethanol prices, with an average realized unit price
of
US$1.4098 per gallon (US$372.4 per thousand liters) in fiscal year
2006,
from US$0.9244 per gallon (US$244.2 per thousand liters) in fiscal
year
2005.
|
|
·
|
financial
expense of US$209.4 million in fiscal year 2006 as a consequence
of the
mark-to market of derivative transactions related to sugar prices
and
exchange rates fluctuations, compared to financial expense of US$27.5
million in fiscal year 2005; and
|
|
·
|
a
53.9% increase in net monetary variation and net interest expenses
net of
earnings from marketable securities as a result of our assumption
of net
indebtedness and other liabilities in connection with Cosan’s acquisition
of FBA, Destivale Group, Mundial and
Corona;
|
|
·
|
the
net effect of foreign exchange variation on the dollar-denominated
debt,
which represented US$72.6 million financial income in fiscal year
2006
compared to US$44.6 million in financial income in fiscal year 2005,
due
to the 21.2% appreciation of the real against the U.S. dollar in
fiscal year 2006.
|
|
·
|
our
ability to generate cash flow from our
operations;
|
|
·
|
the
level of our outstanding indebtedness and related accrued interest,
which
affects our net financial expenses;
|
|
·
|
prevailing
Brazilian and international interest rates, which affects our debt
service
requirements;
|
|
·
|
our
ability to continue to borrow funds from Brazilian and international
financial institutions and to obtain pre-export financing from certain
of
our customers; and
|
|
·
|
our
capital expenditure requirements, which consist primarily of investments
in crop planting and the purchase of
equipment.
|
|
·
|
an
investment in restricted cash of US$30.0 million in the three-month
period
ended July 31, 2007, compared to reduction in that balance of US$59.2
million in the three-month period ended July 31, 2006;
and
|
|
·
|
a
decrease in marketable securities, from US$62.9 million, in the
three-month period ended July 31, 2006 to US$180.8 million in the
three-month period ended July 31,
2007;
|
|
·
|
an
808.8% increase in operating capital expenditures, to US$94.4 million
in
the three-month period ended July 31, 2007 from US$10.4 million in
the
three-month period ended July 31,
2006.
|
|
·
|
a
decrease in restricted cash and marketable securities, from US$429.4
million used in fiscal year 2006, to US$144.0 million provided by
in
fiscal year 2007; and
|
|
·
|
a
decrease in the level of acquisitions, from US$260.9 million, disbursed
for the acquisition of Mundial, Corona and Bom Retiro in fiscal year
2006,
to US$39.4 million, disbursed in 2007 for the acquisition of a 33.3%
stake
of Etanol Participações S.A., which controls Santa
Luiza;
|
|
·
|
a
163.5% increase in capital expenditures, to US$356.2 million in fiscal
year 2007 from US$135.2 million in fiscal year
2006.
|
|
·
|
investments
of US$429.4 million in restricted cash and marketable securities
in fiscal
year 2006, compared to US$14.6 million provided in fiscal year
2005;
|
|
·
|
investments
of US$260.9 million, in the acquisition of Mundial, Corona and Bom
Retiro
in fiscal year 2006, compared to investments of US$8.5 million, in
the
acquisitions of Destivale group and the 32.0% stake at TEAS port
facility
in fiscal year 2005; and
|
|
·
|
an
increase in the level of capital expenditures, to US$135.2 million
in
fiscal year 2006 from US$68.8 million in fiscal year
2005.
|
|
·
|
a
decrease in proceeds from issuance of common stock, from US$383.1
million
in fiscal year 2006 in connection with Cosan’s initial public offering to
US$3.2 million in fiscal year 2007 in connection with the exercise
of the
stock-options issued by Cosan; and
|
|
·
|
a
decrease in the net proceeds of debt issuance (net of debt repayment),
from US$342.8 million in fiscal year 2006 (when we issued US$450
million
of perpetual notes) to US$219.6 million in fiscal year 2007 (when
we
issued US$400 million of senior notes payable on
2017).
|
|
·
|
US$383.1
million in net proceeds from the issuance of common stock in connection
with Cosan’s initial public offering in fiscal year 2006, compared to
US$23.3 million in proceeds from three capital increases occurred
in
fiscal year 2005; and
|
|
·
|
an
increase in the net proceeds of debt issuance (net of debt repayment),
to
US$342.8 million in fiscal year 2006, from US$10.9 million in fiscal
year
2005, mainly due to the proceeds from the issuance of US$450.0 million
in
perpetual notes in fiscal year
2006.
|
|
·
|
a
US$166.2 million decrease in cash, cash equivalents and marketable
securities balances, related to inventory build-up during the crop
period
and capital expenditures;
|
|
·
|
a
US$110.7 million increase in trade payables, related to partial funding
of
the inventory formation and capital expenditures;
and
|
|
·
|
a
US$26.3 million decrease in derivative financial instruments, related
to
the reduction in the fair market value of the existing portfolio
at the
end of the periods;
|
|
·
|
a
US$182.4 million increase in finished goods inventories, in line
with the
crop seasonality;
|
|
·
|
a
US$59.5 million increase in advances to suppliers, due to anticipation
of
payments in sugarcane to be delivered, in order to compensate lower
TSR
prices; and
|
|
·
|
a
US$31.5 million increase in restricted cash, gained as a result of
the
positive settlement of several derivative contracts during the
period.
|
|
·
|
a
US$200.4 million increase in cash, cash equivalents and marketable
securities balances;
|
|
·
|
a
US$172.1 million increase in derivative financial instruments, related
to
the change from negative to positive fair market value of the existing
portfolio at the end of the fiscal years;
and
|
|
·
|
a
US$60.3 million increase in inventories, mainly related to increased
annual maintenance cost of growing crops in order to recover agricultural
productivity;
|
|
·
|
a
US$78.4 million decrease in deferred income
taxes;
|
|
·
|
a
US$46.6 million decrease in trade accounts receivable, due to less
sales
at the end of fiscal year 2007, compared to sales at the end of fiscal
year 2006; and
|
|
·
|
a
US$45.3 million decrease in restricted cash, used at the end of fiscal
year 2006 to cover margin calls in connection with the negative fair
market value of our derivatives
portfolio.
|
|
·
|
a
US$382.9 million increase in cash and cash equivalents balances,
in
connection with net proceeds from the issuance of US$450.0 million
perpetual notes;
|
|
·
|
a
US$65.0 million increase in inventories, mainly related to annual
maintenance cost of growing crops in the acquired units of Mundial,
Corona
and Bom Retiro; and
|
|
·
|
a
US$62.6 million increase in restricted cash, used to cover margin
calls
for the negative mark-to market procedure in our derivatives portfolio
at
the end of fiscal year 2006;
|
|
·
|
a
US$88.7 million decrease in derivative financial instruments, net,
due to
the negative mark-to market procedure mentioned
above;
|
|
·
|
a
US$63.0 million increase in trade accounts payable balance in connection
with the final crop adjustments in the TSR price measured by the
CONSECANA
methodology, reflected in the cost of goods sold of fiscal year 2006;
and
|
|
·
|
a
US$38.9 million increase in current portion of long-term debt, in
accordance with the maturity schedule of our
debt.
|
|
·
|
US$72.2
million at Costa Pinto;
|
|
·
|
US$45.5
million at Rafard; and
|
|
·
|
US$62.2
million at Bonfim.
|
Total
|
Less
than 1 year
|
1
to 3 years
|
3
to 5 years
|
More
than 5 years
|
||||||||||||||||
(in
millions of US dollars)
|
||||||||||||||||||||
Long-term
debt obligations(1)
|
US$ |
1,378.6
|
US$ |
36.1
|
US$ |
216.4
|
US$ |
13.5
|
US$ |
1,112.6
|
||||||||||
Operating
lease obligations
|
611.7
|
56.0
|
110.4
|
105.4
|
339.8
|
|||||||||||||||
Purchase
obligations(2)
|
595.2
|
134.0
|
242.2
|
118.2
|
80.5
|
|||||||||||||||
Advances
from customers
|
48.6
|
24.3
|
24.3
|
—
|
—
|
|||||||||||||||
Total
|
US$ |
2,634.0
|
US$ |
250.3
|
US$ |
593.3
|
US$ |
257.5
|
US$ |
1,532.9
|
(1)
|
Less
than 1 year amounts include accrued interest over the existing debt;
long-term installments do not include any
interest.
|
(2)
|
Purchase
obligations were valued at the amount of sugarcane committed by a
TSR of
147.5kg per ton, at a price of US$158.2 per ton as defined by CONSECANA
for April 2007.
|
·
|
US$450
million perpetual notes with call option for Cosan beginning on February
2011;
|
·
|
US$400
million senior notes due February
2017;
|
·
|
US$200
million senior notes due November
2009;
|
·
|
US$216.7
million PESA debt due between 2018 and 2020, payable against CTN
credits;
|
·
|
US$50.0
million IFC A Loan with 12 semi-annually equal installments starting
on
July 2007; and
|
·
|
US$15.0
million IFC C Loan due January 2013 with call option for
Cosan.
|
Fair
Value –Net
Sales
|
Sales
Volume
|
Market
Risk – 10% Price Decrease
|
||||||||||
(in
millions of US$)
|
(thousand
tons of sugar or thousand liters of ethanol)
|
(in
millions of US$)
|
||||||||||
Sugar
sales volumes in fiscal year 2007
|
US$ |
1,031.7
|
3,240.5
|
US$ |
61.2
|
|||||||
Hedged
sugar position at April 30, 2007
|
419.4
|
1,317.3
|
—
|
|||||||||
VHP
sugar
|
381.1
|
1,196.9
|
—
|
|||||||||
White
sugar
|
38.3
|
120.4
|
—
|
|||||||||
Unhedged
sugar position at April 30, 2007
|
612.3
|
1,923.2
|
61.2
|
|||||||||
Ethanol
sales volumes (unhedged) in fiscal year 2007
|
551.5
|
1,322.1
|
55.1
|
|||||||||
Total
unhedged position at April 30, 2007
|
US$ |
1,163.8
|
US$ |
116.4
|
Fair
Value –Net
Sales
|
Market
Risk – 10% Price Decrease
|
|||||||
(in
millions of US$)
|
||||||||
Total
unhedged position at April 30, 2007
|
US$ |
1,163.8
|
US$ |
116.4
|
||||
Sugarcane
paid to growers in fiscal year 2007
|
(381.5 | ) | (38.1 | ) | ||||
Sugarcane
from leased land in fiscal year 2007
|
(99.4 | ) | (9.9 | ) | ||||
Net
unhedged position at April 30, 2007
|
US$ |
682.9
|
US$ |
68.3
|
Fair
Value – Net
Sales
|
Foreign
Exchange Volume
|
ForeignExchange
Risk –10%
Decrease
|
||||||||||
(in
millions of US$)
|
(in
millions of US$)
|
(in
millions of US$)
|
||||||||||
Hedged
export net sales at April 30, 2007
|
US$ |
191.0
|
US$ |
191.0
|
US$ |
—
|
||||||
Unhedged
export net sales at April 30, 2007
|
823.8
|
823.8
|
82.4
|
|||||||||
Total
export net sales in fiscal year 2007
|
US$ |
1,014.8
|
US$ |
1,014.8
|
US$ |
82.4
|
Debt
atApril
30, 2007
|
Market
Risk on Net Financial Expenses
|
|||||||
(in
millions of US$)
|
||||||||
U.S.
dollar-denominated debt
|
US$ |
1,134.0
|
US$
|
113.4
|
||||
U.S.
dollar-denominated advances from customers
|
48.6
|
4.9
|
||||||
U.S.
dollar-denominated cash and cash equivalents
|
(300.3 | ) | (30.0 | ) | ||||
U.S.
dollar-denominated derivative financial instruments (net)
|
(55.4 | ) | (5.5 | ) | ||||
U.S.
dollar-denominated trade accounts receivable
|
(16.3 | ) | (1.6 | ) | ||||
Total
U.S. dollar-denominated exposure
|
US$
|
810.5
|
US$ |
81.1
|
|
·
|
Emission
reduction. As a result of its high oxygen content, when burned,
carbon monoxide emissions when vehicles used a 10% blend of ethanol
were
found to be between 25% and 30% lower relative to gasoline, according
to
the tests carried out at the National Center for Vehicle Emissions
Control
and Safety at Colorado State University. Ethanol blends also reduce
emissions of hydrocarbons, a major contributor to
|
the depletion of the ozone layer. Also, sugarcane plantations have a positive environmental effect by absorbing carbon dioxide through photosynthesis. |
·
|
Relevant
blending component. As gasoline consumption grows, blending of
ethanol can contribute to preservation of non-renewable fossil fuel
sources as well as help to overcome refining capacity
constraints.
|
·
|
Octane
enhancer. Ethanol has an octane rating of 113 whereas the regular and
premium unleaded gasoline sold in the United States have average
octane
ratings of 87 and 93, respectively. When added to gasoline, ethanol
increases the octane rating of sub-octane fuel for production of
regular
grade gasoline or to upgrade regular gasoline to premium
grades.
|
Brazil
|
Gasoline
is required to include 20-25% ethanol (currently at 25%). In 2008,
gasoline will be required to include 2% biodiesel, increasing to
5% in
2013.
|
United
States
|
Government
energy policies will create a market for approximately 7 billion
gallons
of renewable fuel through 2012. In January 2007, President Bush announced
a target of 35 billion gallons by 2017.
|
European
Union
|
2%
of fuel must be renewable, increasing to 5.75% in 2010.
|
Thailand
|
10%
of gasoline is required to be ethanol in all gas stations in
Bangkok.
|
China
|
Five
districts require the addition of 10% ethanol to
gasoline.
|
Japan
|
Requires
that gasoline be 3% of ethanol, increasing to 10% in
2010.
|
India
|
Requires
that gasoline be 5% ethanol.
|
Argentina
|
By
2010, 5% of gasoline will be required to be ethanol.
|
Colombia
|
Requires
that gasoline by 10% ethanol in large cities.
|
Australia
|
Up
to 10% ethanol may be added to gasoline.
|
Source:
Renewable Fuels Association.
|
Raw
Material
|
Production/Hectare
|
Quantity
of Feedstock/Liter of Ethanol
|
Quantity
of Ethanol/Hectare
|
|||
Sugarcane
|
85,000kg
|
12.0kg
|
7,080
liter
|
|||
Corn
|
10,000kg
|
2.8kg
|
3,570
liter
|
(1)
|
Numbers
refer to 2006/2007 U.S. per capita consumption, including the total
consumption of sugar and corn glucose, divided by the U.S. population,
as
reported by the Food and Agriculture
Organization.
|
(1)
|
Cosan
production and exports refer to the fiscal year 2006. Sugar production
includes 3.18 million tons of sugar and 2.06 million tons of
sugar-equivalent ethanol.
|
Regions
|
|||||||||||||
2006/2007
|
Center-South
|
North-Northeast
|
Brazil
|
||||||||||
Number
of mills
|
251
|
74
|
325
|
||||||||||
Area
to be harvested (millions hectares)
|
4,513.7
|
854.8
|
5,368.5
|
||||||||||
Cultivated
area (million hectares)
|
5,310.2
|
1,005.7
|
6,315.9
|
||||||||||
Sugarcane
offer (million tons)
|
372.4
|
53.0
|
425.4
|
||||||||||
Yield
(tons/hectares)
|
82.5
|
62.0
|
79.2
|
||||||||||
Sugar
production (million tons)
|
25.8
|
4.0
|
29.8
|
||||||||||
Ethanol
production (thousand m3)
|
16.0
|
1.7
|
17.7
|
||||||||||
Production
in TSR-product (million tons)
|
54.7
|
7.1
|
61.8
|
||||||||||
TSR/ton
of sugarcane
|
146.9
|
134.7
|
145.4
|
||||||||||
Production
mix (%):
|
|||||||||||||
Sugar
|
49.51 | % | 58.80 | % | 50.58 | % | |||||||
Ethanol
|
50.49 | % | 41.20 | % | 49.42 | % | |||||||
Average
crushing capacity (million tons)
|
1,483.6
|
716.2
|
1,308.9
|
||||||||||
Export
market:
|
|||||||||||||
Sugar
(million tons)
|
17.0
|
2.6
|
19.6
|
||||||||||
Ethanol
(billion liters)
|
3.2
|
0.4
|
3.6
|
||||||||||
Domestic
market:
|
|||||||||||||
Sugar
(million tons)
|
8.5
|
1.5
|
10.0
|
||||||||||
Ethanol
(billion liters)
|
13.0
|
1.0
|
14.0
|
||||||||||
Production
destination (%)
|
|||||||||||||
Sugar
|
57.28 | % | 52.11 | % | 56.68 | % | |||||||
Ethanol
|
42.72 | % | 47.89 | % | 43.32 | % |
·
|
Sugarcane:
the largest grower and processor of sugarcane in the world, having
crushed
36.2 million tons in fiscal year 2007 and 27.9 million tons of sugarcane
in fiscal year 2006 (planted on approximately 572,000 hectares, of
which
approximately 50% is leased by us, 40% is supplier owned and 10%
is
company owned);
|
·
|
Ethanol:
the largest ethanol producer in Brazil and the second largest in
the
world, having produced 326.7 million gallons (1.2 billion liters)
in
fiscal year 2007 and 241.7 million gallons (915.0 million liters)
in
fiscal year 2006, and the largest exporter of ethanol in the world,
having
exported 72.6 million gallons (274.7 million liters) in fiscal year
2007
and 61.0 million gallons (230.9 million liters) in fiscal year 2006;
and
|
·
|
Sugar:
the largest sugar producer in Brazil and one of the three largest
sugar
producers in the world, having produced 3.2 million tons in fiscal
year
2007 and 2.3 million tons of sugar in fiscal year 2006, and the largest
exporter of sugar in the world, having exported 2.8 million tons
in fiscal
year 2007 and 2.1 million tons in fiscal year
2006.
|
Sugarcane
Grown For Years Ended April 30,
|
||||||||||||||||||||||||
2007
|
%
|
2006
|
%
|
2005
|
%
|
|||||||||||||||||||
(In
millions of tons, except percentages)
|
||||||||||||||||||||||||
Sugarcane
harvested from owned/leased land
|
21.6
|
59.8
|
17.2
|
61.7
|
15.0
|
61.7
|
||||||||||||||||||
Sugarcane
purchased from third parties
|
14.5
|
40.2
|
10.7
|
38.3
|
9.3
|
38.3
|
||||||||||||||||||
Total
|
36.2
|
100.0
|
27.9
|
100.0
|
24.3
|
100.0
|
·
|
Preparation
of the juice. The fermentation is fed with a juice composed by
approximately 20% of sugar, which is prepared with juice (from the
treatment), molasses (from sugar production) and water. This juice
must be
cooled to approximately 30°C.
|
·
|
Fermentation.
The fermentation of the juice is the result of the action of yeast,
which
firstly inverts the sucrose to glucose and fructose (monosaccharide),
and
then converts the monosaccharide into ethanol and carbon dioxide.
This
reaction occurs in a fermenter, which is fed with juice and
yeast.
|
·
|
Centrifuging.
After the fermentation, the resulting product is carried to centrifuges
that separates the yeast from the beer, a solution of approximately
9%v/v
(oGL) of ethanol.
|
·
|
Treatment
of the yeast. The yeast that comes from the centrifuges is treated
with sulfuric acid and return to the fermenter tank to be utilized
again.
|
·
|
Distillation.
The beer is distillated in a sequence of distillation columns, which
separate the water from the ethanol. This process occurs basically
due to
the differences of ethanol’s and water’s ebullition temperatures. In order
to produce hydrous ethanol, two columns are used to achieve the
concentration of 94%v/v (oGL) ethanol. From the first column, a slop
called vinasse is obtained, which is used as a fertilizer in the
sugarcane
fields.
|
·
|
Dehydration.
In order to produce anhydrous ethanol, two more columns are used
to
achieve the concentration of 99%v/v (oGL) ethanol. In the first column,
the excess of water is separated with the aid of
cycle-hexane.
|
Market
|
Customer
|
%
of Net Sales For Fiscal Year Ended April 30, 2007
|
|||
International
|
Vertical
UK LLP
|
11.6%
|
|||
Kolmar
Petrochemicals 6
|
6.2%
|
|
|||
Domestic
|
Shell
Brasil Ltda.
|
14.8%
|
|||
Petrobras
Distribuidora S.A.
|
9.2%
|
||||
Manancial
Distribuidora de Petróleo Ltda
|
8.2%
|
For
Fiscal Year Ended April 30,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Brazilian
net sales (in millions of US$)
|
US$ |
413.1
|
US$ |
312.4
|
US$ |
122.5
|
||||||
%
of
total net sales
|
24.6 | % | 28.5 | % | 19.0 | % | ||||||
Brazilian
sales volume (in millions of liters)
|
1,047.4
|
785.1
|
455.2
|
|||||||||
%
of
total ethanol sales volume
|
79.2 | % | 77.3 | % | 62.3 | % |
For
Fiscal Year Ended April 30,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Export
net sales (in millions of US$)
|
US$ |
138.3
|
US$ |
66.0
|
US$ |
55.9
|
||||||
%
of
total net sales
|
8.2 | % | 6.0 | % | 8.7 | % | ||||||
Export
sales volume (in millions of liters)
|
274.7
|
230.9
|
275.4
|
|||||||||
%
of
total sales volume
|
20.8 | % | 22.7 | % | 37.7 | % |
For
Fiscal Year Ended April 30,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Brazilian
average ethanol selling price
|
US$ |
394.5
|
US$ |
397.9
|
US$ |
269.2
|
||||||
Export
average ethanol selling price
|
503.5
|
285.9
|
202.8
|
|||||||||
Average
ethanol selling price
|
US$ |
417.1
|
US$ |
372.4
|
US$ |
244.2
|
Market
|
Customer
|
%
of Net Sales For Fiscal Year Ended April 30, 2007
|
|||
International
|
Sucres
et Denrées
|
33.3%
|
Coimex
Trading Ltd 6
|
11.5%
|
||||
S.A.
Fluxo
|
9.5%
|
||||
Tate
& Lyle International
|
5.3%
|
||||
Cane
International Corporation
|
2.2%
|
For
Fiscal Year Ended April 30,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Export net
sales (in millions of US$)
|
US$
|
873.0
|
US$
|
530.3
|
US$
|
344.8
|
||||||
%
of
total net sales
|
52.0 | % | 48.4 | % | 53.5 | % | ||||||
Export
sales volumes (in thousands of tons)
|
2,802.5
|
2,051.5
|
1,970.6
|
|||||||||
%
of
total sales volume
|
86.5 | % | 83.1 | % | 85.6 | % |
For
Fiscal Year Ended April 30,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Domestic
net sales (in millions of US$)
|
US$
|
158.7
|
US$
|
130.2
|
US$
|
71.0
|
||||||
%
of
total net sales
|
9.5 | % | 11.9 | % | 11.0 | % | ||||||
Domestic
sales volumes (in thousands of tons)
|
438.1
|
417.9
|
331.8
|
|||||||||
%
of
total sales volume
|
13.5 | % | 16.9 | % | 14.4 | % |
For
Fiscal Year Ended April 30,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
(US$/ton)
|
||||||||||||
Domestic
average sugar selling price
|
US$
|
362.3
|
US$
|
311.4
|
US$
|
214.1
|
||||||
Export
average sugar selling price (raw and refined)
|
311.5
|
258.5
|
175.0
|
|||||||||
Average
sugar selling price
|
US$
|
318.4
|
US$
|
267.4
|
US$
|
180.6
|
·
|
a
cleaner energy derived from renewable sources, considered to be “carbon
neutral”;
|
·
|
highly
complementary-relationship to hydro-electric energy, because sugarcane
bagasse energy is generated during the crop season, which coincides
with
the dry period in the Brazilian Center-South region, when water supply
levels are lower; and
|
·
|
short
lead-times to initiate operations is
required.
|
Name
|
Products
|
Annual
Crushing Capacity
|
Sugarcane
Volume Processed
|
|||||||
For
Fiscal Year Ended
|
Crop
2006/2007
|
|||||||||
April
30, 2007
|
April
30, 2006
|
|||||||||
(in
millions of tons)
|
||||||||||
Da
Barra
|
sugar,
ethanol and cogeneration
|
7.20
|
|
6.56
|
6.75
|
7.02
|
||||
Bonfim
|
sugar,
ethanol and cogeneration
|
4.60
|
3.81
|
—
|
3.81
|
|||||
Costa
Pinto
|
sugar,
ethanol and cogeneration
|
4.00
|
3.68
|
3.27
|
3.68
|
|||||
Junqueira
|
sugar,
ethanol and cogeneration
|
2.60
|
2.49
|
2.71
|
2.69
|
|||||
Rafard
|
sugar,
ethanol and cogeneration
|
2.40
|
2.32
|
2.16
|
2.35
|
|||||
Univalem
|
sugar,
ethanol and cogeneration
|
2.20
|
2.17
|
1.75
|
2.05
|
|||||
Santa
Helena
|
sugar,
ethanol and cogeneration
|
2.05
|
1.87
|
1.75
|
1.88
|
|||||
Ipaussu
|
sugar,
ethanol and cogeneration
|
1.95
|
1.91
|
1.63
|
1.88
|
|||||
Diamante
|
sugar,
ethanol and cogeneration
|
1.95
|
1.90
|
1.86
|
1.93
|
|||||
Serra
|
sugar,
ethanol and cogeneration
|
1.80
|
1.63
|
1.55
|
1.63
|
|||||
Tamoio
|
sugar
and cogeneration
|
1.40
|
0.98
|
—
|
0.98
|
|||||
São
Francisco
|
sugar
and cogeneration
|
1.40
|
1.48
|
1.23
|
1.47
|
|||||
Dois
Córregos
|
sugar,
ethanol and cogeneration
|
1.40
|
1.20
|
1.26
|
1.20
|
|||||
Destivale
|
sugar,
ethanol and cogeneration
|
1.30
|
1.08
|
0.86
|
0.98
|
|||||
Mundial
|
sugar,
ethanol and cogeneration
|
1.30
|
0.87
|
0.01
|
0.88
|
|||||
Gasa
|
sugar,
ethanol and cogeneration
|
1.25
|
1.22
|
1.11
|
1.19
|
|||||
Bom
Retiro
|
sugar,
ethanol and cogeneration
|
1.20
|
0.98
|
—
|
0.98
|
Expansion
|
||||||||||||||||||||||||||||
Actual
Crushing Capacity
|
2009
|
2010
|
2011
|
2012
|
Future
Crushing Capacity
|
Estimated
Capital Expenditures for Expansion
|
||||||||||||||||||||||
(in
millions of tons)
|
(in
millions of US$)
|
|||||||||||||||||||||||||||
Univalem
|
2.20
|
—
|
0.50
|
—
|
—
|
2.70
|
US$
|
15.0
|
||||||||||||||||||||
Gasa
|
1.25
|
1.60
|
1.00
|
—
|
—
|
3.85
|
143.0
|
|||||||||||||||||||||
Destivale
|
1.30
|
0.40
|
1.00
|
0.50
|
—
|
3.20
|
85.5
|
|||||||||||||||||||||
Mundial
|
1.30
|
—
|
1.50
|
0.50
|
—
|
3.30
|
90.0
|
|||||||||||||||||||||
Bonfim
|
4.60
|
1.00
|
—
|
—
|
—
|
5.60
|
50.0
|
|||||||||||||||||||||
Junqueira
|
2.60
|
—
|
—
|
0.30
|
—
|
2.90
|
10.5
|
|||||||||||||||||||||
Ipaussu
|
1.95
|
—
|
0.50
|
—
|
—
|
2.45
|
17.5
|
|||||||||||||||||||||
Gasa
II
|
—
|
—
|
0.50
|
0.70
|
0.60
|
1.80
|
90.0
|
|||||||||||||||||||||
Total
|
15.2
|
3.00
|
5.00
|
2.00
|
0.60
|
25.8
|
US$
|
501.5
|
Crushing
Capacity For Fiscal Year Ended April 30
|
|||||||
2009
|
2010
|
2011
|
2012
|
||||
(in
millions of tons)
|
|||||||
Jatai
|
0.5
|
1.5
|
3.3
|
3.3
|
|||
Montividiu
|
—
|
0.5
|
1.5
|
3.3
|
|||
Paraúna
|
—
|
0.5
|
1.5
|
3.3
|
Number
of Mills
|
Sugarcane
Crushed
|
Ethanol
Sales
|
Sugar
Sales
|
||||||||
(in
millions of tons)
|
(in
millions of liters)
|
(in
thousands of tons)
|
|||||||||
Cosan
|
17
|
36.6
|
1,282
|
3,258
|
|||||||
Louis
Dreyfus
|
7
|
10.8
|
305
|
620
|
|||||||
Carlos
Lyra
|
5
|
9.5
|
197
|
614
|
|||||||
Vale
do Rosário
|
3
|
9.4
|
421
|
619
|
|||||||
São
Martinho
|
2
|
9.2
|
393
|
677
|
|||||||
Tércio
Wanderley
|
4
|
8.7
|
267
|
500
|
|||||||
Guarani
|
3
|
8.3
|
164
|
890
|
|||||||
Zillo
|
3
|
8.3
|
402
|
596
|
|||||||
Oscar
Figueiredo
|
3
|
8.2
|
203
|
809
|
|||||||
Santa
Terezinha
|
5
|
8.1
|
206
|
835
|
|||||||
Santa
Elisa
|
3
|
7.6
|
346
|
482
|
Source:
|
UNICA,
except for Cosan figures (leased mills
included).
|
·
|
the
generation, storage, handling, use and transportation of hazardous
materials;
|
·
|
the
emission and discharge of hazardous materials into the ground, air
or
water; and
|
·
|
the
health and safety of our employees.
|
·
|
20%
of the harvested area by the first year
(2002);
|
·
|
30%
of the harvested area by the fifth year
(2006);
|
·
|
50%
of the harvested area by the tenth year
(2011);
|
·
|
80%
of the harvested area by the fifteenth year (2016);
and
|
·
|
100%
of the harvested area by the twentieth year
(2021).
|
·
|
10%
of the harvested area by the tenth year
(2011);
|
·
|
20%
of the harvested area by the fifteenth year
(2016);
|
·
|
30%
of the harvested area by the twentieth year
(2021);
|
·
|
50%
of the harvested area by the twenty-fifth year (2026);
and
|
·
|
100%
of the harvested area by the thirtieth year
(2031).
|
·
|
Civil
Liability: Brazilian law provides for strict and joint and several
liability for polluters (i.e. persons or legal entities, private
or public, which are directly or indirectly responsible for an activity
that causes environmental damage). Strict liability means that a
party can
be held responsible regardless of its knowledge, fault and degree
of care
or intent. Joint and several liability means that any individual
party
directly or indirectly involved with the cause of the damage may
be sued
for the entire amount of such damage, with the right to proportionally
recover the losses from the other responsible
parties.
|
·
|
Criminal
and administrative liability: Brazilian law provides for severe
administrative and criminal sanctions against legal entities and
individuals that violate its provisions regarding the protection
of
natural resources and pollution control. The sanctions for administrative
infractions include: (1) warnings, (2) fines, which may range from
R$50.00
to R$50 million (US$24.60 to US$24.6 million) that can be doubled
or
tripled in case of recidivism, (3) partial or total interruption
or
suspension of business operations, (4) demolition, (5) cancellation
of
licenses, (6) loss or restriction of tax incentives and benefits,
(7) loss
or suspension of eligibility for credit lines with official credit
institutions, and (8) prohibition from contracting with the government.
The criminal penalties imposed may involve imprisonment or confinement,
may limit
|
or restrict certain rights (such as the temporary suspension or cancellation of an authorization, or prohibition to contract with public bodies), and may also include a monetary penalty. |
At
April 30,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Agricultural
|
27,063
|
26,370
|
15,436
|
|||||||||
Industrial
|
6,256
|
6,106
|
5,360
|
|||||||||
Commercial
|
85
|
94
|
69
|
|||||||||
Administrative
|
1,930
|
1,823
|
1,419
|
|||||||||
Financial
and investor relations
|
42
|
50
|
47
|
|||||||||
Port
|
213
|
198
|
196
|
|||||||||
Total
|
35,589
|
34,641
|
22,527
|
·
|
Aguassanta
Participações S.A., or “Aguassanta” and Usina Costa Pinto S.A. Açúcar e
Álcool, or “Costa Pinto”, controlling shareholders of Cosan and both
indirectly controlled by our chairman and chief executive officer,
Mr.
Rubens Ometto Silveira Mello, contributed their common shares of
Cosan to
us in exchange for 96,332,044 of our class B series 1 common shares.
The
common shares contributed to us by Aguassanta and Costa Pinto consist
of
96,332,044 common shares of Cosan, representing 51.0% of Cosan’s
outstanding common shares; and
|
Name
|
Initial
Year of Appointment to Cosan Limited’s
Board
|
Initial
Year of Appointment to Cosan’s Board
|
Class(1)
|
Position
Held
|
Year
of Birth
|
||||
Rubens
Ometto Silveira Mello(2)
|
2007
|
2000
|
III
|
Chairman
|
1950
|
||||
Marcus
Vinicios Pratini de Moraes(2)(3)
|
2007
|
2005
|
II
|
Vice
Chairman
|
1939
|
||||
Paulo
Sérgio de Oliveira Diniz(2)
|
2007
|
2005
|
III
|
Director
|
1957
|
||||
Teo
Joo Kim(2)(3)
|
2007
|
2005
|
I
|
Director
|
1941
|
||||
Marcos
Marinho Lutz
|
2007
|
—
|
II
|
Director
|
1969
|
||||
Pedro
Isamu Mizutani(2)
|
2007
|
2000
|
III
|
Director
|
1959
|
||||
George
E. Pataki(3)
|
2007
|
—
|
I
|
Director
|
1945
|
||||
Marcelo
de Souza Scarcela Portela(2)
|
2007
|
2005
|
II
|
Director
|
1961
|
||||
José
Alexandre Scheinkman(3)
|
2007
|
—
|
I
|
Director
|
1948
|
(1)
|
The
terms of the directors expire as follows: Class I at the annual general
meeting held in fiscal year 2008; Class II at the annual general
meeting
held in fiscal year 2009; and Class III at the annual general meeting
held
in fiscal year 2010.
|
(2)
|
Also
serves as director of Cosan.
|
(3)
|
Independent
director.
|
Name
|
Initial
Year of Appointment to Cosan Limited
|
Initial
Year of Appointment to Cosan
|
Position
Held
|
Year
of Birth
|
|||
Rubens
Ometto Silveira Mello
|
2007
|
2000
|
Chief
Executive Officer
|
1950
|
|||
Pedro
Isamu Mizutani
|
2007
|
2000
|
Chief
Operating Officer
|
1959
|
|||
Paulo
Sérgio de Oliveira Diniz
|
2007
|
2003
|
Chief
Financial and Investor Relations Officer
|
1957
|
|||
Marcos
Marinho Lutz
|
2007
|
2006
|
Chief
Commercial Officer
|
1969
|
Marcos
Marinho Lutz
|
2007
|
2006
|
Chief
Commercial Officer
|
1969
|
·
|
pre-approve
services to be provided by our independent
auditor;
|
·
|
review
auditor independence issues and rotation
policy;
|
·
|
supervise
the appointment of our independent
auditors;
|
·
|
discuss
with management and auditors major audit
issues;
|
·
|
review
quarterly financial statements prior to their publication, including
the
related notes, management’s report and auditor’s
opinion;
|
·
|
review
our annual report and financial
statements;
|
·
|
provide
recommendations to the board on the audit committee’s policies and
practices;
|
·
|
review
related party transactions;
|
·
|
review
recommendations given by our independent auditor and internal audits
and
management’s responses; and
|
·
|
provide
recommendations on the audit committee’s
bylaws.
|
Shareholders
|
Class
A Common Shares
|
%
|
Class
B Common Shares
|
%
|
Total
Number of Shares
|
%
|
||||||||||||||||||
Aguassanta
Participações S.A.
|
5,000,000
|
4.5
|
—
|
—
|
5,000,000
|
2.4
|
||||||||||||||||||
FMR
Corp. (1)
|
13,425,000
|
12.0
|
—
|
—
|
13,425,000
|
6.5
|
||||||||||||||||||
Janus
Capital Management LLC(2)
|
27,459,175
|
24.6
|
—
|
—
|
27,459,175
|
13.2
|
||||||||||||||||||
Queluz
Holdings Limited
|
—
|
—
|
66,321,766
|
68.8
|
66,321,766
|
31.9
|
||||||||||||||||||
Usina
Costa Pinto S.A. Açúcar e Álcool
|
—
|
—
|
30,010,278
|
31.2
|
30,010,278
|
14.4
|
||||||||||||||||||
Wellington
Management Company, LLP (3)
|
13,914,200
|
12.5
|
—
|
—
|
13,914,200
|
6.7
|
||||||||||||||||||
Others
|
51,879,625
|
46.5
|
—
|
—
|
51,879,625
|
24.9
|
||||||||||||||||||
Total
|
111,678,000
|
100.0 | % |
96,332,044
|
100.0 | % |
208,010,044
|
100.0 | % |
Shareholders
|
Common
Shares
|
%
|
||||||
Cosan
Limited
|
96,332,044
|
51.0 | % | |||||
Kuok
Group (Lewington Pte. Ltd)
|
11,329,050
|
6.0
|
||||||
Sucres
et Denrées
|
4,378,212
|
2.3
|
||||||
Others
|
76,847,054
|
40.7
|
||||||
Total
|
188,886,360
|
100.0 | % |
·
|
any
actions that may jeopardize the capacity of Cosan Portuária to service its
customers in the ordinary course of
business;
|
·
|
the
performance by Cosan Portuária of any activities or businesses different
from its ordinary course of business (including the sale and acquisition
of assets);
|
·
|
any
merger, amalgamation or spin-off of Cosan Portuária with or into any other
companies;
|
·
|
transactions
between Cosan Portuária and any of its shareholders or
affiliates;
|
·
|
the
issuance, cancellation or amendment of any guarantees, indemnities
or
powers-of-attorney (except if entered into with the Brazilian Port
Authorities—CODESP by virtue of the port
concession);
|
·
|
any
amendments to the bylaws or any other corporate documents of Cosan
Portuária that may affect any of the matters that require the approval
of
Tate & Lyle do Brasil Serviços e Participações S.A. or any minority
shareholders rights to which Tate & Lyle do Brasil Serviços e
Participações S.A. is entitled;
|
·
|
any
changes in the share capital of Cosan
Portuária;
|
·
|
the
dissolution, termination or liquidation of Cosan
Portuária;
|
·
|
distribution
of dividends or other payments by Cosan Portuária to its shareholders;
and
|
·
|
the
termination of any agreements entered into between Cosan Portuária and
Tate and Lyle (or any of Tate & Lyle’s
affiliates).
|
·
|
import,
export, produce and sell ethanol, sugar, sugarcane and other sugar
by-products;
|
·
|
distribute
and sell fuel and other fuel
by-products;
|
·
|
produce
and market electricity, steam and other co-generation
by-products;
|
·
|
render
technical services related to the activities mentioned above;
and
|
·
|
hold
equity interests in other
companies.
|
·
|
appointment
of the chief executive officer of our company or any of its subsidiaries
(including successors thereof);
|
·
|
changes
to the core business strategy of our company or any of its
subsidiaries;
|
·
|
change
name or corporate purpose of our company or any of its
subsidiaries;
|
·
|
amendments
to any rights of the class B series 1 common
shares;
|
·
|
any
recapitalization, stock split, combination, reclassification or similar
action affecting equity interests in our company or any of its
subsidiaries;
|
·
|
redemption,
capital reduction or other acquisition for value of any shares of
equity
interests in our company or any of its
subsidiaries;
|
·
|
any
transaction or series of transactions resulting in a spin-off, delisting,
merger, amalgamation, reorganization or combination of or by our
company
or any of its subsidiaries with, or any acquisition of, another person
involving an amount in excess of US$250
million;
|
·
|
any
sale, lease, assignment, transfer or other disposition of assets
valued in
the aggregate, in excess of US$250
million;
|
·
|
any
voluntary liquidation, reorganization, dissolution or winding-up
of, or a
voluntary filing for bankruptcy protection by our company or any
of its
subsidiaries;
|
·
|
the
approval of the limit of the compensation of members of the board
of
directors or executive officers of our company or any of its
subsidiaries;
|
·
|
the
making of any investment in excess of US$250 million other than
investments in the ordinary course of
business;
|
·
|
entering
into any joint venture, partnership or any similar arrangement other
than
in the ordinary course of business;
|
·
|
any
related-party transactions;
|
·
|
the
incurrence of any liens on properties valued, in the aggregate, in
excess
of US$250 million;
|
·
|
amendment
of the provisions of any of the foregoing actions or events;
and
|
·
|
agreeing
to, or otherwise committing to take, any of the foregoing
actions.
|
·
|
any
merger, consolidation or amalgamation with an interested
shareholder;
|
·
|
any
disposition or security arrangement with or for the benefit of any
interested shareholder involving any of our assets, securities or
commitments or those of any subsidiary or any interested shareholder
that
has an aggregate fair market value and/or involves aggregate commitments
of US$250 million or more or constitutes more than 10% of the book
value
of the total assets or 10% of the shareholders equity of the entity
in
question;
|
·
|
the
adoption of any plan for our liquidation or dissolution or for the
discontinuation into another jurisdiction, unless proposed or adopted
independently of any interested shareholder;
or
|
·
|
any
reclassification of our shares or other securities, or recapitalization,
or any merger, consolidation or amalgamation with any of our subsidiaries
or any other transaction that has the effect of increasing the
proportionate share of any class of shares beneficially owned by
an
interested shareholder.
|
·
|
Our
bye-laws contain provisions that could make it more difficult for
a third
party to acquire us without the consent of our board of directors.
These
provisions provide, among other things,
for:
|
·
|
a
classified board of directors with staggered three-year
terms;
|
·
|
restrictions
on the time period in which directors may be
nominated;
|
·
|
the
affirmative vote of a majority of our directors then in office and
a
majority of all votes attaching to all shares then in issue or, if
not
approved by a majority of the directors in office, at least 66-2/3%
of all
votes attaching to all shares then in issue for amalgamation and
other
business combination transactions;
and
|
·
|
the
tag-along rights described under “Tag-Along
Rights”.
|
|
·
|
the
corporate laws of Bermuda and Brazil;
and
|
|
·
|
our
memorandum of association and bye-laws and Cosan’s
by-laws.
|
Rights
of Holders of
Cosan
Common Shares
|
Rights
of Holders of
the
Company Common Shares
|
|||
Voting
|
In
accordance with Cosan’s by-laws, each common share of Cosan grants to its
holder the right to one vote at general meetings of shareholders.
At a
general shareholders’ meeting, if called and constituted in accordance
with applicable Brazilian laws, shareholders are generally empowered
to
take any action relating to the corporate purposes of Cosan and to
pass
such resolutions as they deem necessary. In order to participate
and vote
at a general shareholders’ meeting, a shareholder must evidence
his/her/its position as a shareholder of Cosan presenting at least
2 days
prior to the relevant meeting the original or a copy of (i) his/her
identification document; (ii) evidence of the shares held issued
by the
depositary of Cosan’s shares; and (iii) a power of attorney, if the
shareholder will be represented by proxy. The originals of the documents
referred above must be presented before the opening of the shareholders’
meeting.
In
accordance with the Brazilian corporate law, a shareholder may be
represented at a shareholders’ meeting by proxy appointed within a year of
the meeting, which proxy must be another shareholder, one of the
directors
or executive officers of Cosan, a lawyer or a financial institution.
An
investment fund shareholder must be represented by its investment
fund
officer.
|
Bermuda
law provides that, subject to the rights contained in the bye-laws
and any
other rights or restrictions attached to any class of shares or series
of
shares, at a general meeting each member of the company is entitled
to one
vote for each share held by him and such votes may be given in person
or
by proxy.
Our
bye-laws provide for different voting rights for the two different
classes
of shares in the company: the holders of class A common shares each
have
one vote per share, the holders of class B series 1 shares generally
have
10 votes per share and the holders of class B series 2 common shares
generally have 10 votes per share.
Under
Bermuda law, a company is required to convene at least one general
meeting
of shareholders in each calendar year. Bermuda law provides that
a special
general meeting of shareholders may be called by the board of directors
of
a company and must be called upon the requisition of shareholders
holding
not less than 10% of the paid up voting power.
Our
bye-laws provide that a shareholder may appoint one or more persons
as his
proxy to represent him to vote on his behalf in respect of some or
all of
his shares at any general meeting. The shareholder may also appoint
a
proxy or corporate representative for a specific
general
|
||
Rights
of Holders of
Cosan
Common Shares
|
Rights
of Holders of
the
Company Common Shares
|
|||
Brazilian
corporate law and Cosan’s by-laws provide that certain actions may be
taken only at shareholders’ meetings (such as amendments to the by-laws,
election of directors and members of the fiscal council, share splits,
mergers, spin-offs and delisting). However, according to Brazilian
corporate law, neither a company’s by-laws nor actions taken at a
shareholders' meeting may deprive a shareholder of the following
rights:
(i) the right to participate in the distribution of net income; (ii)
the
right to participate equally and ratably in any remaining residual
assets
in the event of liquidation of the company; (iii) the right to preemptive
rights in the event of subscription of shares, convertible debentures
and
subscription bonuses, except in some specific circumstances; and
(iv) the
right to withdraw from the company in specific cases.
|
meeting
and may appoint a standing proxy by serving on the company a proxy
or an
authorization.
|
|||
Dividends
|
Brazilian
corporate law and Cosan’s by-laws require that Cosan distributes annually
to its shareholders a mandatory minimum dividend, unless Cosan’s board of
directors notifies the shareholders that such distribution is not
advisable in light of Cosan’s financial condition as reflected in Cosan’s
financial statements in accordance with Brazilian GAAP. The mandatory
dividend is equal to 25% of Cosan’s net income for the prior year (as
calculated under Brazilian GAAP, subject to certain adjustments mandated
by Brazilian corporate law). The mandatory dividend may be made in
the
form of dividends or interest on shareholders’ equity, which may be
deducted by Cosan in calculating its income and social contribution
tax
obligations. The declaration of annual dividends, including dividends
in
excess of the mandatory distribution, requires approval by the vote
of a
majority of the holders of Cosan’s common shares and depends on numerous
factors. These factors include Cosan’s results of operations, financial
condition, cash requirements, future prospects, financial covenant
limitations, and other factors deemed relevant by Cosan’s board of
directors and shareholders. Cosan’s board of directors has adopted a
dividend policy pursuant to which Cosan has distributed as dividends
and/or interest on shareholders’ equity in the amount of approximately 25%
of Cosan’s net income for each fiscal year. Under Brazilian corporate law,
Cosan may establish income reserve accounts composed of a legal reserve,
an investments reserve and/or a retained profit reserve. The balance
of
such income reserve accounts must not exceed the amount of Cosan’s capital
stock and any excess amounts must either be
|
Bermuda
law places a liquidity control over the declaration and payment of
dividends or distributions from contributed surplus. Under Bermuda
law a
company may declare and pay dividends or make distributions from
contributed surplus unless there are reasonable grounds for believing
that
the company is or would, after the payment is made, be unable to
pay its
liabilities as they become due or that its realizable assets would
thereby
be less than the aggregate of its liabilities (including its issued
share
capital and share premium accounts).
Our
bye-laws provide that the directors may declare dividends (or
distributions out of the contributed surplus of the company), to
be paid
to the shareholders according to their rights and interests.
Our
bye-laws provide that, save for any rights attached to any preference
shares issued by the company providing for a preferred dividend payment,
any dividend payment or distribution from contributed surplus will
be made
to the holders of class A common shares, class B series 1 commons
shares
and class B series 2 commons shares on a pro-rata
basis.
|
Rights
of Holders of
Cosan
Common Shares
|
Rights
of Holders of
Cosan
Common Shares
|
|||
incorporated
into its capital stock or distributed as dividends. Cosan currently
does
not have any income reserve accounts, but may establish them in the
future. Cosan has historically paid cash distributions.
|
||||
Number
of Directors; Qualifications
|
Cosan’s
by-laws require that the board of directors consists of a minimum
of seven
and a maximum of twenty directors, 20% of whom must be independent
as
provided by the Novo Mercado rules. The exact number of directors
is established by a vote of a majority of Cosan’s common shares at a
shareholders’ meeting. Currently, the board of directors of Cosan is
composed of nine members.
Brazilian
corporate law requires that each director owns at least one share
of
Cosan’s capital stock. There is no mandatory retirement age for
directors.
|
Bermuda
law prescribes that a company must be managed by not less than two
directors who must be individuals.
Our
bye-laws provide that there must not be less than five directors
of the
company and not more than eleven directors of the company or such
number
in excess thereof as the board by resolution may from time to time
determine.
The
quorum necessary for the transaction of the business of the board
may be
fixed by the board and, unless fixed at any other number, must be
two
individuals.
|
||
Term
of Directors
|
The
directors of Cosan are elected for a term of office of two years,
being
eligible for reelection.
|
Our
bye-laws provide that the directors are categorized by classes. The
classes are designed to facilitate the retirement and rotation of
the
directors from the board and are not reflective of different voting
rights
or powers or authority. class I, II and III directors serve until
the
annual general meetings held in calendar years 2008, 2009 and 2010
respectively and subsequently must serve for three-year terms, each
concluding at the third annual general meeting after their class
of
directors together were last appointed or re-elected.
|
||
Election
of Directors
|
The
directors of Cosan are appointed at the annual shareholders’ meeting. The
Brazilian corporate law and the CVM regulations allow cumulative
voting
for directors at the request of at least 5% of the voting capital
stock.
This minimum percentage may vary between 5% and 10% depending on
the
amount of the capital stock as established by CVM regulations. If
there is
no request for cumulative voting, directors are elected by a majority
of
the common shares of Cosan present in person or represented by proxy
at
the shareholders’ meeting, provided that any shareholders that,
individually or in blocs, hold at least 15% of the common shares
have the
right to select one director and his or her alternate.
|
No
person other than a director retiring by rotation may be appointed
a
director at any general meeting unless nominated for election by
a
majority of the directors then in office (or proposed by a shareholder
by
notice given not less than ninety days before the first anniversary
of the
last annual general meeting or ten days after the notice of the general
meeting at which the directors will be elected, whichever is the
earlier)
and elected by a majority of the aggregate voting power of the issued
and
outstanding shares in the company.
|
||
Filling
of Vacancies in the Board of Directors
|
During
periods of absence or temporary unavailability of the president of
the
board of directors of Cosan, his/her functions shall be performed
by the
vice-president of the board of directors, and in the event of temporary
absence or unavailability of the vice-president, his/her functions
shall
be performed by another director appointed by the remaining directors.
During periods of absence or temporary unavailability
|
Any
one or more vacancies in the board not filled at any general meeting
will
be deemed casual vacancies for the purposes of the bye-laws, which
provide
that the board has the power to appoint an individual to be a director
to
fill such casual vacancies. A director appointed to fill a casual
vacancy
will hold that position until the next following annual general meeting
and must vacate that office if not
|
Rights
of Holders of
Cosan
Common Shares
|
Rights
of Holders of
Cosan
Common Shares
|
|||
of
any other director, his/her functions shall be performed by a director
empowered to do so by the absent director or, in case no director
is
empowered for such purpose, by any director appointed by the remaining
directors.
In
the event of any vacancy of any office of the board of directors
(which is
determined by the unjustified absence in more than 3 consecutive
meetings
or in case of death, resignation, destitution, incapacitation or
evidenced
impediment) the president of the board of directors of Cosan may
appoint
an alternate member as a substitute for the absent member until the
next
shareholders’ meeting in which a new member shall be appointed for a term
of office that shall last until the end of the term of office of
the other
directors. In the event of a vacancy of the president and vice-president
of the board of directors of Cosan, the remaining board members shall
call
a shareholders’ meeting to appoint their substitutes.
|
reappointed
at that annual general meeting.
|
|||
Quorum
of Shareholders for a General Shareholders’ Meeting
|
As
a
general rule, Brazilian corporate law provides that a quorum at a
shareholders’ meeting consists of shareholders representing at least 25%
of a company’s issued and outstanding voting capital on the first call
and, if that quorum is not reached, any percentage on the second
call. If
the shareholders are called to amend the by-laws, a quorum at a
shareholders’ meeting consists of shareholders representing at least
two-thirds of the issued and outstanding common shares on the first
call
and any percentage on the second call.
As
a
general rule, the affirmative vote of shareholders representing at
least
the majority of the issued and outstanding common shares present
in person
or represented by proxy at a shareholders’ meeting is required to ratify
any proposed action, and abstentions are not taken into account.
However,
the affirmative vote of shareholders representing one-half of the
issued
and outstanding common shares of Cosan is required to: (i) reduce
the
percentage of the mandatory dividends; (ii) change the corporate
purpose;
(iii) merge (fusão or incorporação) Cosan with another
company; (iv) spin-off a portion of Cosan’s assets or liabilities; (v)
approve the participation of Cosan in a group of companies (as defined
in
Brazilian corporate law); (vi) apply for cancellation of any voluntary
liquidation; (vii) approve Cosan’s dissolution; (viii) approve the merger
of all of Cosan’s shares into another Brazilian company so that, as a
result, Cosan becomes a wholly-owned subsidiary of such company;
and (ix)
delisting of Cosan’s shares from the Novo
Mercado.
|
Our
bye-laws provide that for the purposes of a general meeting at least
two
shareholders present in person or by proxy and entitled to vote
representing the holders of more than 45% of the aggregate voting
power of
the issued and outstanding share capital will be a quorum, provided
that
in the case of a meeting of a class or series of shares where such
class
or series of shares has only one shareholder, one shareholder present
in
person or by proxy will constitute the necessary
quorum.
|
Rights
of Holders of
Cosan
Common Shares
|
Rights
of Holders of
Cosan
Common Shares
|
|||
|
||||
Notice
of Shareholders’ Meetings
|
Notice
of shareholders’ meetings of Cosan must be published at least three times
in the Diário Oficial do Estado de São Paulo, the official
newspaper of the State of São Paulo, and in another widely circulated
newspaper, currently the newspapers Valor Econômico and the
Jornal de Piracicaba. The first notice must be published no later
than 15 days before the date of the meeting on the first call, and
no
later than 8 days before the date of the meeting on the second call.
However, in certain circumstances, the CVM may require that the first
notice be published 30 days in advance of the meeting.
The
shareholders’ meetings of Cosan take place at the headquarters in the City
of Piracicaba, State of São Paulo, Brazil. Brazilian corporate law allows
the shareholders of Cosan to hold meetings outside the headquarters
in the
event of force majeure, provided that the meetings are held in
the City of Piracicaba and the relevant notice includes a clear indication
of the place where the meeting will occur.
The
board of directors of Cosan may call a shareholders’ meetings.
Shareholders’ meetings may also be called by: (i) any shareholder, if the
board of directors fails to call a shareholders’ meeting within 60 days
after the date they were required to do so under applicable laws
and
Cosan’s by-laws; (ii) shareholders holding at least 5% of the capital
stock of Cosan, if the board of directors fails to call a meeting
within
eight days after receipt of a request to call the meeting by those
shareholders indicating the proposed agenda; (iii) shareholders holding
at
least 5% of Cosan’s shares if the board of directors fails to call a
meeting within eight days after receipt of a request to call the
meeting
for the creation of the fiscal council; and (iv) the fiscal council,
if
the board of directors fails to call an annual shareholders’ meeting. The
fiscal council may also call a special shareholders’ meeting, if it
believes that there are important or urgent matters to be
addressed.
|
Bermuda
law requires that shareholders be given at least 5 days’ notice of a
general meeting but the accidental omission to give notice to, or
the
non-receipt of a notice by any person entitled to receive notice,
does not
invalidate the proceedings at the meeting.
Our
bye-laws provide that at least 10 days’ notice of an annual general
meeting or a special general meeting must be given to each shareholder
entitled to vote at such meeting. This notice requirement is subject
to
the ability to hold such meeting on shorter notice if notice is served
pursuant to Bermuda law in the manner provided by the Companies Act
1981.
Any action required to be taken at a meeting of shareholders (except
in
the case of removal of auditors or directors) may be taken without
a
meeting and without a vote if consent (or consents) in writing, setting
forth the actions so taken, is (or are) signed by the holders of
issued
and outstanding shares of the company, their proxy, or corporate
representative representing the percentage of votes required if the
resolution had been voted on at a meeting of the
shareholders.
|
||
Mandatory
Public Tender Offer by a Majority Shareholder
|
Pursuant
to the Brazilian corporate law, the CVM regulations, and the Novo
Mercado rules, a mandatory public tender offer for the acquisition
of
Cosan’s shares is required in the following situations:
(i) delisting
from the Novo Mercado: the controlling shareholder of Cosan must
effect a mandatory tender offer for the acquisition of all shares
held by
the remaining shareholders of Cosan if of Cosan delists from the
Novo
|
Bermuda
legislation provides certain compulsory acquisition procedures in
sections
102 and 103 of the Companies Act 1981. Pursuant to section 102 of
the
Companies Act 1981 an acquiring entity may compel the acquisition
of
shares of shareholders dissenting to a scheme of arrangement or contract
involving the transfer of shares or any class of shares of the company
where the scheme of arrangement or contract has received the approval
of
90% in value of the shareholders of
|
Rights
of Holders of
Cosan
Common Shares
|
Rights
of Holders of
Cosan
Common Shares
|
|||
Mercado.
The acquisition price shall be the economic value of the tendered
shares
determined in accordance with an appraisal report prepared by a
specialized firm. There are specific requirements for the appointment
of
the appraisal firm and the applicable laws and regulations also allow
the
review of the economic value appraised in certain
circumstances;
(ii) delisting
of Cosan’s shares: Cosan or its controlling shareholder must effect a
mandatory tender offer for the acquisition of all shares held by
the
remaining shareholders of Cosan for purposes of delisting Cosan’s shares
and cancelling its registration as a publicly-held company. The
acquisition price shall reflect the fair value of Cosan’s shares evaluated
in accordance with the specific requirements established by applicable
laws and regulations. Shareholders holding at least ten per cent
(10%) of
outstanding shares may request that management call a special general
meeting with holders of outstanding shares in order to determine
a new
appraisal, based on the same or different criteria from those originally
adopted, for purposes of determining the valuation of the company
as
provided;
(iii) increase
of the interest held by the controlling shareholder: in the event of
the acquisition by the controlling shareholder of additional shares
in
Cosan (i) representing more than 1/3 of its free float; or (ii) which
may
affect the liquidity of Cosan’s shares as determined by the CVM, the
controlling shareholder of Cosan must effect a mandatory tender offer
for
acquisition of all shares held by the remaining shareholders of Cosan.
The
acquisition price shall reflect the fair price of Cosan’s shares evaluated
in accordance with the specific requirements established by the applicable
laws and regulations. Shareholders holding at least ten per cent
(10%) of
outstanding shares may request that the officers call a special general
meeting with holders of outstanding shares in order to determine
a new
appraisal, based on the same or different criteria from those originally
adopted, for purposes of determining the valuation of the company
as
provided; and
(iv) change
of control: a buyer of a controlling interest of Cosan must effect a
mandatory tender offer for the acquisition of Cosan’s remaining shares in
the event of an acquisition of control of Cosan, providing to the
remaining shareholders of Cosan the same conditions that applied
to the
acquisition of the controlling
|
Bermuda
legislation provides certain compulsory acquisition procedures in
sections
102 and 103 of the Companies Act 1981. Pursuant to section 102 of
the
Companies Act 1981 an acquiring entity may compel the acquisition
of
shares of shareholders dissenting to a scheme of arrangement or contract
involving the transfer of shares or any class of shares of the company
where the scheme of arrangement or contract has received the approval
of
90% in value of the shareholders of the company. The acquiring entity
may,
within two months of obtaining the requisite 90% approval from the
shareholders of the company, give notice to any dissenting shareholders
that it desires to acquire such dissenting shareholders shares. A
dissenting shareholder who receives notice has the ability to apply
to
court for relief within one month after the receipt of the
notice.
Pursuant
to section 103 of the Companies Act 1981 where an acquirer supported
by
not less than 95% of the shares or class of shares of the company
can
compel the remaining minority shareholders to sell their interest
to the
acquirer provided that the terms offered are the same for all holders
of
shares whose acquisition is involved. Under this procedure the acquirer
is
only required to give notice to the remaining shareholders of the
intention to acquire their shares and once notice has been received
the
acquirer is bound to acquire the shares on the terms set out in the
notice
unless the remaining minority shareholders apply to the courts for
an
appraisal of the value of their
shares.
|
Rights
of Holders of
Cosan
Common Shares
|
Rights
of Holders of
Cosan
Common Shares
|
|||
interest.
The
mandatory public tender offers described above are subject to several
specific rules and requirements. The description above is merely
a general
description and does not intend to provide a detailed description
of the
procedures and rules to which Cosan and its controlling shareholder
are
subject with respect to mandatory public tender offers.
|
||||
Transfer
Rights
|
The
transfer of any of Cosan’s shares occurs upon the an entry, made by the
Depositary Institution of Cosan’s shares on its books, at the expense of
the transferor and to the credit of the transferee’s account, taking into
account a written order by the transferor or a judicial order, which
will
remain in the Institution’s care.
|
Our
board of directors may, in its discretion and without assigning any
reason
therefor, refuse to register the transfer of any share that is not
fully
paid. Our board of directors may also refuse to recognize an instrument
of
transfer of a share unless it is accompanied by the relevant share
certificate and other evidence of the transferor’s rights to make the
transfer, as our board of directors shall reasonably require. Any
transfer
of beneficial ownership of the class B series 1 common shares or
class B
series 2 common shares not registered with the company will be null
and
void.
Under
our bye-laws each class B common share is convertible into one class
A
common share at the option of the holder. Each class B common share
will
automatically convert into one class A common share if the aggregate
outstanding class B common series 1 shares represent less than 45%
of the
company’s voting power in respect of the issued and outstanding share
capital in the company or, upon particular transfers of control of
such
class B common shares. Each class B series 2 common share will
automatically convert into one class A common share in the event
that all
of the class B series 1 shares are converted into class A common
shares
pursuant to the bye-laws.
|
||
Modification
of Rights
|
Pursuant
to brazilian corporate law, the number of Cosan’s shares and their
respective value may only be modified in the case of an alteration
of its
share capital, its monetary expression, splitting or grouping of
shares,
redemption, refund shares or the cancellation of shares issued. Except
for
the redemption and refund of shares, which, according to Cosan’s by-laws
must be approved by the Board, all other measures to modify the rights
of
Cosan’s shares must be approved at a General Shareholders’
Meeting.
|
Pursuant
to our bye-laws rights attaching to the class A common shares, class
B
common series 1 common shares and class B series 2 common shares
may be
modified with the consent of the holders of not less than 66 2/3%
of
the aggregate voting power of the issued shares in the company and
with
the consent of the holders of not less than 75% of the aggregate
voting
power of the issued shares of the class or series whose rights are
being
modified. The quorum for any general meeting held for the purpose
of
modifying the rights of the shares of the company is two persons
present
or by proxy holding one third of the voting power of the shares of
the
relevant class or series (providing that where one class
or series of share has only one shareholder, one shareholder present
in
person or proxy will constitute the necessary quorum). Each holder
of
shares of the relevant
|
Rights
of Holders of
Cosan
Common Shares
|
Rights
of Holders of
Cosan
Common Shares
|
|||
class
or series is entitled on poll when voting as a class or series to
one vote
for every such share held by him.
|
||||
Amendment
of Organizational Documents
|
According
to Cosan’s by-laws, any alteration in the corporate purpose or in the
organizational documents must be approved by the General Shareholders’
Meeting, which must follow the procedure mentioned in the section
referring to “Voting”, above. It should be noted, however, that as Cosan
is a listed in the Novo Mercado segment of BOVESPA, its
organizational documents must comply with the requirements of the
Novo
Mercado Listing Rules.
|
Our
bye-laws provide that in the case of rescission, alteration or amendment
to the bye-laws relating to interpretation, rights of shares, modification
of rights, indemnity of directors and officers, amalgamations and
other
business combinations, specific transactions involving interested
shareholders, discontinuation into another jurisdiction, tag along
rights
and amendment or alteration over the bye-laws, the required resolutions
must include the affirmative vote of at least 662/3of
our directors then in office and holders of at least
662/3
of
the class A common shares and at least a majority of the class B
common
shares then in issue entitling the holder to attend and vote on the
resolution with holders of each class voting separately.
In
the case of rescission, alteration of amendment to the bye-laws relating
to the transmission of shares upon death of the holder of class B
series 1
shares, election of directors, the removal of directors, the increase
of
share capital and the alteration of share capital, the requisite
affirmative votes are the majority of the directors in office and
the
holders of a majority of each of the class A common shares and the
class B
common share then in issue entitling the holder to attend and vote
on the
resolution, with holders of each class voting separately.
Under
Bermuda law, the holders of an aggregate of not less than 20% in
par value
of the company’s issued and outstanding share capital or any class
thereof, or the holders of the aggregate of not less than 20% of
the
company’s debentures entitled, object to amendments to the memorandum of
association have the right to apply to a Bermuda court for annulment
of
any amendment to the memorandum of association adopted by the shareholders
at any general meeting, other than an amendment which alters or reduces
a
company’s share capital or changes its name as provided in the Companies
Act 1981. Where such application is made, the amendment only becomes
effective to the extent that it is confirmed by the Bermuda court.
An
application for annulment of an amendment of the memorandum of association
must be made within 21 days after the date on which the resolution
altering the company’s memorandum of association has passed and may be
made on behalf of persons entitled to make the
|
Rights
of Holders of
Cosan
Common Shares
|
Rights
of Holders of
Cosan
Common Shares
|
|||
application
by one or more of their number as they may appoint in writing for
the
purpose. No application may be made by shareholders voting in favor
of the
amendment.
|
||||
Appraisal
Rights and Shareholders’ Suits
|
Pursuant
to Brazilian corporate law, the company, subject to deliberation
in the
shareholders’ meeting, may file an action against the directors and
officers for losses incurred by the company on account of (i) negligence
or willful misconduct by the directors and officers, or (ii) violation
of
the law or of the Company’s by-laws on behalf of the directors and
officers.
Any
shareholder may file such action if is not brought within three months
from the shareholders’ meeting. If the general meeting does not approve
the filing of the action, it may still be brought by shareholders
representing at least 5% of a company’s share capital.
|
Class
actions and derivative actions are not generally available to shareholders
under Bermuda law. Bermuda courts may permit in certain circumstances
a
shareholder to commence an action in the name of a company to remedy
a
wrong to the company where the challenged act would allegedly be
beyond
the power of the company or illegal. In addition, consideration would
be
given by a Bermuda court to acts that would allegedly constitute
a fraud
against the minority shareholders or for instance, where an act requires
the approval of a greater percentage of the company’s shareholders’ voting
power than that which actually approved it.
When
the affairs of the company are being conducted in a manner which
is
oppressive or prejudicial to the interests of some or all of the
shareholders, one or more shareholder may apply to a Bermuda court,
which
may make such an order as it sees fit, including an order regulating
the
conduct of the company’s affairs in the future or ordering the purchase of
the shares by any shareholder by other shareholders or by the
company.
|
||
Inspection
of Records
|
According
to Brazilian law and CVM regulations, the public documents of a company
are available through the CVM’s website and the investor relations
department of the company. These documents include the company’s by-laws
and any alterations thereto, the notice and the minutes of shareholders’
meetings, minutes of the board of directors’ meetings, as well as the
company’s audited annual and quarterly financial statements. A company is
required to keep its registration data current, updating its records
in up
to five days from the occurrence of any alteration. Cosan’s records are
publicly available through CVM’s website (www.cvm.gov.br) and Cosan’s
Investor Relations department.
Furthermore,
any person may obtain certified copies of the entries made in the
Shares
Registry Book, the Registered Shares Transfer Book, the Registered
Founder
Shares Registry Book and the Registered Founder Shares Transfer Book,
as
long as it is necessary for the defense of his/her rights or the
clarification of situations of personal interest or interest of any
shareholder or the capital market. A company is authorized to charge
for
the cost of such copies and should the company deny the request
for
|
Bermuda
law provides the general public with the right to inspect the public
documents of a company available at the Registrar of Companies in
Bermuda.
These documents include the company’s memorandum of association and any
alteration to its memorandum of association. The shareholders have
the
additional right to inspect the bye-laws of the company, minutes
of
general meetings (copies of which are held at the registered office
of the
company) and the company’s audited financial statements, which must be
presented at the annual general meeting unless waived in accordance
with
the provisions of the Companies Act 1981. The register of shareholders
is
required to be open for inspection for not less than two hours in
any
business day (subject to the ability of a company to close the register
of
shareholders for not more than thirty days in a year). A company
is
required to maintain its share register in Bermuda, but may subject
to the
provisions of the Companies Act 1981, establish a branch register
outside
Bermuda. A company is required to keep at its registered office a
register
of directors and officers that is open for inspection for not less
than
two hours in any
|
Rights
of Holders of
Cosan
Common Shares
|
Rights
of Holders of
Cosan
Common Shares
|
|||
such
copies, this decision is subject to appeal to the CVM.
|
business
day by members of the general public without charge. Bermuda law
does not,
however, provide a general right for shareholders to inspect or obtain
copies of any other corporate records.
|
|||
Directors
and Officers’ Indemnity
|
Brazilian
corporate law provides that a director or officer is not personally
liable
for the obligations it contracts on behalf of the company and in
virtue of
its regular management. It is, however, liable for losses when they
arise:
(i) within his or her attribution due to negligence or willful misconduct;
or (ii) in violation of law or the company’s by-laws. Cosan’s by-laws do
not provide any indemnity for directors and officers’
liability.
|
Bermuda
law provides that a company may in its bye-laws or in any contract
or
arrangement indemnify a director or officer in respect of any liability
attaching to him as a result of any negligence, default, breach of
duty or
breach of trust, except in the case of fraud or dishonesty, of which
the
director may be guilty in relation to the company or any subsidiary
thereof.
Our
bye-laws provide that the directors and officers of the company are
indemnified in respect of their actions and omissions, except in
case of
fraud or dishonesty.
|
||
Directors’
Interests
|
Pursuant
to Brazilian corporate law, a director is prohibited from intervening
in
or deliberating about any transaction which has conflicting interests
with
that of the company. The director with conflicting interests must
notify
the Board of directors of the nature and scope of his or her impediment,
which must then be registered in the minutes of the meeting. Further,
Brazilian law provides that a director can only contract with the
company
under arms’ length conditions, observing principles of equity and
reasonableness.
|
Our
bye-laws provide that a director is entitled to be counted in the
quorum
of any board meeting provided that he discloses to the board any
direct or
indirect interest in any contract or arrangement. However, the director
may not vote in respect of any such contract or arrangement in which
he is
interested.
|
||
Loans
to Directors
|
Brazilian
corporate law provides that directors and officers of a company must
seek
prior approval from the General Shareholders’ Meeting or the board of
directors in order to borrow resources or assets from such
company.
|
Bermuda
law provides that a director (including the spouse or children of
the
director, or any company (other than the holding company or a subsidiary
company of the company giving the loan) of which such director, spouse
or
children own or control, directly or indirectly, more than 20% of
the
total capital or loan debt) cannot borrow money from the company
without
the consent of not less than 90% of shareholders having the right
to vote
at any general meeting of the
shareholders.
|
|
·
|
we
are a holding company, and therefore, our ability to pay dividend
will
depend on our ability to receive distributions from our subsidiaries,
particularly our subsidiary Cosan. See “Risk Factors – Risks Related to
the Corporate Restructuring and the Exchange Offer – As a holding company,
we may face limitations on our ability to receive distributions from
our
subsidiaries” and “Cosan’s Dividend
Policy”;
|
|
·
|
our
subsidiaries may become subject to covenants restricting their ability
to
distribute dividends under credit facilities, term loans or other
indebtedness;
|
|
·
|
any
imposition of restrictions on conversions and remittances by the
Brazilian
government could hinder or prevent us from converting into U.S. dollars
or
other foreign currencies and remitting abroad dividends of our Brazilian
subsidiaries. See “Risk Factors – Risks Related To the Corporate
Restructuring and the Exchange Offer – As a holding company, we may face
limitations on our ability to receive distributions from our
subsidiaries”;
|
|
·
|
our
shareholders have no contractual or other legal rights to dividends
pursuant to Bermuda law; and
|
|
·
|
we
may not have sufficient cash to pay dividends due to changes in our
operating earnings, working capital requirements and anticipated
cash
needs.
|
Fiscal
Year
|
Total
Dividend Distribution
|
||
(in
millions of US$)
|
|||
2003
|
US$1.8
|
||
2004
|
1.0
|
||
2005
|
0.6
|
||
2006
|
—
|
||
2007
|
37.3
|
|
·
|
certain
financial institutions;
|
|
·
|
insurance
companies;
|
|
·
|
dealers
in securities;
|
|
·
|
persons
holding common shares of Cosan or the new common shares as part of
a
hedge, “straddle”, integrated transaction or similar
transactions;
|
|
·
|
persons
whose functional currency for U.S. federal income tax purposes is
not the
U.S. dollar;
|
|
·
|
partnerships
or other entities classified as partnerships for U.S. federal income
tax
purposes;
|
|
·
|
persons
subject to the alternative minimum
tax;
|
|
·
|
tax-exempt
organizations; or
|
|
·
|
persons
that own or are deemed to own five percent or more of both our voting
stock and the total value of our
stock.
|
|
·
|
an
individual citizen or resident of the United
States;
|
|
·
|
a
corporation, or other entity taxable as a corporation, created or
organized in or under the laws of the United States or any political
subdivision thereof; or
|
|
·
|
an
estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source.
|
Filing
fees
|
|
Legal
fees(1)
|
|
Accounting
|
|
Printing
costs
|
|
Other
|
|
Total
|
|
(1)
|
Includes
legal fees in both the U.S. and
Brazil.
|
|
·
|
fulfills
all formalities required for its enforceability under the laws of
the
United States;
|
|
·
|
is
issued by a court of competent jurisdiction after proper service
of
process on the parties, which service must be in accordance with
Brazilian
law if made in Brazil, or after sufficient evidence of our absence
has
been given, as established pursuant to applicable
law;
|
|
·
|
is
not subject to appeal;
|
|
·
|
is
for payment of a determined sum of
money;
|
|
·
|
is
authenticated by a Brazilian diplomatic office in the United States
and is
accompanied by a sworn translation into Portuguese;
and
|
|
·
|
is
not against Brazilian public policy, good morals or national sovereignty
(as set forth in Brazilian law).
|
|
|
Cosan
Limited
|
|
Audited
Balance
Sheet
|
|
Report
of Independent Registered
Public Accounting Firm
|
F-2
|
Balance
Sheet at April 30,
2007 (date of inception)
|
F-3
|
Notes
to the Balance
Sheet
|
F-4
|
Cosan
Limited
|
|
Unaudited
Balance
Sheet
|
|
Balance
Sheets as at July 31, 2007
(Unaudited) and April 30,
2007
|
F-5
|
Notes
to the Balance Sheets
(Unaudited)
|
F-6
|
Cosan
S.A. Indústria e
Comércio
|
|
Audited
Consolidated Financial
Statements
|
|
Report
of Independent Registered
Public Accounting Firm
|
F-9
|
Consolidated
Balance Sheets at
April 30, 2007 and 2006
|
F-10
|
Consolidated
Statements of
Operations for Years Ended April 30, 2007, 2006 and
2005
|
F-11
|
Consolidated
Statements of
Shareholders’ Equity and Comprehensive Income for Years Ended
April 30, 2007, 2006 and 2005
|
F-12
|
Consolidated
Statements of Cash
Flows for Years Ended April 30, 2007, 2006 and
2005
|
F-13
|
Notes
to the Consolidated
Financial Statements
|
F-14
|
Cosan
S.A. Indústria e
Comércio
|
|
Unaudited
Condensed
Consolidated
Financial
Statements
|
|
Condensed
Consolidated
Balance
Sheets
at July 31,
2007 (Unaudited)
and April 30,
2007
|
F-43
|
Condensed
Consolidated
Statements of
Income
for the Three Months
Ended
July 31,
2007 and 2006
(Unaudited)
|
F-45
|
Condensed
Consolidated
Statements of
Shareholders’ Equity for the Three
Months Ended July 31, 2007
(Unaudited)
|
F-46
|
Condensed
Consolidated
Statements of
Cash
Flows for
the Three
Months Ended July 31, 2007
and 2006
(Unaudited)
|
F-47
|
Notes
to the Condensed Consolidated
Financial
Statements
(Unaudited) July 31,
2007
|
F-48
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Cosan Limited
We have audited the accompanying balance sheet of Cosan Limited as of April 30, 2007 (date of inception). This balance sheet is the responsibility of the Companys management. Our responsibility is to express an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet, assessing the accounting principles used and significant estimates made by management, and evaluating the overall balance sheet presentation. We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of Cosan Limited at April 30, 2007, in conformity with accounting principles generally accepted in the United States of America.
Campinas, Brazil | ERNST & YOUNG | |
May 31, 2007 |
Auditores Independentes S.S. | |
CRC2SP015199/O-8 | ||
/s/ B. ALFREDO BADDINI BLANC B. Alfredo Baddini Blanc | ||
Accountant CRC 1SP126402/O-8 |
F-2
COSAN LIMITED
As of April 30, 2007
(date of inception)
(In U.S. dollars, unless otherwise stated)
2007 | |||
Assets |
|||
Cash and cash equivalents |
US$ | 10 | |
Total Assets |
10 | ||
Equity |
|||
Common stock, $0.01 par value; 1,000 shares authorized, issued and outstanding |
10 | ||
Total Stockholders Equity |
US$ | 10 | |
F-3
COSAN LIMITED
As of April 30, 2007
(date of inception)
(In U.S. dollars, unless otherwise stated)
1. Organization and Purpose
Cosan Limited (Cosan Limited) was incorporated in Bermuda as an exempted company on April 30, 2007. In connection with its formation, Cosan Limited issued 1,000 shares of common stock for US$10.00 to Mr. Rubens Ometto Silveira Mello, who indirectly controls Cosan S.A. Indústria e Comércio and its subsidiaries (Cosan).
Cosan Limited was formed to acquire all of the common shares of Cosan held by Aguassanta Participações S.A. and Usina Costa Pinto S.A. Açúcar e Álcool, each company indirectly controlled by Mr. Rubens Ometto Silveira Mello.
2. Presentation of the Consolidated Financial Statements
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States.
F-4
(Unaudited)
July
31, 2007
|
April
30, 2007
|
|||||||
Assets
|
||||||||
Cash
and cash equivalents
|
10.00
|
10.00
|
||||||
Total
Assets
|
10.00
|
10.00
|
||||||
Stockholder’s
Equity
|
||||||||
Common
stock, $0.01 par value; 1,000 shares authorized, issued and
outstanding
|
10.00
|
10.00
|
||||||
Total
Stockholder's Equity
|
10.00
|
10.00
|
1.
|
Organization
and Purpose
|
2.
|
Presentation
of the Consolidated Financial
Statements
|
3.
|
Subsequent
Event
|
Shareholder
|
Number
of shares of Cosan’s
issue
contributed as capital to
Cosan
Limited
|
Interest
held in Cosan
|
||
Usina
Costa Pinto
|
30,010,278
|
15.89%
|
||
Aguassanta
Participações
|
66,321,766
|
35.11%
|
||
96,332,044
|
51.00%
|
3.
|
Subsequent
Event - Continued
|
Shareholder
|
Class
of
shares
|
Number
of shares
|
Interest
|
|||
Usina
Costa Pinto
|
B1
|
30,010,278
|
15.29%
|
|||
Queluz
Holdings Limited
|
B1
|
66,321,766
|
33.78%
|
|||
Aguassanta
Participações
|
A
|
5,000,000
|
2.55%
|
|||
Other
shareholders
|
A
|
95,000,000
|
48.39%
|
|||
196,332,044
|
100.00%
|
3.
|
Subsequent
Event - Continued
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Cosan S.A. Industria e Comercio
We have audited the accompanying consolidated balance sheets of Cosan S.A. Industria e Comercio and subsidiaries as of April 30, 2007 and 2006, and the related consolidated statements of operations, shareholders equity and cash flows for each of the three years in the period ended April 30, 2007. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting, Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cosan S.A. Industria e Comercio and subsidiaries at April 30, 2007 and 2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended April 30, 2007, in conformity with accounting principles generally accepted in the United States of America.
Campinas, Brazil May 31, 2007 |
ERNST & YOUNG Auditores Independentes S.S. CRC2SP015199/O-8 | |
/S/ B. ALFREDO BADDINI BLANC | ||
B. Alfredo Baddini Blanc Accountant CRC 1SP126402/O-8 |
F-9
COSAN S.A. INDÚSTRIA E COMÉRCIO
April 30, 2007 and 2006
(In thousands of U.S. dollars, except share data)
2007 | 2006 | ||||
Assets |
|||||
Current assets: |
|||||
Cash and cash equivalents |
316,542 | 29,215 | |||
Restricted cash |
17,672 | 62,996 | |||
Marketable securities |
281,879 | 368,838 | |||
Trade accounts receivable, less allowances: 20074,013; 20062,343 |
55,206 | 101,762 | |||
Inventories |
247,480 | 187,174 | |||
Advances to suppliers |
103,961 | 63,526 | |||
Deferred income taxes |
| 74,755 | |||
Other current assets |
116,763 | 72,049 | |||
1,139,503 | 960,315 | ||||
Property, plant, and equipment, net |
1,194,050 | 1,008,052 | |||
Goodwill |
491,857 | 497,865 | |||
Intangible assets, net |
93,973 | 98,935 | |||
Accounts receivable from Federal Government |
156,526 | | |||
Other non-current assets |
177,460 | 126,585 | |||
2,113,866 | 1,731,437 | ||||
Total assets |
3,253,369 | 2,691,752 | |||
Liabilities and shareholders equity |
|||||
Current liabilities: |
|||||
Trade accounts payable |
55,938 | 96,552 | |||
Advances from customers |
24,275 | 37,888 | |||
Taxes payable |
57,543 | 39,991 | |||
Salaries payable |
31,109 | 23,801 | |||
Current portion of long-term debt |
36,076 | 46,576 | |||
Derivative financial instruments |
9,779 | 133,376 | |||
Dividends payable |
37,261 | | |||
Other liabilities |
22,238 | 18,932 | |||
274,219 | 397,116 | ||||
Long-term liabilities: |
|||||
Long-term debt |
1,342,496 | 941,741 | |||
Estimated liability for legal proceedings and labor claims |
379,191 | 462,248 | |||
Taxes payable |
106,897 | 152,446 | |||
Advances from customers |
24,333 | 41,595 | |||
Deferred income taxes |
141,587 | 81,633 | |||
Other long-term liabilities |
47,484 | 33,083 | |||
2,041,988 | 1,712,746 | ||||
Minority interest in consolidated subsidiaries |
8,512 | 4,936 | |||
Shareholders equity: |
|||||
Common stock, no par value. Authorized 188,886,360 shares; issued and outstanding |
535,105 | 525,247 | |||
Additional paid-in capital |
160,944 | 161,409 | |||
Accumulated other comprehensive income |
71,953 | 38,860 | |||
Retained earnings (losses) |
160,648 | (148,562 | ) | ||
Total shareholders equity |
928,650 | 576,954 | |||
Total liabilities and shareholders equity |
3,253,369 | 2,691,752 | |||
See accompanying notes to consolidated financial statements.
F-10
COSAN S.A. INDÚSTRIA E COMÉRCIO
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, except share data)
2007 | 2006 | 2005 | |||||||
Net sales |
1,679,050 | 1,096,614 | 644,376 | ||||||
Cost of goods sold |
(1,191,251 | ) | (796,295 | ) | (456,567 | ) | |||
Gross profit |
487,799 | 300,319 | 187,809 | ||||||
Selling expenses |
(133,807 | ) | (97,848 | ) | (57,796 | ) | |||
General and administrative expenses |
(121,094 | ) | (71,998 | ) | (39,981 | ) | |||
Operating income |
232,898 | 130,473 | 90,032 | ||||||
Other income (expenses): |
|||||||||
Financial income |
555,550 | 186,469 | 76,753 | ||||||
Financial expenses |
(266,187 | ) | (413,050 | ) | (115,910 | ) | |||
Other |
16,284 | (5,457 | ) | (16,367 | ) | ||||
Income (loss) before income taxes, equity in income of affiliates and minority interest |
538,545 | (101,565 | ) | 34,508 | |||||
Income taxes expense (benefit) |
(188,818 | ) | 29,742 | (14,859 | ) | ||||
Income (loss) before equity in income of affiliates and minority interest |
349,727 | (71,823 | ) | 19,649 | |||||
Equity in income of affiliates |
(38 | ) | 1,584 | 3,423 | |||||
Minority interest in net income of subsidiaries |
(3,218 | ) | (2,553 | ) | (372 | ) | |||
Net income (loss) |
346,471 | (72,792 | ) | 22,700 | |||||
Earnings (loss) per share: |
|||||||||
Basic |
1.84 | (0.46 | ) | 0.22 | |||||
Diluted |
1.81 | (0.46 | ) | | |||||
Weighted number of shares outstanding |
|||||||||
Basic |
188,254,660 | 156,037,234 | 105,312,115 | ||||||
Diluted |
191,059,957 | 158,404,884 | |
See accompanying notes to consolidated financial statements.
F-11
COSAN S.A. INDÚSTRIA E COMÉRCIO
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, except share data)
Capital Stock | Additional paid-in capital |
Retained earnings (losses) |
Accumulated other comprehensive income (loss) |
Total shareholders equity |
|||||||||||||||||||
Common number |
Preferred number |
Common amount |
Preferred Amount |
||||||||||||||||||||
Balances at May 1, 2004 |
62,859,545 | 36,480,163 | 94,893 | 55,070 | 111,746 | (33,961 | ) | (93,163 | ) | 134,585 | |||||||||||||
Issuance of common shares for shares of Santa Bárbara Agrícola S.A. |
7,851,756 | | 23,135 | | | | | 23,135 | |||||||||||||||
Shares issued in connection with contribution of investments in subsidiaries at carryover basis |
12,251,466 | | 8,344 | | (8,209 | ) | | | 135 | ||||||||||||||
Issuance of common shares for cash |
2,212 | | 5 | | | | | 5 | |||||||||||||||
Dividends |
| | | | | (642 | ) | | (642 | ) | |||||||||||||
Legal reorganization |
| | | | | (16,023 | ) | | (16,023 | ) | |||||||||||||
Conversion of preferred to common stock |
36,480,163 | (36,480,163 | ) | 55,070 | (55,070 | ) | | | | | |||||||||||||
Net income |
| | | | | 22,700 | | 22,700 | |||||||||||||||
Currency translation adjustment |
| | | | | | 26,437 | 26,437 | |||||||||||||||
Comprehensive income |
| | | | | | | 49,137 | |||||||||||||||
Balances at April 30, 2005 |
119,445,142 | | 181,447 | | 103,537 | (27,926 | ) | (66,726 | ) | 190,332 | |||||||||||||
Issuance of common shares for cash |
12,948,053 | | 31,516 | | 54,035 | | | 85,551 | |||||||||||||||
Spinoff of investments in subsidiary distributed to owners |
| | (92,462 | ) | | | (26,169 | ) | | (118,631 | ) | ||||||||||||
Capitalization of retained earnings of new shares |
| | 21,675 | | | (21,675 | ) | | | ||||||||||||||
Issuance of common shares for cash |
48,139,530 | | 331,447 | | | | | 331,447 | |||||||||||||||
Issuance of common shares for cash |
7,220,928 | | 51,624 | | | | | 51,624 | |||||||||||||||
Share based compensation |
| | | | 3,837 | | | 3,837 | |||||||||||||||
Net loss |
| | | | | (72,792 | ) | | (72,792 | ) | |||||||||||||
Currency translation adjustment |
| | | | | | 105,586 | 105,586 | |||||||||||||||
Comprehensive income |
| | | | | | | 32,794 | |||||||||||||||
Balances at April 30, 2006 |
187,753,653 | | 525,247 | | 161,409 | (148,562 | ) | 38,860 | 576,954 | ||||||||||||||
Exercise of stock option |
1,132,707 | | 9,858 | | (6,657 | ) | | | 3,201 | ||||||||||||||
Share based compensation |
| | | | 6,192 | | | 6,192 | |||||||||||||||
Dividends |
| | | | | (37,261 | ) | | (37,261 | ) | |||||||||||||
Net income |
| | | | | 346,471 | | 346,471 | |||||||||||||||
Currency translation adjustment |
| | | | | | 33,093 | 33,093 | |||||||||||||||
Comprehensive income |
| | | | | | | 379,564 | |||||||||||||||
Balances at April 30, 2007 |
188,886,360 | | 535,105 | | 160,944 | 160,648 | 71,953 | 928,650 | |||||||||||||||
See accompanying notes to consolidated financial statements.
F-12
COSAN S.A. INDÚSTRIA E COMÉRCIO
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars)
2007 | 2006 | 2005 | |||||||
Cash flow from operating activities: |
|||||||||
Net (loss) income for the year |
346,471 | (72,792 | ) | 22,700 | |||||
Adjustments to reconcile net income to cash provided by operating activities |
|||||||||
Depreciation and amortization |
187,367 | 98,632 | 41,732 | ||||||
Deferred income and social contribution taxes |
150,242 | (53,001 | ) | (2,314 | ) | ||||
Interest, monetary and exchange variation |
116,284 | 24,275 | 8,092 | ||||||
Minority interest in net income of subsidiaries |
3,218 | 2,553 | 372 | ||||||
Accounts receivable from Federal Government |
(149,121 | ) | | | |||||
Others |
(27,669 | ) | 15,942 | 9,826 | |||||
Decrease/increase in operating assets and liabilities |
|||||||||
Trade accounts receivable, net |
48,226 | (35,412 | ) | (18,525 | ) | ||||
Inventories |
(54,108 | ) | 30,920 | (20,704 | ) | ||||
Advances to suppliers |
(38,707 | ) | (10,679 | ) | (1,920 | ) | |||
Trade accounts payable |
(43,239 | ) | 28,676 | 14,755 | |||||
Derivative financial instruments |
(155,028 | ) | 83,538 | (16,020 | ) | ||||
Taxes payable |
(36,592 | ) | (37,640 | ) | (9,129 | ) | |||
Other assets and liabilities, net |
(63,393 | ) | 11,025 | (21,248 | ) | ||||
Net cash provided by operating activities |
283,951 | 86,037 | 7,617 | ||||||
Cash flows from investing activities: |
|||||||||
Restricted cash |
47,037 | (62,565 | ) | 5,088 | |||||
Marketable securities |
96,987 | (366,856 | ) | 9,507 | |||||
Acquisition of property, plant and equipment |
(356,225 | ) | (135,152 | ) | (68,825 | ) | |||
Acquisitions, net of cash acquired |
(39,409 | ) | (260,878 | ) | (8,454 | ) | |||
Net cash used in investing activities |
(251,610 | ) | (825,451 | ) | (62,684 | ) | |||
Cash flows from financing activities: |
|||||||||
Proceeds from issuance of common stock |
3,201 | 383,071 | 23,275 | ||||||
Dividends paid |
| | (642 | ) | |||||
Additions of long-term debts |
424,605 | 899,273 | 538,995 | ||||||
Payments of long-term debts |
(204,959 | ) | (556,486 | ) | (528,076 | ) | |||
Net cash provided by financing activities |
222,847 | 725,858 | 33,552 | ||||||
Effect of exchange rate changes on cash and cash equivalents |
32,139 | 29,611 | 12,764 | ||||||
Net increase (decrease) in cash and cash equivalents |
287,327 | 16,055 | (8,751 | ) | |||||
Cash and cash equivalents at beginning of year |
29,215 | 13,160 | 21,911 | ||||||
Cash and cash equivalents at end of year |
316,542 | 29,215 | 13,160 | ||||||
Supplemental cash flow information |
|||||||||
Cash paid during the year for interest |
74,567 | 61,154 | 5,275 | ||||||
Income tax |
12,760 | 17,066 | | ||||||
Non-cash transactions: |
|||||||||
Acquisitions paid with equity |
| 100,900 | |
See accompanying notes to consolidated financial statements.
F-13
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
1. Operations
Cosan S.A. Indústria e Comércio and subsidiaries (Cosan) is incorporated under the laws of the Federative Republic of Brazil. Cosan shares are traded on the São Paulo Stock Exchange (Bovespa).
Cosan, with its principal place of business in the city of Piracicaba, São Paulo, manufactures and trades sugar and ethanol from sugarcane both from its own plantations and third parties, and co-generates electric power.
2. Presentation of the Consolidated Financial Statements
Basis of presentation
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP), which differs in certain respects from accounting principles generally accepted in Brazil (Brazilian GAAP), which Cosan uses to prepare its statutory consolidated financial statements as filed with the Brazilian Securities CommissionCVM (Comissão de Valores Mobiliários).
The Brazilian real is the currency of the primary economic environment in which Cosan and its subsidiaries located in Brazil operate and generate and expend cash and is the functional currency, except for the foreign subsidiaries in which U.S. dollar is the functional currency. However, Cosan utilizes the U.S. dollar as its reporting currency. The accounts of Cosan are maintained in Brazilian reais, which have been translated into U.S. dollars in accordance with Statement of Financial Accounting Standards (SFAS) No. 52 Foreign Currency Translation. The assets and liabilities are translated from reais to U.S. dollars using the official exchange rates reported by the Brazilian Central Bank at the balance sheet date and revenues, expenses, gains and losses are translated using the average exchange rates for the period. The translation gain or loss is included in the accumulated other comprehensive income component of shareholders equity, and in the statement of comprehensive income (loss) for the period in accordance with the criteria established in SFAS No. 130 Reporting Comprehensive Income.
The exchange rate of the Brazilian real (R$) to the U.S. dollar (US$) was R$2.0339=US$1.00 at April 30, 2007, R$2.0892=US$1.00 at April 30, 2006 and R$2.5313=US$ 1.00 at April 30, 2005.
3. Significant Accounting Policies
a. Principles of consolidation
The consolidated financial statements include the accounts and operations of Cosan and its subsidiaries. All significant intercompany accounts and transactions are eliminated upon consolidation.
F-14
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
3. Significant Accounting PoliciesContinued
The following subsidiaries were included in the consolidated financial statements for the Years ended April 30, 2007, 2006 and 2005.
Ownership % | ||||||||||||||||||
2007 | 2006 | 2005 | ||||||||||||||||
Direct | Indirect | Direct | Indirect | Direct | Indirect | |||||||||||||
Amaralina Agrícola Ltda.(5) |
| | | | 99.9 | % | | |||||||||||
Cosan Operadora Portuária S.A. |
90.0 | % | | 90.0 | % | | 90.0 | % | | |||||||||
Administração de Participações Aguassanta Ltda. |
91.5 | % | | 91.5 | % | | 91.5 | % | | |||||||||
Usina da Barra S.A. Açúcar e Álcool(1) |
| | | | 45.1 | % | 50.0 | % | ||||||||||
Agrícola Ponte Alta S.A. |
| 98.4 | % | | 98.4 | % | | 95.1 | % | |||||||||
Cosan Distribuidora de Combustíveis Ltda. |
99.9 | % | | 99.9 | % | | 99.9 | % | | |||||||||
Cosan S.A. Bioenergia(3) |
99.9 | % | | 99.9 | % | | | | ||||||||||
Corona Bioenergia S.A.(3) |
| 98.4 | % | | | | | |||||||||||
FBA Bioenergia S.A.(3) |
| 98.4 | % | | | | | |||||||||||
Barra Bioenergia S.A.(3) |
| 98.4 | % | | | | | |||||||||||
Cosan International Universal Corporation |
100.0 | % | | | | | | |||||||||||
Cosan Finance Limited |
100.0 | % | | | | | | |||||||||||
Cosan S.A. Refinadora de Açúcar(4) |
| | | | 99.9 | % | | |||||||||||
Da Barra Alimentos Ltda.(3) |
| 98.4 | % | | 98.4 | % | | | ||||||||||
Jump Participações S.A.(2),(7) |
| | 100.0 | % | | | | |||||||||||
Mundial Açúcar e Álcool S.A.(6),(7) |
| | 98.5 | % | 1.5 | % | | | ||||||||||
Alcomira S.A.(6),(7) |
| | | 100.0 | % | | | |||||||||||
ABC 125 Participações Ltda.(2),(7) |
| | 99.9 | % | | | | |||||||||||
ABC 126 Participações Ltda.(2),(7) |
| | 99.9 | % | | | | |||||||||||
Bonfim Nova Tamoio BNT Agrícola Ltda. |
| 98.4 | % | | 98.4 | % | | | ||||||||||
Usina da Barra S.A. Açúcar e Álcool |
82.4 | % | 16.0 | % | 80.5 | % | 17.9 | % | | | ||||||||
Aguapar Participações S.A.(2),(7) |
| | 100.0 | % | | | | |||||||||||
Usina Açucareira Bom Retiro S.A.(6),(7) |
| | | 100.0 | % | | | |||||||||||
Grançucar S.A. Refinadora de Açúcar |
99.9 | % | 0.1 | % | | | | | ||||||||||
Cosan Centroeste S.A. Açúcar e Álcool |
99.9 | % | 0.1 | % | | | | |
(1) | Merged into Usina da Barra S.A. Açúcar e Álcoolformerly Açucareira Corona S.A. |
(2) | Holding companies set up in 2006 to allow the acquisition process. |
(3) | Companies set up in 2006. |
(4) | Merged into Cosan. |
(5) | Assets distributed to owners in a spin-off. |
(6) | Companies acquired through holding companies. |
(7) | Merged into Cosan S.A. Indústria e Comércio. |
In August 2006, Cosan incorporated Cosan International Universal Corporation, a wholly-own subsidiary, located in the British Virgin Islands which engages in the sale of the Cosans products in foreign markets.
On November 2006, Cosan incorporated Cosan Finance Limited a wholly-owned subsidiary, located in the Cayman Island, which issues debt securities to help finance Cosans capital resource requirements.
F-15
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
During the fiscal year 2007, Cosan incorporated Corona Bioenergia S.A., FBA Bioenergia S.A. and Barra Bioenergia S.A. with the purpose of co-generation of electric power.
On February 28, 2007, Danco Participações S.A., wholly-owned subsidiary of Cosan, mergered with Usina da Barra S.A. Açúcar e Álcool and changed its corporate name to Usina da Barra S.A. Açúcar e Álcool.
On March 1, 2007, Cosan incorporated a new subsidiary Cosan Centroeste S.A. Açúcar e Álcool S.A. with its principal place of business in the State of Goiás , to build and operate three mills that will manufacture and produce ethanol from sugarcane. These new mills are expected to add approximately 10 million tons (unaudited) of crushing capacity by fiscal year 2012. Cosan has acquired the land on which the new mills will be built, and is in the process of securing the land for planting sugarcane for this greenfield project, which is expected to start producing ethanol in 2009.
b. Revenue recognition
Cosan recognizes revenue when title passes to the customer. This is date of shipment when shipped FOB shipping point and date of receipt by customer for certain export sales, which are shipped FOB destination. Selling prices are fixed based on purchase orders or contractual arrangements. Provision is made for estimated returns and estimated credit losses.
Shipping and handling costs are classified as selling expenses in the consolidated statement of income.
c. Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates. These estimates and assumptions are reviewed and updated regularly to reflect recent experience.
d. Cash and cash equivalents
Cosan considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
e. Restricted cash
The restricted cash amounts are related to deposits of margin requirements with commodities brokers that trade Cosans derivative instruments.
f. Marketable securities
Cosan classifies its debt securities as available-for-sale securities, which are carried at fair value, with the unrealized gains and losses reported in other comprehensive income. Interest on securities classified as available-for-sale is included in financial income. These securities primarily comprise fixed-income securities,
F-16
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
3. Significant Accounting PoliciesContinued
which are debt securities issued by highly rated financial institutions indexed in Reais with Inter Deposit Rates (CDI). Cost of these securities approximates market value.
g. Trade accounts receivable and allowance for doubtful accounts
Trade accounts receivable are recorded at estimated net realizable value and do not bear interest. The allowance for doubtful accounts is recorded at an amount considered sufficient to cover estimated losses arising on collection of accounts receivable.
h. Inventories
Inventories are valued at the lower of cost or market. Cost for finished goods and work-in-progress includes purchased raw materials, labor, maintenance costs of growing crops, depreciation of major maintenance costs and manufacturing and production overhead, which are related to the purchase and production of inventories.
During the development period of growing crops, costs are recorded in property, plant and equipment. After the development period, annual maintenance costs of growing crops become a portion of the cost of the current-year crop, along with harvesting costs, depreciation of the plants, and allocated overhead costs. Annual maintenance costs include cultivation, spraying, pruning, and fertilizing. The annual maintenance costs are allocated to cost of production based on the amount of sugarcane milled during the harvest period.
Cosans harvest period begins between the months of April and May each year and ceases normally in the months of November and December. From January to April Cosan performs its major maintenance activities, as described at item j below.
i. Investment in affiliated companies
Investments in affiliates in which Cosan exercises significant influence over the operating and financial policies are accounted for using the equity method.
j. Property, plant and equipment
Property, plant and equipment are recorded at cost of acquisition, formation or construction, including interest incurred on financing. During the period of construction, costs include land preparation, plants, preparation of planting beds, stakes and wires, cultural care during the development period, and overhead. Amortization of sugarcane plants is calculated using the straight-line method at a rate of 20% per annum as Cosan harvests these plants during a five-year average period.
Depreciation is calculated using the straight-line method at rates that take into account the estimated useful life of the assets: 25 years for buildings; 10 years for machinery and equipment; 7 years for furniture, fixtures and computer equipment; 5 years for vehicles; 25 years for leasehold improvements; and 5 years for sugarcane plant development costs.
Cosan performs planned major maintenance activities in its industrial facilities on an annual basis. This occurs during the months from January to April, with the purpose to inspect and replace components. The annual
F-17
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
3. Significant Accounting PoliciesContinued
major maintenance costs include labor, material, outside services, and general or overhead expense allocations during the inter-harvest period. Cosan utilizes the built-in overhaul method to account for the annual costs of major maintenance activities. Thus the estimated cost of the portion of the total cost of a fixed asset which must be replaced on an annual basis is recorded as a separate component of the cost of fixed assets and depreciated over its separate estimated useful life. It is then replaced in connection with the annual major maintenance activities. Costs of normal periodic maintenance are charged to expense as incurred since the parts replaced do not enhance or maintain the crushing capacity or provide betterments to the fixed assets.
j. Property, plant and equipmentContinued
Impairment of long-lived assets is recognized when events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable. If the expected future undiscounted cash flows are less than the carrying amount of the asset, an impairment loss is recognized at that time to reduce the asset to the lower of its fair value or its net book value.
k. Goodwill and other intangible assets
Cosan tests goodwill and indefinite-lived intangible assets for impairment at least annually during the fourth quarter after the annual forecasting process is completed. Furthermore, goodwill is reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
l. Environmental matters
Cosans production facilities and its plantation activities are both subject to environmental regulations. Cosan diminishes the risks associated with environmental matters, through operating procedures and controls and investments in pollution control equipment and systems. Cosan believes that no provision for losses related to environmental matters is currently required, based on existing Brazilian laws and regulations.
m. Estimated liability for legal proceedings and labor claims
Determination of the estimated liability for legal proceedings and labor claims involves considerable judgment on the part of management. In accordance with Statement of Financial Accounting Standards (SFAS) No. 5, Accounting for Contingencies, a contingency is an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur. Cosan is subject to various claims, legal, civil and labor proceedings covering a wide range of matters that arise in the ordinary course of business activities. Cosan accrues such liabilities when it determines that losses are probable and can be reasonably estimated. The balances are adjusted to account for changes in circumstances in ongoing issues and the establishment of additional reserves for emerging issues. Actual results could differ from estimates.
n. Income taxes
Deferred income taxes are recognized for the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. This method also requires the recognition of future tax benefits such as net operating loss carry forwards, to the extent that realization of such benefits is more likely than not.
F-18
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
3. Significant Accounting PoliciesContinued
Valuation allowances are established when management determines that it is more likely than not that the deferred tax assets will not be realized.
o. Earnings (losses) per share
Earnings (losses) per share are computed by dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings per share are calculated by adjusting average outstanding shares for the impact of conversion of all potentially dilutive stock options.
p. Share-based compensation
Cosans share-based compensation plan was adopted on August 30, 2005 at which time Cosan early-adopted SFAS No. 123(R), Share-Based Payments, which required it to recognize expense related to the fair value of its share-based compensation awards. Compensation expense for all share-based compensation awards granted in the fiscal year ended April 30, 2006 was based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R) and the expense has been recognized for share-based awards on a straight-line basis over the requisite service period of the award. For purpose of estimating the fair value of options on their date of grant, Cosan used a binomial model.
q. Derivative financial instruments
Cosan accounts for derivative financial instruments utilizing SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. As part of Cosans risk management program, Cosan uses a variety of financial instruments, including commodity futures contracts, forward currency agreements, interest rate and foreign exchange swap contracts and option contracts. Cosan does not hold or issue derivative financial instruments for trading purposes. Cosan recognizes all derivative instruments as non-hedge transactions. The derivative instruments are measured at fair value and the gains or losses resulting from the changes in fair value of the instruments are recorded in financial income or financial expense.
r. Recently issued accounting standards
In June 2006, the Financial Accounting Standard Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income TaxesAn Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the financial statements with SFAS No. 109, Accounting for Income Taxes. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognizing, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. Cosan will adopt FIN 48 as of May 1, 2007, as required. The adoption of FIN 48 is not expected to have a material effect on Cosans consolidated financial statements.
In September 2006, the U.S. Securities and Exchange Commission (the SEC) released Staff Accounting Bulletin No. 108, Quantifying Financial Statement Misstatements (SAB 108). Due to diversity in practice among registrants, SAB 108 expresses SEC staff views regarding the process by which misstatements in financial statements are evaluated for purposes of determining whether financial statement restatement is necessary. SAB 108 is effective for fiscal years ending after November 15, 2006, and early application is encouraged. Cosan does not believe SAB 108 will have a material effect on its results of operations or financial position.
F-19
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
4. Cash and Cash Equivalents
2007 | 2006 | |||
Local currency |
||||
Cash and bank accounts |
16,208 | 21,930 | ||
Foreign currency |
||||
Bank accounts |
300,334 | 7,285 | ||
316,542 | 29,215 | |||
5. Derivative Financial Instruments
Cosan enters into derivative financial instruments with various counterparties and uses derivatives to manage the overall exposures related to sugar price variations in the international market, interest rate and exchange rate variation. The instruments are commodity futures contracts, forward currency agreements, interest rate and foreign exchange swap contracts, and option contracts. Cosan recognizes all derivatives on the balance sheet at fair value.
The following table summarizes the notional value of derivative financial instruments as well as the related amounts recorded in balance sheet accounts:
Notional amounts | Carrying value asset (liability) |
|||||||||
2007 | 2006 | 2007 | 2006 | |||||||
Commodities derivatives |
||||||||||
Future contracts: |
||||||||||
Purchase commitments |
| 1,378 | | 86 | ||||||
Sell commitments |
783,019 | 626,932 | 47,427 | (73,508 | ) | |||||
Options: |
||||||||||
Purchased |
335,715 | 860,785 | 4,502 | 6,728 | ||||||
Written |
| 187,513 | | (27,175 | ) | |||||
Foreign exchange derivatives |
||||||||||
Forward contracts: |
||||||||||
Sale commitments |
153,824 | 264,810 | 13,274 | 9,841 | ||||||
Swap agreements |
328,419 | 383,214 | (9,779 | ) | (32,693 | ) | ||||
Total assets |
65,203 | 16,655 | ||||||||
Total liabilities |
(9,779 | ) | (133,376 | ) | ||||||
When quoted market prices were not available, fair values were based on estimates using discounted cash flows or other valuation techniques. Asset figures are classified as Other current assets.
F-20
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
6. Inventories
2007 | 2006 | |||
Finished goods: |
||||
Sugar |
5,730 | 12,897 | ||
Ethanol |
8,731 | 9,160 | ||
Others |
1,681 | 453 | ||
16,142 | 22,510 | |||
Annual maintenance cost of growing crops |
183,157 | 130,316 | ||
Other |
48,181 | 34,348 | ||
247,480 | 187,174 | |||
The increase in the annual maintenance cost of growing crops in 2007 is due to the expansion of cultivated area in approximately 15,000 hectares and price increases of agricultural products.
7. Property, Plant and Equipment
2007 | 2006 | |||||
Land and rural properties |
157,952 | 149,695 | ||||
Machinery, equipment and installations |
868,775 | 847,980 | ||||
Vehicles |
87,840 | 82,026 | ||||
Furniture, fixtures and computer equipment |
20,122 | 15,482 | ||||
Buildings |
94,233 | 89,442 | ||||
Leasehold improvements |
93,334 | 83,617 | ||||
Construction in progress |
130,295 | 19,011 | ||||
Sugarcane plant development costs |
373,267 | 248,404 | ||||
1,825,818 | 1,535,657 | |||||
Accumulated depreciation and amortization |
(631,768 | ) | (527,605 | ) | ||
Total |
1,194,050 | 1,008,052 | ||||
8. Acquisitions
On April 27, 2006, Cosan acquired all of the outstanding shares of Usina Açucareira Bom Retiro S.A. (Bom Retiro), a processor of sugar and ethanol from sugarcane, for US$51,078 net of cash acquired.
On February 8, 2006, Cosan acquired all of the outstanding shares of Açucaceira Corona S.A. (Corona) a processor of sugar and ethanol from sugarcane, for US$180,582 net of cash acquired.
On December 12, 2005, Cosan acquired all of the outstanding shares of Alcomira S.A. (Alcomira) and Mundial S.A. Açúcar e Álcool S.A. (Mundial), processors of sugar and ethanol from sugarcane, for US$29,218 net of cash acquired.
On May 31, 2005, Cosan acquired from Tereos do Brasil Participações Ltda. and Sucden Investimentos S.A., for the amount of US$100,900 the remaining 52.5% of the outstanding shares of FBA-Franco Brasileira S.A. Açúcar e Álcool (FBA), as set forth in Note 16.a.
F-21
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
8. AcquisitionsContinued
These acquisitions have been accounted for using the purchase method and the results of the acquired companies have been included in the consolidated results from the acquisition date.
Also on January 31, 2005, Cosan conducted a legal reorganization together with its parent company Aguassanta Participações S.A. In such transaction, Cosan exchanged its interest in the subsidiary NC Participações S.A. amounting to US$26,141 for the shares of JVM Participações S.A., valued at their respective book values of US$1,865. As a result of the transactions performed on January 31, 2005, Cosan increased its indirect share control over Usina da Barra from 45.3% to 87.9%, corresponding to a total interest of 95%. This is a transaction among entities under common control and net assets were transferred at their carrying value. The income tax effects caused by this transaction were also recorded in equity. Therefore, the total amount recorded in equity related to this transaction was US$16,023.
The following table summarizes the estimated fair value of assets acquired and liabilities assumed in the acquisitions:
Description |
FBA | Corona | Alcomira and Mundial |
Bom Retiro |
Total | ||||||||||
Property, plant and equipment |
110,716 | 306,029 | 34,633 | 59,456 | 510,834 | ||||||||||
Intangible assets |
19,284 | 35,755 | 7,706 | 3,590 | 66,335 | ||||||||||
Other assets |
44,257 | 130,504 | 11,268 | 8,981 | 195,010 | ||||||||||
Long-term debts including current installments |
(28,152 | ) | (175,032 | ) | (27,274 | ) | (2,076 | ) | (232,534 | ) | |||||
Other liabilities |
(78,126 | ) | (313,115 | ) | (49,348 | ) | (35,237 | ) | (475,826 | ) | |||||
Net assets (liabilities) acquired (assumed) |
67,979 | (15,859 | ) | (23,015 | ) | 34,714 | 63,819 | ||||||||
Purchase price, net of cash acquired |
100,900 | 180,582 | 29,218 | 51,078 | 361,778 | ||||||||||
Goodwill |
32,921 | 196,441 | 52,233 | 16,364 | 297,959 | ||||||||||
Cosan expects the goodwill balance relating to these acquisitions will be substantially deductible for tax purposes. The goodwill is substantially based on future profitability.
The following unaudited pro forma financial information presents the pro forma results of operations of Cosan and the acquired companies as if the acquisitions had occurred at the beginning of the years presented. The unaudited pro forma financial information does not purport to be indicative of the results that would have been obtained if the acquisitions had occurred as of the beginning of the years presented or that may be obtained in the future:
2006 | 2005 | |||||
Net sales |
1,278,361 | 869,564 | ||||
Net income (loss) |
(84,509 | ) | (7,870 | ) | ||
Basic EPS per thousand shares (R$) |
(0.54 | ) | (0.07 | ) | ||
Diluted EPS per thousand shares (R$) |
(0.53 | ) | |
In April 2007, Cosan acquired for US$39,409 cash, 33.33% of the outstanding shares of Etanol Participações S.A. Etanol There are two other shareholders of Etanol, neither of which has control of the entity. Etanol owns two operating companies, Usina Santa Luiza and Agropecuária Aquidaban Ltda., that produce sugar and alcohol from sugarcane. The investment is being accounted for using the equity method and the results of the acquired company have been included in the consolidated results from the acquisition date.
F-22
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
9. Goodwill and Other Intangible Assets
Goodwill
The carrying amounts of goodwill by reporting segment for the years ended April 30, 2007, 2006 and 2005 are as follows:
Sugar segment |
Ethanol segment |
Total | |||||||
Balance as of April 30, 2005 |
101,182 | 65,466 | 166,648 | ||||||
Acquisitions |
177,487 | 120,472 | 297,959 | ||||||
Total tax benefit applied to reduce goodwill |
(4,428 | ) | (4,058 | ) | (8,486 | ) | |||
Existing goodwill of equity investment now consolidated |
2,444 | 4,483 | 6,927 | ||||||
Reduction of equity interest on TEAS |
| (447 | ) | (447 | ) | ||||
Effect of currency translation |
21,411 | 13,853 | 35,264 | ||||||
Balance as of April 30, 2006 |
298,096 | 199,769 | 497,865 | ||||||
Total tax benefit applied to reduce goodwill |
(11,647 | ) | (7,898 | ) | (19,545 | ) | |||
Effect of currency translation |
8,105 | 5,432 | 13,537 | ||||||
Balance as of April 30, 2007 |
294,554 | 197,303 | 491,857 | ||||||
Other intangible assets
As of April 30, 2007 | |||||||||
Gross carrying amount |
Weighted average amortization period |
Accumulated amortization |
Net carrying amount | ||||||
Intangible assets subject to amortization: |
|||||||||
Favorable operating leases |
110,872 | 16 years | (20,934 | ) | 89,938 | ||||
Trademark |
5,857 | 15 years | (1,822 | ) | 4,035 | ||||
Total |
116,729 | (22,756 | ) | 93,973 | |||||
Intangible assets subject to amortization: |
|||||||||
Favorable operating leases |
107,937 | 16 years | (13,311 | ) | 94,626 | ||||
Trademark |
5,702 | 15 years | (1,393 | ) | 4,309 | ||||
Total |
113,639 | (14,704 | ) | 98,935 | |||||
The acquired companies maintained several operating lease agreements with agricultural producers which set forth an amount of sugarcane tons to be delivered at each harvest period. However, if that sugarcane had been bought directly from the producer with no lease agreement, the amount to be paid would depend on the productivity in tons of the sugarcane acquired in that same geographic area. Therefore, the intangible assets identified in each acquisition were valued based on the benefit that each acquired company had in these contracts. The intangible assets are depreciated on the straight-line method based on the contract periods.
F-23
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
9. Goodwill and Other Intangible AssetsContinued
No significant residual value is estimated for these intangible assets. The following table represents the total estimated amortization of intangible assets for the five succeeding fiscal years:
Fiscal Year ending April 30, |
||
2008 |
7,525 | |
2009 |
7,025 | |
2010 |
7,002 | |
2011 |
7,002 | |
2012 |
7,002 | |
Thereafter |
58,417 | |
Total |
93,973 | |
10. Taxes Payable
Cosan and its subsidiaries participate in several programs that provide for payments of taxes in installments, as follows:
2007 | 2006 | |||||
Special State Tax Payment Program State REFIS |
| 30,468 | ||||
Tax Recovery ProgramFederal REFIS |
81,626 | 82,455 | ||||
Special Tax Payment ProgramPAES |
43,239 | 50,646 | ||||
Others |
39,575 | 28,868 | ||||
164,440 | 192,437 | |||||
Current liabilities |
(57,543 | ) | (39,991 | ) | ||
Long-term liabilities |
106,897 | 152,446 | ||||
Special State Tax Payment ProgramState REFIS
On October 2000, two acquired subsidiaries adhered to the Special State Tax Payment Program established by the São Paulo State Government for the settlement of outstanding ICMS debts. Therefore, these amounts are being paid in 120 monthly installments as from December 2001, subject to adjustment based on the variation of the Long-term Interest RateTJLP.
Tax Recovery ProgramFederal REFIS
In 2000, several subsidiaries of Cosan signed an Option Instrument applying to pay their debts in installments based on the Tax Recovery ProgramFederal REFIS. Therefore, the companies voluntarily informed the Brazilian Internal Revenue ServiceSRF and the National Institute of Social SecurityINSS of their tax and social contribution obligations. Property, plant and equipment of the companies were offered as security in the debt consolidation process.
Under the REFIS, tax payments are made based on 1.2% of the taxpayers monthly gross revenue. The remaining balance is monetarily adjusted based on the TJLP variation.
F-24
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
10. Taxes PayableContinued
Special Tax Payment ProgramPAES
By using the benefit granted by the Special Tax Payment ProgramPAES published on May 31, 2003, Cosan and its subsidiaries discontinued litigation in certain judicial proceedings and pleaded the payment in installments of debts maturing up to February 28, 2003 to the SRF and the INSS. Installments are adjusted monthly based on the TJLP variation. Relevant installments have been paid based on 1.5% of Cosans revenues, considering a minimum of 120 and a maximum of 180 installments.
Cosan and its subsidiaries must comply with several conditions to continue benefiting from the installment payment programs mentioned above, particularly the regular payment of the installments as required by law and of the taxes becoming due.
State VAT Amnesty
In October 2006, Cosan and the subsidiary Usina da Barra subscribed for the benefit of waiver of interest and penalties on state VAT obligations, approved by State Law No. 12399/06, of September 29, 2006, which provides for a 90% penalty reduction and a 50% interest reduction, calculated to the date of payment.
On October 31, 2006, under the amnesty, the subsidiary Usina da Barra S.A. Açucar e Álcool prepaid tax obligations recorded under taxes payable as Special State Tax Payment Program (State REFIS) in the amount of US$37,417 and taxes payable in the amount of US$8,427. The prepayment resulted in a discount of US$20,683, which was recognized as financial discount under financial income.
On October 31, 2006, Usina da Barra S.A. Açucar e Álcool also prepaid for US$68,338 tax debts recorded under the caption estimated liability for legal proceedings and labor claims in the amount of US$99,852. The discount granted in the amount of US$31,515 is comprised of US$20,043 of principal, penalty and fees, which was classified under the caption other operating income (expenses), with the remaining financial discount in the amount of US$11,471, classified under the caption financial income in the statement of operations.
11. Long-term Debt
Long-term debt is summarized as follows:
Index | Average annual interest rate |
2007 | 2006 | ||||||||
Resolution No. 2471 (PESA) |
IGP-M | 3.95 | % | 196,545 | 176,326 | ||||||
Corn price |
12.50 | % | 685 | 445 | |||||||
Senior notes due 2009 |
US Dollar | 9.0 | % | 200,000 | 200,000 | ||||||
Senior notes due 2017 |
US Dollar | 7.0 | % | 407,311 | | ||||||
IFC |
US Dollar | 7.44 | % | 67,677 | 66,879 | ||||||
Perpetual notes |
US Dollar | 8.25 | % | 459,035 | 459,585 | ||||||
Others |
Various | Various | 47,319 | 85,082 | |||||||
1,378,572 | 988,317 | ||||||||||
Current liability |
(36,076 | ) | (46,576 | ) | |||||||
Long-term debt |
1,342,496 | 941,741 | |||||||||
F-25
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
11. Long-term DebtContinued
Long-term debt has the following scheduled maturities:
2009 |
9,420 | |
2010 |
206,940 | |
2011 |
6,855 | |
2012 |
6,670 | |
2013 |
18,504 | |
2014 |
2,009 | |
2015 and thereafter |
1,092,098 | |
1,342,496 | ||
Resolution No. 2471Special Agricultural Financing Program (Programa Especial de Saneamento de Ativos), or PESA
To extend the repayment period of debts incurred by Brazilian agricultural producers, the Brazilian government passed Law 9.138 followed by Central Bank Resolution 2,471, which, together, formed the PESA program. PESA offered certain agricultural producers with certain types of debt the opportunity to acquire Brazilian treasury bills (CTNs) in an effort to restructure their agricultural debt. The face value of the Brazilian treasury bills was the equivalent of the value of the restructured debt and was for a term of 20 years.
Resolution No. 2471Special Agricultural Financing Program (Programa Especial de Saneamento de Ativos), or PESAContinued
The acquisition price was calculated by the present value, discounted at a rate of 12% per year or at the equivalent of 10.4% of its face value. The CTNs were deposited as a guarantee with a financial institution and cannot be renegotiated until the outstanding balance is paid in full. The outstanding balance associated with the principal is adjusted in accordance with the IGP-M until the expiration of the restructuring term, which is also 20 years, at which point the debt will be discharged in exchange for the CTNs. Because the CTNs will have the same face value as the outstanding balance at the end of the term, it will not be necessary to incur additional debt to pay PESA debt.
On July 31, 2003, the Central Bank issued Resolution 3,114, authorizing the reduction of up to five percentage points of PESA related interest rates, effectively lowering the above-mentioned rates to 3%, 4% and 5%, respectively. The CTNs held by Cosan as of April 30, 2007 and 2006 amounted to US$82,205 and US$72,872, respectively, and are classified as Non-current assets-other.
Senior notes due 2009
The senior notes are listed on the Luxembourg Stock Exchange, mature in November 2009 and bear interest at a rate of 9% per annum, payable semi-annually in May and November as from May 1, 2005. The senior notes are guaranteed by Cosans subsidiary, Usina da Barra.
Senior notes due 2017
On January 26, 2007, Cosan Finance Limited, wholly-owned subsidiary at Cosan, issued US$400,000 of senior notes in the international capital markets. These senior notes, listed on the Luxembourg Stock Exchange,
F-26
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
mature in November 2017 and bear interest at a rate of 7% per annum,
payable semi-annually. The senior notes are guaranteed by Cosan, and its subsidiary,
Usina da Barra.
IFCInternational Finance Corporation
On June 28, 2005, Cosan entered into a credit facility agreement in the total amount of US$70,000 with the IFC, comprising an A loan of US$50,000 and a C loan of US$20,000. The C loan was used on October 14, 2005 while the funds from the A loan were deposited and available at February 23, 2006. Under the agreement, Cosan has granted to IFC an option for the total or partial conversion of the C loan into common shares of Cosan in connection with its Initial Public Offering. On November 7, 2005, IFC informed Cosan of its intention to exercise the conversion option in relation to the amount of US$5,000, which was converted into 686,750 common shares (228,750 shares pre-split) on November 16, 2005.
Interest on these loans is due on a semi-annual basis and is payable on January 15 and July 15 of each year, based on the LIBOR plus a spread of 3.75% per annum for C Loan, and on LIBOR plus a spread of 2.5% per annum for A Loan. The C loan accrues additional interest based on a formula that takes Cosans EBITDA into consideration. The C loan outstanding principal will be settled in a lump sum on January 15, 2013, and may be prepaid. The A loan principal will be repaid in 12 equal installments payable every six months beginning July 15, 2007. The debt is secured by the industrial facilities of Usina Rafard, with a carrying value of US$5,400 at April 30, 2007, and is guaranteed by the controlling shareholder and Usina da Barra, Cosan Operadora Portuária and Agrícola Ponte Alta S.A.
Cosan, together with its controlling shareholder and its subsidiaries, entered into a Shareholders Agreement with IFC, whereby tag along rights and a put option have been granted to IFC, which requires Cosans controlling shareholders to hold a minimum interest of 51% in Cosans share capital.
Perpetual notes
On January 24 and February 10, 2006, Cosan issued perpetual notes which are listed on the Luxemburg Stock ExchangeEURO MTF. These notes bear interest at a rate of 8.25% per year, payable quarterly on May 15, August 15, November 15 and February 15 of each year, beginning May 15, 2006.
The notes may, at the discretion of Cosan, be redeemed on any interest payment date subsequent to February 15, 2011. The notes are guaranteed by Cosan and by Usina da Barra.
Cosan and its subsidiaries are subject to certain restrictive covenants related to their indebtedness, including the following: net debt/EBTIDA ratio; current asset/current liability ratio; limitation on transactions with shareholders and affiliated companies; and limitation on payment of dividends and other payments affecting subsidiaries. At April 30, 2007, Cosan was in compliance with all debt covenants.
F-27
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
12. Related Parties
Cosan conducts some of its operations through various joint ventures and other partnership forms which are principally accounted for using the equity method. The statement of operations includes the following amounts resulting from transactions with related parties:
2007 | 2006 | 2005 | |||||||
Transactions involving assets |
|||||||||
Remittance of financial resources, net of receipts and credit assignments |
21 | (44 | ) | 60,396 | |||||
Sale of finished products and services |
| | 4,461 | ||||||
Purchase of finished products and services |
| | (65,428 | ) | |||||
Financial expenses |
| | (2,832 | ) | |||||
Transactions involving liabilities |
|||||||||
Payment of financial resources, net of funding |
(11,469 | ) | (12,213 | ) | (9,969 | ) | |||
Sale of finished products and services |
| 2,076 | | ||||||
Financial expenses |
| | 468 | ||||||
Land leasing |
11,096 | 8,606 | 1,717 |
The purchase and sale of products are carried out at arms length and unrealized profit or losses with consolidated companies have been eliminated.
In 2005, the related companies Usina Costa Pinto S.A. Açúcar e Álcool, Indústria Açucareira São Francisco S.A. and Usina Santa Bárbara S.A. Açúcar e Álcool had an agreement with Cosan for industrial processing of sugarcane, whereby those companies were entitled to 1.25 sacks (50kg) of VHP sugar and 20 liters of ethanol per ton of sugarcane processed. The terms were similar to those available in the market. In the quarter ended July 31, 2005, the companies entered into an agreement to terminate this type of transaction.
In addition, as of April 30, 2007, Cosan is the lessee of land from unconsolidated affiliated companies as follows: 5,758 hectares (unaudited) of land (5,793 hectares (unaudited) in 2006) owned by Santa Bárbara Agrícola S.A.; 12,751 hectares (unaudited) of land (12,751 hectares (unaudited) in 2006) owned by Indústria Açucareira São Francisco S.A.; and 17,192 hectares (unaudited) of land (13,713 hectares (unaudited) in 2006) owned by Amaralina. These leases are carried out on an arms length basis, and rent is calculated based on sugarcane tons per hectare, valued according to price established by CONSECANA (São Paulo State Council of Sugar Cane, Sugar and Alcohol Producers).
13. Contingencies and Commitments
2007 | 2006 | |||
Tax contingencies |
329,493 | 415,776 | ||
Civil and labor contingencies |
49,698 | 46,472 | ||
379,191 | 462,248 | |||
Cosan and its subsidiaries are parties in various ongoing labor claims, civil and tax proceedings arising in the normal course of its business. Respective provisions for contingencies were recorded considering those cases in which the likelihood of loss has been rated as probable. Management believes resolution of these disputes will have no effect significantly different than the estimated amounts accrued.
F-28
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
13. Contingencies and CommitmentsContinued
Judicial deposits recorded by Cosan under other non-current assets in the balance sheets, amounting to US$21,274 (US$26,148 in 2006), have been made for certain of these suits. Judicial deposits are restricted assets of Cosan placed on deposit with the court and held in judicial escrow pending legal resolution of the related legal proceedings.
Tax contingencies mainly refer to suits filed by Cosan and its subsidiaries, discussing several aspects of the legislation ruling PIS, Cofins, contributions to the extinct IAA- Sugar and Ethanol Institute, and the Excise tax (IPI), as well as tax delinquency notices related to ICMS and contributions to the INSS.
The major tax contingencies as of April 30, 2007, are related to Excise taxIPI credit premium in the amount of US$123,671, Value added taxICMS in the amount of US$18,347, IAA Tax Contribution in the amount of US$37,683, and Social Contributions in the amount of US$58,640.
In addition to the aforementioned claims, Cosan and its subsidiaries are involved in other contingent liabilities relating to tax claims and environmental matters, which have not been recorded, considering their current stage and the likelihood of favorable outcomes. These claims can be summarized as follows:
2007 | 2006 | |||
ICMSState value added tax |
28,964 | 28,836 | ||
IAASugar and Ethanol Institute |
23,706 | 22,638 | ||
IPIFederal value-added tax |
31,921 | 6,575 | ||
Others |
18,574 | 7,802 | ||
103,165 | 65,851 | |||
The subsidiary Usina da Barra has several indemnification suits filed against the Federal Government. The suits relate to product prices that did not conform to the reality of the market, which were mandatorily established at the time the sector was under the Governments control.
In connection with one of these suits, a final and unappealable decision in the amount of US$149,121, million was rendered in September 2006 in favor of Usina de Barra. This has been recorded as a gain in the statement of operations. Since the recorded amount is substantially composed of interest and monetary restatement, it was recorded in Financial income and in a non-current receivable on the balance sheet. In connection with the settlement process, the form of payment is being determined.
The Company is expecting a final decision relative to the payment terms within three years, which is expected to be in the form of public debt, to be received over a ten year period. The amount is subject to interest and inflation adjustment by an official index. Lawyers fees in the amount of US$18,783 relating to this suit have been recorded in General and administrative expenses.
F-29
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
The detail of the movement in the estimated liability for legal proceedings and labor claims is as follows:
Balance at April 30, 2005 |
101,724 | ||
Provision |
47,280 | ||
Acquisitions |
291,718 | ||
Foreign currency translation |
21,526 | ||
Balance at April 30, 2006 |
462,248 | ||
Provision, less effect of State VAT amnesty |
(25,466 | ) | |
Settlements |
(70,160 | ) | |
Effect of foreign currency translation |
12,569 | ||
Balance at April 30, 2007 |
379,191 | ||
The provisions for tax, civil and labor contingencies are included in the statement of operations as follows:
2007 | 2006 | 2005 | |||||
Net sales |
2,106 | 8,086 | 7,993 | ||||
General and administrative expenses |
(6,208 | ) | | | |||
Financial expenses |
(1,404 | ) | 21,840 | 12,535 | |||
Other income (expense) |
(19,960 | ) | 6,317 | 10,791 | |||
Income taxes |
| 11,037 | 1,597 | ||||
(25,466 | ) | 47,280 | 32,916 | ||||
Commitments
Sales
Considering that Cosan operates mainly in the commodities market, its sales are substantially made at prices applicable at sales date, and therefore, there are no outstanding orders with amounts involved. However, Cosan has several agreements in the sugar market in which there are commitments of sales involving volumes of these products in future harvest periods.
The volumes related to the commitments mentioned above are as follows (unaudited):
Product |
2007 | 2006 | ||
Sugar (in tons) |
5,459,000 | 3,196,000 |
The commitments by harvest period are as follows (unaudited):
Harvest period |
2007 | 2006 | ||
2006/2007 |
| 1,402,000 | ||
2007/2008 |
2,507,000 | 897,000 | ||
2008/2009 |
2,068,000 | 897,000 | ||
2009/2010 |
884,000 | | ||
Total |
5,459,000 | 3,196,000 | ||
F-30
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
13. Contingencies and CommitmentsContinued
Purchase
Cosan has entered into several commitments to purchase sugarcane from third parties in order to guarantee part of its production for the next harvest periods. The amount of sugarcane to be purchased was calculated based on an estimation of the sugarcane to be harvested in each geographic area. The amount to be paid by Cosan will be determined for each harvest period at the end of such harvest period according to price of the sugarcane published by CONSECANA.
The purchase commitments by harvest period as of April 30, 2007 and 2006 are as follows (unaudited):
Harvest period |
2007 | 2006 | ||
2007/2008 |
5,743,069 | 6,187,195 | ||
2008/2009 |
5,259,707 | 5,484,059 | ||
2009/2010 |
5,123,754 | 5,077,070 | ||
2010/2011 |
3,360,875 | 2,901,271 | ||
2011/2012 |
2,578,114 | 2,166,673 | ||
Thereafter |
3,450,395 | 3,322,512 | ||
Total |
25,515,914 | 25,138,780 | ||
As of April 30, 2007, Cosan had a normal capacity to mill 40,000 millions (unaudited) of sugarcane during each harvest period.
Leases
Cosan also has noncancelable operating leases, primarily related to seaport and lands for the plantation of sugarcane, which expire up to the next 20 years.
Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease. Rental expense for operating leases during 2007, 2006 and 2005 consisted of the following:
2007 | 2006 | 2005 | ||||
Minimum rentals |
53,081 | 46,199 | 26,304 | |||
Contingent rentals |
55,621 | 14,767 | 1,320 | |||
Rental expense |
108,702 | 60,966 | 27,624 | |||
Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of April 30, 2007 are:
Fiscal Year ending April 30, |
Operating leases | |
2008 |
56,023 | |
2009 |
55,741 | |
2010 |
54,694 | |
2011 |
52,378 | |
2012 |
53,043 | |
Thereafter |
339,816 | |
Total minimum lease payments |
611,695 | |
F-31
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
14. Financial Income and Expenses, Net
2007 | 2006 | 2005 | |||||||
Financial expenses |
|||||||||
Interest(1) |
(126,876 | ) | (101,117 | ) | (61,354 | ) | |||
Monetary variationlosses |
(33,210 | ) | (13,212 | ) | (12,325 | ) | |||
Foreign exchange variationlosses |
20,024 | (60,415 | ) | (1,141 | ) | ||||
Results from derivatives(3) |
(111,156 | ) | (223,707 | ) | (31,793 | ) | |||
CPMF expenses(4) |
(11,517 | ) | (10,185 | ) | (4,285 | ) | |||
Bank charges |
(3,452 | ) | (3,080 | ) | (3,357 | ) | |||
Other expenses |
| (1,334 | ) | (1,655 | ) | ||||
(266,187 | ) | (413,050 | ) | (115,910 | ) | ||||
Financial income |
|||||||||
Interest(1) |
18,951 | 11,681 | 20,290 | ||||||
Monetary variationGains |
3,282 | 8,552 | 918 | ||||||
Foreign exchangeGains(2) |
(629 | ) | 133,054 | 45,718 | |||||
Results from derivatives(3) |
301,795 | 14,330 | 4,324 | ||||||
Earnings from marketable securities |
36,759 | 18,154 | 3,133 | ||||||
Discounts obtained |
43,370 | 418 | 2,370 | ||||||
Accounts receivable from government agency(5) |
149,121 | | | ||||||
Other income |
2,901 | 280 | | ||||||
555,550 | 186,469 | 76,753 | |||||||
Net amount |
289,363 | (226,581 | ) | (39,157 | ) | ||||
(1) | Includes results from swap operations. |
(2) | Includes foreign exchange gains on liabilities denominated in foreign currency. |
(3) | Includes results from transactions in futures, options and forward contracts. |
(4) | Tax on Financial TransactionsCPMF. |
(5) | See note 13. |
F-32
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
15. Income Taxes
Income tax benefit (expense) attributable to income from continuing operations consists of:
2007 | 2006 | 2005 | |||||||
Income taxes benefit (expense): |
|||||||||
Current |
(43,346 | ) | (19,946 | ) | (15,179 | ) | |||
Deferred |
(145,472 | ) | 49,688 | 320 | |||||
(188,818 | ) | 29,742 | (14,859 | ) | |||||
Income taxes differed from the amounts computed by applying the income tax rate of 25% and social contribution tax rate of 9% to income before income taxes due to the following:
2007 | 2006 | 2005 | |||||||
Income (loss) before income taxes |
538,545 | (101,565 | ) | 34,508 | |||||
Income tax benefit (expense) at statutory rate34% |
(183,105 | ) | 34,532 | (11,733 | ) | ||||
Increase (reduction) in income taxes resulting from: |
|||||||||
Write-off of deferred income taxes on tax loss carry forwards related to merged affiliates |
| (3,366 | ) | | |||||
Equity in earnings of affiliates not subject to taxation |
(12 | ) | 539 | 1,163 | |||||
Nondeductible goodwill amortization |
(3,758 | ) | (1,381 | ) | (1,422 | ) | |||
Nondeductible donations, contributions and others |
(1,943 | ) | (582 | ) | (2,867 | ) | |||
Income tax benefit (expense) |
(188,818 | ) | 29,742 | (14,859 | ) | ||||
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at April 30, 2007 and 2006 are presented below:
2007 | 2006 | |||
Deferred tax assets: |
||||
Derivatives |
| 54,663 | ||
Net operating loss carryforwards |
28,016 | 84,572 | ||
Provision for contingencies |
82,313 | 97,498 | ||
Legal reorganization |
8,214 | 11,217 | ||
Other temporary differences |
33,413 | 17,485 | ||
Total gross deferred tax assets |
151,956 | 265,435 | ||
Current portion |
24,788 | 83,193 | ||
Non-current portion |
127,168 | 182,242 |
2007 | 2006 | |||
Deferred tax liabilities: |
||||
Deferred tax liabilities on assigned value of the net assets and on temporary differences |
272,313 | 297,174 | ||
Current portion |
28,419 | 8,438 | ||
Non-current portion |
268,755 | 263,875 |
2007 | 2006 | |||||
Net deferred tax assets (liabilities): |
||||||
Current portion |
(3,631 | ) | 74,755 | |||
Non-current portion |
(141,587 | ) | (81,633 | ) | ||
(145,218 | ) | (6,878 | ) | |||
F-33
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
15. Income TaxesContinued
In assessing the valuation allowance of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. There is no expiration term for the net operating loss carry forwards. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that Cosan will realize the benefits of these deductible differences at April 30, 2007, as well as the net operating loss carry forwards. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.
As of April 30, 2007, Cosan and its subsidiaries have consolidated net operating loss carry forwards for income and social contribution tax purposes of US$82,386 and US$82,435, respectively. Income tax loss carry forwards and the negative basis for social contribution tax may be offset against a maximum of 30% of annual taxable income earned from 1995 forward, with no statutory limitation period.
16. Shareholders Equity
a. Capital
On December 13, 2004, an extraordinary shareholders meeting approved a capital increase of US$23,135, through the issue of 7,851,756 common shares with no par value. The capital increase was fully subscribed by Santa Bárbara Agrícola S.A. with rural properties, exchanged at fair value.
On January 31, 2005, an extraordinary shareholders meeting approved a capital increase of US$8,344, through the issue of 12,251,466 common shares with no par value. The capital increase was fully subscribed and paid up by Aguassanta Participações S.A., and shares were exchanged at fair value.
On April 15, 2005, Cosans capital was increased by US$5, representing 2,213 new common shares. Additionally, the extraordinary shareholders meeting unanimously approved conversion of all preferred shares into common shares.
The extraordinary shareholders meetings of May 31, 2005 approved a capital increase of US$31,516, with the issuance of 12,948,053 new common shares, with no par value, which were fully subscribed by the new shareholders, Tereos do Brasil Participações Ltda. and Sucden Investimentos S.A., through a share exchange equivalent to 13,650,000 common shares, corresponding to 52.5% of capital of FBAFranco Brasileira S.A. Açúcar e Álcool (FBA), whereby Cosan became the holder of a 99.9% interest in FBA.
On July 29, 2005, the shareholders of Cosan spun-off, the shares of Amaralina Agrícola Ltda. (Amaralina) valued at US$118,631.
As of August 30, 2005, at the annual and extraordinary shareholders meetings the following was decided:
| Allocation of US$21,675 from retained earnings to increase capital, without issuance of new shares; |
| Reverse share split of Cosan shares on the basis of eight old shares to one new share. Additionally, Cosan consummated a share split in August 2006; and |
| Creation of the authorized capital system, in accordance with the provisions of article 168 of Law No. 6404/76. |
F-34
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
16. Shareholders EquityContinued
On November 7, 2005, the IFC communicated to Cosan its decision to exercise its conversion option with respect to the US$5,000 amount which, translated on November 16, 2005, totaled US$4,949 of the C loan, representing 686,250 common shares issued at the IPO price. (See note 11)
On November 18, 2005, Cosan issued 48,139,530 common shares with no par value through primary public offering (the IPO) of shares in Brazil, with exclusion of right of first refusal of its current shareholders, on the terms of article 172, item I of Law No. 6404, dated December 15, 1976, as amended and within authorized capital limit provided for in its Bylaws. The issue price of shares was established based on a book building process at US$7 (US$22 pre-split) per share, and approved by Cosans Board of Directors. Also at this meeting, a capital increase was approved, within the authorized capital limit, in the amount of US$331,447. On November 18, 2005, Cosan shares started being traded on the São Paulo Stock Exchange, at a differentiated corporate governance level named Novo Mercado, under code CSAN3.
On November 22, 2005, Cosans Board of Directors authorized the issue of additional shares corresponding to 15% of the number of shares initially offered, with the exclusive purpose of meeting the excess demand noted during the IPO. Therefore, Cosan issued 7,220,928 book-entry, registered common shares, with no par value, at the issue price of US$7 (US$22 pre-split) each, which resulted in a new capital increase of US$51,624.
The costs directly attributable to the offering were charged against the gross proceeds of the offering in a total amount of US$15,708, net of income tax (Gross costsUS$23,800). Therefore, the net proceeds related to the IPO totaled US$383,071.
At the annual and extraordinary shareholders meeting held on August 31, 2006, the Board of Directors approved the reverse split of shares representing the share capital of Cosan to the portion of one share for three shares, with the new share capital comprising 187,753,653 registered common shares, with no par value, and amendment of the Articles of Incorporation of Cosan, by including described changes, so as to comply with BOVESPA Novo Mercado regulations. All shares and per share amount in the consolidated financial statements, including notes to the consolidated financial statements reflect this share split.
b. Appropriated retained earnings
The Brazilian Corporate Law and Cosans by-laws require that annual appropriations be made to certain reserves (appropriated retained earnings). These comprise mainly 5% of net income (statutory accounts) that must be transferred to a legal reserve until such reserve reaches 20% of capital stock under Brazilian GAAP. The legal reserve can only be used to increase share capital or offset net losses. The legal reserve in the amount of US$7,844 at April 30,2007 is not available for dividend distribution to shareholders.
Additionally, the Company management will propose at the next shareholders meeting that a portion of earnings be retained as of April 30, 2007, in the amount of US$111,780, in order to continue investments and the upgrading process. If approved, this amount will not be available for dividend distribution to shareholders.
c. Dividends
According to Cosans bylaws, shareholders are entitled to minimum compulsory dividends of 25% of the years statutory net income, adjusted in accordance with article 202 of Law 6404/76 (Brazilian Corporate Law).
F-35
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
16. Shareholders EquityContinued
d. Retained earnings
The annual and extraordinary shareholders meeting held on August 30, 2005 decided to allocate the balance of US$5,776 of net income for the year ended April 30, 2005 to retained earnings per statutory books, based on Cosans capital budget also approved at such meeting.
Brazilian law permits the payment of dividends only in reais, limited to the unappropriated retained earnings of companys financial statements prepared in accordance with Brazilian Corporate Law.
The devaluation of the real impacts the amount available for distribution when measured in U.S. dollars. Amounts reported as available for distribution in our statutory accounting records prepared under accounting principles set forth under Brazilian Corporate Law will decrease or increase when measured in U.S. dollars as the Real depreciates or appreciates, respectively, against the U.S. dollar.
17. Share-Based Compensation
In the ordinary and extraordinary general meeting held on August 30, 2005, the guidelines for the outlining and structuring of a stock option plan for Cosans officers and employees were approved, thus authorizing the issue of up to 5% of shares comprising Cosans share capital. This stock option plan was outlined to attract and retain services rendered by officers and key employees, offering them the opportunity to become shareholders of Cosan. On September 22, 2005, Cosans board of directors approved the distribution of stock options corresponding to 4,302,780 common shares to be issued or purchased by Cosan related to 3.25% of the share capital at the time, authorized by the annual/extraordinary meeting. The remaining 1.75% may still be distributed. On September 22, 2005, the officers and key employees were informed regarding the key terms and conditions of the share-based compensation arrangement.
According to the market value on the date of issuance, the exercise price is US$2.93 (two dollars and ninety three cents) per share which does not include any discount. The exercise price was calculated before the valuation mentioned above based on an expected private equity deal which did not occur. Options may be exercised after a one-year vesting period starting November 18, 2005, at the maximum percentage of 25% per year of the total stock options offered by Cosan. The options for each 25% have a 5 years period to be exercised.
The exercised options will be settled only through issuance of new common shares or treasury stock.
The employees who leave Cosan before the vesting period will forfeit 100% of their rights. However, if the employment is terminated by Cosan with no cause, the employees will have right to exercise 100% of their options of that particular year plus the right to exercise 50% of the options of the following year.
The fair value of share-based awards was estimated using a binominal model with the following assumptions:
Grant date |
September 22, 2005 |
||
Grant pricein U.S. dollars |
2.93 | ||
Expected life (in years) |
7.5 | ||
Interest rate |
14.52 | % | |
Volatility |
34 | % | |
Dividend yield |
1.25 | % | |
Weighted-average fair value at grant datein U.S. dollars |
5.92 |
F-36
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
17. Share-Based CompensationContinued
Expected TermCosans expected term represents the period that Cosans stock-based awards are expected to be outstanding and was determined based on the assumption that the officers will exercise their options when the exercise period is over. Therefore, this term was calculated based on the average of 5 and 10 years. Cosan does not expect any forfeiture as those options are mainly for officers, whose the turnover is low.
Expected VolatilityCosan had its shares publicly-traded for less than 6 months as of April 30, 2006. Therefore, Cosan has opted to substitute the historical volatility by an appropriate global industry sector index, based on the volatility of the share prices, and considering it as an assumption in its valuation model. Cosan has identified and compared similar public entities for which share or option price information is available to consider the historical, expected, or implied volatility of those entities share prices in estimating expected volatility based on global scenarios.
Expected DividendCosan uses the payment history of dividends for the expected dividend value factor when using the Binominal Model option-pricing formula to determine the fair value of options granted. As Cosan was a new public entity, the expected dividend yield was calculated based on the current value of the stock market at grant date, adjusted by the average rate of Cosans return to shareholders for the expected term, in relation of future book value of the stocks.
Risk-Free Interest RateCosan bases the risk-free interest rate used in the Binominal Model valuation method on the implied yield currently available on SELICSpecial System Settlement Custody which is the implied yield currently available on zero-coupon securities in Brazil.
As of April 30, 2007 the amount of US$14,293 related to the unrecognized compensation cost related to stock options is expected to be recognized in 2.5 years. Cosan currently has no shares in treasury.
Stock option activity for the year ended April 30, 2007, is as follows:
Shares | Weighted-average exercise price | ||||
Outstanding as of April 30, 2005 |
| | |||
Grants of options |
4,302,780 | 2.93 | |||
Exercises |
| | |||
Forfeitures or expirations |
| | |||
Outstanding as of April 30, 2006 |
4,302,780 | 2.93 | |||
Grants of options |
| | |||
Exercises |
(1,132,707 | ) | 3.00 | ||
Forfeitures or expirations |
(285,060 | ) | 3.00 | ||
Outstanding as of April 30, 2007 |
2,885,013 | 3.00 | |||
Shares exercisable at April 30, 2007 |
| | |||
Shares exercisable at April 30, 2006 |
| |
F-37
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
18. Earnings per Share
The table below reconciles weighted average shares outstanding to weighted average shares and dilutive potential shares outstanding:
2007 | 2006 | 2005 | ||||
Weighted average shares outstanding |
188,254,660 | 156,037,234 | 105,312,115 | |||
Effect of dilutive stock options |
2,805,297 | 2,367,650 | | |||
Weighted average shares and dilutive potential shares outstanding |
191,059,957 | 158,404,884 | |
19. Risk Management and Financial Instruments
a. Risk management
The volatility in the price of commodities and foreign exchange rates are the main market risks to which Cosan and its subsidiaries are exposed. Cosan carries out operations involving financial instruments with a view to managing such risks.
These risks and related instruments are managed through the definition of strategies, establishment of control systems and determination of foreign exchange, interest rate and price change limits.
The financial instruments are contracted for hedging purposes only.
b. Price risk
Cosan carries out transactions involving derivatives, with a view to reducing its exposure to sugar price variations in the foreign market. Such transactions assure an average minimum income for future production. Cosan actively manages the positions contracted and relevant results of such activity are continually monitored, so as to allow that adjustments be made to goals and strategies considering changes in market conditions. Cosan operates mainly in futures and options markets on the NYBOT (New York Board of Trade) and the LIFFE (London International Financial Futures and Options Exchange).
c. Foreign exchange risk
Cosan carries out transactions involving derivatives, with a view to reducing its exposure to foreign exchange rate variations on exports. Transactions with derivatives combined with commodity price derivatives assure an average minimum income for future production. Cosan actively manages the positions contracted and relevant results of such activity are continually monitored, so as to allow that adjustments be made to goals and strategies considering changes in market conditions. Cosan operates mainly in the over-the-counter segment with leading institutions.
Additionally, Cosan has also engaged in currency and interest rate swap operations for charges associated to Senior Notes, from the U.S. dollar exchange rate variation plus interest of 9% per annum to 81% of CDI.
d. Interest rate risk
Cosan monitors fluctuations of the several interest rates linked to its monetary assets and liabilities and, in the event of increased volatility of such rates, it may engage in transactions with derivatives so as to minimize
F-38
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
19. Risk Management and Financial InstrumentsContinued
such risks. At April 30, 2007, Cosan did not record any interest rate derivative contracts, except for the swap arrangement referred to in item c) Foreign exchange risk.
e. Credit risk
A significant portion of sales made by Cosan and its subsidiaries is made to a selected group of best-in-class counterparties (i.e., trading companies, fuel distribution companies and large supermarket chains). Credit risk is managed through specific rules of client acceptance, credit rating and setting of limits for customer exposure, including the requirement of a letter of credit from major banks. Cosan and its subsidiaries historically have not recorded material losses on trade accounts receivable.
f. Debt acceleration risk
As of April 30, 2007, Cosan was a party to loan and financing agreements with covenants generally applicable to these operations, regarding cash generation, debt to equity ratio and others. These covenants are being fully complied with by Cosan and do not place any restrictions on its operations as a going-concern.
g. Estimated market values
The following methods and assumptions were used to estimate the fair value of each main class of financial instruments:
| Accounts receivable and trade accounts payable: The carrying amounts reported in the balance sheet for accounts and notes receivable and accounts payable approximate their fair values. |
| Short-term and long-term debt and advances from customers: The market values of loans and financing were calculated based on their present value calculated through the future cash flows and using interest rates applicable to instruments of similar nature, terms and risks or based on the market quotation of these securities. |
The following table presents the carrying amounts and estimated fair values of Cosans financial instruments at April 30, 2007 and 2006. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties.
2007 | 2006 | |||||||
Carrying amount |
Fair value | Carrying amount |
Fair value | |||||
Financial assets: |
||||||||
Cash and cash equivalents |
316,542 | 316,542 | 29,215 | 29,215 | ||||
Marketable securities |
281,879 | 281,879 | 368,838 | 368,838 | ||||
Financial liabilities: |
||||||||
Short-term and long-term debt |
1,378,572 | 1,416,390 | 988,317 | 1,154,625 | ||||
Advances from customers |
48,608 | 45,576 | 79,483 | 80,659 |
Assets and liabilities that are reflected in the accompanying consolidated financial statements at fair value or have their fair value disclosed in the notes to the consolidated financial statements are not included in the above disclosures; such items include cash and equivalents and derivative financial instruments.
F-39
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
20. Segment Information
a. Segment information
The following information about segments is based upon information used by Cosans senior management to assess the performance of operating segments and decide on the allocation of resources. Cosans reportable segments are business units that target different industry segments. Each reportable segment is managed separately because of the need to specifically address customer needs in these different industries. Cosan has three segments: sugar, ethanol and others group. The operations of these segments are based solely in Brazil.
The sugar segment mainly operates and produces a broad variety of sugar products, including raw (also known as very high polarizationVHP sugar), organic, crystal and refined sugars, and sells these products to a wide range of customers in Brazil and abroad. Cosan exports the majority of the sugar produced through international commodity trading companies. Cosans domestic customers include wholesale distributors, food manufacturers and retail supermarkets, through which it sells its Da Barra branded products.
The ethanol segment substantially produces and sells fuel ethanol, both hydrous and anhydrous (which has a lower water content than hydrous ethanol) and industrial ethanol. Cosans principal ethanol product is fuel ethanol, which is used both as an automotive fuel and as an additive in gasoline, and is mainly sold in the domestic market by fuel distribution companies. Consumption of hydrous ethanol in Brazil is increasing as a result of the introduction of flex fuel vehicles that can run on either gasoline or ethanol (or a combination of both) to the Brazilian market in 2003. In addition, Cosan sells liquid and gel ethanol products used mainly in the production of paint and cosmetics and alcoholic beverages for industrial clients in various sectors.
The accounting policies underlying the financial information provided for the segments are based on Brazilian GAAP. We evaluate segment performance based on information generated from the statutory accounting records.
Others segment is comprised by selling cogeneration of electricity, diesel and corporate activities.
No asset information is provided by reportable segment due to the fact that the majority of the assets used in production of sugar an ethanol are the same.
Measurement of segment profit or loss and segment assets
Cosan evaluates performance and allocates resources based on return on capital and profitable growth. The primary measurement used by management to measure the financial performance of Cosan is adjusted EBIT (earnings before interests and taxes excluding special items such as impairment and restructuring, integration costs, one-time gains or losses on sales of assets, acquisition, and other items similar in nature). The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.
F-40
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
20. Segment InformationContinued
Cosan reports net sales by geographic area based on the destination of the net sales.
2007 | 2006 | 2005 | |||||||
Net salesBrazilian GAAP |
|||||||||
Sugar |
1,029,592 | 657,846 | 417,795 | ||||||
Ethanol |
551,474 | 378,366 | 198,830 | ||||||
Others |
95,832 | 57,792 | 51,545 | ||||||
Total |
1,676,898 | 1,094,004 | 668,170 | ||||||
Reconciling items to U.S. GAAP |
|||||||||
Sugar |
2,152 | 2,610 | (1,957 | ) | |||||
Ethanol |
| | (20,426 | ) | |||||
Others |
| | (1,411 | ) | |||||
Total |
2,152 | 2,610 | (23,794 | ) | |||||
Total net sales |
1,679,050 | 1,096,614 | 644,376 | ||||||
Segment operating incomeBrazilian GAAP |
|||||||||
Sugar |
105,290 | 65,997 | 39,493 | ||||||
Ethanol |
56,396 | 37,959 | 18,795 | ||||||
Others |
9,800 | 5,797 | 4,872 | ||||||
Operating incomeBrazilian GAAP |
171,486 | 109,753 | 63,160 | ||||||
Reconciling items to U.S. GAAP |
|||||||||
Depreciation and amortization expenses |
|||||||||
Sugar |
39,340 | 24,013 | 18,458 | ||||||
Ethanol |
21,072 | 13,811 | 8,784 | ||||||
Others |
3,662 | 2,110 | 2,277 | ||||||
64,074 | 39,934 | 29,519 | |||||||
Other adjustments |
|||||||||
Sugar |
(816 | ) | (10,501 | ) | 11,407 | ||||
Ethanol |
(1,573 | ) | (7,559 | ) | (14,280 | ) | |||
Others |
(273 | ) | (1,154 | ) | 226 | ||||
Total sugar |
143,814 | 79,509 | 69,358 | ||||||
Total ethanol |
75,895 | 44,211 | 13,299 | ||||||
Total others |
13,189 | 6,753 | 7,375 | ||||||
Operating incomeU.S. GAAP |
232,898 | 130,473 | 90,032 | ||||||
F-41
COSAN S.A. INDÚSTRIA E COMÉRCIO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years ended April 30, 2007, 2006 and 2005
(In thousands of U.S. dollars, unless otherwise stated)
20. Segment InformationContinued
b. Sales by geographic area
The following table includes Cosans net sales by region:
2007 | 2006 | 2005 | ||||
Brazil |
663,886 | 522,435 | 261,017 | |||
Europe |
304,634 | 61,457 | 31,609 | |||
Middle East and Asia |
473,752 | 323,488 | 202,486 | |||
North America |
113,010 | 43,841 | 29,710 | |||
Latin America, other than Brazil |
19,392 | 5,784 | 3,059 | |||
Africa |
102,224 | 136,999 | 140,289 | |||
Total |
1,676,898 | 1,094,004 | 668,170 | |||
c. Sales by principal customers
Sugar
The following table sets forth the amount of sugar that we sold to our principal customers during the years as a percentage of our total sales of sugar:
Market |
Customer |
2007 | 2006 | 2005 | |||||||
International |
Sucres et Denrées | 33.3 | % | 33.7 | % | 25.8 | % | ||||
Coimex Trading Ltd | 11.5 | % | 11.3 | % | 15.3 | % | |||||
S.A. Fluxo | 9.5 | % | 0.8 | % | | ||||||
Tate & Lyle International | 5.3 | % | 10.0 | % | 12.2 | % | |||||
Cane International Corporation | 2.2 | % | 12.8 | % | 13.3 | % |
Ethanol
The following table sets forth the amount of ethanol that we sold to our principal customers during the years as a percentage of our total sales of ethanol:
Market |
Customer |
2007 | 2006 | 2005 | |||||||
International |
Vertical UK LLP | 11.6 | % | 9.3 | % | 16.3 | % | ||||
Kolmar Petrochemicals | 6.2 | % | 0.3 | % | 0.7 | % | |||||
Alcotra S.A. | | 5.8 | % | | |||||||
Domestic |
Shell Brasil Ltda. | 14.8 | % | 27.8 | % | 30.4 | % | ||||
Petrobrás Distribuidora S.A. | 9.2 | % | 12.0 | % | 6.0 | % | |||||
Manancial Distribuidora de Petróleo Ltda. | 8.2 | % | 2.3 | % | | ||||||
Flag Distribuidora de Petróleo Ltda. | 4.1 | % | 8.9 | % | 9.8 | % |
F-42
(Unaudited)
July
31,
2007 |
April
30,
2007 |
|||||||
Assets |
||||||||
Current
assets: |
||||||||
Cash
and cash equivalents |
307,716 |
316,542 |
||||||
Restricted
cash |
49,165 |
17,672 |
||||||
Marketable
securities |
124,497 |
281,879 |
||||||
Trade
accounts receivable, less allowances: July, 31, 2007 – 5,507; April 30,
2007 – 4,013 |
74,611 |
55,206 |
||||||
Inventories |
415,904 |
247,480 |
||||||
Advances
to suppliers |
163,504 |
103,961 |
||||||
Other
current assets |
93,454 |
116,763 |
||||||
1,228,851 |
1,139,503 |
|||||||
Property,
plant and equipment, net |
1,311,026 |
1,194,050 |
||||||
Goodwill |
527,698 |
491,857 |
||||||
Intangible
assets, net |
99,745 |
93,973 |
||||||
Accounts
receivable from Federal Government |
169,556 |
156,526 |
||||||
Other
non-current assets |
192,250 |
177,460 |
||||||
2,300,275 |
2,113,866 |
|||||||
Total
assets |
3,529,126 |
3,253,369 |
(Unaudited)
July
31,
2007 |
April
30,
2007 |
|||||||
Liabilities
and shareholders’ equity |
||||||||
Current
liabilities: |
||||||||
Trade
accounts payable |
166,607 |
55,938 |
||||||
Advances
from customers |
21,857 |
24,275 |
||||||
Taxes
payable |
64,809 |
57,543 |
||||||
Salaries
payable |
47,863 |
31,109 |
||||||
Current
portion of long-term debt |
51,830 |
36,076 |
||||||
Derivative
financial instruments |
14,983 |
9,779 |
||||||
Dividends
payable |
40,379 |
37,261 |
||||||
Other
liabilities |
10,164 |
22,238 |
||||||
418,492 |
274,219 |
|||||||
Long-term
liabilities: |
||||||||
Long-term
debt |
1,357,221 |
1,342,496 |
||||||
Estimated
liability for legal proceedings and labor claims |
417,818 |
379,191 |
||||||
Taxes
payable |
115,668 |
106,897 |
||||||
Advances
from customers |
8,333 |
24,333 |
||||||
Deferred
income taxes |
142,196 |
141,587 |
||||||
Other
long-term liabilities |
50,261 |
47,484 |
||||||
2,091,497 |
2,041,988 |
|||||||
Minority
interest in consolidated subsidiaries |
8,999 |
8,512 |
||||||
Shareholders’
equity |
||||||||
Common
stock, no par value. Authorized 188,886,360 shares; issued
and
outstanding 188,886,360 shares at July 31, 2007 and April 30,
2007 |
535,105 |
535,105 |
||||||
Additional
paid-in capital |
162,612 |
160,944 |
||||||
Accumulated
other comprehensive income |
149,331 |
71,953 |
||||||
Retained
earnings |
163,090 |
160,648 |
||||||
Total
shareholders’ equity |
1,010,138 |
928,650 |
||||||
Total
liabilities and shareholders' equity |
3,529,126 |
3,253,369 |
2007 |
2006 |
|||||||
Net
sales |
301,300 |
425,023 |
||||||
Cost
of goods sold |
(288,189 | ) | (263,263 | ) | ||||
Gross
profit |
13,111 |
161,760 |
||||||
Selling
expenses |
(31,975 | ) | (27,910 | ) | ||||
General
and administrative expenses |
(30,140 | ) | (21,890 | ) | ||||
Operating
(loss) income |
(49,004 | ) |
111,960 |
|||||
Other
income (expense): |
||||||||
Financial
income |
135,994 |
152,489 |
||||||
Financial
expenses |
(82,287 | ) | (129,684 | ) | ||||
Other
expenses |
(541 | ) | (1,368 | ) | ||||
Income
before income taxes, equity in income of affiliates and minority
interest |
4,162 |
133,397 |
||||||
Income
taxes |
(1,702 | ) | (47,389 | ) | ||||
Income
before equity in income of affiliates and minority
interest |
2,460 |
86,008 |
||||||
Equity
in income (loss) of affiliates |
(233 | ) |
117 |
|||||
Minority
interest in loss (net income) of subsidiaries |
215 |
(840 | ) | |||||
Net
income |
2,442 |
85,285 |
||||||
Earnings
per share: |
||||||||
Basic |
0.01 |
0.45 |
||||||
Diluted |
0.01 |
0.45 |
||||||
Weighted
average number of shares outstanding: |
||||||||
Basic |
188,886,360 |
187,753,653 |
||||||
Diluted |
192,127,535 |
190,584,190 |
Common
number
|
Common
amount
|
Additional
paid-in capital
|
Accumulated
other comprehensive income |
Retained
earnings
|
Total
shareholders’ equity
|
|||||||||||||||||||
Balances
at April 30, 2007 |
188,886,360 |
535,105 |
160,944 |
71,953 |
160,648 |
928,650 |
||||||||||||||||||
Share
based compensation |
— |
— |
1,668 |
— |
— |
1,668 |
||||||||||||||||||
Net
income |
— |
— |
— |
— |
2,442 |
2,442 |
||||||||||||||||||
Currency
translation adjustment |
— |
— |
— |
77,378 |
— |
77,378 |
||||||||||||||||||
Balances
at July 31, 2007 |
188,886,360
|
535,105
|
162,612
|
149,331
|
163,090
|
1,010,138
|
2007 |
2006 |
|||||||
Cash
flow from operating activities |
||||||||
Net
income |
2,442 |
85,285 |
||||||
Adjustments
to reconcile net income to cash provided by operating
activities |
||||||||
Depreciation
and amortization |
75,243 |
37,044 |
||||||
Deferred
income and social contribution taxes |
(8,611 | ) |
42,401 |
|||||
Interest,
monetary and exchange variation |
(53,100 | ) |
56,030 |
|||||
Minority
interest in (net income) loss of subsidiaries |
(215 | ) |
840 |
|||||
Others |
5,778 |
3,589 |
||||||
Decrease
(increase) in operating assets and liabilities |
||||||||
Trade
accounts receivable, net |
(16,671 | ) | (8,112 | ) | ||||
Inventories |
(147,823 | ) | (222,949 | ) | ||||
Advances
to suppliers |
(50,889 | ) | (15,868 | ) | ||||
Trade
accounts payable |
106,012 |
81,745 |
||||||
Derivative
financial instruments |
33,510 |
(86,034 | ) | |||||
Taxes
payable |
(841 | ) |
2,304 |
|||||
Other
assets and liabilities, net |
11,138 |
17,358 |
||||||
Net
cash used in by operating activities |
(44,027 | ) | (6,367 | ) | ||||
Cash
flows from investing activities |
||||||||
Restricted
cash |
(30,022 | ) |
59,244 |
|||||
Marketable
securities |
180,847 |
62,949 |
||||||
Acquisition
of property, plant and equipment |
(94,391 | ) | (10,386 | ) | ||||
Acquisition
of investment |
(1,121 | ) |
- |
|||||
Net
cash provided by investing activities |
55,313 |
111,807 |
||||||
Cash
flows from financing activities |
||||||||
Additions
of long-term debt |
- |
1,476 |
||||||
Payments
of long-term debt |
(47,128 | ) | (59,172 | ) | ||||
Net
cash used in financing activities |
(47,128 | ) | (57,696 | ) | ||||
Effect
of exchange rate changes on cash and |
||||||||
cash
equivalents |
27,016 |
4,021 |
||||||
Net
increase (decrease) in cash and cash equivalents |
(8,826 | ) |
51,765 |
|||||
Cash
and cash equivalents at beginning of period |
316,542 |
29,215 |
||||||
Cash
and cash equivalents at end of period |
307,716 |
80,980 |
1. |
Operations |
2. |
Presentation
of the Consolidated Financial
Statements |
2. |
Presentation
of the Consolidated Financial
Statements--Continued |
3. |
Cash
and Cash Equivalents |
July
31, 007 |
April
30, 2007 |
|||||||
Local
currency |
||||||||
Cash
and bank accounts |
101,427 |
16,208 |
||||||
Foreign
currency |
||||||||
Cash
and bank accounts |
206,289 |
300,334 |
||||||
307,716 |
316,542 |
4. |
Derivative
Financial Instruments |
Notional
amounts |
Carrying
value asset
(liability) |
|||||||||||||||
July
31, 2007 |
April
30, 2007 |
July
31, 2007 |
April
30, 2007 |
|||||||||||||
Commodities
derivatives |
||||||||||||||||
Future
contracts: |
||||||||||||||||
Sell
commitments |
188,857 |
247,882 |
7,843 |
47,427 |
||||||||||||
Options: |
||||||||||||||||
Purchased |
40,642 |
58,587 |
3,183 |
4,502 |
||||||||||||
Written |
84,568 |
- |
(1,097 | ) |
- |
|||||||||||
Foreign
exchange derivatives |
||||||||||||||||
Forward
contracts: |
||||||||||||||||
Sale
commitments |
439,912 |
153,824 |
33,037 |
13,274 |
||||||||||||
Swap
agreements |
314,313 |
328,419 |
(13,886 | ) | (9,779 | ) | ||||||||||
Total
assets |
44,063 |
65,203 |
||||||||||||||
Total
liabilities |
(14,983 | ) | (9,779 | ) |
4. |
Derivative
Financial
Instruments--Continued |
5. |
Inventories |
July
31,
2007 |
April
30,
2007 |
|||||||
Finished
goods: |
||||||||
Sugar |
75,264 |
5,730 |
||||||
Ethanol |
113,207 |
8,731 |
||||||
Others |
10,024 |
1,681 |
||||||
198,495 |
16,142 |
|||||||
Annual
maintenance cost of growing crops |
156,168 |
183,157 |
||||||
Others |
61,241 |
48,181 |
||||||
415,904 |
247,480 |
Financial
charges |
|||||||||||||
Index |
Average
Annual
interest
rate |
July
31, 2007 |
April
30, 2007 |
||||||||||
Resolution
2471 (PESA) |
IGP-M |
3.95% |
215,923 |
196,545 |
|||||||||
Corn
price variation |
12.50% |
748 |
685 |
||||||||||
Senior
notes due 2009 |
US
Dollar |
9.0% |
205,143 |
200,000 |
|||||||||
Senior
notes due 2017 |
US
Dollar |
7.0% |
414,311 |
407,311 |
|||||||||
IFC |
US
Dollar |
7.44% |
63,195 |
67,677 |
|||||||||
Perpetual
notes |
US
Dollar |
8.25% |
459,034 |
459,035 |
|||||||||
Others |
Various |
|
Various |
50,697 |
47,319 |
||||||||
1,409,051 |
1,378,572 |
||||||||||||
Currently
liability |
(51,830 | ) | (36,076 | ) | |||||||||
Long-term
debt |
1,357,221 |
1,342,496 |
July
31, |
||||
13
to 24 months |
8,319 |
|||
25
to 36 months |
207,434 |
|||
37
to 48 months |
7,311 |
|||
49
to 60 months |
36,415 |
|||
61
to 72 months |
12,683 |
|||
73
to 84 months |
1,171 |
|||
After
84 months |
1,083,888 |
|||
Total |
1,357,221 |
7. |
Contingencies |
July
31,
2007 |
April
30,
2007 |
|||||||
Tax
contingencies |
363,328 |
329,493 |
||||||
Civil
and labor contingencies |
54,490 |
49,698 |
||||||
417,818 |
379,191 |
July
31,
2007 |
April
30,
2007 |
|||||||
ICMS
- State value added tax |
33,759 |
28,964 |
||||||
IAA
- Sugar and Ethanol Institute |
25,787 |
23,706 |
||||||
IPI
- Federal value-added tax |
38,555 |
31,921 |
||||||
Others |
23,040 |
18,574 |
||||||
121,141 |
103,165 |
7. |
Contingencies--Continued |
8. |
Income
taxes |
8. |
Income
taxes--Continued |
Balance
at May 1, 2007 |
20,460 |
|||
Accrued
interest on unrecognized tax benefit |
292 |
|||
Settlements |
(20 | ) | ||
Balance
at July 31, 2007 |
20,732 |
9. |
Share-based
compensation |
9. |
Share-based
compensation--Continued |
September
22,
2005 |
||||
Grant
price—US$ |
3.25 |
|||
Expected
life (in years) |
7.5
|
|||
Interest
rate |
14.52 | % | ||
Volatility |
34 |
% |
||
Dividend
yield |
1.25 | % | ||
Weighted-average
fair value at grant date—US$ |
6.41 |
10. |
Earnings
per Share |
2007 |
2006 |
|||||||
Weighted
average shares outstanding |
188,886,360 |
187,753,653 |
||||||
Effect
of dilutive stock options |
3,241,175 |
2,830,537 |
||||||
Weighted
average shares and dilutive potential shares outstanding |
192,127,535 |
190,584,190 |
11. |
Other
Comprehensive Income |
2007 |
2006 |
|||||||
Net
income |
2,442 |
85,285 |
||||||
Currency
translation adjustment |
77,378 |
17,754 |
||||||
Total
comprehensive income |
79,820 |
103,039 |
12. |
Segment
Information--Continued |
12. |
Segment
Information--Continued |
July
31, |
||||||||
2007 |
2006 |
|||||||
Net
sales—Brazilian GAAP: |
||||||||
Sugar |
190,074 |
274,266 |
||||||
Ethanol |
84,722 |
126,574 |
||||||
Others |
25,715 |
23,251 |
||||||
Total |
300,511 |
424,091 |
||||||
Reconciling
item to U.S. GAAP |
||||||||
Sugar |
789 |
932 |
||||||
Ethanol |
- |
- |
||||||
Others |
- |
- |
||||||
Total |
789 |
932 |
||||||
Total
net sales |
301,300 |
425,023 |
12. |
Segment
Information--Continued |
July
31, |
||||||||
2007 |
2006 |
|||||||
Segment
operating income - Brazilian GAAP |
||||||||
Sugar |
(41,325 | ) |
60,033 |
|||||
Ethanol |
(18,420 | ) |
27,705 |
|||||
Others |
(5,591 | ) |
5,090 |
|||||
Operating
income (loss) under Brazilian GAAP |
(65,336 | ) |
92,828 |
|||||
Reconciling
items to U.S. GAAP |
||||||||
Depreciation
and amortization expenses |
||||||||
Sugar |
10,836 |
12,864 |
||||||
Ethanol |
4,830 |
5,937 |
||||||
Others |
1,466 |
1,091 |
||||||
17,132 |
19,892 |
|||||||
Other
adjustments |
||||||||
Sugar |
(216 | ) | (162 | ) | ||||
Ethanol |
(448 | ) | (505 | ) | ||||
Others |
(136 | ) | (93 | ) | ||||
(800 | ) | (760 | ) | |||||
Total
sugar |
(30,705 | ) |
72,735 |
|||||
Total
ethanol |
(14,038 | ) |
33,137 |
|||||
Total
others |
(4,261 | ) |
6,088 |
|||||
Operating
income (loss) under U.S. GAAP |
(49,004 | ) |
111,960 |
12. |
Segment
Information--Continued |
Market |
Customer |
2007 |
2006 |
|||
International |
Sucres
et Denrées |
25% |
47% |
|||
Tate
& Lyle International |
16% |
5% |
||||
S.A.
Fluxo |
14% |
11% |
||||
Coimex
Trading Ltd |
13% |
14% |
||||
Cane
International Corporation |
12% |
- |
Market |
Customer |
2007 |
2006 |
|||
International |
Vertical
UK LLP |
35% |
29% |
|||
Vitol
Inc. |
26% |
- |
||||
Alcotra
S.A. |
- |
27% |
||||
|
||||||
Domestic |
Shell
Brasil Ltda. |
34% |
32% |
|||
Euro
Petróleo do Brasil Ltda. |
26% |
- |
||||
Petrobrás
Distribuidora S.A. |
13% |
9% |
||||
Manancial
Distribuidora de Petróleo Ltda. |
- |
12% |
13. |
Subsequent
Event |
Shareholder |
Number
of shares of the Company’s issue
contributed
as capital to Cosan Limited |
Interest
held in the Company |
||
Usina
Costa Pinto |
30,010,278 |
15.89% |
||
Aguassanta
Participações |
66,321,766 |
35.11% |
||
96,332,044
|
51.00% |
Shareholder |
Class
of shares |
Number
of shares |
Interest |
|||||
Usina
Costa Pinto |
B1 |
30,010,278 |
15.29% |
|||||
Queluz
Holdings Limited |
B1 |
66,321,766 |
|
33.78% |
||||
Aguassanta
Participações |
A |
5,000,000 |
2.55% |
|||||
Other
shareholders |
A |
95,000,000 |
48.39% |
|||||
196,332,044 |
100.00% |
13. |
Subsequent
Event--Continued |
13. |
Subsequent
Event--Continued |
|
• |
Approval
of the Company’s financial statements and management report for the year
ended April 30, 2007, as well as of the allocation of net profit
for the
year; |
|
• |
Ratification
of the dividend distribution resolved by the Board of Directors and
effectively carried out on August 6,
2007; |
|
• |
Election
of the Company’s Audit Committee new
members; |
|
• |
Setting
the Audit Committee members compensation and the overall annual amount
payable as Company management fees. |
Important
Notes
|
Page
03
|
Executive
Summary
|
Page
06
|
Information
about the Appraisal
Firm
|
Page
09
|
Information
about the Companies
Appraised
|
Page
14
|
Market
|
Page
21
|
Methodologies
Adopted
|
Page
30
|
Results
|
Page
53
|
Glossary
|
Page
55
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
2
|
1.
|
Deloitte
Touche Tohmatsu
Consultores Ltda. (“Deloitte Consultores”)
has been engaged by the
management of Cosan S.A. (“Cosan S.A.”
or “the Company”)
and by its holding Cosan
Limited (“Cosan Ltd.”)
to prepare this
Economic-Financial Appraisal Report on the shares of Cosan S.A. and
Cosan
Ltd., within the scope of a proposed exchange offer, in accordance
with
the provisions contained in Instruction No. 361 issued by the
Brazilian Securities Commission
(CVM) on March 5, 2002.
|
2.
|
The
exchange of shares should
occur as disclosed to the market in the Notices of
Relevant Facts
(“Fatos
Relevantes”)
dated June 25, July 6 and July
27, 2007.
|
3.
|
This
Appraisal Report has been
prepared pursuant to
Article 8 of the above-mentioned CVM Instruction (No. 361/2002),
as amended by CVM
Instruction No. 436/2006,
and is intended solely
for the use of the management of Cosan S.A. and Cosan Ltd. and the
shareholders of Cosan S.A. in order for them to evaluate
the exchange offer
referred to above.
|
4.
|
The
variations in the appraisal
values of Cosan S.A. and Cosan Ltd. are limited to a range of minimum
and
maximum values of 10% for both cases, pursuant to requirements of
CVM
Instruction No. 361/02.
|
5.
|
Deloitte
Consultores does not express
hereby any judgment in relation to distribution of the economic value
among the various types and/or classes of shares of Cosan S.A. and
Cosan
Ltd.
|
6.
|
This
report is not intended for
general circulation and may not be reproduced or used
for any purpose other
than the one cited above without our prior written authorization.
We
assume no responsibility, liability or accountability for contingencies
due to any damages caused or for any losses that might be incurred
by any
party involved,
as a result of the
circulation, publication, reproduction or use of this document for
any
purpose other than the one proposed in our engagement
letter.
|
7.
|
This
report does not represent any
kind of advice or recommendation on the part of Deloitte Consultores to
shareholders to
participate in the exchange offer; such decision is the sole and
exclusive
responsibility of each
shareholder.
|
8.
|
Shareholders
should conduct their
own analyses regarding the advisability and timeliness of participating
in
the exchange offer
and should consult their own legal, tax and financial counsel, in
order to
form their own opinions about the offer and its risks. Accordingly,
Deloitte Consultores
and its partners and professional staff members are exempt from
responsibility in relation to
any and all losses
that might arise from any shareholder’s
decision to participate or not
participate in the exchange
offer.
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
4
|
9.
|
Deloitte
is not responsible for
any direct or indirect losses or business interruption (loss of
income) resulting
from the use of this Appraisal
Report.
|
10.
|
Among
other sources,
Deloitte’s
appraisal work used as a basis
the following information or documents that have been made available
to us
up to October 22, 2007: (i) the business plans of Cosan S.A. for
harvest years
2007/2008 to 2016/2017, as drawn up by its management; (ii) historical
operating and financial information of Cosan S.A.; (iii) the amounts
of
net indebtedness of Cosan S.A. and its equity stakes in other companies;
(iv) public information regarding
the industry in which Cosan
S.A. operates; (v) information on shareholders’
equity, number of shares and net
cash investments provided by Cosan Ltd. management; and (vi) discussions
with the management of Cosan S.A. in relation to past performance
and
expectations for future
business.
|
11.
|
Our
procedures did not include any
work that would be required to conduct an independent verification
of the
data and information provided by the management of Cosan S.A. and
Cosan
Ltd., which were considered and mentioned in the
following report. Our
work did not constitute an audit or any other kind of assurance in
accordance with generally accepted auditing standards. Accordingly,
we
cannot and do not express any opinion on Cosan S.A. and Cosan
Ltd.’s
financial statements.
|
12.
|
We
understand that the estimates
and projections that were supplied by the management of Cosan S.A.
to
Deloitte Consultores, or that were discussed with Deloitte Consultores,
especially those whose occurrence depends on uncertain future events
reflect the best
assessment of its management with respect to the evolution of Cosan
S.A.
and its markets. We verified the operating assumptions used to prepare
the
Business Plan of Cosan S.A. for reasonableness and assumed that such
information reflect the best
estimates and projections
presently available with respect to the Company’s
future financial
performance.
|
13.
|
It
is important to emphasize that
Deloitte Consultores is not responsible for, and does not provide
any
guarantees with respect to attainment of the projections
contained in this
report, since such projections are based on the prospects and strategic
plans of the management of Cosan S.A., which we believe will continue
to
conduct its business affairs in the
future.
|
14.
|
We
reserve the right, but are not
under any obligation,
to revise all the calculations included or referred to in this report,
should we deem it necessary, as well as to revise our opinion as
to the
fair market value of the shares of Cosan S.A. and Cosan Ltd., in
the event
we subsequently become
aware of information that was
not available as of the issuance of this
report.
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
5
|
·
|
Discounted
Cash Flow Method was
used considering only the projections of operating results (debt-free
model), adjusted by the non-operating assets and liabilities, in
nominal
Brazilian Reais (R$).
|
·
|
The
base date for the
appraisal is July 31,
2007.
|
·
|
The
projections have been based on
the operational aspects of the Company’s
Business Plan for the period
from August 1, 2007 through April 30, 2017 (the end of harvest year
2016/2017). The macroeconomic assumptions and prices for VHP
sugar quoted
on the
international market were based on market projections and
Deloitte’s
analyses.
|
·
|
Perpetual
growth figures have been
calculated based on the Gordon growth model. The projected cash flow
for
harvest year 2016/2017 has been adjusted for income tax and social
contribution
resulting from expectations for reduction in depreciation, considering
a
perpetual estimated growth rate of 5.0%, including inflation of 4.0%
.
|
·
|
The
discount rate used was 12.08%
in nominal Brazilian Reais
(R$).
|
·
|
The
value of this company was
calculated considering the amounts of its cash investments and the
equity
stake in Cosan S.A., as provided by
management.
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
7
|
(1)
|
Economic
value per share based on
the Discounted Cash Flow Method, with a minimum and maximum value
range of
10%, pursuant to CVM Instruction
No. 361/02.
|
(2)
|
Market
value per share based on
the weighted average
price for shares of:
|
(3)
|
Book
value per share as of July
31, 2007, based on 188,886,360 shares, as mentioned in the
Company’s
quarterly financial information
as of July 31, 2007.
|
(1)
|
Economic
value per share based on
the Assets Approach, with the investment in Cosan S.
A. estimated on a discounted cash flow basis, with a minimum
and maximum value range of 10%, pursuant to CVM Instruction
No. 361/02.
|
(2)
|
Assets
Approach with the investment
in Cosan S.
A. being estimated based on the weighted average price for
shares in Cosan S. A. of: (i) R$29.10 per share, for the average
value of R$39.49
per share in
Cosan S.
A. in the 12 months prior to the disclosure of the
Relevant Fact dated
June 25, 2007.
|
(3)
|
Market
value per share based on
the weighted average price for share from the date of the Initial Public
Offering through the
date of this Appraisal
Report.
|
(4)
|
Book
Value per share, based on
208,010,044 shares as of September 10, 2007, according to information
made
available by Cosan Ltd. management. 8
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
8
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
10
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
11
|
Company
|
Service
|
Year
|
Plascar
Participações Industriais
S.A.
|
Appraisal
Report for public offer
of shares OPA
|
2007
|
Cia.
Providência Indústria
e Comércio S.A.
|
Economic-financial
appraisal to provide
backing for the goodwill generated
by corporate
restructuring process.
|
2007
|
Energisa
S.A.
|
Appraisal
of projections for
future operating results in order to obtain credit from the Inter-American
Development Bank (IADB).
|
2007
|
Companhia
de Saneamento do Paraná
S.A.
|
Economic-financial
appraisal to
update the market value of the investment
for the controlling
stockholder.
|
2005-2007
|
ENERSUL
- Empresa
Energética do Mato
Grosso do Sul
S.A.
|
Economic-financial
appraisal to
update the market value of the
investment for the controlling
stockholder.
|
2005-2007
|
ESCELSA
- Espírito Santo
Centrais
Elétricas
S.A.
|
Economic-financial
appraisal to
updated the market value of the investment
for the
controlling stockholder.
|
2005-2007
|
Telemig
Celular
Participações
S.A.
|
Economic-financial
appraisal to
updated the market value of the investment
for the
controlling stockholder.
|
2005
|
Tele
Norte Celular
Participações
S.A.
|
Economic-financial
appraisal to
updated the market value of the investment
for the
controlling stockholder.
|
2005
|
Brasil
Telecom
S.A.
|
Economic-financial
appraisal to
updated the market value of the investment
for the
controlling stockholder.
|
2005
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
12
|
·
|
The
partners and the professionals
involved in this project do not own any shares in either Cosan S.A.
or
Cosan Ltd., nor do they conduct discretionary management services
with
respect to such shares.
|
·
|
There
is no conflict of interest
that could decrease
the independence required in order for it to perform its functions
as an
independent appraisal firm.
|
·
|
The
cost to prepare this Appraisal
Report was R$350,000.00 (three hundred and fifty thousand Reais),
net of
taxes.
|
·
|
Besides
the amount received mentioned
above, in the past 12 (twelve) months it has received the amount
of
R$1,179,016.49 (one million, one hundred and seventy- nine thousand,
and
sixteen Reais and forty-nine centavos) relating to: (i) advisory
services
in negotiating
the Company’s
payroll; (ii) preparation of an
economic- financial appraisal report, as well as evaluation of its
property and organization of fixed assets; and (iii) tax planning;
and
|
·
|
Notwithstanding
the relationship
described above, it does not have any other commercial
and credit
information of any kind with respect to the Cosan S.A. and Cosan
Ltd. that
might impact this Appraisal
Report.
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
13
|
Nominal
Capacity
|
||||||||||||||||
Productive
Units
|
Sugarcane
Crushing (Thousands
tons/year)
|
Sugar
(tons/day)
|
Ethanol
(Thousands
l/day)
|
Energy
(MW)
|
||||||||||||
Barra
|
7.200
|
3.000
|
1.800
|
19
|
||||||||||||
Bom
Retiro
|
1.200
|
600
|
350
|
4
|
||||||||||||
Bomfim
|
4.600
|
2.250
|
1.100
|
17
|
||||||||||||
Costa
Pinto
|
4.000
|
2.075
|
1.250
|
9
|
||||||||||||
Destivale
|
1.300
|
360
|
520
|
3
|
||||||||||||
Diamante
|
1.950
|
1.200
|
340
|
7
|
||||||||||||
Dois
Córregos
|
1.400
|
925
|
220
|
4
|
||||||||||||
Gasa
|
1.250
|
n.a.
|
450
|
4
|
||||||||||||
Ipaussu
|
1.950
|
1.250
|
360
|
6
|
||||||||||||
Junqueira
|
2.600
|
1.200
|
900
|
19
|
||||||||||||
Mundial
|
1.300
|
500
|
300
|
3
|
||||||||||||
Rafard
|
2.400
|
1.350
|
550
|
10
|
||||||||||||
Santa
Helena
|
2.050
|
1.200
|
350
|
4
|
||||||||||||
São
Francisco
|
1.400
|
1.100
|
n.a.
|
4
|
||||||||||||
Serra
|
1.800
|
1.200
|
430
|
15
|
||||||||||||
Tamoio
|
1.400
|
900
|
n.a.
|
4
|
||||||||||||
Univalem
|
2.200
|
950
|
650
|
8
|
||||||||||||
Total
|
40.000
|
20.060
|
9.570
|
140
|
||||||||||||
Source:
Cosan S.A.
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
15
|
Retail
|
|
1.
|
Shapeless
refined
sugar
|
2.
|
Granulated
refined
sugar
|
3.
|
Demerara
sugar
|
4.
|
Crystal
sugar
|
5.
|
Brown
sugar
|
6.
|
Gel
alcohol
|
Industry
|
|
1.
|
Demerara
sugar
|
2.
|
Crystal
sugar
|
3.
|
Granulated
refined
sugar
|
4.
|
Shapeless
refined
sugar
|
5.
|
Liquid
sugar
|
6.
|
Inverte
liquid
sugar
|
7.
|
Molasses
|
8.
|
Ethanol
|
Export
|
|
1.
|
Bulk
VHP
sugar
|
2.
|
Granulated
refined
sugar
|
3.
|
Crystal
sugar
|
4.
|
Organic
sugar
|
5.
|
Refined
hydrous
ethanol
|
6.
|
Neutral
hydrous
ethanol
|
Source: Cosan S.A. management. |
Shareholders
- Cosan
S.A.
|
Total
Shares
|
(%)
|
||||||
Aguassanta
Participações S.A.
|
66,791,951
|
35.36 | % | |||||
Usina
Costa Pinto S.A.
Açúcar e
Álcool
|
30,010,278
|
15.89 | % | |||||
Lewington
Pte. Ltd.
(Cingapura)
|
11,279,050
|
5.97 | % | |||||
Wellington
Management
Company,
LLP
|
9,549,670
|
5.06 | % | |||||
Outros
|
71,255,411
|
37.72 | % | |||||
Total
|
188,886,360
|
100.00 | % | |||||
Source: Quarterly Financial Information as of July 31, 2007. |
Shareholders
- Cosan
S.A.
|
Total
Shares
|
(%)
|
||||||
Cosan
Limited
|
96,332,044
|
51.00 | % | |||||
Aguassanta
Participações S.A.
|
470,185
|
0.25 | % | |||||
Lewington
Pte. Ltd.
(Cingapura)
|
11,279,050
|
5.97 | % | |||||
Wellington
Management Company,
LLP
|
9,549,670
|
5.06 | % | |||||
Outros
|
71,255,411
|
37.72 | % | |||||
Total
|
188,886,360
|
100.00 | % | |||||
Source: Cosan S.A. management. |
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
16
|
Income
Statement
|
R$
thousand
|
Income
Statement
|
2005/06
|
2006/07
|
May
to
June/07
|
|||||||||
Net
Operating
Revenues
|
2,477,921
|
3,605,056
|
591,713
|
|||||||||
.
Growth %
|
n.d.
|
45.5 | % |
n.d.
|
||||||||
.
Sugar
|
1,489,952
|
2,213,453
|
371,819
|
|||||||||
.
Ethanol
|
857,002
|
1,185,578
|
168,941
|
|||||||||
.
Eletric Power
Co-generation
|
-
|
-
|
-
|
|||||||||
.
Other
Revenues
|
130,967
|
206,025
|
50,953
|
|||||||||
Cost
of Products
Sold
|
(1,721,309 | ) | (2,481,115 | ) | (548,010 | ) | ||||||
.
Cost of Products Sold/Net
Revenue
|
0.0 | % | 0.0 | % | 0.0 | % | ||||||
Gross
Profit
|
756,612
|
1,123,941
|
43,703
|
|||||||||
.
Gross Profit/Net
Revenue
|
30.5 | % | 31.2 | % | 7.4 | % | ||||||
Operating
Expenses
|
(378,842 | ) | (492,872 | ) | (119,565 | ) | ||||||
.
Operating Expenses / Net
Revenue
|
-15.3 | % | -13.7 | % | -20.2 | % | ||||||
EBIT
|
377,770
|
631,069
|
(75,862 | ) | ||||||||
.
EBIT Margin (EBIT /Net
Revenue)
|
15.2 | % | 17.5 | % | -12.8 | % | ||||||
.
Depreciation and
Amortization
|
139,892
|
296,960
|
125,379
|
|||||||||
EBITDA
|
517,662
|
928,029
|
49,517
|
|||||||||
.
EBITDA Margin (EBITDA /Net
Revenue)
|
20.9 | % | 25.7 | % | 8.4 | % | ||||||
.
Goodwill
Amortization
|
(142,835 | ) | (223,686 | ) | (55,968 | ) | ||||||
.
Financial
Result
|
(245,177 | ) |
157,967
|
150,842
|
||||||||
.
Non-Operating
Result
|
(53,251 | ) |
1,951
|
3,072
|
||||||||
Profit
/ (Loss) Before Income
Tax
|
(63,493 | ) |
567,301
|
22,084
|
||||||||
.
Operating Margin (Profit Before
Income Tax/Net Revenue)
|
-2.6 | % | 15.7 | % | 3.7 | % | ||||||
.
Income Tax and Social
Contribution
|
5,823
|
(203,858 | ) | (9,047 | ) | |||||||
.
% Income Tax and Social
Contribution
|
9.2 | % | 35.9 | % | 41.0 | % | ||||||
Minority
Shareholders
|
(6,892 | ) | (6,174 | ) |
630
|
|||||||
Net
Income /
(Loss)
|
(64,562 | ) |
357,269
|
13,667
|
||||||||
.
Net Margin (Net Income/Net
Revenue)
|
-2.6 | % | 9.9 | % | 2.3 | % |
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
17
|
Balance
Sheet –
Assets
|
R$
thousand
|
Actual
|
||||||||||||
Assets
|
04/30/06
|
04/30/07
|
07/31/07
|
|||||||||
.
Cash and Cash
Equivalents
|
831,522
|
1,217,129
|
816,401
|
|||||||||
.
Trade Accounts
Receivable
|
212,601
|
112,283
|
140,381
|
|||||||||
.
Inventories
|
390,845
|
503,350
|
790,209
|
|||||||||
.
Advances to
Suppliers
|
132,719
|
211,446
|
308,647
|
|||||||||
.
Affiliated
Companies
|
3
|
-
|
-
|
|||||||||
.
Deferred Income Tax & Social
Contribution
|
41,418
|
38,093
|
26,923
|
|||||||||
.
Derivative Financial
Instruments
|
288,601
|
37,578
|
94,029
|
|||||||||
.
Other
Credits
|
115,727
|
104,866
|
94,238
|
|||||||||
Total
Current
Assets
|
2,013,436
|
2,224,745
|
2,270,828
|
|||||||||
.
Cash
Investments
|
90
|
-
|
-
|
|||||||||
.
Receivable from Related
Parties
|
-
|
45
|
43
|
|||||||||
.
National Treasury
Certificates
|
104,921
|
123,310
|
127,771
|
|||||||||
.
Deferred Income
Tax & Social
Contribution
|
361,785
|
242,530
|
261,552
|
|||||||||
.
Indemnity
Suits
|
-
|
318,358
|
318,358
|
|||||||||
.
Other
Credits
|
99,372
|
112,323
|
108,106
|
|||||||||
Total
Long-Term
Assets
|
566,168
|
796,566
|
815,830
|
|||||||||
.
Investments
|
13,414
|
93,169
|
13,849
|
|||||||||
.
Property, Plant &
Equipment
|
1,656,396
|
2,013,137
|
2,076,733
|
|||||||||
.
Deferred
Charges
|
1,355,359
|
1,135,737
|
1,149,752
|
|||||||||
Total
Permanent
Assets
|
3,025,169
|
3,242,043
|
3,240,334
|
|||||||||
Total
Assets
|
5,604,773
|
6,263,354
|
6,326,992
|
Balance
Sheet –
Liabilities
|
R$
thousand
|
Actual
|
||||||||||||
Liabilities
|
04/30/06
|
04/30/07
|
07/31/07
|
|||||||||
.
Trade Accounts
Payable
|
201,717
|
113,773
|
315,207
|
|||||||||
.
Loans and
Financing
|
68,778
|
88,991
|
116,521
|
|||||||||
.
Salaries and Wages
Payable
|
49,726
|
63,273
|
91,700
|
|||||||||
.
Taxes and
Contributions
|
111,120
|
126,202
|
131,539
|
|||||||||
.
Advances from
Customers
|
79,156
|
49,373
|
41,039
|
|||||||||
.
Promissory
Notes
|
55,791
|
1,261
|
1,268
|
|||||||||
.
Payables to Related
Parties
|
76
|
667
|
-
|
|||||||||
.
Deferred Income Tax & Social
Contribution w/o
Revaluation Reserve
|
5,486
|
5,486
|
5,486
|
|||||||||
.
Dividends
Payable
|
-
|
75,815
|
75,815
|
|||||||||
.
Derivative Financial
Instruments
|
65,368
|
35,536
|
47,961
|
|||||||||
.
Other
Obligations
|
32,758
|
31,356
|
11,515
|
|||||||||
Total
Current
Liabilities
|
669,976
|
591,733
|
838,051
|
|||||||||
.
Loans and Financing
|
2,002,684
|
2,770,435
|
2,591,126
|
|||||||||
.
Taxes and
Contributions
|
446,947
|
338,507
|
336,526
|
|||||||||
.
Payables to Related
Parties
|
1,350
|
-
|
-
|
|||||||||
.
Advances from
customers
|
86,901
|
49,491
|
15,646
|
|||||||||
.
Promissory
Notes
|
12,747
|
-
|
-
|
|||||||||
.
Reserve for
Contingencies
|
907,395
|
727,966
|
740,970
|
|||||||||
.
Debentures
|
55,069
|
55,069
|
55,069
|
|||||||||
.
Deferred Income Tax & Social
Contribution w/o Revaluation Reserve
|
40,801
|
33,435
|
30,859
|
|||||||||
.
Other
Obligations
|
11,464
|
45,528
|
54,518
|
|||||||||
Long-Term
Liabilities
|
3,565,358
|
4,020,431
|
3,824,714
|
|||||||||
Minory
Shareholders
|
14,017
|
20,191
|
19,561
|
|||||||||
.
Paid-in
capital
|
1,185,767
|
1,192,692
|
1,192,692
|
|||||||||
.
Revaluation
Reserve
|
195,864
|
195,004
|
194,736
|
|||||||||
.
Profit
reserve
|
-
|
243,303
|
243,303
|
|||||||||
.
Retained earnings (accumulated
losses)
|
(26,209 | ) |
-
|
13,935
|
||||||||
Shareholder's
Equity
|
1,355,422
|
1,630,999
|
1,644,666
|
|||||||||
Total
Liabilities and Shareholder's
Equity
|
5,604,773
|
6,263,354
|
6,326,992
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
18
|
Shareholders
- Cosan
Limited
|
Class
of Shares
|
Amount
of Shares
|
(%)
|
||||||
Queluz
Holdings
Limited
|
B1
|
66,321,766
|
31.88
|
% | |||||
Usina
Costa Pinto S.A.
Açúcar e
Álcool
|
B1
|
30,010,278
|
14.43 | % | |||||
Aguassanta
Participações
S.A.
|
A
|
5,000,000
|
2.40 | % | |||||
Outros
acionistas
|
A
|
106,678,000
|
51.29 | % | |||||
Total
|
208,010,044
|
100.00 | % | ||||||
Source:
Cosan Ltd.
management.
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
19
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
20
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
22
|
1.
|
Mills
that own the land were the
sugarcane raw material is obtained for
crushing;
|
2.
|
Mills
that lease land for
production of cane and subsequent crushing;
and
|
3.
|
Specialized
rural producers
contractually linked
to the mills.
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
23
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
24
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
25
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
26
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
27
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
28
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
29
|
1.
|
Weighted
average quotation price
of the Company’s
shares at the stock exchange or
over-the-counter market, specifying the share price by kind and class:
(i)
in the past twelve (12) months immediately prior to the disclosure
of the
relevant fact; and (ii) between the
date of disclosure of
the relevant fact and the appraisal report
date.
|
2.
|
Book
value per share of Cosan S.A.
as verified in the last periodical information sent to the
CVM.
|
3.
|
The
economic value per share,
calculated on a discounted cash flow basis or on a multiple
basis, as may be
regarded as the most appropriate method for the case, in order to
appraise
it properly.
|
4.
|
Value
according to the appraisal
criteria adopted by the offering party for the purposes of defining
a fair
price, as the case should be, and provided
that it is not
included in the previous
items.
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
31
|
·
|
Business
Plan of Cosan S.A. for
harvest years 2007/2008 through 2016/2017, as prepared by
management.
|
·
|
Standardized
Financial Statements
(DFP) of Cosan S.A. as of April 30, 2006 and April 30, 2007, audited
by
Ernst & Young Auditores Independentes
S.S.
|
·
|
Quarterly
Financial Information
(ITR) of Cosan S.A. as of July 31, 2007 and July 31, 2006, with Limited
Review by Ernst
& Young Auditores Independentes
S.S.
|
·
|
Consolidated
interim analytical
balance sheet of Cosan S.A. as of July 31,
2007.
|
·
|
Quarterly
Financial Letter
relating to the Quarterly Financial Information (ITR) of Cosan S.A.
as of
July 31, 2007 and
2006.
|
·
|
Presentation
made at the Meeting
with Investors & Analysts –
APIMEC-SP held September 21,
2007.
|
·
|
Definitive
Prospectus for First
Public Distribution of Certified Certificates of Deposit for Class
A
Common Shares issued by Cosan Limited on August 16,
2007.
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
32
|
Methodologies
Adopted
|
Cosan
S.A.
|
Period
|
Traded
Shares
|
Volume
(R$
thousand)
|
Average
Price
(R$)
|
|||||||||
25/06/06
a
24/07/06
|
16,391,100
|
769,733
|
46.96
|
|||||||||
25/07/06
a
24/08/06
|
19,825,500
|
841,924
|
42.47
|
|||||||||
25/08/06
a
24/09/06
|
13,574,800
|
489,093
|
36.03
|
|||||||||
25/09/06
a
24/10/06
|
21,244,700
|
715,525
|
33.68
|
|||||||||
25/10/06
a
24/11/06
|
11,934,700
|
448,717
|
37.60
|
|||||||||
25/11/06
a
24/12/06
|
21,140,300
|
854,042
|
40.40
|
|||||||||
25/12/06
a
24/01/07
|
18,317,500
|
774,134
|
42.26
|
|||||||||
25/01/07
a
24/02/07
|
25,358,000
|
1,016,205
|
40.07
|
|||||||||
25/02/07
a
24/03/07
|
16,225,600
|
621,535
|
38.31
|
|||||||||
25/03/07
a
24/04/07
|
17,091,400
|
684,683
|
40.06
|
|||||||||
25/04/07
a
24/05/07
|
13,486,900
|
553,609
|
41.05
|
|||||||||
25/05/07
a
24/06/07
|
40,526,200
|
1,515,666
|
37.40
|
|||||||||
Average
06/25/2006 to
06/24/2007
|
235,116,700
|
9,284,866
|
39.49
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
33
|
Methodologies
Adopted
|
Cosan
S.A.
|
Period
|
Traded
Shares
|
Volume
(R$
thousand)
|
Average
Price
(R$)
|
|||||||||
06/25/07
to
07/24/07
|
29,084,300
|
946,458
|
32.54
|
|||||||||
07/25/07
to
08/24/07
|
31,700,600
|
874,668
|
27.59
|
|||||||||
08/25/07
to
09/24/07
|
31,107,200
|
730,135
|
23.47
|
|||||||||
09/25/07
to
10/18/07
|
19,582,900
|
522,568
|
26.68
|
|||||||||
Average
06/25 to
10/18/2007
|
111,475,000
|
3,073,828
|
27.57
|
Period
|
Traded
Shares
|
Volume
(R$
thousand)
|
Average
Price
(R$)
|
|||||||||
08/16/07
to
09/15/07
|
31,718,900
|
733,892
|
23.14
|
|||||||||
09/16/07
to
10/15/07
|
23,542,500
|
611,600
|
25.98
|
|||||||||
10/16/07
a
10/18/07
|
3,749,100
|
100,404
|
26.78
|
|||||||||
Average
08/16 to
10/18/2007
|
59,010,500
|
1,445,896
|
24.50
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
34
|
Methodologies
Adopted
|
Cosan
S.A.
|
R$
thousand
|
||||
Assets
|
07/31/2007
|
|||
.
Cash and Cash
Equivalents
|
816,401
|
|||
.
Trade Accounts
Receivable
|
140,381
|
|||
.
Inventories
|
790,209
|
|||
.
Advances to
Suppliers
|
308,647
|
|||
.
Receivables from Related
Parties
|
-
|
|||
.
Deferred Income Tax & Social
Contribution
|
26,923
|
|||
.
Derivative Financial
Instruments
|
94,029
|
|||
.
Other
Credits
|
94,238
|
|||
Current
Assets
|
2,270,828
|
|||
.
Receivables from Related
Parties
|
43
|
|||
.
National Treasury
Certificates
|
127,771
|
|||
.
Deferred Income Tax & Social
Contribution
|
261,552
|
|||
.
Indemnity
Suits
|
318,358
|
|||
.
Other
Credits
|
108,106
|
|||
Long-Term
Assets
|
815,830
|
|||
.
Investments
|
13,849
|
|||
.
Property, Plant &
Equipment
|
2,076,733
|
|||
.
Deferred
Charges
|
1,149,752
|
|||
Permanent
Assets
|
3,240,334
|
|||
Total
Assets
|
6,326,992
|
R$
thousand
|
||||
Liabilities
|
07/31/2007
|
|||
.
Trade Accounts
Payable
|
315,207
|
|||
.
Loans and
Financing
|
116,521
|
|||
.
Salaries and Wages
Payable
|
91,700
|
|||
.
Taxes and
Contributions
|
131,539
|
|||
.
Advances from
Customers
|
41,039
|
|||
.
Promissory
Notes
|
1,268
|
|||
.
Payables to Related Parties
|
-
|
|||
.
Deferred Income Tax & Social
Contribution without Revaluation Reserve
|
5,486
|
|||
.
Dividends
Payable
|
75,815
|
|||
.
Derivative Financial
Instruments
|
47,961
|
|||
.
Other
Obligations
|
11,515
|
|||
Current
Liabilities
|
838,051
|
|||
.
Loans and
Financing
|
2,591,126
|
|||
.
Taxes and
Contributions
|
336,526
|
|||
.
Advances from
Customers
|
15,646
|
|||
.
Promissory
Notes
|
-
|
|||
.
Reserve for
Contingencies
|
740,970
|
|||
.
Debentures
|
55,069
|
|||
.
Deferred Income Tax & Social
Contribution without Revaluation Reserve
|
30,859
|
|||
.
Other
Obligations
|
54,518
|
|||
Long-Term
Liabilities
|
3,824,714
|
|||
Minority
Interest
|
19,561
|
|||
Shareholder's
Equity
|
1,644,666
|
|||
Total
Liabilities and
Shareholder's
Equity
|
6,326,992
|
Shareholder's
Equity
|
07/31/2007
|
|||
Shareholder's
Equity
(R$)
|
1,644,666,280
|
|||
Total
Shares of Cosan
S.A.
|
188,886,360
|
|||
Book
Value per Share (R$ /
share)
|
8.71
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
35
|
Methodologies
Adopted
|
Cosan
S.A.
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
36
|
Methodologies
Adopted
|
Cosan
S.A.
|
·
|
The
financial projections are
shown in nominal terms, that is, they contain the inflation estimated
during the projection period and are translated in thousands
of Reais (R$
thousands), except when another unit is otherwise
indicated.
|
·
|
The
base date for the appraisal is
July 31, 2007. The projections of Cosan S.A.’s
operations include the period
from August 1, 2007 to April 30, 2017 (end of harvest year
2016/2017).
|
·
|
The
assumptions used in this study
were based on the Business Plan prepared by Cosan S.A.'s management
for
the period from 2007/2008 to
2016/2017.
|
·
|
Perpetuity
figures have been
calculated based on Gordon’s
growth model. The projected
cash flow for harvest
year 2016/2017 has been adjusted with respect to income tax and social
contribution owing to expectations for reduction in depreciation
expenses
and considers a perpetual growth rate estimated at 5.0%, including
inflation of 4.0%.
|
·
|
For
discounting the
annual cash flow to
present value, we adopted the convention of the cash flow generated
by the
Company homogeneously over the course of the year and, for purposes
of
discounting it, we assumed that the cash generation occurs in the
middle
of each
projection year rather than at
the end of the projection
year.
|
·
|
The
main macroeconomic assumptions
adopted in the business plan are as
follows:
|
Harvest
year
|
2007/08
|
|
2008/09
|
2009/10
|
2010/11
|
2011/12
|
2012/13
|
2013/14
|
2014/15
|
2015/16
|
2016/17
|
|||||||||||||||||||||||||||||
Macroeconomic
Assumptions
|
||||||||||||||||||||||||||||||||||||||||
IGP-M
(1)
|
4.49 | % | 4.01 | % | 4.00 | % | 4.00 | % | 4.00 | % | 4.00 | % | 4.00 | % | 4.00 | % | 4.00 | % | 4.00 | % | ||||||||||||||||||||
CPI
- Consumer Price Index
(2)
|
2.60 | % | 2.60 | % | 2.57 | % | 2.50 | % | 2.53 | % | 2.62 | % | 2.62 | % | 2.62 | % | 2.62 | % | 2.62 | % | ||||||||||||||||||||
Exchange
rate (R$/US$)
(3)
|
1.94
|
1.88
|
1.97
|
2.01
|
2.06
|
2.12
|
2.15
|
2.18
|
2.21
|
2.24
|
Source:
Focus Report by Central
Bank of Brazil of 10/11/2007, The Economist, Sept/2007 and Deloitte
analyses.
(1)
Central
Bank's
projection for the whole projective period.
(2)
Projections from The Economist
"Country Forecast Brazil" Report, Sept/2007, through
2012, adjusted for
the harvest years. From 2012/13, market projections.
(3)
Central Bank of Brazil's
projections for the average exchange rate until 2010/11, adjusted
for the
harvest years and, from 2011/12, differential between Brazilian
and American
inflation rate (parity of purchasing power).
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
37
|
Methodologies
Adopted
|
Cosan
S.A.
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
38
|
Methodologies
Adopted
|
Cosan
S.A.
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
39
|
Methodologies
Adopted
|
Cosan
S.A.
|
Crop-year
|
2007/08
|
2008/09
|
2009/10
|
2010/11
|
2011/12
|
|||||||||||||||
VHP
Sugar
Price
|
9.50
|
9.80
|
10.50
|
11.50
|
12.50
|
|||||||||||||||
(US$
cents/lb)
|
||||||||||||||||||||
Source:
Market projections and
Deloitte analyses.
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
40
|
Methodologies
Adopted
|
Cosan
S.A.
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
41
|
Methodologies
Adopted
|
Cosan
S.A.
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
42
|
Methodologies
Adopted
|
Cosan
S.A.
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
43
|
Methodologies
Adopted
|
Cosan
S.A.
|
Tax
|
Rate
(%)
|
|||
IR
(Income
Tax)
|
15
|
% | ||
IR
-
Surcharge
|
10 | % | ||
CSLL
(Social
Contribution on Net
Income)
|
9 | % |
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
44
|
Methodologies
Adopted
|
Cosan
S.A.
|
1.
|
Expansion
of current milling
capacity of 40.0 million to 50.6 million
tons.
|
2.
|
Greenfield
project, which
encompasses investments in three mills in the State of Goiás, with projections
for beginning
production of ethanol for exportation in harvest year 2009/2010,
reaching 900
thousand cubic meters per
year.
|
3.
|
Investments
in additional
operating processes with a view to increasing productivity from the
harvests and enhancing efficiency, as well as reducing production
costs
and making investments to increase the
level of harvest
mechanization from the current 28% in harvest year 2006/2007 to 79%
by
harvest year 2011/2012 (both reflected in replacement
investments).
|
4.
|
Investments
in electric power
co-generation systems for sale to the Brazilian distribution network as
from
2009.
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
45
|
Methodologies
Adopted
|
Cosan
S.A.
|
Formula
WACC
= Ke* (E/E+D) + Kd * (1-tax)
* (D/D+E)
Ke
= rf + 2*(ERP) +
CRP
|
||
Weighed
Average Cost of Capital
(WACC)
|
Notes
|
|
Cost
of Equity
(ke)
|
||
Risk-free
rate (Rrf
)
|
4.89%
|
(a)
|
Market
premium
(ERP)
|
7.10%
|
(b)
|
Beta
(2)
|
0.74
|
(c)
|
Country
risk
(CRP)
|
1.71%
|
(d)
|
Cost
of own equity
(ke)
|
11.88%
|
|
Own
capital share
(E)
|
80%
|
(e)
|
Cost
of debt
(Kd)
|
5.45%
|
(f)
|
Third
parties' capital share
(D)
|
20%
|
(e)
|
Nominal
WACC in
US$
|
10.59%
|
|
Difference
between Brazilian and
American inflation rate
|
1.35%
|
(g)
|
Nominal
WACC in
R$
|
12.08%
|
(a)
|
Represents
the return required by
an investors for investments in risk-free securities. We adopted
as a
risk-free rate parameter the historical arithmetic mean for
the last 24 months
as disclosed by the US Government (North American 30- year T- Bond).
Source: Bloomberg and Deloitte’s
analyses.
|
(b)
|
Represents
the return above the
risk-free rate that the investor requires to invest (to accept the
risk
exposure) in the
capital market (equity risk premium), due to the risk inherent in
the
investment. We adopted the average premium recorded for shares (valuation
and dividends paid) in large American companies since 1926. Source:
Ibbotson
Associates.
|
(c)
|
Represents
the average risk
of the company or
industry under analysis. For the beta calculation, the average unleveraged
beta of companies playing in the same industry as Cosan was used,
based on
the capital structure and IR rate of each company. This beta was
then
releveraged
using the capital
structure projected for the company under analysis and its IR rate.
Source: Bloomberg and Deloitte’s
analyses.
|
(d)
|
Represents
the total additional
interest (premium) required by an institutional investor to invest
in
Brazil (country risk
premium). We adopted as a parameter the historical arithmetic mean
of
spread in the last 12 months applied to Brazilian and American government
securities in a comparable period. Source: Bloomberg and
Deloitte’s
analyses.
|
(e)
|
To
calculate the financial
leverage, we
used the
arithmetic mean of the debt/equity ratio for a sample of comparable
companies playing in the same industry as Cosan A.
We obtained as a result an
approximate structure of 80% of own capital and 20%
of third parties’
capital. Source: Bloomberg and
Deloitte’s
analyses.
|
(f)
|
The
cost of third
parties’
capital is calculated using the
marginal cost of Cosan A.,
i.e., 8.25% p.y., net of IR/CS
(income and social contribution taxes). Source: Cosan
S.A.
management.
|
(g)
|
Represents
a difference between
the long-term annual
inflation rate in Brazil (4.00%) and in the United States (2.62%).
The
American inflation rate was determined using the built-in expectation
of
inflation in long-term securities (North American 30-year T- Bond)
of the
United States, whose yield
is indexed to the Consumer
Price Index (CPI). Source:
EIU.
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
46
|
Methodologies
Adopted
|
Cosan
S.A.
|
Projected
Income
Statement
|
R$
thousand
|
Projected
|
|||||||||||
Income
Statement
|
2007/08
(9M)
|
2007/08
(12M)
|
2008/09
|
2009/10
|
2010/11
|
2011/12
|
2012/13
|
2013/14
|
2014/15
|
2015/16
|
2016/17
|
Net
Operating
Revenues
|
2,080,289
|
2,672,002
|
2,878,325
|
3,536,922
|
4,404,168
|
5,372,763
|
6,062,520
|
6,379,898
|
6,693,108
|
7,021,124
|
7,365,678
|
.
Growth %
|
n/a
|
-25.9%
|
7.7%
|
22.9%
|
24.5%
|
22.0%
|
12.8%
|
5.2%
|
4.9%
|
4.9%
|
4.9%
|
.
Sugar
|
1,085,039
|
1,456,858
|
1,478,576
|
1,690,094
|
1,934,072
|
2,184,457
|
2,329,207
|
2,446,883
|
2,570,333
|
2,700,016
|
2,836,239
|
.
Ethanol
|
876,038
|
1,044,979
|
1,186,889
|
1,607,569
|
2,128,082
|
2,777,219
|
3,312,188
|
3,501,470
|
3,680,411
|
3,867,513
|
4,064,183
|
.
Eletric Power Co-generation
|
-
|
-
|
41,293
|
67,178
|
169,417
|
237,972
|
247,491
|
257,390
|
267,686
|
278,393
|
289,529
|
.
Other
Revenues
|
119,213
|
170,166
|
171,566
|
172,081
|
172,597
|
173,115
|
173,634
|
174,155
|
174,677
|
175,201
|
175,727
|
Cost
of Products
Sold
|
(1,648,262)
|
(2,196,272)
|
(2,279,743)
|
(2,717,339)
|
(3,167,089)
|
(3,648,588)
|
(4,041,331)
|
(4,234,315)
|
(4,363,904)
|
(4,511,877)
|
(4,663,720)
|
.
Cost of Products Sold/Net
Revenue
|
-79.2%
|
-82.2%
|
-79.2%
|
-76.8%
|
-71.9%
|
-67.9%
|
-66.7%
|
-66.4%
|
-65.2%
|
-64.3%
|
-63.3%
|
Gross
Profit
|
432,027
|
475,730
|
598,582
|
819,583
|
1,237,079
|
1,724,175
|
2,021,189
|
2,145,583
|
2,329,204
|
2,509,247
|
2,701,958
|
.
Gross Profit/Net
Revenue
|
20.8%
|
17.8%
|
20.8%
|
23.2%
|
28.1%
|
32.1%
|
33.3%
|
33.6%
|
34.8%
|
35.7%
|
36.7%
|
Operating
Expenses
|
(374,820)
|
(494,385)
|
(506,416)
|
(567,491)
|
(623,529)
|
(678,843)
|
(721,765)
|
(750,312)
|
(777,391)
|
(805,348)
|
(834,344)
|
.
Operating Expenses / Net
Revenue
|
-18.0%
|
-18.5%
|
-17.6%
|
-16.0%
|
-14.2%
|
-12.6%
|
-11.9%
|
-11.8%
|
-11.6%
|
-11.5%
|
-11.3%
|
EBIT
|
57,207
|
(18,655)
|
92,166
|
252,092
|
613,550
|
1,045,332
|
1,299,424
|
1,395,271
|
1,551,813
|
1,703,899
|
1,867,615
|
.
EBIT Margin
(EBIT /Net
Revenue)
|
2.7%
|
-0.7%
|
3.2%
|
7.1%
|
13.9%
|
19.5%
|
21.4%
|
21.9%
|
23.2%
|
24.3%
|
25.4%
|
.
Depreciation and
Amortization
|
181,649
|
307,028
|
392,567
|
567,056
|
692,069
|
792,174
|
853,817
|
871,653
|
882,890
|
917,235
|
947,339
|
EBITDA
|
238,856
|
288,373
|
484,733
|
819,148
|
1,305,619
|
1,837,506
|
2,153,241
|
2,266,924
|
2,434,703
|
2,621,134
|
2,814,954
|
.
EBITDA Margin (EBITDA /Net
Revenue)
|
11.5%
|
10.8%
|
16.8%
|
23.2%
|
29.6%
|
34.2%
|
35.5%
|
35.5%
|
36.4%
|
37.3%
|
38.2%
|
.
Goodwill
Amortization
|
(139,117)
|
(195,085)
|
(139,791)
|
(129,570)
|
(119,325)
|
(115,897)
|
(115,301)
|
(115,301)
|
(115,256)
|
(87,944)
|
-
|
.
Financial
Result
|
-
|
150,842
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
.
Non-Operating
Result
|
-
|
3,072
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Profit
/ (Loss) Before Income
Tax
|
(81,910)
|
(59,826)
|
(47,625)
|
122,522
|
494,225
|
929,435
|
1,184,123
|
1,279,970
|
1,436,557
|
1,615,955
|
1,867,615
|
.
Operating Margin (Profit Before
Income Tax/Net Revenue)
|
0.0%
|
0.0%
|
0.0%
|
0.0%
|
0.0%
|
0.0%
|
0.0%
|
0.0%
|
0.0%
|
0.0%
|
0.0%
|
.
Income Tax and Social
Contribution
|
-
|
(9,047)
|
-
|
(31,528)
|
(119,992)
|
(280,002)
|
(403,303)
|
(435,891)
|
(489,131)
|
(550,126)
|
(635,690)
|
.
% Income Tax and Social
Contribution
|
-
|
-15.1%
|
-
|
25.7%
|
24.3%
|
30.1%
|
34.1%
|
34.1%
|
34.0%
|
34.0%
|
34.0%
|
Minority
Shareholders
|
-
|
630
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Net
Income /
(Loss)
|
(81,910)
|
(68,243)
|
(47,625)
|
90,994
|
374,233
|
649,433
|
780,820
|
844,079
|
947,426
|
1,065,829
|
1,231,925
|
.
Net Margin (Net Income/Net
Revenue)
|
-3.9%
|
-2.6%
|
-1.7%
|
2.6%
|
8.5%
|
12.1%
|
12.9%
|
13.2%
|
14.2%
|
15.2%
|
16.7%
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
47
|
Methodologies
Adopted
|
Cosan
S.A.
|
Results
of Appraisal by the
Discounted Cash Flow Method
|
R$
thousand
|
Discounted
Cash
Flow
|
2007/08
(9M)
|
2008/09
|
2009/10
|
2010/11
|
2011/12
|
2012/13
|
2013/14
|
2014/15
|
2015/16
|
2016/17
|
EBITDA
|
238,856
|
484,733
|
819,148
|
1,305,619
|
1,837,506
|
2,153,241
|
2,266,924
|
2,434,703
|
2,621,134
|
2,814,954
|
.
Income Tax and Social
Contribution
|
-
|
-
|
(31,528)
|
(119,992)
|
(280,002)
|
(403,303)
|
(435,891)
|
(489,131)
|
(550,126)
|
(635,690)
|
.
Changes in Working
Capital
|
260,081
|
(119,533)
|
(116,450)
|
(113,030)
|
(128,580)
|
(102,940)
|
(39,864)
|
(36,240)
|
(39,906)
|
(42,250)
|
Operating
Cash
Flow
|
498,937
|
365,200
|
671,170
|
1,072,597
|
1,428,924
|
1,646,998
|
1,791,169
|
1,909,332
|
2,031,102
|
2,137,014
|
.
Investments
|
(1,292,967)
|
(1,484,241)
|
(1,036,399)
|
(802,846)
|
(716,583)
|
(622,513)
|
(641,706)
|
(661,515)
|
(682,498)
|
(704,525)
|
Cash
Flow
|
(794,031)
|
(1,119,041)
|
(365,229)
|
269,751
|
712,341
|
1,024,486
|
1,149,463
|
1,247,817
|
1,348,603
|
1,432,489
|
Discount
Rate (*)
==>
|
0.9581
|
0.8671
|
0.7737
|
0.6903
|
0.6159
|
0.5495
|
0.4903
|
0.4375
|
0.3903
|
0.3482
|
Cash
Flow at Present
Value
|
(760,790)
|
(970,372)
|
(282,573)
|
186,210
|
438,735
|
562,981
|
563,581
|
545,866
|
526,373
|
498,855
|
Cash
Flow at Present
Value
|
1,308,866
|
|||||||||
(+)
Perpetuity
(**)
|
7,029,151
|
|||||||||
Cosan
S.A.'s Operating
Flow
|
8,338,017
|
|||||||||
Economic
Adjustments
(***)
|
(2,501,381)
|
|||||||||
Economic
Value of 100% of Cosan
S.A.'s Shares
|
5,836,636
|
|||||||||
(-)
Minority
Shareholders
|
(69,420)
|
|||||||||
Economic
Value of Cosan S.A.'s Net
of Minority Interests
|
5,767,216
|
|||||||||
Total
Shares of Cosan
S.A.
|
188,886,360
|
|||||||||
Economic
Value of Cosan S.A. (R$
per share)
|
30.53
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
48
|
Methodologies
Adopted
|
Cosan
S.A.
|
Economic
Adjustments
|
R$
thousands
|
(+)
Cash and Cash
Equivalents
|
816,401
|
(+)
Treasury
Certificates
|
127,782
|
(+)
Indemnity
Suits
|
318,358
|
(+)
Investments
|
13,849
|
(+)
Derivatives
Settled
|
92,313
|
(+)
Realized Derivatives
(unrecorded)
|
38,084
|
(-)
Income Tax & Social
Contribution on derivatives settled
|
(13,422)
|
(-)
Loans and
Financing
|
(2,707,647)
|
(-)
Dividends
Payable
|
(75,815)
|
(-)
Provision for
Contingencies
|
(740,970)
|
(-)
Present Value of Tax Payable
in Installments
|
(312,934)
|
(-)
Other Net
Obligations
|
(57,380)
|
(=)
Total Economic
Adjustments
|
(2,501,381)
|
Source:
Quartely Financial
Information as of July 31, 2007 and Deloitte's
analyses.
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
49
|
Methodologies
Adopted
|
Cosan
Ltd.
|
Period
|
Traded
Shares
|
Volume
(R$
thousands)
|
Average
Price
(R$)
|
|||||||||
08/16/07to
09/16/07
|
34,291,500
|
754,191
|
22
|
|||||||||
09/16/07
to
10/15/07
|
16,701,600
|
383,986
|
23
|
|||||||||
10/16/07
to
10/18/07
|
1,652,600
|
36,454
|
22
|
|||||||||
Average
08/16 to
10/18/2007
|
52,645,700
|
1,174,631
|
22.31
|
Item
|
Value
|
|||
Original
Value of the Net Cash
Investments of Cosan
Ltd. (R$)
|
2,264,895,297
|
|||
Book
Value of 51.0% Interest in
Cosan S.A.
|
663,557,559
|
|||
Book
Value of Cosan Ltd.
(R$)
|
2,928,452,856
|
|||
Present
Numbers of Shares in Cosan
Ltd.
|
208,010,044
|
|||
Book
Value of Cosan Ltd. per Share
(R$/share)
|
14.08
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
50
|
Methodologies
Adopted
|
Cosan
Ltd.
|
Item
|
Value
|
|||
Number
of Shares Held by
Controller Shareholder - Cosan Ltd.
|
96,332,044
|
|||
Number
of New Shares in Cosan Ltd.
Issued by Public Offering
|
100,000,000
|
|||
Total
Number of Shares in Cosan
Ltd. after the Public Offering
|
196,332,044
|
|||
Total
Shares
Greenshoe
|
11,678,000
|
|||
Present
Value of Shares in Cosan
Ltd.
|
208,010,044
|
|||
Total
Shares of Cosan
S.A.
|
188,886,360
|
|||
Number
of Shares in Cosan
S.A.owned by Cosan
Ltd. (51.0%)
|
96,332,044
|
|||
Value
of Cosan S.A. Shares based
on Deloitte´s
Appraisal Report (R$/share)
|
30.53
|
|||
(*)
Present Value of Net Cash
Investments in Cosan Ltd. (R$)
|
2,248,648,822
|
|||
Value
of Cosan Ltd. Interest in
Cosan S.A. (R$)
|
2,941,280,175
|
|||
Economic
Value of Cosan Ltd.
(R$)
|
5,189,928,997
|
|||
Economic
Value of Cosan Ltd. per
Share (R$/share)
|
24.95
|
|||
Source:
Cosan Ltd. Management and
Deloitte's analyses.
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
51
|
Methodologies
Adopted
|
Cosan
Ltd.
|
1.
|
Value
of Cosan Ltd. of R$29.10 per
share, considering
the average quotation price of R$39.49 per share of Cosan S.A. in
the 12
months prior to the disclosure of the Relevant Fact dated June 25,
2007.
|
2.
|
Value
of Cosan Ltd. of R$23.58 per
share, considering the average quotation price of R$27.57
per share of Cosan
S.A. subsequent to the disclosure of the Relevant Fact (June 25,
2007)
through the date of this Appraisal
Report.
|
3.
|
Value
of Cosan Ltd. of R$22.16 per
share, considering the average quotation price of R$24.50 per share
of
Cosan S.A. subsequent
to the initial public offering of shares of Cosan Ltd. (August 16,
2007)
through the date of this Appraisal
Report.
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
52
|
(1)
|
Economic
value per share based on
the Discounted Cash Flow Method, with a minimum and maximum value
range of
10%, pursuant to CVM Instruction No.
361/02.
|
(2)
|
Market
value per share based on the
weighted average price for shares
of:
|
(i)
|
R$39.49
per share in the 12 months
prior to the disclosure of the Relevant Fact dated June 25,
2007.
|
(ii)
|
R$27.57
per share from the date of
disclosure of the Relevant Fact (June 25, 2007) through the
date of this Appraisal
Report.
|
(iii)
|
R$24.50
per share from the initial
public offering of shares in Cosan Ltd. (August 16, 2007) through
the date
of this Appraisal Report.
|
(3)
|
Book
value per share as of July
31, 2007, based on 188,886,360 shares, as mentioned in the
Company’s
quarterly financial information
as of July 31, 2007.
|
(1)
|
Economic
value per share based on
the Assets Approach, with the investment in Cosan S.A. estimated
on a
discounted cash flow basis, with a minimum and maximum value range
of 10%,
pursuant to CVM Instruction No.
361/02.
|
(2)
|
Assets
Approach with the investment
in Cosan S.A.
being estimated based on the weighted average price for shares in
Cosan
S.A. of:
|
(i)
|
R$29.10
per share, for the average
value of R$39.49 per share in Cosan S.A. in the 12 months prior to
the
disclosure of the Relevant Fact dated June 25,
2007.
|
(ii)
|
R$23.58
per share, for the average
value of R$27.57 per share in Cosan S.A. from the date of disclosure
of
the Relevant Fact (June 25, 2007) through the date of this Appraisal
Report.
|
(iii)
|
R$22.16
per share, for the average
value of R$24.50 per share in Cosan
S.A. from the
Initial Public Offering of shares in Cosan Ltd. (August 16, 2007)
through
the date of this Appraisal
Report.
|
(3)
|
Market
value per share based on
the weighted average price for share from the date of the Initial
Public
Offering through the
date of this Appraisal
Report.
|
(4)
|
Book
Value per share, based on
208,010,044 shares as of September 10, 2007, according to information
made
available by Cosan Ltd. management. 54
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
54
|
§
|
Assets
Approach: This is the
method normally employed to appraise
businesses that do
not generate positive cash flows, in which case they should be liquidated,
that is, when such businesses are incapable of generating an appropriate
return on investment in their operations or in which the nature of
their
business
is such that a buyer would
only eye the asset itself.
|
§
|
Bloomberg:
Source of financial
information to which we had access for development of this
project.
|
§
|
Corporate
Finance: Term
used interchangeably with Financial Advisory Services, the area of
Deloitte Touche
Tohmatsu that prepared this Appraisal
Report.
|
§
|
CPS:
Cost of Products
Sold.
|
§
|
CVM:
Comissão de Valores
Mobiliários. The Brazilian
Securities
Commission, equivalent to the U.S.’s
SEC.
|
§
|
DCF:
Discounted Cash Flow.
Represents the method that estimates the free cash
flow to be generated
by future operations, duly adjusted to the risk by the discount
rate.
|
§
|
Debt-Free
Model: Calculation model
that considers only the projection of operating results, free of
debt
payments.
|
§
|
DFP:
Demonstrações Financeiras
Padronizadas. Standardized
Financial
Statements.
|
§
|
EBIT:
Earnings Before Interest and
Taxes –
This figure represents a
company’s
income before payment of
interest and taxes.
|
§
|
EBITDA:
Earnings Before Interest,
Taxes, Depreciation and Amortization –
This represents a company’s
income before payment of
interest, taxes, depreciation and
amortization.
|
§
|
EIU:
Economist Intelligence Unit.
Source of economic and financial information to which we had access
in
carrying out this
engagement.
|
§
|
Ibbotson
Associates: Source of
information regarding
historical and expected data with respect to capital markets, to
which we
had access in preparing this Appraisal
Report.
|
§
|
IGP-M:
Índice
Geral de Preços de Mercado.
Brazilian General
Market Price Index.
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
56
|
§
|
IR/CS:
Imposto de Renda e
Contribuição
Social. Brazilian Federal Income
Tax and Social Contribution.
|
§
|
p.a.:
per
annum.
|
§
|
Perpetuity:
This is the present
value of the future cash flows, assuming constants at regular intervals
forever.
|
§
|
p.y.:
per
year
|
§
|
T-Bond:
Treasury Bonds. These are
bonds issued by
the
U.S. Government.
|
©
2007 Deloitte Touche Tohmatsu.
All rights reserved.
|
57
|
3.1
|
Memorandum
of Association of the Registrant, incorporated herein by reference
to
Exhibit 3.1 to the Registrant’s Registration Statement on Form F-1 (No.
333-144010) filed August 20, 2007.
|
|
3.2
|
Bye-laws
of the Registrant.*
|
|
4.1
|
Form
of Class A Common Share Certificate incorporated herein by reference
to
Exhibit 4.1 to the Registrant’s Registration Statement on Form F-1 (No.
333-144010) filed August 20, 2007.
|
|
4.2
|
Form
of Class B Series 2 Common Share Certificate.
|
|
5.1
|
Opinion
of Appleby, Bermuda counsel for the Registrant, as to the legality
of the
Class A Common Shares and Class B Series 2 Shares.*
|
|
10.1
|
Indenture
dated as of October 25, 2004 among Cosan S.A. Indústria e Comércio, as
issuer, FBA—Franco Brasileira S.A. Açúcar e Álcool and Usina Da Barra
S.A.—Açúcar e Álcool, as guarantors, JPMorgan Chase Bank, as trustee,
JPMorgan Trust Bank Ltd., as principal paying agent and J.P. Morgan
Bank
Luxembourg S.A., as Luxembourg paying agent, incorporated herein
by
reference to Exhibit 10.1 to the Registrant’s Registration Statement on
Form F-1 (No. 333-144010) filed August 20, 2007.
|
|
10.2
|
Indenture
dated as of February 6, 2006 among Cosan S.A. Indústria e Comércio, as
issuer, FBA—Franco Brasileira S.A. Açúcar e Álcool and Usina Da Barra
S.A.—Açúcar e Álcool, as guarantors, JPMorgan Chase Bank, N.A., as
trustee, JPMorgan Trust Bank Ltd., as principal paying agent and
J.P.
Morgan Bank Luxembourg S.A., as Luxembourg paying agent, incorporated
herein by reference to Exhibit 10.2 to the Registrant’s Registration
Statement on Form F-1 (No. 333-144010) filed August 20,
2007.
|
|
10.3
|
Indenture
dated as of January 26, 2007 among Cosan Finance Limited, as issuer,
Cosan
S.A. Indústria e Comércio and Usina Da Barra S.A.—Açúcar e Álcool, as
guarantors, The Bank of New York, as trustee, The Bank of Tokyo-Mitsubishi
UFJ, Ltd., as principal
paying agent and The Bank of New York Luxembourg S.A., as Luxembourg
paying agent, incorporated herein by reference to Exhibit 10.3 to
the
Registrant’s Registration Statement on Form F-1 (No. 333-144010) filed
August 20, 2007.
|
10.4
|
Loan
Agreement dated as of June 28, 2005 among Cosan S.A. Indústria e Comércio,
as borrower, and International Finance Corporation, incorporated
herein by
reference to Exhibit 10.4 to the Registrant’s Registration Statement on
Form F-1 (No. 333-144010) filed August 20, 2007.
|
|
21.1
|
Subsidiaries
of the Registrant, incorporated herein by reference to Exhibit 21.1
to the
Registrant’s Registration Statement on Form F-1 (No. 333-144010) filed
August 20, 2007.
|
|
23.1
|
Consent
of Ernst & Young Auditores Independentes
S.S.
|
|
23.2
|
Consent
of Appleby, Bermuda legal counsel of the Registrant (included in
Exhibit 5.1).
|
|
23.3
|
Consent
of Souza, Cescon Avedissian, Barrieu & Flesch Advogados, Brazilian
counsel to the Registrant.
|
COSAN
LIMITED
|
|||
By:
|
/s/
Rubens Ometto Silveira Mello
|
||
Name:
|
Rubens
Ometto Silveira Mello
|
||
Title:
|
Chairman
and Chief Executive Officer
|
Name
|
Title
|
|
/s/
Rubens Ometto Silveira Mello
|
Chairman
and Chief Executive Officer
(principal
executive officer)
|
|
Rubens
Ometto Silveira Mello
|
||
Vice
Chairman
|
||
Marcus
Vinicios Pratini de
Moraes
|
||
/s/
Paulo Sérgio
de Oliveira
Diniz
|
Director
|
|
Paulo
Sérgio de Oliveira
Diniz
|
||
Director
|
||
Teo
Joo Kim
|
||
/s/
Marcos Marinho
Lutz
|
Director
|
|
Marcos
Marinho
Lutz
|
||
/s/
Pedro Isamu Mizutani
|
Director
|
|
Pedro
Isamu Mizutani
|
||
Director
|
||
George
E.
Pataki
|
||
/s/
Marcelo de Souza Scarcela Portela
|
Director
|
|
Marcelo
de Souza Scarcela Portela
|
||
Director
|
||
José
Alexandre
Scheinkman
|
||
/s/
Paulo Sérgio
de Oliveira
Diniz
|
Chief
Financial Officer (principal financial officer and principal accounting
officer)
|
|
Paulo
Sergio de Oliveira
Diniz
|
||
/s/
Donald Puglisi
|
Authorized
Representative in the United States
|
|
Donald
Puglisi
|