UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
20-F
|
|
o
|
REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF
THE
|
|
|
SECURITIES
EXCHANGE ACT OF 1934
|
OR
o
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
OR
x
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
|
|
For
the transition period from April 30, 2008 to March 31,
2009
|
OR
o
|
SHELL
COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
|
Commission
File Number: 1-33659
COSAN
LIMITED
(Exact
name of Registrant as specified in its charter)
N/A
(Translation
of Registrant’s name into English)
Bermuda
(Jurisdiction
of incorporation or organization)
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)
Marcelo
Eduardo Martins
(55)(11)
3897-9797
ri@cosan.com.br
Av.
Juscelino Kubitschek, 1726 – 6th floor
São
Paulo, SP 04543-000, Brazil
(Name,
telephone, e-mail and/or facsimile number and address of Company contact
person)
Securities
registered or to be registered pursuant to Section 12(b) of the
Act:
|
Title of each
class
|
Name of each exchange
on which registered
|
|
Class
A Common Shares
|
New
York Stock Exchange
|
Securities
registered or to be registered pursuant to Section 12(g) of the Act: None
Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate
the number of outstanding shares of each of the issuer’s classes of capital or
common stock as of the close of the period covered by the transition
report.
The
number of outstanding shares as of April 30, 2008 was:
|
Title of
Class
|
Number of Shares
Outstanding
|
|
Class
A Common Shares, par value $.01 per share
Class
B – series 1 - Common Shares, par value $.01 per share
|
174,355,341
96,332,044
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
x Yes o No
If
this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
o Yes x No
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
x Yes o No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
Accelerated Filer x
Accelerated Filer o
Non-accelerated Filer o
Indicate
by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:
U.S.
GAAP x International
Financial Reporting Standards as issued by the International Accounting
Standards Board o Other o
If
“Other” has been checked in response to the previous question, indicate by check
mark which financial statement item the Registrant has elected to
follow.
o Item
17 x Item
18
If
this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes x No
Page
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131
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135
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135
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136
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136
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137
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137
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137
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137
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137
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137
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FORWARD-LOOKING
STATEMENTS
This
transition report contains estimates and forward-looking statements, principally
under “Item 3. Key Information – D. Risk Factors”, “Item 5. Operating and
Financial Review and Prospects” and “Item 4. Information on the Company – B.
Business Overview”. Some of the matters discussed concerning our business and
financial performance include estimates and forward-looking
statements.
Our
estimates and forward-looking statements are mainly based on our current
expectations and estimates on projections of future events and trends, which
affect or may affect our businesses and results of operations. Although we
believe that these estimates and forward-looking statements are based upon
reasonable assumptions, they are subject to several risks and uncertainties and
are made in light of information currently available to us. Our estimates and
forward-looking statements may be influenced by the following factors, among
others:
·
|
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 Brazilian real;
|
·
|
other
factors that may affect our financial condition, liquidity and results of
our operations; and
|
·
|
other
risk factors discussed under “Risk
Factors”.
|
The words
“believe”, “may”, “will”, “estimate”, “continue”, “anticipate”, “intend”,
“expect” and similar words are intended to identify estimates and
forward-looking statements. Estimates and forward-looking statements speak only
as of the date they were made, and we undertake no obligation to update or to
review any estimate and/or forward-looking statement because of new information,
future events or other factors. Estimates and forward-looking statements involve
risks and uncertainties and are not guarantees of future performance. Our future
results may differ materially from those expressed in these estimates and
forward-looking statements. In light of the risks and uncertainties described
above, the estimates and forward-looking statements discussed in this transition
report might not occur and our future results and our performance may differ
materially from those expressed in these forward-looking statements due to but
not limited to, the factors mentioned above. Because of these uncertainties, you
should not make any investment decision based on these estimates and
forward-looking statements.
Presentation
of Financial and Other Information
We
maintain our books and records in U.S. dollars and prepare our consolidated
financial statements in accordance with U.S. GAAP.
We have
modified our fiscal year to end on March 31. We have included in this transition
report our audited consolidated financial statements at and for the eleven
months ended March 31, 2009 and for the years ended April 30, 2008 and 2007
prepared in accordance with U.S. GAAP. For comparison purposes, we have also
included as an exhibit to this transition report our unaudited condensed
consolidated balance sheet, income statement, cash flows and statement of
changes in shareholders’ equity for the eleven month period ended March 31,
2008. Unless otherwise indicated, all financial information of our company
included in this transition report has been prepared in accordance with U.S.
GAAP.
Cosan
S.A. Indústria e Comércio or “Cosan” acquired Açucareira Corona S.A., or
“Corona”, Mundial Açúcar e Álcool S.A., or “Mundial” and Usina
Açucareira Bom Retiro S.A., or “Bom Retiro” and also increased its ownership in
FBA—Franco Brasileira S.A. Açúcar e Álcool, or “FBA”, from 47.5% to 99.9% in
fiscal year 2006. We also made other smaller acquisitions in fiscal year 2007.
In addition, in December 2008, Cosan acquired 100% of the capital of Esso
Brasileira de Petróleo Ltda., or “Essobras” (Cosan Combustíveis e
Lubrificantes S.A., or “CCL”), and certain
affiliates, marketers and distributors of fuel and lubricants in the Brazilian
retail and wholesale markets as well as aviation fuel supply from ExxonMobil
International Holding B.V., or “Exxon”, which may affect the comparability of
the financial information for the periods presented in this transition
report. See “Item 4. Information on the Company—A. History and
Development of the Company—Acquisitions, Partnerships and Corporate
Restructurings.”
Fiscal
Year
We have
modified our fiscal year end. Beginning in 2009, our and Cosan’s fiscal year
ends on March 31. Previously our fiscal year ended on April 30. References in
this transition report to “transition fiscal year 2009” and “transition period
2008” relate to the eleven months ended on March 31, 2009 and 2008,
respectively. References in this transition report to “fiscal year 2008” or
prior fiscal years relate to the fiscal year ended on April 30 of that calendar
year. However, for purposes of calculating income and social contribution taxes
in accordance with Brazilian tax laws, the applicable year ends on December
31.
Market
Data
We
obtained market and competitive position data, including market forecasts, used
throughout this transition report from market research, publicly available
information and industry publications, as well as internal surveys. We include
data from reports prepared by LMC International Ltd., or “LMC”, the Central Bank
of Brazil (Banco Central do
Brasil), or the “Central Bank”, Sugarcane Agroindustry Association of the
State of São Paulo (União da
Agroindústria Canavieira de São Paulo), or “UNICA”, Brazilian Institute
of Geography and Statistics (Instituto Brasileiro de Geografia e
Estatística), or “IBGE”, the National Traffic Agency (Departamento Nacional de
Trânsito), or DENATRAN, the Brazilian Association of Vehicle Manufactures
(Associação Nacional dos
Fabricantes de Veículos Automotores), or “ANFAVEA”, Datagro Publicações
Ltda., or “Datagro”, F.O. Licht, Czarnikow, Apoio e Vendas Procana Comunicações
Ltda., the São Paulo Stock, Commodities and Futures Exchange (BM&FBOVESPA S.A. – Bolsa de
Valores, Mercadorias e Futuros), or “BM&FBOVESPA”, the International
Sugar Organization, the Brazilian National Economic and Social Development Bank
(Banco Nacional de
Desenvolvimento Econômico e Social), or “BNDES”, the New York Board of
Trade, or NYBOT, the New York Stock Exchange and the London Stock Exchange. We
believe that all market data in this transition report is reliable, accurate and
complete.
Terms
Used in this Transition Report
In this
transition report, we present information in gallons and liters. One gallon is
equal to approximately 3.78 liters. In addition, we also present information in
tons. In this transition report, references to “ton” refer to the metric ton,
which is equal to 1,000 kilograms.
All
references in this transition report to “TSR” are to total sugar recovered,
which represents the total amount of sugar content in the
sugarcane.
All
references in this transition report to “U.S. dollars,” “dollars” or “US$” are
to U.S. dollars. All references to the “real”, “reais” or “R$” are to the
Brazilian real, the official currency of Brazil.
Rounding
We have
rounding adjustments to reach some of the figures included in this transition
report. Accordingly, numerical figures shown as totals in some tables may not be
an arithmetic aggregation of the figures that preceded them.
Not
applicable.
Not
applicable.
The
following table presents selected historical financial and operating data for
Cosan Limited, or the “Company”, derived from our financial statements and for
its predecessor for certain periods. You should read the following information
in conjunction with our audited consolidated financial statements and related
notes, and the information under “Item 5. Operating and Financial Review and
Prospects” in this transition report.
U.S.
GAAP
The
financial data at and for the eleven month period ended March 31, 2009 and at
and for the fiscal years ended April 30, 2008, 2007, 2006 and 2005 have been
derived from our audited consolidated financial statements prepared in
accordance with U.S. GAAP. The financial data at and for the eleven
month period ended March 31, 2008 is unaudited and presented solely for the
purpose of providing a meaningful comparison with the eleven month period ended
March 31, 2009.
|
|
For
Eleven Months Ended
March
31,
|
|
|
For
Fiscal Year Ended April 30,
|
|
|
|
2009
(audited)
|
|
|
2008
(unaudited)
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(in
millions of US$)
|
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
US$ |
2,926.5 |
|
|
US$ |
1,284.1 |
|
|
US$ |
1,491.2 |
|
|
US$ |
1,679.1 |
|
|
US$ |
1,096.6 |
|
|
US$ |
644.4 |
|
Sugar
|
|
|
843.1 |
|
|
|
671.8 |
|
|
|
784.5 |
|
|
|
1,031.7 |
|
|
|
660.5 |
|
|
|
415.8 |
|
Ethanol
|
|
|
548.7 |
|
|
|
518.9 |
|
|
|
604.7 |
|
|
|
551.5 |
|
|
|
378.4 |
|
|
|
178.4 |
|
Fuel
distribution
|
|
|
1,440.3 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Other
products and services
|
|
|
94.4 |
|
|
|
93.4 |
|
|
|
102.1 |
|
|
|
95.8 |
|
|
|
57.8 |
|
|
|
50.1 |
|
Cost
of goods sold
|
|
|
(2,621.9 |
) |
|
|
(1,170.5 |
) |
|
|
(1,345.6 |
) |
|
|
(1,191.3 |
) |
|
|
(796.3 |
) |
|
|
(456.6 |
) |
Gross
profit
|
|
|
304.6 |
|
|
|
113.6 |
|
|
|
145.6 |
|
|
|
487.8 |
|
|
|
300.3 |
|
|
|
187.8 |
|
Selling
expenses
|
|
|
(213.3 |
) |
|
|
(151.0 |
) |
|
|
(168.6 |
) |
|
|
(133.8 |
) |
|
|
(97.8 |
) |
|
|
(57.8 |
) |
General
and administrative expenses
|
|
|
(140.1 |
) |
|
|
(105.1 |
) |
|
|
(115.1 |
) |
|
|
(121.1 |
) |
|
|
(72.0 |
) |
|
|
(40.0 |
) |
Operating
income (loss)
|
|
|
(48.8 |
) |
|
|
(142.5 |
) |
|
|
(138.1 |
) |
|
|
232.9 |
|
|
|
130.5 |
|
|
|
90.0 |
|
Other
income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
income
|
|
|
365.0 |
|
|
|
250.7 |
|
|
|
274.8 |
|
|
|
555.6 |
|
|
|
186.5 |
|
|
|
76.8 |
|
Financial
expenses
|
|
|
(735.8 |
) |
|
|
(184.1 |
) |
|
|
(158.0 |
) |
|
|
(266.2 |
) |
|
|
(413.1 |
) |
|
|
(115.9 |
) |
Other
|
|
|
(2.3 |
) |
|
|
(3.7 |
) |
|
|
(3.7 |
) |
|
|
16.3 |
|
|
|
(5.5 |
) |
|
|
(16.4 |
) |
Income
(loss) before income taxes, equity in income (loss) of affiliates and
minority interest
|
|
|
(421.9 |
) |
|
|
(79.6 |
) |
|
|
(25.0 |
) |
|
|
538.5 |
|
|
|
(101.6 |
) |
|
|
34.5 |
|
Income
taxes (expense)/benefit
|
|
|
144.7 |
|
|
|
31.8 |
|
|
|
19.8 |
|
|
|
(188.8 |
) |
|
|
29.7 |
|
|
|
(14.9 |
) |
Income
(loss) before equity in income (loss) of affiliates and minority
interest
|
|
|
(277.2 |
) |
|
|
(47.8 |
) |
|
|
(5.2 |
) |
|
|
349.7 |
|
|
|
(71.8 |
) |
|
|
19.6 |
|
Equity
in income (loss) of affiliates
|
|
|
6.1 |
|
|
|
(2.7 |
) |
|
|
(0.2 |
) |
|
|
(0.0 |
) |
|
|
1.6 |
|
|
|
3.4 |
|
Minority
interest in (net income) loss of subsidiaries
|
|
|
83.0 |
|
|
|
32.8 |
|
|
|
22.0 |
|
|
|
(173.0 |
) |
|
|
33.1 |
|
|
|
(11.5 |
) |
Net
income (loss)
|
|
US$ |
(188.1 |
) |
|
US$ |
(17.7 |
) |
|
US$ |
16.6 |
|
|
US$ |
176.7 |
|
|
US$ |
(37.1 |
) |
|
US$ |
11.6 |
|
|
|
For
Eleven Months Ended
March
31,
|
|
|
For
Fiscal Year Ended April 30,
|
|
|
|
2009
(audited)
|
|
|
2008
(unaudited)
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(in
millions of US$)
|
|
|
|
US$ |
.5 |
|
|
US$ |
.1 |
|
|
US$ |
.2 |
|
|
US$ |
.1 |
|
|
US$ |
.6 |
|
|
US$ |
.4 |
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
US$ |
508.8 |
|
|
US$ |
103.1 |
|
|
US$ |
68.4 |
|
|
US$ |
316.5 |
|
|
US$ |
29.2 |
|
|
US$ |
13.2 |
|
Marketable
securities
|
|
|
– |
|
|
|
975.4 |
|
|
|
1,014.5 |
|
|
|
281.9 |
|
|
|
368.8 |
|
|
|
2.0 |
|
Inventories
|
|
|
477.8 |
|
|
|
423.1 |
|
|
|
337.7 |
|
|
|
247.5 |
|
|
|
187.2 |
|
|
|
122.2 |
|
Property,
plant, and equipment, net
|
|
|
2,271.8 |
|
|
|
1,764.6 |
|
|
|
2,108.1 |
|
|
|
1,194.1 |
|
|
|
1,008.1 |
|
|
|
401.8 |
|
Goodwill
|
|
|
888.8 |
|
|
|
574.2 |
|
|
|
772.6 |
|
|
|
491.9 |
|
|
|
497.9 |
|
|
|
166.6 |
|
Total
assets
|
|
|
5,421.1 |
|
|
|
4,878.7 |
|
|
|
5,269.1 |
|
|
|
3,253.4 |
|
|
|
2,691.8 |
|
|
|
960.2 |
|
Current
liabilities
|
|
|
1,164.7 |
|
|
|
299.6 |
|
|
|
359.1 |
|
|
|
274.2 |
|
|
|
397.1 |
|
|
|
207.8 |
|
Estimated
liability for legal proceedings and labor claims
|
|
|
497.6 |
|
|
|
438.7 |
|
|
|
494.1 |
|
|
|
379.2 |
|
|
|
462.2 |
|
|
|
101.7 |
|
Long-term
debt
|
|
|
1,251.1 |
|
|
|
1,234.8 |
|
|
|
1,249.3 |
|
|
|
1,342.5 |
|
|
|
941.7 |
|
|
|
314.7 |
|
Minority
interest in consolidated subsidiaries
|
|
|
544.5 |
|
|
|
894.7 |
|
|
|
796.8 |
|
|
|
463.6 |
|
|
|
287.6 |
|
|
|
93.7 |
|
Total
shareholders equity
|
|
US$ |
1,596.2 |
|
|
US$ |
1,666.2 |
|
|
US$ |
1,995.7 |
|
|
US$ |
473.6 |
|
|
US$ |
294.3 |
|
|
US$ |
97.1 |
|
Other
Financial and Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
US$ |
290.7 |
|
|
US$ |
216.8 |
|
|
US$ |
236.1 |
|
|
US$ |
187.4 |
|
|
US$ |
98.6 |
|
|
US$ |
41.7 |
|
Net
debt(1)
|
|
|
1,420.7 |
|
|
|
80.0 |
|
|
|
90.8 |
|
|
|
697.9 |
|
|
|
517.4 |
|
|
|
287.0 |
|
Working
capital(2)
|
|
|
362.8 |
|
|
|
1,661.0 |
|
|
|
1,503.8 |
|
|
|
865.3 |
|
|
|
563.2 |
|
|
|
84.7 |
|
Cash
flow provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
256.6 |
|
|
|
(11.8 |
) |
|
|
57.6 |
|
|
|
284.0 |
|
|
|
86.0 |
|
|
|
7.6 |
|
Investing
activities
|
|
|
(787.8 |
) |
|
|
(826.6 |
) |
|
|
(1,441.7 |
) |
|
|
(251.6 |
) |
|
|
(825.5 |
) |
|
|
(62.7 |
) |
Financing
activities
|
|
US$ |
871.9 |
|
|
US$ |
595.1 |
|
|
US$ |
1,023.3 |
|
|
US$ |
222.8 |
|
|
US$ |
725.9 |
|
|
US$ |
433.6 |
|
Crushed
sugarcane (in million tons)
|
|
|
43.1 |
|
|
|
– |
|
|
|
40.3 |
|
|
|
36.2 |
|
|
|
27.9 |
|
|
|
24.3 |
|
Own
sugarcane (in million tons)
|
|
|
22.7 |
|
|
|
– |
|
|
|
22.3 |
|
|
|
21.6 |
|
|
|
17.2 |
|
|
|
15.0 |
|
Growers
sugarcane (in million tons)
|
|
|
20.4 |
|
|
|
– |
|
|
|
18.0 |
|
|
|
14.5 |
|
|
|
10.7 |
|
|
|
9.3 |
|
Sugar
production (in thousand tons)
|
|
|
3,179.2 |
|
|
|
– |
|
|
|
3,241.0 |
|
|
|
3,182.3 |
|
|
|
2,328.4 |
|
|
|
2,121.5 |
|
Ethanol
production (in million liters)
|
|
|
1,688.4 |
|
|
|
– |
|
|
|
1,524.6 |
|
|
|
1,236.6 |
|
|
|
915.0 |
|
|
|
741.3 |
|
Earnings
per share (basic and diluted)
|
|
US$
|
(0.76 |
) |
|
US$ |
– |
|
|
US$ |
0.09 |
|
|
US$ |
1.83 |
|
|
US$ |
(0.35 |
) |
|
US$ |
0.10 |
|
Number
of shares outstanding
|
|
|
270,687,385 |
|
|
|
– |
|
|
|
226,242,856 |
|
|
|
96,332,044 |
|
|
|
96,332,044 |
|
|
|
96,332,044 |
|
Dividends
paid
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
US$ |
37.3 |
|
|
|
– |
|
|
US$ |
0.6 |
|
(1)
|
Net
debt consists of current and non-current 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 measure.
|
(2)
|
Working
capital consists of current assets less current
liabilities.
|
Exchange
Rates
Until
March 4, 2005, there were two legal foreign exchange markets in Brazil, the
commercial rate exchange market, or “Commercial Market”, and the floating rate
exchange market, or “Floating Market”. The Commercial Market was reserved
primarily for foreign trade transactions and transactions that generally
required prior approval from Brazilian monetary authorities, such as registered
investments by foreign persons and related remittances of funds abroad
(including the payment of principal and interest on loans, notes, bonds and
other debt instruments denominated in foreign currencies and registered with the
Brazilian Central Bank or the “Central Bank”). The Floating Market rate
generally applied to specific transactions for which Central Bank approval was
not required. Both the Commercial Market rate and the Floating Market rate were
reported by the Central Bank on a daily basis.
On March
4, 2005, the Central Bank issued Resolution No. 3,265, providing for several
changes in Brazilian foreign exchange regulation, including: (1) the unification
of the foreign exchange markets into a single exchange market; (2) the easing of
several rules for acquisition of foreign currency by Brazilian residents; and
(3) the extension of the term for converting foreign currency derived from
Brazilian exports. It is expected that the Central Bank will issue further
regulations in relation to foreign exchange transactions, as
well as
on payments and transfers of Brazilian currency between Brazilian residents and
non-residents (such transfers being commonly known as the “international
transfers of reais”),
including those made through the so-called non-resident accounts (also known as
CC5 accounts). The Central Bank has allowed the real to float freely since
January 15, 1999. Since the beginning of 2001, the Brazilian exchange market has
been increasingly volatile, and, until early 2003, the value of the real declined relative to the
U.S. dollar, primarily due to financial and political instability in Brazil and
Argentina. According to the Central Bank, in 2004, 2005, 2006 and 2007, however,
the real appreciated in
relation to the U.S. dollar by 8.8%, 13.4%, 9.5% and 20.7%, respectively. In
2008, the real
depreciated against the U.S. dollar by 24.2%. Although the Central
Bank has intervened occasionally to control unstable movements in the foreign
exchange rates, the exchange market may continue to be volatile as a result of
this instability or other factors, and, therefore, the real may substantially
decline or appreciate in value in relation to the U.S. dollar in the
future.
The
following tables set forth the exchange rate, expressed in reais per U.S. dollar
(R$/US$) for the periods indicated, as reported by the Central
Bank.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(reais per U.S.
dollar)
|
|
|
|
|
Fiscal
Year Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
April
30, 2005
|
|
R$ |
2.5313 |
|
|
R$ |
2.8450 |
|
|
R$ |
2.5195 |
|
|
R$ |
3.2051 |
|
April
30, 2006
|
|
|
2.0892 |
|
|
|
2.2841 |
|
|
|
2.0892 |
|
|
|
2.5146 |
|
April
30, 2007
|
|
|
2.0339 |
|
|
|
2.1468 |
|
|
|
2.0231 |
|
|
|
2.3711 |
|
April
30, 2008
|
|
|
1.6872 |
|
|
|
1.8283 |
|
|
|
1.6575 |
|
|
|
2.1124 |
|
March
31, 2009
|
|
|
2.3152 |
|
|
|
2.0047 |
|
|
|
1.5593 |
|
|
|
2.5004 |
|
Month
Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
2009
|
|
|
2.1783 |
|
|
|
2.2019 |
|
|
|
2.1699 |
|
|
|
2.2899 |
|
May
2009
|
|
|
1.9730 |
|
|
|
2.0664 |
|
|
|
1.9730 |
|
|
|
2.1783 |
|
June
2009
|
|
|
1.9516 |
|
|
|
1.9540 |
|
|
|
1.9301 |
|
|
|
2.0074 |
|
July
2009
|
|
|
1.8726 |
|
|
|
1.9364 |
|
|
|
1.8726 |
|
|
|
2.0147 |
|
August
2009
|
|
|
1.8864 |
|
|
|
1.8452 |
|
|
|
1.8181 |
|
|
|
1.8864 |
|
September
2009 (through September 25, 2009)
|
|
|
1.8017 |
|
|
|
1.8252 |
|
|
|
1.7916 |
|
|
|
1.9038 |
|
Exchange
rate fluctuation will affect the U.S. dollar equivalent of the market price of
our BDRs on BM&FBOVESPA, as well as the U.S. dollar value of any
distributions we receive from our subsidiary Cosan, which will be made in reais. See “Item 3D. Risk
Factors – Risks Related to Brazil”.
Not
applicable.
Not
applicable.
This
section is intended to be a summary of more detailed discussion contained
elsewhere in this transition report. Our business, financial condition or
results of operations could be materially adversely affected by any of the risks
and uncertainties described below. Additional risks not presently known to us,
or that we currently deem immaterial, may also impair our financial condition
and business operations.
Risks
Related to Our Business and Industries
We
operate in industries in which the demand and the market price for our products
are cyclical and are affected by general economic conditions in Brazil and the
world.
The
ethanol and sugar industries, both globally and in Brazil, have historically
been cyclical and sensitive to domestic and international changes in supply and
demand.
Ethanol
is marketed as a fuel additive to reduce vehicle emissions from gasoline, as an
enhancer to improve the octane rating of gasoline with which it is blended or as
a substitute fuel for gasoline. As a result, ethanol prices are influenced by
the supply and demand for gasoline, and our business and financial performance
may be materially adversely affected if gasoline demand or price decreases. The
increase in the production and sale of flex fuel cars has resulted, in part,
from lower taxation, since 2002, of such vehicles compared to gasoline only
cars. This favorable tax treatment may be eliminated and the production of flex
fuel cars may decrease, which could adversely affect demand for
ethanol.
Historically,
the international sugar market has experienced periods of limited supply—causing
sugar prices and industry profit margins to increase—followed by an expansion in
the industry that results in oversupply—causing declines in sugar prices and
industry profit margins. In addition, fluctuations in prices for ethanol or
sugar may occur, for various other reasons, including factors beyond our
control, such as:
·
|
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.
|
The
prices we are able to obtain for sugar depends, in large part, on prevailing
market prices. These market conditions, both in Brazil and internationally, are
beyond our control. The wholesale price of sugar has a significant impact on our
profits. Like other agricultural commodities, sugar is subject to price
fluctuations resulting from weather, natural disasters, harvest levels,
agricultural investments, government policies and programs for the agricultural
sector, domestic and foreign trade policies, shifts in supply and demand,
increasing purchasing power, global production of similar or competing products,
and other factors beyond our control. In addition, a significant portion of the
total worldwide sugar production is traded on exchanges and thus is subject to
speculation, which could affect the price of sugar and our results of
operations. The price of sugar, in particular, is also affected by producers’
compliance with sugar export requirements and the resulting effects on domestic
supply. As a consequence, sugar prices have been subject to higher historical
volatility when compared to many other commodities. Competition from alternative
sweeteners, including saccharine and high fructose corn syrup, known as “HFCS”,
changes in Brazilian or international agricultural or trade policies or
developments relating to international trade, including those under the World
Trade Organization, or “WTO”, are factors that can directly or indirectly result
in lower domestic or global sugar
prices.
Any prolonged or significant decrease in sugar prices could have a material
adverse effect on our business and financial performance.
If we are
unable to maintain sales at generally prevailing market prices for ethanol and
sugar in Brazil, or if we are unable to export sufficient quantities of ethanol
and sugar to assure an appropriate domestic market balance, our ethanol and
sugar business may be adversely affected.
Sugar
prices started to increase during 2009, reflecting the deficit in global sugar
production principally due to the drop in production in India, a large exporter
of sugar that became a large importer. Sugar prices in the current
fiscal year reached the highest levels in nearly 30 years. Sugar
prices may also be influenced by the Brazilian crop this year, which may suffer
from a reduction in the sugarcane harvested and its quality, due to unusual
rainfalls in periods of historical high yields.
The
expected benefits of the integration of CCL within the Cosan group may not be
realized, in the timeframe anticipated or at all, because of integration or
other challenges.
We
acquired CCL (formerly Essobras) on December 1, 2008. Achieving the expected
cost benefits of the acquisition, including the amortization of goodwill
associated with the anticipated merger of CCL with one of our subsidiaries,
Cosanpar, will depend on the timely and efficient integration of our operations,
business culture, technology and personnel within the Cosan Group. In addition,
the benefits of our integration may be offset by changes in industry conditions,
market demand, or other factors. Our management team has spent a considerable
amount of time, and will continue to devote a considerable amount of time, to
the integration process, diverting management attention from our business. The
challenges involved in the integration include, among others:
·
|
hiring
additional management and other critical
personnel;
|
·
|
conforming
our processes to align with the Cosan
Group;
|
·
|
integrating
business cultures; and
|
·
|
potential
loss of key employees.
|
We cannot
assure you that the integration will be successful and cannot predict its
effects on our business.
Ethanol
prices are directly correlated to the price of sugar and are becoming closely
correlated to the price of oil, so that a decline in the price of sugar will
adversely affect both our ethanol and sugar businesses and a decline in the
price of oil may adversely affect our ethanol business.
The price
of ethanol generally is closely associated with the price of sugar and is
increasingly becoming correlated to the price of oil. A vast majority of ethanol
in Brazil is produced at sugarcane mills that produce both ethanol and sugar.
Because sugarcane millers are able to alter their product mix in response to the
relative prices of ethanol and sugar, this results in the prices of both
products being directly correlated, and the correlation between ethanol and
sugar may increase over time. In addition, sugar prices in Brazil are determined
by prices in the world market, so that there is a strong correlation between
Brazilian ethanol prices and world sugar prices.
Because
flex fuel vehicles allow consumers to choose between gasoline and ethanol at the
pump rather than at the showroom, ethanol prices are now becoming increasingly
correlated to gasoline prices and, consequently, oil prices. We believe that the
correlation among the three products will increase over time. Accordingly, a
decline in sugar prices will have an adverse effect on the financial performance
of our ethanol and sugar businesses, and a decline in oil prices may have an
adverse effect on that of our ethanol business.
We
may not successfully acquire or develop additional production capacity through
greenfield projects or expansion of existing facilities.
We are
currently building an ethanol plant in the State of Goiás, the Jataí mill, which
is expected to be completed during the second quarter of fiscal year 2010 and
will be able to crush approximately 4 million tons when operating at full
capacity by 2013. The Jataí mill is part of our project to build
three ethanol greenfield mills in the State of Goiás. We plan to
invest in the construction of the two other mills. However, the
investments are currently on hold and may be cancelled. We are also building
another greenfield project called Carapó, which we acquired as part of Nova
América acquisition. The completion of Carapó project construction is
also expected to occur during the current fiscal year.
We expect
to explore other greenfield projects in the future. Except for the ethanol
greenfield project in the State of Goiás, we do not have environmental or other
permits, designs or engineering, procurement and construction contracts with
respect to any potential projects. As a result, we may not complete these
greenfield projects on a timely basis or at all, and may not realize the related
benefits we anticipate. In addition, we may be unable to obtain the required
financing for these projects on satisfactory terms, or at all. For example, we
may not be able to obtain all of the land for which we have obtained options in
the State of Goiás or we may not have the appropriate personnel, equipment and
know-how to implement projects. In particular, we have no significant prior
experience in planning, developing and managing large-scale greenfield
projects.
The
integration of greenfield projects or expansion of our existing facilities may
result in unforeseen operating difficulties and may require significant
financial and managerial resources that would otherwise be used for the
development and ongoing expansion of our existing operations. Planned or future
greenfield projects or expansion of existing facilities may not enhance our
financial performance.
We
may not successfully implement our plans to sell energy from our cogeneration
projects, and the Brazilian government’s regulation of the energy sector may
affect our business and financial performance.
Our
current total installed energy cogeneration capacity is approximately 294.3 MW,
a substantial majority of which is used to generate energy for our own
industrial operations. We have already won bids in seven government energy
auctions and entered into four bilateral contracts to sell, for the next 15
years, approximately 2,696 GWh/year to the Brazilian electricity
grid. We believe that five of our mills will start to deliver energy
to the electricity grid this year. We have no significant prior
experience in planning, developing and managing large-scale energy cogeneration
projects. We may need to invest significant amounts to overcome any operating
difficulties. In addition, the Brazilian government regulates the energy sector
extensively. We may not be able to satisfy all the requirements necessary to
acquire new contracts or to otherwise comply with Brazilian energy regulation.
Changes to the current energy regulation or federal authorization programs, and
the creation for more stringent criteria for qualification in future public
energy auctions, may adversely affect the implementation of this element of our
business strategy.
We
may engage in hedging transactions, which involve risks that can harm our
financial performance.
We are
exposed to market risks arising from the conduct of our business activities—in
particular, market risks arising from changes in commodity prices, exchange
rates or interest rates. In an attempt to minimize the effects of volatility of
sugar prices and exchange rates on our cash flows and results of operations, we
engage in hedging transactions involving commodities and exchange rate futures,
options, forwards and swaps. We also engage in interest rate-related hedging
transactions from time to time. Hedging transactions expose us to the risk of
financial loss in situations where the other party to the hedging contract
defaults on its contract or there is a change in the expected differential
between the underlying price in the hedging agreement and the actual price of
commodities or exchange rate. In fiscal year 2006, we experienced losses of
US$209.4 million from sugar price and exchange rate hedging transactions. In
fiscal year 2007 and fiscal year 2008, we experienced gains of US$190.6 million
and US$49.3 million, respectively, from sugar price and exchange rate hedging
transactions. In fiscal year 2009, we experienced gains of US$22.9
million. We may incur
significant
hedging-related losses in the future. We hedge against market price fluctuations
by fixing the prices of our sugar export volumes. Since we record derivatives at
fair value, to the extent that the market prices of our products exceed the
fixed price under our hedging policy, our results will be lower than they would
have been if we had not engaged in such transactions as a result of the related
non-cash derivative expenses. As a result, our financial performance would be
adversely affected during periods in which commodities prices increase.
Alternatively, we may choose not to engage in hedging transactions in the
future, which could adversely affect our financial performance during periods in
which commodities prices decrease.
We
face significant competition, which may adversely affect our market share and
profitability.
The
ethanol and sugar industries are highly competitive. Internationally, we compete
with global ethanol and sugar producers such as Poet, Inc.,
Archer-Daniels-Midland Company, Cargill, Inc. and A.E. Staley Manufacturing
Company (a subsidiary of Tate & Lyle, PLC). Some of our competitors are
divisions of larger enterprises and have greater financial resources than our
company. In Brazil, we compete with numerous small to medium-size producers.
Despite increased consolidation, the Brazilian ethanol and sugar industries
remain highly fragmented. Our major competitors in Brazil are Santelisa Vale
(the second largest ethanol and sugar producer in Brazil), Group Louis Dreyfus
(the third largest ethanol and sugar producer in Brazil), Grupo Carlos Lyra,
Grupo São Martinho, Grupo Tercio Wanderley, Grupo Guarani, Grupo Zilor, Grupo
Oscar Figueiredo, Grupo Santa Terezinha, Grupo Da Pedra, and Grupo Irmãos Biagi
and other ethanol and sugar producers in Brazil market their ethanol and sugar
products through the Cooperative of Sugarcane, Sugar and Ethanol Producers of
the State of São Paulo (Cooperativa de Produtores de
Cana-de-açúcar, Açúcar e Álcool do Estado de São Paulo), or “Copersucar”.
During the 2008/2009 harvest, Copersucar had 33 members that produce ethanol and
sugar in the states of São Paulo, Minas Gerais and Paraná. We are not a member
of Copersucar.
We face
strong competition from international producers – in particular, in highly
regulated and protected markets, such as the United States and the European
Union. Historically, imports of sugar have not provided substantial competition
for us in Brazil due to, among other factors, the production and logistical
cost-competitiveness of sugar produced in Brazil. If the Brazilian government
creates incentives for sugar imports, we could face increased competition in the
Brazilian market by foreign producers. Many factors influence our competitive
position, including the availability, quality and cost of fertilizer, energy,
water, chemical products and labor. Some of our international competitors have
greater financial and marketing resources, larger customer bases and broader
product ranges than we do. If we are unable to remain competitive with these
producers in the future, our market share may be adversely
affected.
The fuel
distribution and lubricant market in Brazil is highly competitive. We compete
with domestic fuel distributors who purchase substantially all of their fuels
from Petrobras. There are very few domestic competitors, like us, who import
certain products into Brazil. In addition, we compete with producers and
marketers in other industries that supply alternative forms of energy and fuels
to satisfy the requirements of our industrial, commercial and retail consumers.
Certain of our competitors, such as Petrobras, have larger fuel distribution
networks and vertically integrated oil refineries, and may be able to realize
lower per-barrel costs or higher margins per barrel of throughput. Our principal
competitors are larger and have substantially greater resources than we do.
Because of their integrated operations and larger capitalization, these
companies may be more flexible in responding to volatile industry or market
conditions, such as shortages of crude oil and other feedstocks or intense price
fluctuations. The actions of our competitors could lead to lower prices or
reduced margins for the products we sell, which could have a material and
adverse effect on our business or results of operations.
Anticompetitive
practices in the fuel and lubricants distribution market may distort market
prices.
In the
last few years, anticompetitive practices have been one of the main problems
affecting fuel distributors in Brazil. Generally these practices have involved a
combination of tax evasion and fuel adulteration, such as the dilution of
gasoline by mixing solvents or adding anhydrous ethanol in an amount greater
than the 25% permitted by applicable law (the overall taxation of anhydrous
ethanol is lower than
hydrated
ethanol and gasoline). Taxes constitute a significant portion of the cost of
fuels sold in Brazil. For this reason, tax evasion on the part of some fuel
distributors has been prevalent, allowing them to lower the prices they charge.
These practices have enabled certain distributors to supply large quantities of
fuel products at prices lower than those offered by the major distributors,
including us, which has resulted in a considerable increase in the sales volumes
of the distributors who have adopted these practices. The final prices for fuels
are calculated based on the taxes levied on their purchase and sale, among
others factors. As a result, anticompetitive practices as such tax evasion may
affect our sales volume, which could have a material and adverse effect on our
business. If such practices become more prevalent, it could lead to lower prices
or reduced margins for the products we sell, which could have a material and
adverse effect on our business or results of operations.
Petrobras
is our principal supplier of our base oils and of our fuel distribution business
unit.
Significant
disruption to our fuels and lubricant sales may occur, in the event of an
interruption of supply from Petrobras. Any interruption would immediately affect
our ability to provide fuel and lubricant products to our customers. If we are
not able to obtain an adequate supply of fuel and base oil products from
Petrobras under acceptable terms, we may seek to meet our demands through
purchases on the international market. The cost of fuel and base oil products on
the international market may be more expensive than the price we obtain through
Petrobras.
We
may face significant challenges in implementing our expansion strategy in other
regions of Brazil and international markets.
Our
growth strategy includes the expansion of our activities in other regions of
Brazil and international markets, through organic growth and acquisitions. Our
expansion to regions of Brazil in which we do not now operate may involve
potential challenges, such as inadequate transportation systems and different
state and local laws, regulations and policies. For example, we may not be able
to secure an adequate supply of sugarcane either from suppliers or through our
own cultivation in sufficient proximity to our mills to be economically viable
in terms of transportation costs.
We are
currently looking at opportunities worldwide, but have not yet identified any
particular investment locations outside of Brazil. Our international expansion,
to countries in which we do not now operate includes additional challenges, such
as the following:
·
|
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.
|
If we
fail to address one or more of these challenges, our business and financial
performance may be materially adversely affected.
Our
export sales are subject to a broad range of risks associated with international
operations.
In
transition fiscal year 2009, our net sales from exports were US$929.2 million,
representing 31.8% of our total net sales. During this same period, our net
sales from sugar exports were US$733.4 million, representing 25.1% of our total
net sales, and our net sales from exports of ethanol were US$187.2 million,
representing 6.4% of our total net sales.
In fiscal
year ended April 30, 2008, our net sales from exports were US$823.2 million,
representing 55.2% of our total net sales. During this same period, our net
sales from sugar exports were US$649.8 million, representing 43.6% of our total
net sales, and our net sales from exports of ethanol were US$166.1 million,
representing 11.1% of our total net sales.
Our net
sales from exports in fiscal year ended April 30, 2007 totaled US$1,014.8
million, representing 60.4% of our total net sales. In fiscal year 2007, we had
export net sales of sugar of US$873.0 million, representing 52.0% of our total
net sales, and we had export net sales of ethanol of US$138.3 million,
representing 8.2% of our total net sales. We expect to expand our ethanol
exports in the future. Expansion of ethanol exports depends on factors beyond
our control, including liberalization of existing trade barriers and the
establishment of distribution systems for hydrous ethanol in countries outside
of Brazil. Our future financial performance will depend, to a significant
extent, on economic, political and social conditions in our main export
markets.
Most
ethanol and/or sugar producing countries, including the United States and member
countries of the European Union, protect local producers from foreign
competition by establishing government policies and regulations that affect
ethanol and sugar production, including quotas, import and export restrictions,
subsidies, tariffs and duties. As a result of these policies, domestic ethanol
and sugar prices vary greatly in individual countries. We have limited or no
access to these large markets as a result of trade barriers. If these
protectionist policies continue, we may not be able to expand our export
activities at the rate we currently expect, or at all, which could adversely
affect our business and financial performance. Also, if new trade barriers are
established in our key export markets, we may face difficulties in reallocating
our products to other markets on favorable terms, and our business and financial
performance may be adversely affected.
We
may not be able to maintain rights to use blending formulas and brands supplied
by ExxonMobil.
We,
through our subsidiary CCL, are the exclusive manufacturer and distributor of
lubricants products in Brazil based on formulas provided to us under a license
from ExxonMobil under the Master Lubricants Agreement, which expires on December
1, 2018. We have also been granted a license to use the ExxonMobil
brand to market fuels under the Fuels Trademark License Agreement, which expires
on December 1, 2013. The termination of any of these licenses, or the
failure by ExxonMobil to adequately maintain and protect its intellectual
property rights, could materially and adversely affect our results of operations
or could require significant unplanned investments by us if we are forced to
develop or acquire alternative technology. In the future, it may be necessary or
desirable to obtain other third-party technology licenses relating to one or
more of our products or relating to current or future technologies to enhance
our product offerings. However, we may not be able to obtain licensing rights to
the needed technology or components on commercially reasonable terms or at
all.
The
expansion of our business through acquisitions and strategic alliances creates
risks that may reduce the benefits we anticipate from these
transactions.
We have
grown substantially through acquisitions. We plan to continue to acquire, from
time to time, other ethanol or sugar producers or facilities in Brazil or
elsewhere that complement or expand our sugar and ethanol existing
operations. Moreover, we plan to acquire and build, from time to
time, fuel terminals, lubricant production assets, retail distribution stations
and other assets that complement and expand our fuel and lubricants existing
operations and also intend to expand our network of service stations through
increased branding. We also may enter into strategic alliances to
increase our competitiveness. However, our management is unable to predict
whether or when any prospective acquisitions or strategic alliances will occur,
or the likelihood of any particular transaction being completed on favorable
terms and conditions. Our ability to continue to expand our business through
acquisitions or alliances depends on many factors, including our ability to
identify acquisitions or access capital markets on acceptable terms. Even if we
are able to identify acquisition targets and obtain the necessary financing to
make these acquisitions, we could financially overextend ourselves, especially
if an acquisition is followed by a period of lower than projected ethanol and
sugar prices.
Acquisitions,
especially involving sizeable enterprises, may present financial, managerial and
operational challenges, including diversion of management attention from
existing business and difficulties in integrating operations and personnel. Any
failure by us to integrate new businesses or manage any new alliances
successfully could adversely affect our business and financial performance. Some
of our major competitors may be pursuing growth through acquisitions and
alliances, which may reduce the likelihood that we will be successful in
completing acquisitions and alliances. In addition, any major acquisition we
consider may be subject to antitrust and other regulatory approvals. We may not
be successful in obtaining required approvals on a timely basis or at
all.
Acquisitions
also pose the risk that we may be exposed to successor liability relating to
prior actions involving an acquired company, or contingent liabilities incurred
before the acquisition. Due diligence conducted in connection with an
acquisition, and any contractual guarantees or indemnities that we receive from
sellers of acquired companies, may not be sufficient to protect us from, or
compensate us for, actual liabilities. A material liability associated with an
acquisition, such as labor- or environmental-related liabilities, could
adversely affect our reputation and financial performance and reduce the
benefits of the acquisition.
A
reduction in market demand for ethanol or a change in governmental policies that
ethanol be added to gasoline may materially adversely affect our
business.
Governmental
authorities of several countries, including Brazil and certain states of the
United States, currently require the use of ethanol as an additive to gasoline.
Since 1997, the Brazilian Sugar and Alcohol Interministerial Council (Conselho
Interministerial do Açúcar e Álcool) has set the percentage of anhydrous ethanol
that must be used as an additive to gasoline (currently, at 25% by volume).
Approximately one-half of all fuel ethanol in Brazil is used to fuel automobiles
that run on a blend of anhydrous ethanol and gasoline; the remainder is used in
either flex fuel vehicles or vehicles powered by hydrous ethanol alone. Five
districts in China require the addition of 10% ethanol to gasoline. Japan is
discussing the requirement the addition of 3% of ethanol to gasoline, increasing
such requirement to 20% in 2030 and nine states and four union territories in
India require the addition of 5% of ethanol to gasoline. Other countries have
similar governmental policies requiring various blends of anhydrous ethanol and
gasoline. In addition, flex fuel vehicles in Brazil are currently taxed at lower
levels than gasoline-only vehicles, which has contributed to the increase in the
production and sale of flex fuel vehicles. Any reduction in the percentage of
ethanol required to be added to gasoline or increase in the levels at which flex
fuel vehicles are taxed in Brazil, as well as growth in the demand for natural
gas and other fuels as an alternative to ethanol, lower gasoline prices or an
increase in gasoline consumption (versus ethanol), may cause demand for ethanol
to decline and affect our business. In addition, ethanol prices are influenced
by the supply and demand for gasoline; therefore, a reduction in oil prices
resulting in a decrease in gasoline prices and an increase in gasoline
consumption (versus ethanol), may have a material and adverse effect in our
business.
Government
policies and regulations affecting the agricultural and fuel sectors and related
industries could adversely affect our operations and profitability.
Agricultural
production and trade flows are significantly affected by Brazilian federal,
state and local, as well as foreign, government policies and regulations.
Governmental policies affecting the agricultural industry, such as taxes,
tariffs, duties, subsidies and import and export restrictions on agricultural
commodities and commodity products, may influence industry profitability, the
planting of certain crops versus others, the uses of agricultural resources, the
location and size of crop production, the trading levels for unprocessed versus
processed commodities, and the volume and types of imports and
exports.
Future
government policies in Brazil and elsewhere may adversely affect the supply, and
demand for, and prices of, our products or restrict our ability to do business
in our existing and target markets, which could adversely affect our financial
performance. Sugar prices, like the prices of many other staple goods in Brazil,
were historically subject to controls imposed by the Brazilian government. Sugar
prices in Brazil have not been subject to price controls since 1997. However,
additional measures may be imposed in the future. In addition, our operations
are currently concentrated in the State of São Paulo. Any changes affecting
governmental
policies and regulations regarding ethanol, sugar or sugarcane in the State of
São Paulo may adversely affect our company.
In
addition, petroleum and petroleum products have historically been subject of
price controls in Brazil. Currently there is no legislation or regulation in
force giving the Brazilian government power to set prices for petroleum,
petroleum products, ethanol or NGV. However, given that Petrobras, the only
supplier of oil-based fuels in Brazil, is a state-controlled company, prices of
petroleum and petroleum products are subject to government influence, resulting
in potential inconsistencies between international prices and internal oil
derivative prices that affect our business and our financials results, which are
not linked to international prices.
We
may not be successful in reducing operating costs and increasing operating
efficiencies.
As part
of our strategy, we continue to seek to reduce operating costs and increase
operating efficiencies to improve our future financial performance. For example,
we are purchasing new harvesters and increasing the outsourcing of the
mechanical harvesting with the goal of having, by fiscal year 2012,
approximately 80% of our sugarcane harvested mechanically. We may not be able to
achieve the cost savings that we expect to realize from this and other
initiatives. Any failure to realize anticipated cost savings may
adversely affect our competitiveness and financial performance.
We
incur substantial costs to comply with environmental regulations and may be
exposed to liabilities in the event we fail to comply with these regulations or
as a result of our handling of hazardous materials.
We are
subject to various Brazilian federal, state and local environmental protection
and health and safety laws and regulations governing, among other
matters:
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the
generation, storage, handling, use and transportation of hazardous
materials;
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the
emission and discharge of hazardous materials into the ground, air or
water; and
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the
health and safety of our employees.
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We are
also required to obtain permits from governmental authorities for certain
aspects of our operations. These laws, regulations and permits often require us
to purchase and install expensive pollution control equipment or to make
operational changes to limit actual or potential impacts on the environment
and/or health of our employees. Currently, we do not anticipate any material
claims or liabilities resulting from a failure to comply with these laws and
regulations. However, any violations of these laws and regulations or permit
conditions can result in substantial fines, criminal sanctions, revocations of
operating permits and/or shutdowns of our facilities.
Due to
the possibility of changes to environmental regulations and other unanticipated
developments, the amount and timing of future environmental expenditures may
vary substantially from those currently anticipated. Under Brazilian
environmental laws, we could be held strictly liable for all of the costs
relating to any contamination at our or our predecessors’ current and former
facilities and at third-party waste disposal sites used by us or any of our
predecessors. We could also be held responsible for any and all consequences
arising out of human exposure to hazardous substances, such as pesticides and
herbicides, or other environmental damage.
We are
party to a number of administrative and judicial proceedings for alleged
failures to comply with environmental laws which may result in fines, shutdowns,
or other adverse effects on our operations. We have not recorded any provisions
or reserves for these proceedings as we do not currently believe that they will
result in liabilities material to our business or financial performance. Our
costs of complying with current and future environmental and health and safety
laws, and our liabilities arising from past or future releases of, or exposure
to, hazardous substances could adversely affect our business or financial
performance.
Government
laws and regulations governing the burning of sugarcane could have a material
adverse impact on our business or financial performance.
Approximately
40% of our sugarcane is currently harvested by burning the crop, which removes
leaves and destroys insects and other pests. The State of São Paulo and some
local governments have established laws and regulations that limit our ability
to burn sugarcane or that reduce and/or entirely prohibit the burning of
sugarcane. We currently incur significant costs to comply with these laws and
regulations, and there is a likelihood that increasingly stringent regulations
relating to the burning of sugarcane will be imposed by the State of São Paulo
and other governmental agencies in the near future. As a result, the costs to
comply with existing or new laws or regulations are likely to increase, and, as
a result, our ability to operate our own plants and harvest our sugarcane crops
may be adversely affected.
Any
failure to comply with these laws and regulations may subject us to legal and
administrative actions. These actions can result in civil or criminal penalties,
including a requirement to pay penalties or fines, which may range from R$50.00
to R$50.0 million (US$21.60 to US$21.6 million) and can be doubled or tripled in
case of recidivism, an obligation to make capital and other expenditures or an
obligation to materially change or cease some operations.
Adverse
weather conditions may reduce the volume and sucrose content of sugarcane that
we can cultivate and purchase in a given harvest, and we are affected by
seasonality of the sugarcane growing cycle.
Our sugar
production depends on the volume and sucrose content of the sugarcane that we
cultivate or that is supplied to us by growers located in the vicinity of our
mills. Crop yields and sucrose content depend primarily on weather conditions
such as rainfall and temperature, which vary. Weather conditions have
historically caused volatility in the ethanol and sugar industries and,
consequently, in our results of operations by causing crop failures or reduced
harvests. Flood, drought or frost can adversely affect the supply and pricing of
the agricultural commodities that we sell and use in our business. Future
weather patterns may reduce the amount of sugar or sugarcane that we can recover
in a given harvest or its sucrose content. In addition, our business is subject
to seasonal trends based on the sugarcane growing cycle in the Center-South
region of Brazil. The annual sugarcane harvesting period in the Center-South
region of Brazil begins in April/May and ends in November/December. This creates
fluctuations in our inventory, usually peaking in November to cover sales
between crop harvests (i.e., December through April), and a degree of
seasonality in our gross profit, with ethanol and sugar sales significantly
lower in the last quarter of the fiscal year. Seasonality and any reduction in
the volumes of sugar recovered could have a material adverse effect on our
business and financial performance.
We
may be adversely affected by a shortage of sugarcane or by high sugarcane
costs.
Sugarcane
is our principal raw material used for the production of ethanol and sugar. In
transition fiscal year 2009, sugarcane purchased from suppliers accounted for
30% of our consolidated costs of goods sold and operating expenses. We purchase
40% of the
sugarcane that we use in our production of ethanol and sugar directly from
thousands of third-party sugarcane growers. Historically, approximately 80% of
the sugarcane purchased by us has been under medium- and long-term contracts
with sugarcane growers, 5% on a spot basis and the remaining 15% from sugarcane
growers with whom we have long-term relationships but no contractual
arrangements. We generally enter into medium- and long-term supply contracts for
periods varying from three and one-half to seven years. As of March 31, 2009, we
also leased approximately 355,165 hectares under approximately 1,861 land lease
contracts with an average term of five years. Any shortage in sugarcane supply
or increase in sugarcane prices in the near future, including as a result of the
termination of supply contracts or lease agreements representing a material
reduction in the sugarcane available to us for processing or increase in
sugarcane prices may adversely affect our business and financial
performance.
We
are exposed to the credit and other counterparty risk of our customers in the
ordinary course of our business.
We have
various credit terms with virtually all of our wholesale and retail industrial
customers, and our customers have varying degrees of creditworthiness which
exposes us to the risk of nonpayment or other default under our contracts and
other arrangements with them. In the event that a significant number of material
customers default on their payment obligations to us, our financial condition,
results of operations or cash flows, could be materially and adversely
affected.
Our
business would be materially adversely affected if operations at our
transportation, terminal and storage and distribution facilities experienced
significant interruptions. Our business would also be materially adversely
affected if the operations of our customers and suppliers experienced
significant interruptions.
Our
operations are dependent upon the uninterrupted operation of our terminal and
storage facilities and various means of transportation. We are also dependent
upon the uninterrupted operation of certain facilities owned or operated by our
suppliers and customers. Operations at our facilities and at the facilities
owned or operated by our suppliers and customers could be partially or
completely shut down, temporarily or permanently, as the result of any number of
circumstances that are not within our control, such as:
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catastrophic
events, including hurricanes;
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environmental
remediation;
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labor
difficulties; and
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disruptions
in the supply of our products to our facilities or means of
transportation.
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Any
significant interruption at these facilities or inability to transport products
to or from these facilities or to or from our customers for any reason would
materially adversely affect our results of operations and cash
flow.
Fire
and other disasters could affect our agricultural and manufacturing properties,
which would adversely affect our production volumes and, consequently, financial
performance.
Our
operations will be subject to risks affecting our agricultural properties and
facilities, including fire potentially destroying some or our entire yield and
facilities. In addition, our operations are subject to hazards associated with
the manufacture of inflammable products and transportation of feed stocks and
inflammable products. Our insurance coverage may not be sufficient to provide
full protection against these types of casualties. Our Da Barra mill was
responsible for approximately 15% of our total sugar production in the 2008/2009
harvest. Any material damage to our Da Barra mill would adversely affect our
production volumes and, consequently, our financial performance.
Disease
and pestilence may strike our crops which may result in destruction of a
significant portion of our harvest.
Crop
disease and pestilence can occur from time to time and have a devastating effect
on our crops, potentially rendering useless or unusable all or a substantial
portion of affected harvests. Even when only a portion of the crop is damaged,
our business and financial performance could be adversely affected because we
may have incurred a substantial portion of the production cost for the related
harvest. The cost of treatment of crop disease tends to be high. Any serious
incidents of crop disease or pestilence, and related costs, may adversely affect
our production levels and, as a result, our net sales and overall financial
performance.
Disruption
of transportation and logistics services or insufficient investment in public
infrastructure could adversely affect our operating results.
One of
the principal disadvantages of Brazilian agriculture sector is that key growing
regions lie far from major ports. As a result, efficient access to
transportation infrastructure and ports is critical to the growth of Brazilian
agriculture as a whole and of our operations in particular. As part of our
business strategy, we intend to invest in areas where existing transportation
infrastructure is under developed. Improvements in transportation infrastructure
are likely to be required to make more agricultural production accessible to
export terminals at competitive prices. A substantial portion of Brazilian
agricultural production is currently transported by truck, a means of
transportation significantly more expensive than the rail transportation
available to U.S. and other international producers. Our dependence on truck
transport may affect our position as low-cost producer, so that our ability to
compete in world markets may be impaired.
Even
though road and rail improvement projects have been considered for some areas of
Brazil, and in some cases implemented, substantial investments are required for
road and rail improvement projects, which may not be completed on a timely basis
– if at all. Any delay or failure in developing infrastructure systems could
hurt the demand for our products, impede our delivery of products or impose
additional costs on us. We currently outsource the transportation and logistics
services necessary to operate our business. Any disruption in these services
could result in supply problems at our processing plants and impair our ability
to deliver processed products to our customers in a timely manner. In addition,
a natural disaster or other catastrophic event could result in disruption in
regional transportation infrastructure systems affecting our third-party
transportation providers.
We
depend on third parties to provide our customers and us with facilities and
services that are integral to our business.
We have
entered into agreements with third-party contractors to provide facilities and
services required for our operations, such as the transportation and storage of
ethanol and sugar. The loss or expiration of our agreements with third-party
contractors or our inability to renew these agreements or to negotiate new
agreements with other providers at comparable rates could harm our business and
financial performance. Our reliance on third parties to provide essential
services on our behalf also gives us less control over the costs, efficiency,
timeliness and quality of those services. Contractors’ negligence could
compromise the safety of the transportation of ethanol from our production
facilities to our export facilities. We expect to be dependent on such
agreements for the foreseeable future, and if we enter any new market, we will
need to have similar agreements in place.
Technological
advances could affect demand for our products or require substantial capital
expenditures for us to remain competitive.
The
development and implementation of new technologies may result in a significant
reduction in the costs of ethanol production. We cannot predict when new
technologies may become available, the rate of acceptance of new technologies by
our competitors or the costs associated with such new technologies. Advances in
the development of alternatives to ethanol also could significantly reduce
demand or eliminate the need for ethanol as a fuel oxygenate. Any advances in
technology which require significant capital expenditures to remain competitive
or which otherwise reduce demand for ethanol will have a material adverse effect
on our business and financial performance.
Alternative
sweeteners have negatively affected demand for our sugar products in Brazil and
other countries.
We
believe that the use of alternative sweeteners, especially artificial
alternative sweeteners such as aspartame, saccharine and HFCS, has adversely
affected the growth of the overall demand for sugar in Brazil and the rest of
the world. Soft drink bottlers in many countries have switched from sugar to, or
increased consumption of, alternative sweeteners. In addition, the use of
alternative sweeteners by sugar consumers, including soft drink bottlers, may
also reduce the demand for sugar in Brazil. A substantial decrease in sugar
consumption,
or the increased use of alternative or artificial sweeteners, would decrease
demand for our sugar products and could result in lower growth in our net sales
and overall financial performance.
Our
sugar and ethanol products are sold to a small number of customers which may be
able to exercise significant bargaining power concerning pricing and other sale
terms.
A
substantial portion of our sugar and ethanol production is sold to a small
number of customers that acquire large portions of our production and thus may
be able to exercise significant bargaining power concerning pricing and other
sale terms. In the transition fiscal year 2009, five of our customers accounted
for 66.8% of our net sales of sugar. In the same fiscal year, five of our
customers accounted for 60.5% of our net sales of ethanol. In addition,
intensive competition in the ethanol and sugar industries further increases the
bargaining power of our customers.
Our
subsidiary’s port concession is subject to termination by the granting
authority.
We own
and operate a sugar-loading terminal at the Port of Santos in the State of São
Paulo through our subsidiary Rumo Logística S.A., or “Rumo”. This
port terminal is a result of the association of two previous terminals, Cosan
Operadora Portuária S.A., or “Cosan Portuária”, and Teaçu Armazéns Gerais S.A.,
or “Teaçu” (previously owned by Nova América). The close proximity of
our mills to the port enables us to benefit from lower transportation costs.
Pursuant to the port concession agreement with the State of São Paulo’s Port
Authority (Companhia de Docas
do Estado de São Paulo – CODESP), or “CODESP”, Cosan Portuária’s
concession to operate this terminal will expire on 2016, and it may be renewed
for an additional 20 years if Cosan Portuária meets its obligations under the
port concession agreement. We are already discussing with the CODESP
the renewal of this concession, but we cannot provide assurances that we will be
able to renew the concession at all or on favorable terms. The South
Terminal concession (formerly Teaçu) was initially scheduled to in 2016, but has
been extended until 2036. All port concessions may be unilaterally
terminated by the granting authority prior to that time upon:
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expropriation
of the port concession in the public
interest;
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default
by Rumo 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;
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Rumo’s
failure to comply with determinations by the granting authority;
or
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bankruptcy
or dissolution of Rumo.
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Termination
of the port concession agreement may adversely impact our transportation costs
and the turn-around time for the export of our products as well as our revenues
from service agreements related to our port facilities.
We
may be adversely affected by unfavorable outcomes in pending legal
proceedings.
We are
involved in a significant number of tax, civil and labor proceedings, which we
estimate involve claims against us aggregating US$1,493.8 million, and as to
which, at March 31, 2009, we recorded a provision totaling US$423.7 million, net
of judicial deposits in an aggregate amount of US$74.0 million. We cannot
predict whether we will prevail in these or other proceedings, or whether we
will have to pay significant amounts, including penalties and interest, as
payment for our liabilities, which would materially and adversely impact our
business and financial performance.
Funding,
especially on terms acceptable to us, may not be available to meet our future
capital needs.
Global
market and economic conditions have been, and continue to be, disruptive and
volatile. The debt capital markets have been impacted by significant write-offs
in the financial services sector and the re-pricing of credit risk, among other
things. These events have negatively affected general economic conditions. In
particular,
the cost of raising money in the debt capital markets has increased
substantially while the availability of funds from those markets has diminished
significantly. Also, as a result of concerns about the stability of financial
markets generally and the solvency of counterparties specifically, the cost of
obtaining money from the credit markets has increased as many lenders and
institutional investors have increased interest rates, enacted tighter lending
standards and reduced and, in some cases, ceased to provide funding to borrowers
on commercially reasonable terms or at all.
If
funding is not available when needed, or is available only on unfavorable terms,
meeting our capital needs or otherwise taking advantage of business
opportunities or responding to competitive pressures may become challenging,
which could have a material and adverse effect on our revenue and results of
operations.
The
production of lubricants and the storage and transportation of fuel products,
lubricant products are inherently hazardous.
The
complex manufacturing operations we perform at our Lubricants Oil Blending
Plant, or LOBP, involve a variety of safety and other operating risks, including
the handling, production, storage and transportation of toxic materials. These
risks could result in personal injury and death, severe damage to or destruction
of property and equipment and environmental damage. A material accident at one
of our plants, service stations or storage facilities could force us to suspend
our operations and result in significant remediation costs and lost revenue. In
addition, insurance proceeds, if available, may not be received on a timely
basis and may be insufficient to cover all losses, including lost profit.
Equipment breakdowns, natural disasters, and delays in obtaining supplies or
required replacement parts or equipment could also materially adversely affect
our manufacturing operations and consequently our results of
operations.
We
are not insured against business interruption for our Brazilian operations and
most of our assets are not insured against war or sabotage. In addition, our
insurance coverage may be inadequate to cover all losses and/or liabilities that
may be incurred in our operations.
We do not
maintain coverage for business interruptions of any nature for our Brazilian
operations, including business interruptions caused by labor disruptions. If,
for instance, our workers were to strike, the resulting work stoppages could
have a material and adverse effect on us. In addition, we do not insure most of
our assets against war or sabotage. Therefore, an attack or an operational
incident causing an interruption of our business could have a material and
adverse effect on our financial condition or results of operations. Our
operations are subject to a number of hazards and risks. We maintain insurance
at levels that are customary in our industry to protect against these
liabilities; however, our insurance may not be adequate to cover all losses or
liabilities that might be incurred in our operations. Moreover, we will be
subject to the risk that we may not be able to maintain or obtain insurance of
the type and amount desired at reasonable rates. If we were to incur a
significant liability for which we were not fully insured, it could have a
materially adverse effect on our business, financial condition and results of
operations.
We
are highly dependent on our chief executive officer and other members of our
management to develop and implement our strategy and to oversee our
operations.
We are
dependent upon Mr. Rubens Ometto Silveira Mello, our chairman and chief
executive officer, other members of senior management and certain members of our
board of directors, especially with respect to business planning, strategy and
operations. If any of these key members of our management leaves our company,
our business and financial performance may be negatively affected. Our business
is particularly dependent on Mr. Rubens Ometto Silveira Mello, who is also our
controlling shareholder. We currently do not carry any key man
insurance.
We
are indirectly controlled by a single individual who has the power to control us
and all of our subsidiaries.
Mr.
Rubens Ometto Silveira Mello, our controlling shareholder, chairman and chief
executive officer, has the power to indirectly control us, including the power
to:
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elect
a majority of our directors and appoint our executive officers, set our
management policies and exercise overall control over our company and
subsidiaries;
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agree
to sell or otherwise transfer his controlling stake in our company;
and
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determine
the outcome of substantially all actions requiring shareholder approval,
including transactions with related parties, corporate reorganizations,
acquisitions and dispositions of assets, and
dividends.
|
Our class
B common shares have ten votes per share and our class A common shares have one
vote per share. Currently, because of our share capital structure, our
controlling shareholder is able to control substantially all matters submitted
to our shareholders for a vote or approval even if the controlling shareholder
comes to own less than 50% of the issued and outstanding share capital in the
company. The concentrated control will limit your ability to influence corporate
matters and, as a result, we may take actions that our shareholders do not view
as beneficial. As a result, the market price of our class A common shares could
be adversely affected.
We
may face conflicts of interest in transactions with related
parties.
We engage
in business and financial transactions with our controlling shareholder and
other shareholders that may create conflicts of interest between our company and
these shareholders. For example, we enter into land leasing agreements with our
affiliates, including Amaralina Agrícola Ltda., or “Amaralina”, Santa Bárbara
Agrícola S.A., or “Santa Bárbara” and São Francisco S.A., or “São Francisco”.
The accounts payable balances result mainly from the lease of agriculture land,
which are at prices and on terms equivalent to the average terms and prices of
transactions that we enter into with third parties. Commercial and financial
transactions between our affiliates and us, even on if entered into on an arm’s
length basis, create the potential for, or could result in, conflicts of
interests.
Risks
Related To Brazil
Brazilian
economic, political and other conditions, and Brazilian government policies or
actions in response to these conditions, may negatively affect our business and
financial performance and the market price of our class A common
shares.
The
Brazilian economy has been characterized by frequent and occasionally extensive
intervention by the Brazilian government and unstable economic cycles. The
Brazilian government has often changed monetary, taxation, credit, tariff and
other policies to influence the course of Brazil’s economy. For example, the
government’s actions to control inflation have at times involved setting wage
and price controls, blocking access to bank accounts, imposing exchange controls
and limiting imports into Brazil. We have no control over, and cannot predict,
what policies or actions the Brazilian government may take in the
future.
Our
business, financial performance and prospects, as well as the market prices of
our class A common shares, may be adversely affected by, among others, the
following factors:
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exchange
rate movements;
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exchange
control policies;
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expansion
or contraction of the Brazilian economy, as measured by rates of growth in
gross domestic product, or “GDP”;
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other
economic, political, diplomatic and social developments in or affecting
Brazil;
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liquidity
of domestic capital and lending markets;
and
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social
and political instability.
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These
factors, as well as uncertainty over whether the Brazilian government may
implement changes in policy or regulations relating to these factors, may
adversely affect us and our business and financial performance and the market
price of our class A common shares.
Cosan
generally invoices its sales in Brazilian reais, but a substantial portion of
Cosan’s net sales are from export sales that are billed in U.S. dollars. At the
same time, the majority of Cosan’s costs are denominated in reais. As a result,
our operating margins are negatively affected when there is an appreciation of
the real to the U.S. dollar. Additionally, we have indebtedness with fixed and
floating rates, and we are thus exposed to the risk of fluctuations in interest
rates. If there is an increase in interest rates, our financial results may be
affected.
Inflation
and government measures to curb inflation, may adversely affect the Brazilian
economy, the Brazilian securities market, our business and operations and the
market prices of our class A common shares.
At times
in the past, Brazil has experienced high rates of inflation. According to the
General Market Price Index (Índice Geral de Preços –
Mercado), or “IGP-M”, a general price inflation index, the inflation
rates in Brazil were 12.4% in 2004, 1.2% in 2005, 3.8% in 2006, 7.7% in 2007 and
9.8% in 2008. In addition, according to the National Extended Consumer Price
Index (Índice Nacional de
Preços ao Consumidor Amplo), or “IPCA”, published by the IBGE, the
Brazilian price inflation rates were 7.6% in 2004, 5.7% in 2005, 3.1%
in 2006 and 4.5% in 2007 and 5.9% in 2008. The Brazilian government’s measures
to control inflation have often included maintaining a tight monetary policy
with high interest rates, thereby restricting availability of credit and
reducing economic growth. Inflation, actions to combat inflation and public
speculation about possible additional actions have also contributed materially
to economic uncertainty in Brazil and to heightened volatility in the Brazilian
securities markets.
Brazil
may experience high levels of inflation in future periods. Periods of higher
inflation may slow the rate of growth of the Brazilian economy, which could lead
to reduced demand for our products in Brazil and decreased net sales. Inflation
is also likely to increase some of our costs and expenses, which we may not be
able to pass on to our customers and, as a result, may reduce our profit margins
and net income. In addition, high inflation generally leads to higher domestic
interest rates, and, as a result, the costs of servicing any floating-rate
real-denominated debt may increase, resulting in lower net income. Inflation and
its effect on domestic interest rates can, in addition, lead to reduced
liquidity in the domestic capital and lending markets, which could affect our
ability to refinance our indebtedness in those markets. Any decline in our net
sales or net income and any deterioration in our financial performance would
also likely lead to a decline in the market price of our class A common
shares.
Our
reporting currency is the U.S. dollar but a substantial portion of our sales is
in Brazilian reais, so that exchange rate movements may increase our financial
expenses and negatively affect our profitability.
Cosan
generally invoices its sales in Brazilian reais, but reports results in
U.S. dollars. The results of Cosan and our other Brazilian subsidiaries are
translated from reais into U.S. dollars upon consolidation. When the U.S. dollar
strengthens against other currencies, our net sales and net income may
decrease.
Significant
volatility in the value of the real in relation to the U.S. dollar could harm
our ability to meet our U.S. dollar-denominated liabilities.
The
Brazilian currency has historically suffered frequent devaluations. In the past,
the Brazilian government has implemented various economic plans and exchange
rate policies, including sudden
devaluations
and periodic mini-devaluations, during which the frequency of adjustments has
ranged from daily to monthly, floating exchange rate systems, exchange controls
and dual exchange rate markets. There have been significant fluctuations in the
exchange rate between the Brazilian currency and the U.S. dollar and other
currencies. In fiscal year 2004, the real devalued slightly by 1.9%, ending at
R$2.945 per US$1.00. In fiscal year 2005, the real ended at R$2.531 per US$1.00,
which represented a 14.0% appreciation. In fiscal year 2006, the real
appreciated by 17.5%, ending at R$2.089 per US$1.00. In fiscal year 2007, the
real appreciated by 2.6%, ending at R$2.034 per US$1.00. In fiscal year 2008,
the real appreciated by 20.5%, closing at R$1.687 per US$1.00. In transition
fiscal year 2009, the real devalued by 37.2%, closing at R$2.315 per
US$1.00.
Because
Cosan generally invoices its sales in Brazilian reais, devaluation of the
real against foreign currencies may generate losses in our foreign
currency-denominated liabilities as well as an increase in our funding costs
with a negative impact on our ability to finance our operations through access
to the international capital markets and on the market value of the class A
common shares. A strengthening of the real in relation to the U.S. dollar
generally has the opposite effect. Further devaluations of the Brazilian
currency may occur and impact our business in the future. These foreign exchange
and monetary gains or losses can be substantial, which can significantly impact
our earnings from one period to the next. In addition, depreciation of the real
relative to the U.S. dollar could (1) result in additional inflationary
pressures in Brazil by generally increasing the price of imported products and
services and requiring recessionary government policies to curb demand and (2)
weaken investor confidence in Brazil and reduce the market price of the class A
common shares. On the other hand, further appreciation of the real against the
U.S. dollar may lead to a deterioration of the country’s current account and the
balance of payments and may dampen export-driven growth.
Because a
substantial portion of Cosan’s indebtedness is, and will continue to be,
denominated in or indexed to the U.S. dollar, our foreign currency exposure
related to Cosan’s indebtedness as of March 31, 2009 was US$1,099.8 million. We
manage a portion of our exchange rate risk through foreign currency derivative
instruments, but our foreign currency debt obligations are not completely
hedged. In addition, a devaluation of the real would effectively increase the
interest expense in respect of our U.S. dollar-denominated debt.
Changes
in tax laws may increase our tax burden and, as a result, adversely affect our
profitability.
The
Brazilian government regularly implements changes to tax regimes that may
increase the tax burden on Cosan and its customers. These changes include
modifications in the rate of assessments and, on occasion, enactment of
temporary taxes, the proceeds of which are earmarked for designated governmental
purposes. In April 2003, the Brazilian government presented a tax reform
proposal, which was mainly designed to simplify tax assessments, to avoid
internal disputes within and between the Brazilian states and municipalities,
and to redistribute tax revenues. The tax reform proposal provided for changes
in the rules governing the federal Social Integration Program (Programa de Integração
Social), or “PIS”, the federal Contribution for Social Security Financing
(Contribuição para
Financiamento da Seguridade Social), or “COFINS”, the federal Tax on Bank
Account Transactions (Contribuição Provisória sobre
Movimentação ou Transmissão de Valores e de Créditos e Direitos de Natureza
Financeira), or “CPMF”, the state Tax on the Circulation of Merchandise
and Services (Imposto Sobre a
Circulação de Mercadorias e Serviços), or “ICMS”, and some other taxes.
The effects of these proposed tax reform measures and any other changes that
result from enactment of additional tax reforms have not been, and cannot be,
quantified. Moreover, as a measure to avoid unfair competitive practices in the
ethanol business, the federal government has recently enacted Law No.
11,727/08. According to this new law, the collection of PIS and
COFINS has shifted from the distributors to distilleries, thereby increasing the
burden of these taxes collected at the distilleries from 25% to
40%. The law further requires the installation of flow meters at
distilleries to control the output of ethanol. However, some of these
measures may result in increases in our overall tax burden, which could
negatively affect our overall financial performance.
Risks
Related to our Common Shares
We
are a Bermuda company, and it may be difficult for you to enforce judgments
against us or our directors and executive officers.
We are a
Bermuda exempted company, so that the rights of holders of our shares will be
governed by Bermuda law and our bye-laws. The rights of shareholders under
Bermuda law may differ from the rights of shareholders of companies incorporated
in other jurisdictions. All of our directors and some of the experts referred to
in this transition report are not citizens or residents of the United States,
and all of our assets are located outside the United States. As a result, it may
be difficult for investors to effect service of process on those persons in the
United States or to enforce judgments obtained in U.S. courts against us or
those persons based on the civil liability provisions of the U.S. federal or
state securities laws. We have been advised by our Bermuda counsel,
Attride-Stirling & Woloniecki, that uncertainty exists as to whether courts
in Bermuda will enforce judgments obtained in other jurisdictions, including the
United States, against us or our directors or officers under the securities laws
of those jurisdictions or entertain actions in Bermuda against us or our
directors or officers under the securities laws of other jurisdictions. The
United States and Bermuda do not currently have a treaty providing for the
reciprocal recognition and enforcement of judgments in civil and commercial
matters. Therefore, a final judgment for the payment of money rendered by any
federal or state court in the United States based on civil liability, whether or
not based solely on U.S. federal or state securities laws, may not necessarily
be enforceable in Bermuda.
Bermuda
law differs from the laws in effect in the United States and Brazil and may
afford less protection to shareholders.
Our
shareholders may have more difficulty protecting their interests than
shareholders of a company incorporated in the United States or Brazil. As a
Bermuda company, we are governed by the Companies Act 1981. The Companies Act
1981 differs in material respects from laws generally applicable to U.S. or
Brazilian corporations and their shareholders, including the provisions relating
to interested directors, amalgamations, takeovers, shareholder lawsuits and
indemnification of directors.
Under
Bermuda law, directors and officers of a company generally owe fiduciary duties
to the company and not to individual shareholders. Class actions and derivative
actions are generally not available to shareholders under Bermuda law. The
Bermuda courts may, however, in certain circumstances permit a shareholder to
commence an action in the name of a company to remedy a wrong to the company
where the act complained of is alleged to be beyond the corporate power of the
company or illegal, or would result in the violation of the company’s memorandum
of association or bye-laws. Consideration would be given by a Bermuda court to
acts that are alleged to constitute a fraud against the minority shareholders
or, for example, where an act requires the approval of a greater percentage of
the company’s shareholders than that which actually approved it. The Companies
Act 1981 imposes a duty on directors and officers to act honestly and in good
faith with a view to the best interests of the company and to exercise the care
and skill that a reasonably prudent person would exercise in comparable
circumstances. Directors of a Bermuda company have a duty to avoid conflicts of
interest. However, if a director discloses a direct or indirect interest in any
contract or arrangement with us as required by Bermuda law, our bye-laws provide
that such director is entitled to be counted for quorum purposes, but may not
vote in respect of any such contract or arrangement in which he or she is
interested. In addition, the rights of our shareholders and the fiduciary
responsibilities of our directors under the Companies Act 1981 are not as
clearly established as under statutes or judicial precedent in jurisdictions in
the United States, particularly in the State of Delaware.
Provisions
in our bye-laws may discourage takeovers, which could affect the return on the
investment of our shareholders.
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:
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a
classified board of directors with staggered three-year
terms;
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restrictions
on the time period in which directors may be
nominated;
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the
affirmative vote of a majority of our directors in office and the
resolution of the shareholders passed by a majority of votes cast at a
general meeting or, if not approved by a majority of the directors in
office, the resolution of the shareholders at a general meeting passed by
66- 2/3% of all votes attaching to all shares then in issue for
amalgamation and other business combination transactions;
and
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the
tag-along rights described under “Description of Share Capital – Tag-along
Rights”.
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These
bye-laws provisions could deter a third party from seeking to acquire us, even
if the third party’s offer may be considered beneficial by many
shareholders.
As
a holding company, we may face limitations on our ability to receive
distributions from our subsidiaries.
We
conduct all of our operations through subsidiaries and are dependent upon
dividends or other intercompany transfers of funds from our subsidiaries to meet
our obligations. For example, Brazilian law permits the Brazilian government to
impose temporary restrictions on conversions of Brazilian currency into foreign
currencies and on remittances to foreign investors of proceeds from their
investments in Brazil, whenever there is a serious imbalance in Brazil’s balance
of payments or there are reasons to expect a pending serious imbalance. The
Brazilian government last imposed remittance restrictions for approximately six
months in 1989 and early 1990. The Brazilian government may take similar
measures in the future. Any imposition of restrictions on conversions and
remittances could hinder or prevent us from converting into U.S. dollars or
other foreign currencies and remitting abroad dividends, distributions or the
proceeds from any sale in Brazil of common shares of our Brazilian subsidiaries.
We currently conduct all of our operations through our Brazilian subsidiaries.
As a result, any imposition of exchange controls restrictions could reduce the
market prices of the class A common shares.
Our
bye-laws restrict shareholders from bringing legal action against our directors
and officers and also provide our directors and officers with indemnification
from their actions and omissions, although such indemnification for liabilities
under the Securities Act is unenforceable in the United States.
Our
bye-laws contain a broad waiver by our shareholders of any claim or right of
action, both individually and on our behalf, against any of our officers or
directors. The waiver applies to any action taken by an officer or director, or
the failure of an officer or director to take any action, in the performance of
his or her duties, except with respect to any matter involving any fraud or
dishonesty on the part of the officer or director. This waiver limits the right
of shareholders to assert claims against our officers and directors unless the
act or failure to act involves fraud or dishonesty. Our bye-laws also indemnify
our directors and officers in respect of their actions and omissions, except in
respect of their fraud or dishonesty. The indemnification provided in our
bye-laws is not exclusive of other indemnification rights to which a director or
officer may be entitled, provided these rights do not extend to his or her fraud
or dishonesty. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, we understand that, in the opinion of the
staff of the SEC, such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable in the United
States.
The
sale, or issuance, of a significant number of our common shares may adversely
affect the market value of our class A common shares.
The sale
of a significant number of our common shares, or the perception that such a sale
could occur, may adversely affect the market price of our class A common shares.
We have an authorized share capital of 1,000,000,000 class A common shares and
188,886,360 class B common shares, of which 174,355,341 class A common shares
are issued and outstanding and 96,332,044 class B series 1 common shares are
issued and outstanding as of March 31, 2009. In accordance with lock-up
agreements, holders of our class B common
shares
have agreed, subject to limited exceptions, not to offer, sell, transfer, or
dispose in any other way, directly or indirectly before August 16, 2010 less
than all of the class B common shares that they own. After the end of such
lock-up period, such previously restricted class B common shares may be traded
freely.
Our
bye-laws establish that our board of directors is authorized to issue any of our
authorized, but unissued share capital. Our shareholders at a shareholders
general meeting may authorize the increase of our authorized share capital. As a
result, we will be able to issue a substantial number of new shares after the
lock-up period, which, if we decided to do so, could dilute the participation of
our shareholders in our share capital.
Actual
dividends paid on our shares may not be consistent with the dividend policy
adopted by our board of directors.
Our board
of directors will adopt a dividend policy that provides, subject to Bermuda law,
for the payment of dividends to shareholders equal to approximately 25% of our
annual consolidated net income (as calculated in accordance with U.S. GAAP). Our
board of directors may, in its discretion and for any reason, amend or repeal
this dividend policy. Our board of directors may decrease the level of dividends
provided for in this dividend policy or entirely discontinue the payment of
dividends. Future dividends with respect to our common shares, if any, will
depend on, among other things, our results of operations, cash requirements,
financial condition, distribution of dividends made by our subsidiaries,
contractual restrictions, business opportunities, provisions of applicable law
and other factors that our board of directors may deem relevant.
Cosan has
a dividend policy that is similar to that of our company, although the net
income is calculated in accordance with Brazilian GAAP (subject to certain
adjustments mandated by Brazilian corporate law). Because Brazilian GAAP differs
in significant respects from U.S. GAAP, Cosan’s dividends to us may be lower
than the corresponding amounts under our dividend policy, which is based upon
net income under U.S. GAAP. Accordingly, we may not be able to pay the dividends
anticipated under our dividend policy in the event that Cosan’s net income under
Brazilian GAAP is substantially lower than our net income under U.S.
GAAP.
To
the extent we pay dividends to our shareholders, we will have less capital
available to meet our future liquidity needs.
Our
business strategy contemplates substantial growth over the next several years,
and we expect that such growth will require considerable liquidity. To the
extent that we pay dividends in accordance with our dividend policy, the amounts
distributed to our shareholders will not be available to us to fund future
growth and meet our other liquidity needs.
We
may require additional funds in the future, which may not be available or which
may result in dilution of the interests of shareholders in our
company.
We may
need to issue debt or equity securities in order to obtain additional public or
private financing. The securities that we issue may have rights, preferences and
privileges senior to those of our shares. If we decide to raise additional
capital through an offering of common shares, the participation of our
shareholders in our share capital may be diluted. Moreover, additional funding
that may be required in the future may not be available under favorable
terms.
The
price of our class A common shares is subject to volatility.
The
market price of our class A common shares could be subject to significant
fluctuations due to various factors, including actual or anticipated
fluctuations in our financial performance, losses of key personnel, economic
downturns, political events in Brazil or other jurisdictions in which we
operate, developments affecting the ethanol and sugar industries, changes in
financial estimates by securities analysts, the introduction of new products or
technologies by us or our competitors, or our failure to meet expectations of
analysts or investors.
We are a
limited liability exempted company incorporated under the laws of Bermuda on
April 30, 2007 for an indefinite term. We are registered with the Registrar of
Companies in Bermuda under registration number EC 39981. Our registered office
is located at Crawford House, 50 Cedar Avenue, Hamilton HM11, Bermuda. Our
principal executive office is located at Av. Juscelino Kubitschek, 1726 – 6th
floor, São Paulo – SP, Brazil and our general telephone and fax numbers are 55
11 3897-9797 and 55 11 3897-9799, respectively.
The
objects of our business are set forth in our memorandum of association and
provide that we have unrestricted objects and powers and rights including
to:
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import,
export, produce and sell ethanol, sugar, sugarcane and other sugar
by-products;
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distribute
and sell fuel and other fuel
by-products;
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produce
and market electricity, steam and other co-generation
by-products;
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render
technical services related to the activities mentioned above;
and
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hold
equity interests in other
companies.
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Our
history dates back to 1936 when the Costa Pinto mill was established by the
Ometto family in the city of Piracicaba in the State of São Paulo, with annual
sugarcane crushing capacity of 4.0 million tons. Beginning in the mid 1980s, we
began to expand our operations through the acquisition of various milling
facilities in the State of São Paulo. In 1986, Usina Santa Helena and Usina São
Francisco became part of Cosan, with annual sugarcane crushing capacity of 2.1
and 1.4 million tons, respectively. In 1988, Usina Ipaussu added an extra 2.0
million tons of annual sugarcane processing capacity. In 1996, we were granted a
concession from the Brazilian government for the construction, development and
operation of a sugar-loading terminal at the Port of Santos, currently managed
by our subsidiary Cosan Portuária. In 1998, Usina Diamante and Usina da Serra
became part of our group, with annual sugarcane crushing capacity of 2.0 and 1.8
million tons, respectively.
In
February 2000, Cosan’s then shareholders approved an increase in the share
capital of Irmãos Franceschi Agrícola Industrial e Comercial Ltda., Cosan’s
predecessor company, in exchange for the contribution to Cosan of the Costa
Pinto, Santa Helena, São Francisco and Tamandupá mills. As result, Cosan became
a corporation and changed its name to Cosan S.A. Indústria e Comércio. Since
2000, we have expanded our operations primarily through acquisitions,
partnerships and corporate restructurings, taking strategic advantage of the
deregulation of the sugar industry in Brazil.
Our
operating activities are carried out primarily through Cosan and Usina Da Barra
S.A. Açúcar e Álcool, or Da Barra. We also operate a terminal at the Port of
Santos through Cosan Portuária and own a 22% interest in another ethanol
terminal located at the Port of Santos through TEAS. We also own Cosan
Distribuidora de Combustíveis Ltda., a fuel distribution company that is
currently non-operative but maintains all of the necessary governmental licenses
to distribute fuel in Brazil. The sole purpose of our non-operating subsidiary,
Administração de Participações Aguassanta Ltda., is to hold shares of Da Barra.
We own and operate the Costa Pinto, São Francisco, Santa Helena, Rafard, Serra,
Diamante, Mundial and Bom Retiro mills and lease the Junqueira mill. Da Barra
owns the Da Barra, Ipaussu, Gasa, Destivale, Bonfim, Univalem, Benalcool and
Tamoio mills and leases the Dois Córregos mill.
Acquisitions,
Partnerships and Corporate Restructurings
Since May
2004, we have expanded our annual sugarcane crushing capacity by 141.9% from
approximately 24.8 million tons to approximately 49.1 million tons as of March
31, 2009 primarily through
acquisitions,
partnerships and corporate restructurings (after the completion of Nova América
acquisition, on June 18, 2009 we added approximately 10.6 million tons to our
sugarcane crushing capacity). As a result of these acquisitions, partnerships
and corporate restructurings, our net sales and gross profit have increased
significantly. However, we have not realized all of the expected cost savings
from these transactions, as they have also increased our sugarcane
planting-related general and administrative expenses and capital expenditures in
order to improve the condition of certain sugarcane fields that we acquired
under these transactions.
Our
principal acquisitions, partnerships and corporate restructurings since May 2004
consist of the following:
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In
December 2004, Cosan acquired, through 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 Corona.
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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.
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In
July 2005, Cosan transferred all of its ownership interest in Amaralina to
Cosan’s shareholders, valued at US$118.6
million.
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In
December 2005, Cosan indirectly acquired 100% of the common shares of
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.
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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.
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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”.
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In
April 2006, Cosan acquired controlling interests in 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.
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In
October 2006, Mundial and Bom Retiro, among other subsidiaries, merged
into Cosan.
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In
February 2007, Usina da Barra merged into Danco Participações S.A., having
its corporate name changed to Usina da Barra S.A. - Açúcar e
Álcool.
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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
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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.
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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
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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.
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We
completed our initial public offering and listed our class A common shares
on the NYSE. We received US$1.1 billion, net of directly attributable
costs, in aggregate proceeds from the initial public
offering.
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Cosan
contributed to the capital stock of its controlled entity Usina da Barra
S.A., shares representing 33.33% of the capital stock of Etanol
Participações S.A.
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Cosan’s
shareholders approved a capital increase in the amount of 82,700,000
common shares. The results of the capital increase were announced on
January 23, 2008. Minority shareholders subscribed for a total of
26,092,604 common shares and Cosan Limited subscribed for a total of
56,607,396 shares.
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On
February 14, 2008, Cosan acquired 100% of the capital stock of Benálcool
Açúcar e Álcool S.A. for US$42.7 million. Cosan recorded
US$88.1 million in goodwill related to this acquisition. The purchase
price was paid in cash by Cosan. The principal asset of Usina Benálcool is
its sugarcane and alcohol mill, which has an annual processing capacity of
approximately 1.3 million tons of sugarcane. Usina Benálcool is located in
the Araçatuba region, where Cosan already has four other operational
units. With this acquisition, Cosan has increased its presence in an
important production region.
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On
April 23, 2008, Cosan entered into an agreement with Exxon, for the
acquisition of 100% of the capital of Esso Brasileira de Petróleo Ltda.
and its subsidiaries, or “Essobrás”, a distributor and seller of fuels and
producer and seller of lubricants and specialty petroleum products of
ExxonMobil in Brazil. On December 1, 2008, Cosan completed the acquisition
of all of the outstanding shares of Essobrás for a purchase price of
approximately US$715 million and assumed debts in the amount of US$175
million. On January 16, 2009 the corporate name of Essobrás has been
changed to Cosan Combustíveis e Lubrificantes S.A. At the time of the
acquisition, CCL had a distribution network of more than 1,500 stations in
Brazil and 40 fuel distribution centers. Additionally, CCL registered
annual sales of more than 5 billion liters of ethanol, gasoline and
diesel, 160 million cubic meters of VNG and 127,000 cubic meters of
lubricants produced at our plant in Rio de Janeiro, which will continue to
offer products under the Esso and Mobil brands, developed using Exxon’s
global technology. With this acquisition, we
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expanded
our business model to become the first integrated renewable energy company
in the world, with operations ranging from sugarcane cultivation to fuel
distribution and sales in the retail
market.
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On
August 28, 2008, Cosan announced the incorporation of a new subsidiary
named Radar Propriedades Agrícolas S.A., or “Radar”, which makes real
estate investments in Brazil identifying and acquiring rural properties
with high appreciation potential for subsequent leasing and/or sale. Cosan
currently holds 18.9% of Radar. Cosan initially invested US$35 million and
the other investors US$150 million. Furthermore, the parties
have committed to invest an amount equal to US dollar equivalent of the
Brazilian reais
amount initially invested, which should only be disbursed when
approximately 50% of the initial capital contribution has been
invested. Cosan has the right to exercise significant influence
on Radar’s operations and, therefore, the investment is accounted using
the equity method.
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In
October 2008, a private subscription was announced involving US$50 million
by the controlling shareholder, Rubens Ometto Silveira Mello, and up to
US$150 million by the funds managed by Gávea Investimentos Ltda., at
US$4.50 per class A share or BDR subscribed. The offering was extended to
all class A share or BDR holders, as permitted by applicable law. The
offering was concluded on October 27, 2008. As a result, Rubens Ometto
Silveira Mello holds 41.5% of our total capital and 86.1% of our voting
capital.
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On
April 9, 2009, Cosan and Rezende Barbosa, concluded the port terminals
combination of Cosan and Teaçu, a subsidiary of Rezende
Barbosa. As a result, Cosan, through its subsidiary Novo Rumo
Logística S.A., or “Novo Rumo” acquired 100% of the outstanding shares of
Teaçu for a combination of R$121 million (approximately US$53.0 million)
and shares representing 28.82% of Novo Rumo’s capital. Teaçu
holds a port concession in the City of Santos and operates a terminal
dedicated to exporting sugar and other agricultural
products. As a result of the transaction, Cosan’s indirect
participation in Novo Rumo’s capital is of
71.18%.
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On
June 17, 2009, Cosanpar Participações S.A., or Cosanpar, a wholly-owned
subsidiary of Cosan, sold to Shell Brasil Ltda. its equity interest in
Jacta Participações S.A., or “Jacta”, a distributor of aviation fuel that
was part of Essobras. Cosanpar received R$115.6 million
(US$59.2 million) from the sale. The results of the transaction
were recorded in the fuel distribution business
unit.
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On June 18, 2009,
Cosan entered into an agreement with Rezende Barbosa to acquire 100% of
the outstanding shares of Curupay S.A. Participações, or
“Curupay”. The acquisition was carried out through the merger
of Curupay into Cosan resulting in the issuance by Cosan of 44,300,389 new
common shares, representing 11.89% of its corporate capital, fully
subscribed and paid-in by Rezende Barbosa. The total amount of Cosan’s
capital increase was of approximately US$321.1
million. The principal investment of Curupay was the
ownership on 100% of the outstanding shares of Nova América S.A.
Agroenergia, or “Nova América”. Nova América is a producer of
sugar, ethanol and energy co-generation which also operates in trading and
logistics. The assets acquired include the non-controlling
interest in Novo Rumo representing 28.82% of its outstanding shares which
were issued in the Teaçu acquisition, and 100% of the outstanding shares
of two operating companies, Nova América S.A. Trading and Nova América
S.A. Agroenergia, and the “União” brand, which is the leading sugar brand
in Brazil. Nova América is a producer of sugar, ethanol and
energy co-generation and also operates in trading and
logistics.
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Corporate
Structure and Ownership.
The
following chart sets forth our current capital structure:
Capital
Expenditures
The
following table sets forth our capital expenditures, net of cash received from
sale of long term assets, for the eleven months ended March 31, 2009 and fiscal
years ended April 30, 2008 and 2007:
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For
Eleven Months
Ended
March
31,
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For
Fiscal Year
Ended
April 30,
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(in
millions of US$)
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Sugar
cane planting costs
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US$ |
64.0 |
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US$ |
142.5 |
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US$ |
91.2 |
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Co-generation
projects
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161.8 |
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99.7 |
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40.7 |
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Inter-harvest
maintenance costs
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64.3 |
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89.6 |
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58.4 |
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Other
acquisitions of property, plant and equipment
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371.4 |
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311.1 |
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165.9 |
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Acquisitions,
net of cash acquired
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714.4 |
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102.0 |
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39.4 |
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Total
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1,375.9 |
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744.9 |
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395.6 |
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We are
continuously searching for opportunities to increase our production capacity of
sugar, ethanol and bio-electricity, including the development of greenfield
projects. In 2009, two new mills will start operations. Jataí mill in
the State of Goiás and Carapó mill in the State of Mato Grosso do Sul (the
latter is a project that we took over in its final stage of development) after
the Nova América acquisition. When all current projects and de-bottlenecking
initiatives are operating at full capacity, we expect that by fiscal year 2013,
Cosan will have capacity to crush more than 60.0 million tons of sugarcane a
year.
Our
capital expenditure program is focused on four key areas:
Greenfield
Project
We are
currently building ethanol and sugar plants in the States of Goiás and Mato
Grosso do Sul, Brazil. We have acquired the land for the industrial facilities
and entered into leases for sugarcane cultivation. Our estimated capital
expenditures for the Goiás project amounts to approximately US$390 million, and
production is expected to begin in 2009, reaching full capacity by fiscal year
2013, with an expected crushing capacity of 4 million tons of sugarcane and
production of approximately 97 million gallons (370 million liters) of ethanol
per year. Our estimated capital expenditures for the Mato Grosso do Sul project
is approximately US$245 million, and production is expected to begin in 2009
reaching full capacity by fiscal
year
2011, with an expected crushing capacity of 2 million tons of sugarcane and
production of approximately 75 million liters of ethanol per year.
Expansion
of Our Crushing Capacity
We intend
to make additional investments to expand the crushing capacity of our mills.
These investments are expected to be applied primarily to our Univalem, Gasa,
Presidente Prudente, Destivale, Mundial, Bonfim and Junqueira mills, both in
industrial equipment and in new sugarcane crop plantation. See “Item
4. Information on the Company—A. History and Development of the
Company—Acquisitions, Partnerships and Corporate Restructurings.”
Cogeneration
Projects
We intend
to invest in cogeneration projects in an additional six of our existing 21 mills
and in our greenfield projects, which will allow these mills to sell energy to
third parties. Besides those projects, we have already finalized cogeneration
projects in Costa Pinto, Rafard, Tarumã and Maracaí mills. By the end of 2012,
all these projects will have received R$2.4 billion in investments, out of which
approximately R$1.0 billion have already been invested.
Cosan has
already won bids in seven government energy auctions and entered into four
bilateral contracts to sell, during the next 15 years, approximately 2.7
GWh/year to the Brazilian electricity grid at an average price of R$156.00 to
R$160.00/MWh (approximately US$ 78-80/MWh). We expect that five of our mills
will start delivering this fiscal year energy to the grid.
Strategic
Acquisitions along the Business Chain
We
invested approximately US$1.0 billion in strategic acquisitions along the
business chain in the past year. We have added fuel distribution
operations through the acquisition of downstream assets of ExxonMobil in Brazil
and taken equity stakes in Radar, a newly incorporated land development company,
Rumo, a new sugar logistics company, and Uniduto, a newly incorporated company
that is exploring an ethanol pipeline project in the central-south region of
Brazil. In November 2007, we acquired 50% interest in Vertical UK LLP, a leading
ethanol trading company.
On
December 1, 2008, Cosan acquired 100% of the capital of Essobras (now CCL) and
certain affiliates, marketers and distributors of fuel and lubricants in the
Brazilian retail and wholesale markets as well as aviation fuel supply from
Exxon. On May 2009, we sold the aviation fuel business to Shell for US$75
million, aligned with our strategy of focusing on our core
businesses.
On June 18, 2009, Cosan
acquired 100% of the outstanding shares of Curupay, the parent company of Nova
América and controlling shareholder of other assets related to trading,
logistics and industrial production of sugar and ethanol and energy
co-generation. Nova América is a producer of sugar, ethanol and energy
co-generation which also operates in trading and logistics. The
assets acquired include the non-controlling interest in Novo Rumo representing
28.82% of its outstanding shares which were issued in the Teaçu acquisition, and
100% of the outstanding shares of two operating companies, Nova América S.A.
Trading and Nova América S.A. Agroenergia, and the “União” brand, which is the
leading sugar brand in Brazil. Nova América is a producer of sugar,
ethanol and energy co-generation and also operates in trading and logistics.
We are now focused
on the integration of these assets and extraction of synergies, however we will
continue to analyze opportunities to grow organically or through strategic
acquisitions and partnerships.
We are a
leading global ethanol and sugar company in terms of production with low-cost,
large-scale and integrated operations in Brazil. Our production is based on
sugarcane, a competitive and viable feedstock for ethanol, sugar and energy
because of its low production cost and high energy efficiency ratio relative to
other ethanol sources, such as corn and sugar beet. We believe that we
are:
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Sugarcane:
the largest grower and processor of sugarcane in the world, having crushed
43.2 million tons in transition fiscal year 2009, 40.3 million tons in
fiscal year 2008 and 36.2 million tons in fiscal year 2007 (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 fifth largest in the world,
having produced 446.8 million tons (1.7 billion liters) in transition
fiscal year 2009, 402.8 million gallons (1.5 billion liters) in fiscal
year 2008 and 326.7 million gallons (1.2 billion liters) in fiscal year
2007, and the largest exporter of ethanol in the world, having exported
120.6 million gallons (456.4 million liters) in transition fiscal year,
107.4 million gallons (406.5 million liters) in fiscal year 2008 and 72.6
million gallons (274.7 million liters) in fiscal year
2007;
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Sugar:
the largest sugar producer in Brazil and the third largest sugar producers
in the world, having produced 3.2 million tons in transition fiscal year
2009, 3.1 million tons in fiscal year 2008 and 3.2 million tons in fiscal
year 2007, and the largest exporter of sugar in the world, having exported
2.7 million tons in transition fiscal year 2009, 2.7 million tons in
fiscal year 2008 and 2.8 million tons in fiscal year 2007;
and
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Fuels
Marketing & Lubricants: the fourth largest
fuel distributor in Brazil with an estimated 5.3% market share in terms of
volume sold in 2008, according to ANP. In 2008, we recorded sales of more
than 4.6 billion liters of fuels, principally gasoline, ethanol, diesel
and fuel oil. We have a strong market presence in the South and Southeast
regions of Brazil, where our fuel sales amounted to 1.1 billion liters
(6.6% market share) and 3.1 billion liters (6.4% market share) in 2008,
respectively, according to ANP. The Southeast and South regions are the
largest markets in Brazil, accounting for 49.6% and 17.3%, respectively,
of the total Brazilian fuel market in terms of volume sold in 2008,
according to ANP. We are the fourth largest lubricant player in
Brazil. We sell passenger vehicle lubricants, commercial vehicle
lubricants and industrial lubricants under the “Mobil” and “Esso” brands,
among others, both of which are licensed to us until 2018 by
ExxonMobil.
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For our
sugar and operations, we operated 18 mills, one greenfield (Jataí), two refineries,
two port facilities and numerous warehouses, as of March 31, 2009. All of these
facilities are located in the Center-South region of Brazil, which is one of the
world’s most productive sugarcane regions primarily because of its favorable
soil, topography and climate, nearby research and development organizations and
infrastructure facilities. Following the Nova América acquisition and the
finalization of the greenfield, we now operate 23 mills and four
refineries.
We were
incorporated as a Bermuda company to better position ourselves to take advantage
of favorable industry trends in ethanol and sugar markets in Brazil and
globally. We are constantly pursuing opportunities to capitalize on the growing
demand for ethanol and sugar in the world. We are focused on increasing our
production capacity through expansion of existing facilities, development of
greenfield projects and, as opportunities present themselves, acquisitions. We
are also continuing to invest in cogeneration of electricity, which allows us to
be energy self-sufficient and also represents a potential additional source of
future cash flow.
Our
management team has experience in running large-scale facilities, as well as a
track record of acquiring, improving and integrating companies and extracting
operational synergies. We significantly expanded our businesses through
acquisitions and organic growth, increasing our crushing capacity to
approximately 49.1 million tons as of March 31, 2009, from 13.2 million tons
since Cosan’s inception in February 2000.
Competitive
Strengths
We
believe that, as a low-cost, large-scale producer with well-established
integrated operations and long-standing relationships with key customers and
suppliers, we can capitalize on the favorable trends in the ethanol and sugar
industries—particularly, in light of our competitive strengths:
Low-cost
producer
Our
existing mills and other facilities are strategically located in the
Center-South region of Brazil. Our operations also are in close proximity to our
customers, sugarcane fields owned by us and growers, port terminals and other
transportation infrastructure and warehouses. These factors help us to manage
our operating costs. Increasing mechanization in our agricultural processes and
improvements in industrial operations, combined with our energy
self-sufficiency, should allow us to continue to lower our operating
costs.
Leading
market position
Our
market position as one of the largest global producers and exporters of ethanol
and sugar provides us with competitive advantages over our main competitors,
particularly in terms of cost-efficiencies, higher pricing power and integrated
logistics. We also believe we have the largest sugarcane crushing capacity in
Brazil, as our production is approximately three times greater than that of the
second largest Brazilian producer. We are focused on increasing our production
capacity and maintaining our market leadership through expansion of existing
facilities, development of greenfield projects and, as opportunities present
themselves, acquisitions.
Moreover,
our market position in Brazil as the fourth largest distributor of fuel products
provides us with competitive advantages. Our retail station network is supported
by an efficient logistics and distribution network. We have a 5.3% market share
of the Brazilian fuel distribution market and approximate 11.7% market share of
the Brazilian lubricants market. The large scale of our operations provides us
with competitive advantages, principally meaningful cost-efficiencies and
integrated logistics. Additionally, our retail station network, strategically
concentrated in urban areas of higher population density and thus higher
throughput per station, cannot be easily replicated by competitors without
significant capital investments in brand conversion. We believe that the “Esso”
brand is associated with high quality and reputation, differentiating our
company from other fuel retailers.
Integrated
platform
We are
engaged in both the agricultural and industrial aspects of ethanol and sugar
production. We purchase as well as cultivate, harvest and process sugarcane. We
produce approximately 55% of our sugarcane requirements on owned and leased land
and purchase most of the remaining 45% mainly from third parties under long-term
contracts. These contracts incorporate ethanol and sugar-linked purchase price
provisions, which provide us with a natural hedge and mitigate the risk of
potential margin compression. In addition, we own a sugar terminal and a stake
in an ethanol terminal, both in the Port of Santos, the largest commercial port
complex in South America, and numerous warehouses, which reduces our dependence
on logistics services provided by third parties.
We also
are the fourth largest fuel distribution company in Brazil. Therefore, we have a
fully integrated platform from sugarcane plantation to retail fuel
distribution. We will continue supplying ethanol to a diversified
base of clients, and CCL will continue purchasing ethanol from multiple
suppliers. As a result, we benefit from superior visibility on price formation,
allowing us to better manage our inventory levels, with regard to ethanol and
indirectly gasoline. In addition, a vertically integrated platform secures
ethanol supply and optimizes our logistical, distribution and storage
activities, saving storage and transportation costs. We believe we are in a
unique position to anticipate market dynamics and increase our participation in
the ethanol distribution market.
Innovative
approach to business
Our
acquisition of CCL has allowed us to directly expand into fuel distribution, and
will lead to a more vertically integrated Cosan. With this acquisition, Cosan
expands its business model to become the first integrated renewable energy
company in Brazil, with operations ranging from sugarcane cultivation to fuel
distribution and sales in the retail market.
We
develop innovative products, production techniques and distribution methods to
ensure that we continue to be at the forefront of technological improvements and
standards in our industry. For example, we monitor the development of our crops
by satellite and have also introduced innovative distribution methods to the
Brazilian ethanol and sugar industry. We have established research and
development partnerships with leading Brazilian institutions which resulted not
only in new sugarcane varieties with higher sucrose content but also in
implementing new techniques, such as agricultural and industrial yield
improvements, new planting methods and genetic engineering
improvements.
Strategic
business relationships
We have
developed important strategic relationships in our business, including the Kuok
Group (one of the largest agricultural-focused conglomerates in Asia) and Sucres
et Denrées, or “Sucden” (one of the two largest sugar trading companies in the
world). Both the Kuok Group and Sucden are current shareholders of Cosan. We
have also developed strong business relationships with some of our leading
customers, such as Petrobras Distribuidora S.A. and Shell Brasil Ltda. in the
ethanol business and Sucden, Tate & Lyle International and Coimex Trading
Ltd. in the sugar business.
Production
flexibility
We
produce virtually every type of ethanol and sugar consumed in the Brazilian and
international markets. Our facilities allow us to adjust our production (within
certain capacity limits) between ethanol and sugar, as well as between different
types of ethanol and sugar, to respond promptly to changes in customer demand
and market prices at any point during the crushing process.
Strategically
located operations and significant geographic overlap with Cosan
mills
Our fuel
distribution terminals are strategically located near major fuel product markets
and our mills, thus improving delivery times, increasing operating efficiencies,
facilitating response to shifts in demand, fulfilling orders and reducing costs.
Additionally, we have a pier facility available for importing raw material,
which gives us operational flexibility and a significant competitive advantage
since we can arbitrage raw material prices. Upon receipt of ANP approval, we
plan to use our fuel distribution terminals and fuel tanks to further maximize
logistic gains and reduce our operating costs.
Financial
resources
We
recorded an operating loss of US$48.8 million in transition fiscal year 2009 and
of US$138.1 million in fiscal year 2008 and operating income of US$232.9 million
in fiscal year 2007. We also recorded net
loss of US$188.1 million in transition fiscal year 2009, net income of US$16.6
million in fiscal year 2008 and US$176.7 million in fiscal year 2007. Our
selling and general and administrative expenses totaled US$353.4 million in
transition fiscal year 2009, compared to US$283.8 million in fiscal year 2008.
As of March 31, 2009, we had US$1,420.7 million in net debt (including US$456.5
million in perpetual notes and US$215.6 million in self-liquidating debt), and a
highly liquid position of cash and cash equivalents and marketable securities of
US$508.8 million. We also benefit from a higher credit rating (“BB-” from
Standard & Poor’s Rating Group, “Ba3” from Moody’s Investors Service, Inc.
and “BB-” Fitch Ratings) than many global ethanol producers. We believe that our
financial condition and solid capital structure should allow us to access
capital as needed to fund our growth strategy.
Experienced
and professional management team
Our
management team has considerable industry experience and knowledge. In addition,
unlike many of our local competitors in the sugar and ethanol business, we have
completed the shift from a family-operated business to a company managed by
professionals with significant experience in the sugar and ethanol
industries. Our fuel distribution and lubricants business is led by a
management team with a proven track record in the fuel distribution and
lubricant markets. Our management team of 30 executives possesses an average of
20 years of experience in the industry.
Our
Strategy
Our
overall objective is to achieve sustainable and profitable growth, further
reduce our operating costs and build on our competitive strengths in order to
expand our leadership to become a global company with a worldwide platform in
the ethanol and sugar markets. The principal components of our strategy are
to:
Enhance
our leadership position in the Brazilian and global ethanol and sugar markets
and increase our market share in the fuel distribution and lubricants
business
We expect
to take advantage of future export opportunities likely to emerge from the
liberalization of trade barriers that traditionally limited our access to some
major markets, as well as mandatory blending requirements to use ethanol as an
additive to gasoline. We intend to establish new commercial and distribution
partnerships with international industry players to expand and diversify our
client base. We closely monitor developments in the Brazilian and global ethanol
and sugar industries and will continue to pursue selective acquisitions and
partnerships in Brazil and internationally. We also intend to continue to expand
our existing facilities and build additional large-scale facilities, featuring
technology improvements and enhanced logistics.
We had a
5.3% market share in the Brazilian fuels marketing sector by volume sold in
2008, through a network of 1,458 Esso-branded retail stations. We have added 20
retail stations to date in 2009 with the “Esso” brand and plan to add an
additional 130 retail stations in the remainder of 2009. The majority of our new
retail stations will be added in the Southeast region of Brazil, which has
higher exposure to gasoline and ethanol consumption and offers higher synergies
with Cosan and our logistics infrastructure.
Capitalize on
further integration with our business.
With our
recent acquisition of CCL, we form a fully integrated platform from sugarcane
plantation to retail fuel distribution. The scale and integration advantages
provide us with logistic synergies and unique market intelligence. We plan to
improve our inventory and storage management to deliver ethanol through our
retail fuel distribution network, by efficient use of our fuel tanks and the
building of new distribution terminals near or at our mills.
Take
advantage of the fast-growing ethanol demand.
Ethanol
has become the most used fuel within the passenger vehicle industry in Brazil.
According to ANP, demand for ethanol exceeded gasoline in 2008 due to the
anhydrous ethanol blended gasoline. The increase in ethanol sales in Brazil has
been supported by the increase in flex-fuel cars sold in Brazil. In 2008,
flex-fuel car sales accounted for 82.1% of total new vehicle sales in Brazil,
according to ANFAVEA. We plan to increase our presence in the Brazilian ethanol
market and take advantage of the fragmentation in the supply of ethanol where we
as the largest player, account for approximately 8.2% of the market. We believe
we are well positioned to benefit from increasing ethanol demand, since our
vertical integration with CCL optimizes our logistical, distribution and
inventory management capabilities.
Continue
to realize operating efficiencies and margins
We are
seeking to further improve the efficiency and productivity gains of our
operations through investments in the development of new varieties of sugarcane,
more efficient agricultural, industrial and logistic processes, expanded
satellite monitoring of sugarcane development in the region, increased
mechanization of harvests, emphasis on employee training programs and
improvements in information flows and internal control systems.
We will
continue to focus on improving the efficiency of our operations in the fuel
distribution and lubricants business by focusing on three key areas: (1)
exploring synergies among our business units, (2) maximizing the utilization of
our retail stations and (3) focusing on the highest-value lubricant products.
Our vertical integration, combining market intelligence, production and
distribution strategies, will allow for
synergies
in logistics and acquiring ethanol, further reducing our costs by means of
inventory optimization, transportation efficiencies and infrastructure
rationalization. We continuously monitor the profitability and use of each
service station in the retail network and eliminate underperforming sites,
particularly in regions we consider less strategic. We will also continue to
focus on high-grading our lubricant product mix and distributor network to be
more heavily weighted towards higher margin products. In 2008, our premium,
higher margin products represented approximately 64% of our lubricant volume
sold, an increase of approximately 10 percentage points from approximately 54%
in 2006. In addition, we have also re-channeled our sales directly through 15
well-established, exclusive high-grade distributors.
Continue
increasing sales of premium lubricants products
Sales of
premium products, such as synthetic lubricants (i.e., Mobil 1 RACING 2T and
Mobilith SHC 007), represented approximately 64% of our total lubricant volume
sold in 2008, a significant increase compared to approximately 54% in 2006. We
plan to continue improving our product mix and margins by focusing on premium
high margin products. We plan to continue investing in marketing, training our
employees and exclusive distributors, developing new innovative products and
delivering superior services.
Increase
investments in cogeneration
We are
self-sufficient in energy by generating our own electricity through the burning
of sugarcane bagasse in boilers. Our current total installed capacity
of cogeneration energy is approximately 294.3 MW, the substantial majority is
used to generate energy for our own industrial operations. In 2003,
we built a successful pilot cogeneration plant at one of our mills, from which
we sell surplus energy to Companhia Paulista de Força e Luz - CPFL, one of the
largest electric power distributors in the State of São Paulo. We
participated in two auctions of "new energy" held in December 2005 and October
2006, to sell 6,837,028 MWh in 15 years for distributing electricity to the
Brazilian current average price of US$75.03 per MWh. In 2008, the company
participated in the first auction reserve, by selling energy through, the UTEs
Barra, Bonfim and Jataí. The volume of electricity sold by the three thermal
plants is 9,504,600 MWh to be delivered in 15 years, the average price of
US$69.35/MWh, adjusted by the IPCA. We invested approximately U$$159.3 million
system in co-generation plants and Costa Pinto and Rafard, to provide the energy
sold under such contracts. We believe that energy sales represent a
source of additional cash flow. Currently, we plan to install cogeneration
systems in ten of our 21 existing mills and in our greenfield projects to permit
sales of energy to third parties. These investments would sum approximately
US$1.3 billion and would allow Cosan to sell 2,696 GWh per year.
Maintain
capital investments discipline
We
continue to take a disciplined and long-term approach to investments in order to
sustain our returns. Our capital investments for the fuel distribution business
unit include projects to further optimize our distribution terminals, further
upgrade safety systems and lower operating costs. Investments aimed at
increasing our distribution capacity will focus on supporting the expansion of
our DODO Esso-branded station network in the Southeast region of Brazil intended
to generate attractive returns, taking advantage of our existing distribution
network and leveraging the closeness of Cosan’s mills.
Focus
on environmental and social awareness
We are
committed to being an environmentally and socially conscious company. The IFC,
one of Cosan’s lenders and equity investors, has recently conducted a social and
environmental assessment of Cosan. Under the IFC loans, we are required to
comply on an ongoing basis with IFC’s environmental policies.
We plan
to increase investments in the mechanization of our harvests, which not only is
cost-efficient in the long-term but also will reduce our emission levels and
decrease burning of sugarcane fields for manual harvesting. We continue to
improve and develop new training programs for our employees, as well as programs
to reduce workforce accidents.
We lead
the Brazilian fuel industry with our low incident rate of work related injuries
and illnesses. We will continuously work to improve the safety and health of our
employees and contractors and our environmental and social awareness. We will
continue to train our employees on effective safety, security, health and
environmental leadership. We will continuously seek environmental best
practices, benchmark technologies and clean operations, to sustain our
best-in-class results and strengthen our relationship and cooperation with local
environmental authorities and agencies.
Operations
Sugarcane
Sugarcane
is the principal raw material used in the production of ethanol and sugar.
Sugarcane is a tropical grass that grows best in locations with stable warm
temperatures and high humidity, although cold and dry winters are an important
factor for the sucrose concentration of sugarcane. The soil, topography, climate
and land availability of the Center-South region of Brazil are ideal for the
growth of sugarcane. The Center-South region of Brazil accounted for
approximately 88.8% of Brazil’s sugarcane production in the 2008/2009
harvest.
At March
31, 2009, we leased approximately 355,165 hectares, or approximately 85% of the
land that we cultivate, through approximately 1,861 land lease contracts with a
large number of lessors. The lessors under three of these contracts (covering
37,574 hectares, or approximately 11.4% of the land leased by us) are entities
controlled by our chief executive officer and controlling shareholder. These
land lease contracts have an average term of five years, with terms ranging from
one to twenty years. Under these land leases, we make lease payments based on
the market value of sugarcane per hectare (in tons) used by us in each harvest,
with the market value based on the price of sugarcane established by the
regulations of CONSECANA and a fixed amount of total recoverable sugar per ton.
See “Item 7. Major Shareholders and Related Party Transactions—B. Related
Party Transactions—Recurring Transactions with Shareholders.”
We also
purchase sugarcane directly from thousands of third-party sugarcane growers. Of
our sugarcane purchases from third-party growers, we historically have purchased
approximately 80% through medium- and long-term contracts with sugarcane
producers, 5% on a spot basis and the remaining 15% from sugarcane producers
with whom we have long-term relationships but no contractual arrangements. We
generally enter into medium- and long-term contracts for periods varying from
three and a half to seven years. All of our third-party sugarcane suppliers are
responsible for the harvest of the sugarcane and its delivery to our mills. The
price that we pay to third-party sugarcane growers is based on the total amount
of sugar content in the sugarcane, measured by the amount of sugar recovered and
on the prices of ethanol and sugar sold by each mill.
We
harvested from owned or leased lands approximately 53%, or 22.7 million tons, of
the sugarcane that we crushed in transition fiscal year 2009, and purchased from
third-party growers the remaining 20.4 million tons of sugarcane, or
approximately 47% of the total amount of sugarcane that we crushed in fiscal
year 2008. The following table compares the amount of sugarcane grown on owned
or leased land with the amount purchased from third parties during the last four
fiscal years.
|
|
|
For
Eleven Months Ended March 31,
|
|
|
|
For
Years Ended April 30,
|
|
|
|
|
2009
|
|
|
|
%
|
|
|
|
2008
|
|
|
|
%
|
|
|
|
2007
|
|
|
|
%
|
|
|
|
|
(In
millions of tons, except percentages)
|
|
Sugarcane
harvested from owned/leased land
|
|
|
22.7 |
|
|
|
53.0 |
|
|
|
22.3 |
|
|
|
56.0 |
|
|
|
21.6 |
|
|
|
59.8 |
|
Sugarcane
purchased from third-parties
|
|
|
20.4 |
|
|
|
47.0 |
|
|
|
18.0 |
|
|
|
44.0 |
|
|
|
14.5 |
|
|
|
40.2 |
|
Total
|
|
|
43.1 |
|
|
|
100.0 |
|
|
|
40.3 |
|
|
|
100.0 |
|
|
|
36.2 |
|
|
|
100.0 |
|
Sugarcane
Harvesting Cycle
The
annual sugarcane harvesting period in the Center-South region of Brazil begins
annually in May and ends in November. We plant several species of sugarcane, and
the species we use in a particular area depends on the soil quality, rain levels
and the resistance to certain types of pestilences, among other factors. Once
planted, sugarcane is harvested each year for several continuous years. With
each subsequent harvest, agricultural yields decrease, and the current optimum
economic cycle is five or six consecutive harvests. However, the harvests must
be carefully managed in order to continue to attain sugar yields similar to the
newly-planted crop.
Ideally,
the sugarcane should be harvested when the crop’s sucrose content is at its
highest level. Harvesting is either done manually or mechanically. As of March
31, 2009 approximately 49% of our sugarcane is harvested manually. Manual
harvesting begins by burning the sugarcane field, which removes leaves and
destroys insects and other pests. The amount of the crop that we may burn is
subject to environmental regulations. The remaining 51% of our sugarcane is
harvested mechanically.
Sugarcane
yield is an important productivity measure for our harvesting operations.
Geographical factors, such as land composition, topography and climate, as well
as the agricultural techniques that we implement, affect our sugarcane yield.
Although our agricultural yields are above the average Brazilian yields, we
believe that by reducing the average age of our sugarcane fields and choosing
new sugarcane varieties, our agricultural yields may continue to
increase.
In
transition fiscal year 2009, our average sugar extraction yield was 139.2
kilograms of TSR per ton of sugarcane and our agricultural yield was 93.8 tons
of sugarcane per hectare, compared to 142.5 kilograms of TSR per ton of
sugarcane and 84.4 tons of sugarcane per hectare in fiscal year 2008, and 147.5
kilograms of TSR per ton of sugarcane and 84.1 tons of sugarcane per hectare in
fiscal year 2007.
The
average Brazilian sugar extraction yield for the 2008/2009 harvest was 140.2
kilograms of TSR per ton of sugarcane and the agricultural yield was 82.3 tons
of sugarcane per hectare. The average Brazilian sugar extraction yield for the
last five years was 142.4 kilograms of TSR per ton of sugarcane and 80.2 tons of
sugarcane per hectare. The average sugar extraction yield in the State of São
Paulo for the 2007/2008 harvest was 142.5 kilograms of TSR per ton of sugarcane
and 90.8 tons of sugarcane per hectare. The average sugar extraction yield in
the State of São Paulo for the last five years was 144.6 kilograms of TSR per
ton of sugarcane and 87.8 tons of sugarcane per hectare.
Milling
Facilities
Once the
sugarcane is harvested, it is loaded onto trucks and riverboats owned by third
parties and transported to one of our eighteen mills for inspection and
weighing. The average distance from the fields on which our sugarcane is
harvested to our mills is approximately 25 kilometers (or approximately 16
miles). The proximity of our milling facilities to the land on which we
cultivate sugarcane reduces our transportation costs and enables us to process
the sugarcane within up to 48 hours of harvesting, thereby maximizing sucrose
recovery as sucrose concentration in sugarcane starts to decrease upon
harvesting. Currently our average sugarcane freight cost is approximately
US$2.35 per ton of sugarcane.
In
transition fiscal year 2009, we crushed 43.1 million tons of sugarcane, or
approximately 7.6% of Brazil’s total sugarcane production. In fiscal year 2008,
we crushed 40.3 million tons of sugarcane, or approximately 8.2% of Brazil’s
total sugarcane production and in fiscal year 2007, we crushed 36.2 million tons
of sugarcane, or approximately 8.5% of Brazil’s total sugarcane production.
Currently, we operate a total of 18 milling facilities, 16 of which we own and
two of which we lease. The mills that we own have a total crushing capacity of
49.1 million tons. Our Da Barra mill has the world’s largest crushing capacity
(approximately 7 million tons). Sixteen of our mills are prepared to produce
both sugar and ethanol and the other two prepare only sugar. Out of the eighteen
facilities, two of our mills produce refined sugar. Each of these facilities
also has packaging and distribution capabilities.
Ethanol
Ethanol
Production Process
We
produce ethanol through a chemical process called yeasting, which is a process
of fermenting the sugars contained in both sugarcane juice and molasses.
Initially, we process the sugarcane used in ethanol production the same way that
we process sugarcane for sugar production. The molasses resulting from this
process is mixed with clear juice and then with yeast in tanks, and the
by-product resulting from the yeasting process, called “yeasted wine”, has an
ethanol content of approximately 7% to 9%. After the yeasting process, which
takes approximately 10 hours, the yeasted wine is centrifuged, so that we can
separate the yeast from the liquid. We use the separated yeast in the ethanol
production process. We then boil the yeasted wine at different temperatures,
which causes the ethanol to separate from other liquids. Hydrous ethanol is
produced after different distillation stages. In order to produce anhydrous
ethanol, hydrous ethanol undergoes a dehydration process. The liquid remaining
after these processes is called vinasse, a by-product we use as fertilizer in
our sugarcane fields. After the distillation and dehydration processes, we
produce hydrous, anhydrous, neutral and industrial ethanol, and store the
ethanol in large tanks.
The
ethanol production flow can be summarized as follows:
·
|
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
separate 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 returned 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.
|
The
following diagram presents a schematic summary of the above-described ethanol
production flow:
Production
Capacity and Output
Our
current annual ethanol production capacity is approximately 446 million gallons
(1.7 billion liters). All of our mills produce ethanol except for the São
Francisco and Bomfim mills. We were the largest producer of ethanol in Brazil in
fiscal years 2007 and 2008 and transition fiscal year 2009, producing
approximately 326.7 million gallons (1.2 billion liters) of ethanol,
representing approximately 7% of Brazil’s total ethanol production and
approximately 402.8 million gallons (1.5 billion liters) of ethanol,
representing approximately 7% of Brazil’s total ethanol production and
approximately 446.0 millions gallons (1.7 billion liters) of ethanol,
representing approximately 6% of Brazil total ethanol production 2007, 2008 and
2009, respectively.
Products
We
produce and sell three different types of ethanol: hydrous ethanol and anhydrous
ethanol for fuel and industrial ethanol. The primary type of ethanol consumed in
Brazil is hydrous ethanol, which is used as an alternative to gasoline for
ethanol-only fueled vehicles and for flex fuel vehicles (as opposed to anhydrous
ethanol which is used as an additive to gasoline). As a result, hydrous ethanol
represented approximately 51% of our ethanol production in fiscal year 2008 and
57% in transition fiscal year 2009.
Customers
We sell
ethanol primarily through gasoline distributors in Brazil mainly at the mill
that sell it to retailers that then sell it at the pump to customers. The
distributors are required by law to distribute gasoline with an ethanol content
ranging from 20% to 25%. Since July 1, 2007, the required ethanol content for
gasoline has been set at 25%. These distributors include Petrobras Distribuidora
S.A., Shell Brasil Ltda., Esso Brasileira de Petróleo Ltda. (who we have
acquired), and Cia. Brasileira de Petróleo Ipiranga who has acquired Texaco
Brasil Ltda. Produtos de Petróleo, among others. We also sell bottled alcohol
products, such as liquid and gel alcohol to consumers in the Brazilian market
and industrial alcohol, which are used in the chemical and pharmaceutical
sectors. In the fiscal years 2007, 2008 and 2009, our largest ethanol customer
was Shell Brasil Ltda., accounting for 14.8%, 20.1% and 27.0% of our total
ethanol net sales, respectively.
In
transition fiscal year 2009, we exported 30.5%, by volume, of the ethanol we
sold, which consisted primarily of refined hydrous ethanol for industrial
purposes, compared to 26.4% in fiscal year 2008 and 20.8% in fiscal
year 2007. Our main customers are trading companies, which distribute our
products mainly to the United States, Japan and Europe.
The
following table sets forth the amount of ethanol that we sold to our principal
customers in transition fiscal year 2009 as a percentage of our net sales of
ethanol.
|
|
|
|
%
of Net Sales For Eleven Months Ended March 31,
2009
|
International
|
|
Vertical
UK LLP.
|
|
55.4
|
|
|
|
Sekab
Biofuels & Chemicals
|
|
17.3
|
|
|
|
Morgan
Stanley Capital Group Inc.
|
|
8.1
|
|
|
|
Vitol
Inc.
|
|
5.2
|
|
|
|
Bauche
Energy S.A.
|
|
5.1
|
|
Domestic
|
|
Shell
Brasil Ltda.
|
|
27.0
|
|
|
|
Euro
Petróleo do Brasil Ltda.
|
|
17.8
|
|
|
|
Cia.
Brasileira de Petróleo Ipiranga.
|
|
9.4
|
|
|
|
Petrobras
Distribuidora S.A.
|
|
8.5
|
|
|
|
Tux
Distribuidora de Conbustíveis Ltda.
|
|
0.3
|
|
For the
international market, Cosan entered into as of April 2009, contracts for exports
totaling approximately 610,000 cubic meters of ethanol, of which 96% based on
FOB Santos (585,000 m³) and 4% based on Ex Works (25,000 m³) . Of this total
volume exported, approximately 10% were done on the basis of price index ESALQ
and were concluded with customers such as Mitsubishi Corporation, Vertical,
Kolmar and Tradhol. For the remaining volume, the prices realized were done
according to the market price on the date of each closing with companies such as
Sekab, Morgan Stanley Commodities, Vertical, Astra Oil Dreyfus Commodities,
Kolmar and Crystalsev. Approximately half of the shipment volume was
concentrated between the months of April and July 2009 and were secured by
letters of credit issued by leading financial institutions.
For the
Brazilian market, Cosan has entered into agreements with Cia Brasileira de
Petróleo Ipiranga, Alesat Combustíveis Ltda., Petrobras Distribuidora S.A. and
Shell Brasil Ltda. for the sale of approximately 383,000 m³ (383 million liters)
of ethanol in transition fiscal year 2009. Approximately 20% of this
amount is delivered by Cosan to the clients, which optimizes Cosan’s logistic
potential. Pricing is based on the ESALQ index and payment generally
occurs within 16 days from delivery. We sell our surplus in Brazil on
a spot basis.
Sales
and Distribution
In
transition fiscal year 2009 our net sales from ethanol operations were US$548.7
million or 18.7% of our total net sales, compared to net sales of US$604.7
million in fiscal year 2008, or 40.5% of our total net sales, and compared to
net sales of US$551.5 million in fiscal year 2007, or 32.8% of our total net
sales in that year.
The
following table sets forth our domestic net sales and volumes of ethanol for the
periods indicated:
|
|
For
Eleven Months Ended
March
31,
|
|
|
For
Fiscal Year Ended
April
30,
|
|
|
|
|
|
|
|
|
|
|
|
Brazilian
net sales (in millions of US$)
|
|
US$ |
361.6 |
|
|
US$ |
438.6 |
|
|
US$ |
413.1 |
|
%
of total net sales
|
|
|
12.4 |
|
|
|
29.4 |
|
|
|
24.6 |
|
Brazilian
sales volume (in millions of liters)
|
|
|
1,038.7 |
|
|
|
1,130.6 |
|
|
|
1,047.4 |
|
%
of total ethanol sales volume
|
|
|
69.5 |
|
|
|
73.6 |
|
|
|
79.2 |
|
The
following table sets forth our export net sales and volumes of ethanol for the
periods indicated:
|
|
For
Eleven Months Ended March 31,
|
|
|
For
Fiscal Year Ended April 30,
|
|
|
|
|
|
|
|
|
|
|
|
Export
net sales (in millions of US$)
|
|
US$ |
187.1 |
|
|
US$ |
166.1 |
|
|
US$ |
138.3 |
|
%
of total net sales
|
|
|
6.4 |
|
|
|
11.1 |
|
|
|
8.2 |
|
Export
sales volume (in millions of liters)
|
|
|
456.4 |
|
|
|
406.5 |
|
|
|
274.7 |
|
%
of total sales volume
|
|
|
30.5 |
|
|
|
26.4 |
|
|
|
20.8 |
|
Although
we primarily sell ethanol in Brazil, we believe that the international ethanol
market has a strong potential to expand substantially. The global trend toward
adoption of cleaner-burning fuel and renewable sources of energy and alternative
fuels, the tendency to reduce reliance on oil producing countries and the
increasing use of flex fuel cars are expected to increase the demand for
ethanol. Broader international acceptance of ethanol as a fuel or fuel additive
could boost our exports of ethanol significantly.
The
majority of our ethanol customers in Brazil receive shipments of ethanol at our
mills. We distribute approximately 11% of our ethanol production in Brazil
through third parties. We transport the ethanol that we produce for export to
the Port of Santos primarily through third-party trucking
companies.
Ethanol
Prices
The price
of ethanol we sell in Brazil is set according to market prices, using the
indices for ethanol published by ESALQ and BM&FBOVESPA, indices for ethanol
as a reference. The prices of the industrial and neutral ethanol (a type of
ethanol which has low impurity levels and is used as a raw material in the food,
chemical and pharmaceutical industries) that we sell are also determined in
accordance with market prices, which historically has been up to 20% higher than
the price of fuel ethanol. Prices of ethanol for export are set according to
international market prices for ethanol. The international ethanol market is
highly competitive. In May 2004, the New York Board of Trade began trading a
futures contract for ethanol, known as the World Ethanol Contract.
The
following table sets forth our average selling prices (in US$ per thousand
liters) for ethanol in the Brazilian market and for exports for the periods
indicated:
|
|
For
Eleven Months Ended March 31,
|
|
|
For
Fiscal Year Ended April 30,
|
|
|
|
|
|
|
|
|
|
|
|
Brazilian
average ethanol selling price
|
|
US$ |
348.1 |
|
|
US$ |
394.5 |
|
|
US$ |
397.9 |
|
Export
average ethanol selling price
|
|
|
409.9 |
|
|
|
503.5 |
|
|
|
285.9 |
|
Average
ethanol selling price
|
|
US$ |
367.0 |
|
|
US$ |
417.1 |
|
|
US$ |
372.4 |
|
Ethanol
Loading Terminal at the Port of Santos
On March
31, 2009 we owned a 32% interest in TEAS, an ethanol loading terminal at
the Port of Santos, fully dedicated to ethanol exports that has a storage
capacity of approximately 10.3 million gallons (40 million liters) of ethanol
and loading rate of approximately 600,000 m3 per year. After the acquisition of
Nova América,
our participation increased to 40%.
Sugar
Sugar
Production Process
There are
essentially three steps in the sugar manufacturing process. First, we crush the
sugarcane to extract the sugarcane juice. We then filter the juice to remove any
impurities and boil it until the sugar crystallizes, forming a thick syrup. We
use these impurities as fertilizer in our sugarcane fields. Lastly, we spin the
syrup in a centrifuge which produces raw sugar and molasses. The raw sugar is
refined, dried and
packaged
at our sugar refineries. We use the molasses in our production of ethanol,
animal feed and yeast, among other products.
Production
Capacity and Output
We were
the largest producer and seller of sugar in Brazil in fiscal year 2007, selling
3.2 million tons of sugar, representing 11.0% of Brazil’s total sugar production
output. In fiscal year 2008, we sold 3.1 million tons of sugar, representing
11.8% of Brazil’s total sugar production output. In transition fiscal
year 2009, we sold 3.1 million tons of sugar,
representing 10.2% of
Brazil’s total sugar production output.
As the
production capacity of our mills is used for both ethanol and sugar, if we had
produced only sugar (one ton of VHP sugar is equivalent to approximately 156
gallons (592 liters) of anhydrous ethanol and 163 gallons (618 liters) of
hydrous), our sugar production for 2007, 2008 and 2009 would have been
approximately 5.2 million tons, approximately 5.7 million tons and approximately
5.9 million tons, respectively, which would have made us the second largest
sugar producer in 2007 and 2008 and the largest world sugar producer in
2009.
Products
We
produce a wide variety of standard sugars, including raw sugar (also known as
VHP sugar), crystal sugar and organic sugar, and refined sugars, including
granulated refined white sugar, amorphous refined sugar, refined sucrose liquid
sugar and refined inverted liquid sugar. Currently, all of our mills produce
standard ethanol and sugar, other than the São Francisco and Tamoio mills that
only produce sugar. The São Francisco mill and the Da Barra mill are our mills
that produce refined sugar. The “Da Barra” brand is the second largest in the
Brazilian market in terms of volume and, after Nova América’s acquisition, we
also sell sugar under the União brand, which is the largest in the Brazilian
market in terms of volume.
Standard sugars. VHP sugar, a
raw sugar with approximately 99% sucrose content, is similar to the type of
sugar traded in major commodities exchanges, including through the standard NY11
contract. The main difference between VHP sugar and the sugar that is typically
traded in the major commodities exchanges is the sugar content of VHP sugar and
the price premium that VHP sugar commands in comparison to most sugar traded in
the commodities exchanges. We export VHP sugar in bulk, to be refined at its
final destination. We also sell a small amount of VHP sugar to the Brazilian
market. Crystal sugar is a non-refined sugar produced directly from sugarcane
juice and sold to industrial companies in Brazil to be used as an ingredient for
food products. We also sell a small amount of crystal sugar to the Brazilian
retail market and to export markets. Organic sugar is a kind of raw sugar
produced from organic sugarcane and is not submitted to any chemical treatments
during its manufacturing process. We sell organic sugar in the international and
Brazilian markets.
Refined sugars. We refine VHP
sugar and crystal sugar into both granulated and amorphous (non-crystallized)
sugar. We sell refined sugar in the Brazilian and export retail and industrial
markets. Refined sugar is used as an ingredient in processed food products such
as milk and chocolate powders, bakery products, powder refreshments, and
pharmaceutical syrups.
Liquid sugars. We refine
crystal sugar to produce sucrose liquid sugar and inverted liquid sugar, which
has a higher percentage of glucose and fructose than sucrose liquid sugar. We
sell both types of sugar for industrial use, mainly for the production of soft
drinks.
Customers
We sell
sugar to a wide range of customers in Brazil and in the international markets.
We primarily sell raw sugar in the international markets through international
commodities trading firms and Brazilian trading companies. Our customers in
Brazil include retail supermarkets, foodservice distributors and food
manufacturers, for which we primarily sell refined and liquid
sugar.
The
following table sets forth the amount of sugar that we sold to our principal
customers in transition fiscal year 2009 as a percentage of our net sales of
sugar. No sugar customer in Brazil represented more than 5% of our net sales of sugar in
transition fiscal year 2009
|
|
|
|
%
of Net Sales For Eleven Months Ended March 31,
2009
|
International
|
|
Sucres
et Denrées
|
|
21.1
|
|
|
|
Fluxo
- Cane Overseas Ltd
|
|
20.9
|
|
|
|
Tate
& Lyle International
|
|
8.7
|
|
|
|
Cargill
International S.A.
|
|
8.2
|
|
|
|
Coimex
Trading Ltd.
|
|
6.9
|
|
For the
international market, we have entered into agreements with our principal
customers with terms of up to three years and have approximately 6.1 million
tons of sugar contracted for fiscal year 2010, 2011 and 2012. Under these
agreements, we deliver agreed-upon volumes of sugar and prices are not
pre-determined. Payment is made through letters of credit from first tier
Brazilian banks prior to each shipment.
For the
Brazilian market, we sell sugar to a broad and consistent client base but we do
not commit to set volumes or prices in advance.
Sales
and Distribution
The
following table sets forth our export sales and volumes of sugar for the periods
indicated:
|
|
For
Eleven Months Ended
March
31,
|
|
|
For
Fiscal Year Ended
April
30,
|
|
|
|
|
|
|
|
|
|
|
|
Export
net sales (in millions of US$)
|
|
US$ |
734.0 |
|
|
US$ |
649.8 |
|
|
US$ |
873.0 |
|
%
of total net sales
|
|
|
25.1 |
|
|
|
43.6 |
|
|
|
52.0 |
|
Export
sales volumes (in thousands of tons)
|
|
|
2,693.2 |
|
|
|
2,641.3 |
|
|
|
2,802.5 |
|
%
of total sales volume
|
|
|
88.3 |
|
|
|
84.8 |
|
|
|
86.5 |
|
The
following table sets forth our domestic net sales and volumes of sugar for the
periods indicated:
|
|
For
Eleven Months Ended
March
31,
|
|
|
For
Fiscal Year Ended
April
30,
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
net sales (in millions of US$)
|
|
US$ |
109.1 |
|
|
US$ |
134.7 |
|
|
US$ |
158.7 |
|
%
of total net sales
|
|
|
3.7 |
|
|
|
9.0 |
|
|
|
9.5 |
|
Domestic
sales volumes (in thousands of tons)
|
|
|
358.5 |
|
|
|
473.1 |
|
|
|
438.1 |
|
%
of total sales volume
|
|
|
11.7 |
|
|
|
15.2 |
|
|
|
13.5 |
|
We
coordinate our Brazilian sugar distribution from our warehouses located in Barra
Bonita, São Paulo and Cachoeirinha, all in the State of São Paulo. We also
deliver sugar products to our customers in Brazil primarily via third-party
trucking companies.
Sugar
Prices
Prices
for our sugar products for export are set in accordance with international
market prices. Prices for raw sugar are established in accordance with the NY11
futures contracts. Prices for refined sugar are established in accordance with
the Lon 5 futures contract, traded on the LIFFE. Prices for sugar we sell in
Brazil are set in accordance with Brazilian market prices, using an index
calculated by the Agriculture School of the University of São Paulo (Escola Superior de Agricultura Luiz
de Queiroz), or “ESALQ”. The following
table
sets forth our average selling prices per ton in U.S. dollars for sugar in the
Brazilian market and for export for the periods indicated:
|
|
|
For
Eleven Months Ended March 31,
|
|
|
|
For
Fiscal Year
Ended
April 30,
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
|
(US$/ton)
|
|
Domestic
average sugar selling price
|
|
US$ |
304.3 |
|
|
US$ |
284.7 |
|
|
US$ |
362.3 |
|
Export
average sugar selling price (raw
and refined)
|
|
|
272.5 |
|
|
|
246.0 |
|
|
|
311.5 |
|
Average
sugar selling price
|
|
US$ |
276.3 |
|
|
US$ |
251.9 |
|
|
US$ |
318.4 |
|
Sugar
Loading Terminal at the Port of Santos
Our
exports of VHP sugar are shipped through the sugar loading terminal operated by
our subsidiary, Rumo, at the Port of Santos, which is located an average
distance of 190 kilometers (approximately 118 miles) from our mills. Our
sugar-loading terminal is equipped with modern freight handling and shipment
machinery. The close proximity of our mills to the port enables us to benefit
from lower transportation costs.
Our
sugar-loading terminal has the capacity to load approximately 50,000 tons of
sugar per day, and to storage approximately 380,000 tons of sugar. The port
facility serves clients, including Sucden, Coimex, Tate & Lyle PLC, Edfman,
Cargill, Bunge and LDC Corp among others, with their transport and export of
sugar and soy products. Pursuant to the Port Concession Agreement with the State
of São Paulo’s Port Authority, the concession granted to operate the south
terminal (Cosan Portuária) will expire in 2036 and the concession granted to the
north terminal (Teaçu), acquired in 2009, expires in 2016, and can be
automatically renewed for an additional 20 years.
In March
2009, Cosan, through its subsidiary Rumo, entered into an agreement with America
Latina Logística or “ALL” for the rail transportation of bulk sugar and other
sugarcane by-products. The agreement envisages investments of approximately R$
1.2 billion by Rumo, which we will expect to raise through equity at the
subsidiary level. These investments will allow the transportation of around nine
million tons per year to the Port of Santos.
Fuel
distribution and lubricants
Our
acquisition of CCL has placed us among the four largest fuel distribution
companies in Brazil. We distribute fuel and produce and distribute lubricants
through CCL.
Fuel
Distribution
Our fuel
distribution business consists of the sale of fuel gasoline and ethanol products
through our branded retail stores and to wholesale distributors. We
distribute ethanol, gasoline, diesel, NGV, kerosene and fuel oil. For the
four-month ended March 31, 2009, CCL’s net revenue from sales and services from
fuel distribution operations were US$1,349.2 million, or 46.1% of our total net
revenue from sales and services.
We are
the fourth largest fuel distributor in Brazil with an estimated 5.3% market
share in terms of volume sold in 2008, according to ANP. In 2008, CCL recorded
sales of more than 4.6 billion liters of fuels, principally gasoline, ethanol,
diesel and fuel oil. We have a strong market presence in the South and Southeast
regions of Brazil, where for the three months ended March 31, 2009, our fuel
sales amounted to 1.1 billion liters (6.6% market share) and 3.1 billion liters
(6.4% market share) in 2008, respectively, according to ANP. The Southeast and
South regions are the largest markets in Brazil, accounting for 49.6% and 17.3%,
respectively, of the total Brazilian fuel market in terms of volume sold in
2008, according to ANP.
We have a
large, well-established distribution and logistics network to support our fuel
marketing operations, with facilities strategically located in 21 states and
concentrated near Brazil’s major fuel markets.
Our
distribution network consists of 45 terminals – ten owned by us, four joint
ventures operated by us, 14 joint venture operated by others and 17 terminals in
which we have throughput arrangements. These terminals have a total static
storage capacity of 749 million liters, of which 238 million liters corresponds
to our exclusive capacity, and through which a total throughput of 14.8 billion
liters were distributed in 2008.
We
believe our best-in-class performance in safety, health and environmental
protection is comparable to the highest international standards adopted by our
peers, based on a wide range of management systems we apply to ensure operations
integrity, consistent procedures and optimal behavior awareness in all aspects
of our business. Safety is a top priority in our distribution terminals, where
we have had a record of more than ten years of accident-free operations. As a
result, our distribution organization received the ExxonMobil´s global Flawless
Operations Award in each of the last five years, in recognition of our
performance in safety, health and environment standards. In our logistic
operations, our delivery vehicles (tank-trucks) traveled more than 12 million
miles without an incident in 2008, reaching a full accident-free year. As a
result of our excellent operational standards, in 2008 and 2007, we were
recognized as one of the leading fuel distribution companies in Brazil,
according to the Petrobras Responsible Partnership Program, in recognition of
our superior operational execution.
We
purchase gasoline and diesel under contracts with Petrobras at set prices paid
by us and our competitors. The terms of our supply agreements with
Petrobras are for one-year terms. We purchase our ethanol from Cosan
and other suppliers in the spot market and, to a lesser extent, under contracts.
The price is dependent on the price of sugar and demand.
Retail
Division
In the
four-month period ended March 31, 2009, we sold approximately 600 million liters
of fuels through a network of 1,458 Esso-branded retail stations, which
accounted for 6.6% of Brazil’s total branded stations as of March 31, 2009,
according to ANP. We have a five-year licensing agreement with ExxonMobil for
the use of the “Esso” brand, expiring in 2013, renewable at ExxonMobil’s sole
discretion. We believe that the “Esso” brand is associated with a reputation for
high quality, differentiating our company from certain other fuel retailers. We
assist a majority of our independent dealers invest and improve their
infrastructure through our market-assistance programs.
We
believe that we are the second most efficient fuel distributor in Brazil among
the five largest distributors measured by retail fuel volume sold per service
station in 2008, based on ANP data. We have an average throughput per
Esso-branded retail station of 231,000 liters per month, well above the industry
average of 163,000 liters per month. We believe that we achieved our high level
of efficiency through a review of our retail network which we implemented over
the last few years, resulting in the elimination of underperforming sites,
particularly in less strategic areas.
Our
retail network is concentrated in and around the most strategic Brazilian fuel
markets. Approximately 56% and 25% of Esso-branded stations in Brazil are
located in the Southeast and South regions of Brazil, respectively, reflecting a
stronger presence in urban areas with higher population density. As a result,
our exposure to passenger fuel such as gasoline and ethanol is higher than cargo
fuels such as diesel. We believe that this is a key competitive advantage as
passenger fuel has historically offered superior margins and growth compared to
cargo fuels. Within our passenger fuels sales, our ethanol throughput per
station offers significant growth potential compared to gasoline, a strategy we
intend to intensely develop and build upon, particularly after being acquired by
Cosan. In 2008, gasoline, diesel and ethanol accounted for 38.0%, 44.5% and
13.9%, respectively, of our volume sold, which totaled 4.2 billion
liters.
We also have a significant presence in
the convenience store market with 200 “Stop & Shop” and “Hungry Tiger”
stores in Brazil, as of March 31, 2009. These are two of
the leading brands in the Brazilian convenience store market with a combined
revenue market share of 10.1% in 2008 according to SINDICOM. Our license for the
use of these brands expires in 2013. In addition, our convenience
store brands have the highest monthly revenue per store in Brazil according to SINDICOM, having sold US$32.6 thousand per store per month in
2007, well above the industry average of US$21.4 thousand per store per month.
We are
not involved in the operation of the
convenience stores. Instead, we are entitled to a start-up fee and to
payments calculated as a percentage of convenience stores sales plus an amount
for advertising expenses. In 2008, we recorded consolidated net
revenue from franchising fees of US$3.8 million from our convenience
stores.
Industrial
& Wholesale Division
We are
also an industrial and wholesale, or I&W, fuel distributor, with sales of
458 million liters of gasoline, diesel, fuel oil, ethanol and kerosene to our
industrial and wholesale clients in 2008. Most of our sales are concentrated in
diesel oil and gasoline. In 2008, diesel oil and gasoline accounted for 82.9%
and 6.2% of our I&W volume, respectively. Most of our industrial
and wholesale sales are through spot sales and short term contracts. We focus on
high grade customers, such as large Brazilian corporations, as well as flag
independent retailers and resellers.
The total
Brazilian lubricants market by volume of liters sold in 2008 was 1,113 million
liters, according to SINDICOM, ranking Brazil as the world's fifth largest
lubricants market by volume. In 2008, CCL sold a total of 128.9 million liters
of lubricants. For the three months ended March 31, 2009, we sold a total of
27.4 million liters of lubricants, corresponding to an estimated market share of
11.7%, according to SINDICOM, and making us the fourth largest lubricant player
in Brazil. We sell passenger vehicle lubricants, commercial vehicle lubricants
and industrial lubricants under the “Mobil” and “Esso” brands, among others,
both of which are licensed to us until 2018 by ExxonMobil. We use distributors
and Esso-branded retail stations to sell our lubricants products, as well as
direct sales to industrial customers. We capture significant synergies by
selling to our retail service station network and I&W customer
accounts.
Our
Lubricants Distributor Program is recognized as a competitive advantage in the
Brazilian market. Participating distributors can only sell Mobil and Esso
lubricants and are currently limited to 15 with exclusive geographical
coverage. An important differential is the common ERP system used by the
distributors that interfaces with our SAP business software system. We
believe that these characteristics make our distributors network unique,
allowing us to launch new products and implement new programs with speed and
flawless execution.
ExxonMobil
is a leading brand in the lubricants industry, operating through global
strategic alliances with automotive and industrial equipment manufactures,
including Caterpillar, Mercedes-Benz, Peugeot, Toyota and Honda, collaborating
to develop new formulations. We have a licensing agreement for our use of
ExxonMobil’s brands and formulations until 2018, renewable at ExxonMobil’s sole
discretion, which gives us access to ExxonMobil’s leading technology and
international feedstock supplies.
We have
focused on high-grading our product mix to be more heavily weighted towards
higher margin products. In 2003, we commenced a plan to focus on simplifying our
product offering and supply chain, with a particular emphasis on high margin
products such as synthetic lubricants (i.e., Mobil 1 RACING 2T and Mobilith SHC
007). In 2008, our premium, higher margin products represented approximately 64%
of our lubricant volume sold, an increase of approximately 10 percentage points
from approximately 54% in 2006. In addition, we have also re-channeled our sales
directly through 15 well-established, exclusive high-grade distributors. These
efforts have resulted in a strong perception of quality and confidence in our
products by our customer base.
Production
Capacity and Output
Our
lubricant operations consist of a wholly-owned Lubricants Oil Blending Plant, or
LOBP, located in Rio de Janeiro, with annual production capacity of 265.2
million liters of lubricants and 5,112 tons of grease for 2008. Our LOBP
facility has operated for over twelve years without a single lost-time incident,
which represents more than 6 million worker-hours worked in a safe workplace,
and operates at a utilization rate of approximately 50% of its total capacity as
of March 31, 2009. This utilization rate offers an opportunity for growth
through expansion of our market share or participation in Brazil’s steady market
growth with limited
additional
capital investments required. We also own Duque de Caxias base oil terminal and
one secondary warehouse in Manaus.
We
purchase virtually all of our base oils from Petrobras, to use as feedstock in
our blending plant located in Rio de Janeiro. In addition, we also have a pier
facility available for importing raw material, which gives us additional
flexibility and a significant competitive advantage. The lubricants produced at
our LOBP are sold to exclusive distributors and direct
customers. Distributors have an evergreen contract, and most direct
customers have a five year contract at prices set by us. Distributors then
resell the products to customers in our retail market. In addition,
distributors are contractually obligated to sell “Esso” and “Mobil” products and
may not sell products directly competing with such
brands. Approximately 97% of our sales volume is blended
domestically, with the majority of the production delivered to the domestic
market. Most of our lubricant sales are concentrated in the Southeast and South
regions of Brazil.
Our LOBP
provides an efficient and reliable local blending facility with the ability to
import base oils. Approximately 6% of our finished lubricants volumes
comes from our branded service stations. Since 2004, our branded
service stations have been entirely served by our distributors, highlighting the
significant synergies between our fuel marketing and lubricants
businesses. On average, the LOBP receives approximately 2,600 orders
per month, 4,100 invoices per month and has 540 shipments per month with 60%
delivered FOB during 2008. The LOBP was built as a grassroots
facility and commenced operations in 1957. Significant investments were
undertaken in 2002. The distribution and logistics system for LOBP relies on six
packaged carriers, three bulk carriers and one inbound carrier to distribute the
products. Our LOBP is also supported by warehouses in Duque de Caxias and
Manaus.
Cogeneration
of Electrical Power
Sugarcane
is composed of water, fibers, sucrose and other sugar molecules (glucose and
fructose) and minerals. When the sugarcane goes through the milling process, we
separate the water, sugar and minerals from the fibers, and are left with
sugarcane bagasse. Sugarcane bagasse is an important by-product of sugarcane,
and it is used as fuel for the boilers in our plants, through the so-called
cogeneration process.
Cogeneration
is the production of two kinds of energy—usually electricity and heat—from a
single source of fuel. In our process, sugarcane bagasse is burned at very high
temperatures in boilers, heating the water that is transformed into steam. This
steam can be used in the form of: mechanical energy (to move crushers, for
example), thermo energy (to heat the juice in the crystallization process, for
example) and electricity, when this steam is used to move turbo-generators.
Historically, the energy produced by Brazilian mills has not been price
competitive, when compared to the low cost Brazilian hydro-electricity, which
accounts for almost 90% of the country’s electricity matrix. Consequently, the
majority of the groups in the sugar and ethanol sector have not invested in
expanding their energy generation for sale, and the majority of the mills were
constructed with low-pressure boilers, which are considered not to be the most
efficient process.
Since
2000, the Brazilian economy has experienced significant growth, which in turn
has resulted in increased demand for energy. However, hydro- and
thermo-electricity have not been able to keep pace for the following reasons:
(1) new hydro-electric plants are located in regions (such as the Amazon)
distant from consumption centers; (2) significant lead-time is required to
construct new hydro- and thermo-electric plants; (3) significant investments are
required for transmission lines, pipelines (for natural gas used in
thermo-electric plants) and barges; (4) significant environmental costs
associated with both types of electricity generation; and (5) increased price of
the fuel (natural gas) for thermo-electricity and dependence on Bolivia
(principal natural gas supplier). As a result, energy prices in Brazil have been
increasing and other alternative sources, such as the electricity from the
cogeneration of the sugarcane bagasse, have become increasingly competitive and
viable options to satisfy increasing energy demands.
All of
our plants are currently energy self-sufficient and the majority of them use
low-pressure boilers. In order to expand the energy cogeneration in our mills,
we have to replace our current low-pressure boilers with new high-pressure
boilers. The steam generated by burning the same amount of bagasse in
high-pressure boilers will yield higher pressure and higher temperature and, in
turn, turbo-generators will be able to produce
significantly
more electricity. Excess energy can be sold to the grid. In 2001, we invested in
changing one of the boilers at Usina da Serra, which made it possible for us to
generate excess electricity that we sold to Companhia Paulista de Força e Luz
(CPFL), one of the largest electric power distributors in the State of São
Paulo, pursuant to a ten-year power purchase agreement. The installed capacity
for third-party sales of this pilot project is only 9 MW. Our current total
installed capacity is approximately 294.3 MW, of which a substantial
majority is used to generate energy for our own industrial operations. Based on
internal studies, we believe that we can increase this capacity to
approximately 980 MW, of which approximately 700 MW would be available to
generate electricity for third-party consumption. Currently, we plan to install
cogeneration systems in thirteen of our 23 mills, for which we have
already developed internal studies. We have already invested approximately
R$1.0 billion in cogeneration systems for six mills, which will generate
approximately 800 MWh/year to be sold to the Brazilian electricity
grid starting in 2009, and currently plan to invest approximately R$1.4
billion for an additional seven mills subject to our obtaining
financing at favorable conditions
In
December 2005, our subsidiary Cosan Bioenergia S.A. won in a federal
government-held auction the right to sell and supply excess electricity
generated from our Costa Pinto and Rafard mills. Pursuant to the terms of the
agreement, we can sell approximately 271,500 MWh per year at the current average
price of US$75.8 per MWh, beginning with the 2009/2010 harvest for a period of
15 years, adjusted annually for inflation according to variation in the IPCA. In
October 2006, Corona Bioenergia also won a public bid to sell electric energy
generated by our Bonfim facility to a pool of 24 electricity distributors.
Pursuant to the terms of this agreement, we can sell approximately 183,960 MWh
per year at an average price of US$66.3 per MWh, beginning with the 2011/2012
harvest for a period of 15 years, adjusted annually for inflation according to
variation in the IPCA.
On August
14, 2008, Cosan (through its subsidiary Barra Bioenergia S.A.) signed an
agreement with CPFL Comercialização Brasil S.A., or “CPFL” to sell to it between
2,900 GWh and 3,600 GWh of electric power over a 15-year period, totaling
approximately R$ 500 million, adjusted annually by the variation in the IGP-M
inflationary index. The energy will be supplied by a cogeneration facility to be
built in association with the Gasa unit. The agreement also envisages the supply
of any surplus electricity from the same plant, including from the increased use
of biomass, i.e. the use of sugarcane leaves and straw in addition to
bagasse.
Given the
advanced stage of the cogeneration projects in the Costa Pinto and Rafard
plants, scheduled for start-up in 2009, Cosan S.A. Bioenergia will also supply
CPFL with 100 GWh over six months beginning in September/08. In addition,
January/09 will see the first revenue from the energy sold at the 2005 auction,
representing a monthly cash intake of approximately R$4.0 million.
On August
14, 2008, Cosan (through its subsidiaries Barra Bioenergia S.A. and
Cosan Centroeste S.A. Açúcar e Álcool) was awarded a energy contract at the
First Reserve Energy Auction. The Barra, Bonfim and Jataí units will build
biomass cogeneration plants to produce 9,504.6 GWh over 15 years as of 2010,
with a present value of around R$1.5 billion adjusted by the IPCA consumer price
index.
On
September 11, 2008, Cosan, through its bioenergy subsidiaries, also entered into
other contracts for the supply of biomass electricity through bilateral
agreements with Rede Comercializadora de Energia S/A, in accordance with which,
the Univalem and Diamante plants will also provide approximately 3,000 GWh at a
current amount of close to R$489 million, adjusted annually by the variation in
the IGP-M inflationary index.
On
September 30, 2008, Cosan (through its subsidiary Cosan Centroeste S.A. Açúcar e
Álcool) was awarded a energy contract at the 7th New Energy Auction. A biomass
cogeneration project will be commercially operated at the Paraúna unit for the
period of 15 years starting in 2013, for the total of 4,599 GWh with present
value of approximately R$670 million, adjusted by the IPCA.
We
believe that the principal advantages of energy generated by burning sugarcane
bagasse are:
·
|
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.
|
In
addition, smaller investments in transmission lines to the Brazilian power grid
are required because our mills are located close to consumption
centers.
Brazil’s
electricity system is undergoing widespread reforms. In light of projected
growth rates in the Brazilian economy, we believe that increased investments in
alternative energy sources, such as cogeneration, will be required as
hydro-electric energy prices continue to rise. We believe investments in
cogeneration will be encouraged by the Brazilian government, which has offered
incentives, such as more attractive financing lines from BNDES, for generation
from sugarcane bagasse.
Carbon
Credits
Pursuant
to the Kyoto Protocol, signatory nations will have the option of engaging in
emissions trading in order to comply with Kyoto Protocol emissions levels. The
emissions trading option enables a country to purchase Assigned Amount Units, or
“AAUs”, Certified Emissions Reductions, or “CERs”, Emission Reduction Units or
“ERUs” and Removal Units, or “RMUs” from another country that has excess unused
AAUs, CERs, ERUs and RMUs, also known as carbon credits. The purchasing country
can then use these carbon credits to meet its climate mitigation objectives.
Demand has arisen primarily from European, Japanese and Canadian
companies.
Since
2002, we have been selling carbon credits generated from the energy we sell at
Serra mill. Through this pilot project we initiated our investments in electric
energy cogeneration, in order to sell the surplus. The amount of energy sold
annually is currently immaterial (approximately 30 GWh), which corresponds to
9000 CERs generated annually. On March 31, 2009, we have sold 8,692 tons of CO2
CERs for US$132 thousand. The Serra mill has been accredited to sell CERs for a
first period of seven years, which expires in 2009. However, we are in the
process of renewing for an additional seven-year period. This project was a
pioneer initiative recognized and approved by the United Nations as one of the
first carbon credit trading projects in the world. We generate carbon credits as
we are producing and selling a cleaner electricity generated from bagasse, which
is a renewable source. As a result, when we send this energy to the grid, we are
providing a substitute for a fossil fuel source of energy. This substitution is
measured by companies accredited by the United Nations, through approved
methodologies, to quantify the amount of carbon credits to be generated and
therefore available for sale.
We are
also developing four new projects in our Costa Pinto, Rafard, GASA and Bonfim
Mills, which are expected to generate 300,000 tons of carbon credits
annually. These four new projects are currently under the United
Nations certification process. Moreover, we believe that Cosan has a great
potential for generating carbon credits, if similar projects are implemented in
the other cogeneration plants. However, we cannot predict the future of this
market, or to quantify our ability to generate and sell any amount of CERs, as
these private sector emissions trading markets remain new, uncertain and very
dynamic.
Competition
The sugar
industry in Brazil has experienced increased consolidation through merger and
acquisition activity during the last several years. Most of this activity has
involved companies and facilities located in the Center-South region of Brazil,
one of the most productive sugar producing regions in the world. Despite this
recent wave of consolidation, the industry remains highly fragmented with more
than 320 sugar mills and 100 company groups participating. We are the largest
ethanol and sugar producer in Brazil in terms of production
volume
and sales, with 43.1 million tons of crushed sugarcane in fiscal year 2009, more
than three times the amount of sugarcane crushed by Grupo Santelisa Vale, the
second largest ethanol and sugar producer in Brazil.
Many
ethanol and sugar producers in Brazil, including Grupo Zillo Lorenzetti and
Grupo Irmãos Biagi, market their ethanol and sugar products through the
Copersucar. Copersucar is a private cooperative that was created in 1959 by 10
sugar mills in the State of São Paulo in order to provide a shared commercial
distribution for their ethanol and sugar production. Currently, Copersucar is
comprised of 33 producers in the states of São Paulo, Minas Gerais and Paraná.
During the 2007/2008 harvest, Copersucar’s affiliated mills crushed
approximately 68 million tons of sugarcane.
We also
face competition from international sugar producers. We are the third largest
sugar producer in the world, behind British Sugar (4.4 million tons of sugar
produced in the 2008/09 harvest) and Südzucker AG of Germany (with 4.0 million
tons of sugar sold in the same period). These producers, however, are the
beneficiaries of considerable governmental subsidies in their principal sales
markets.
In the
fuel the distribution business, we are subject to competition, both from
companies in the industries in which we operate and from companies in other
industries that produce similar products. Our competitors include service
stations of large integrated oil companies, independent gasoline service
stations, convenience stores, fast food stores, and other similar retail
outlets, some of which are well-recognized national or regional retail systems.
The Brazilian fuel distribution industry has consolidated significantly in
recent years, with the five major distributors increasing their combined market
share from 65.2% in 2000 to 75.3% in 2008. The top-five distributors in Brazil
are: Petrobras, operating through the BR Distribuidora brand, Ultrapar S.A.,
through the Ipiranga and Texaco brands, Shell Brasil Ltda., a subsidiary of
Royal Dutch Shell, Gas and Petrochemical Group and AleSat Combustíveis S.A., a
domestic Brazilian fuels distribution. The principal competitive factors
affecting the retail marketing operations include site location, product price,
selection and quality, site appearance and cleanliness, hours of operation,
store safety, customer loyalty and brand recognition. We believe that we are in
a strong position to compete effectively on ethanol due to the synergies that
further integration with Cosan will bring.
We also
face competition from international ethanol producers that use other ethanol
sources, such as corn and sugar beet for the generation of fuel
ethanol.
Intellectual
Property
Cosan has
39 trademarks registered with the National Intellectual Property Institute, or
“INPI”, along with 24 pending trademark registration requests. Our principal
trademark, Da Barra, is registered with INPI in multiple classes, which allows
us to use this trademark in the sugar, chocolate and various other
markets.
CCL has
no trademarks registered with the INPI and have sixteen pending trademark
registration requests. We are licensed to use ExxonMobil trademarks. We have a
five-year agreement for fuels and ten-year agreement for lubricants, with
ExxonMobil, expiring in 2013 and 2018 respectively, renewable at ExxonMobil's
sole discretion, for the use of the “Esso” and “Mobil” brands, among
others.
We
currently have no patents registered with the INPI.
Research
and Development
Crop
Monitoring
In 2002,
we established a partnership with the University of Campinas (Universidade de Campinas), or
UNICAMP, to develop a geographic information system to improve the monitoring of
our crops. Through this partnership, we have developed a tool that monitors the
sugarcane crops with the use of satellite images. By using the system we are
able to have more accurately production estimative. Further, we are able to get
extremely detailed information on the state of our crops, which gives us the
opportunity to improve the
procedures
of agricultural crop treatment. Currently, we monitor all land where we produce
sugarcane, either in our own land, on leased areas or areas of
suppliers.
Development
of Sugarcane Varieties and other Products
We have
agreements with the following technological institutes for the development of
new varieties of sugarcane: Sugarcane Technology Center (Centro de Tecnologia
Canavieira), or “CTC”, in which we are a major shareholder; Federal
University of São Carlos (Universidade Federal de São
Carlos), or “UFSCAR”; and Research Agronomical Institute (Instituto Agronômico de
Pesquisa), or “IAC”. CTC is a private institution focused on research and
development of new technologies for agricultural activities, logistics, and
industry, as well as creating new varieties of sugarcane. CTC has already
developed biological ways for controlling pests and biodegradable plastic (PHB), and also created a
VVHP-type (very, very high
polarization) sugar that requires less energy to be processed, and
cogeneration technology.
We also
analyze and develop different products used to facilitate and enhance the growth
of sugarcane, such as herbicides and fertilizers, also taking into consideration
the different conditions of our sugarcane fields. We share this technology with
our sugarcane suppliers to enable them to enjoy higher yields and better quality
sugarcane.
In June
2006, we engaged CanaVialis S.A., or “CanaVialis”, to provide Cosan access to
its sugarcane genetic improvement program specifically tailored to our mills.
CanaVialis, which is affiliated with Monsanto, is Brazil’s only privately-owned
firm focused on the genetic improvement of sugarcane. We believe we will benefit
from their support services and use of their biofactory (the largest in Brazil),
which will allow us to decrease the amount of time required for seedling
production and grant us access to new, improved sugarcane varieties through
their genetic improvement program. CanaVialis set up an experimental station in
our Univalem mill, which began testing new species of sugarcane especially
selected for Cosan’s production framework.
We
invested approximately US$3.4 million and US$2.9 million in research and
development in the fiscal years 2007 and 2008. In transition fiscal year 2009,
we invested US$2.3 million.
Sugarcane
varieties for greenfields
We have
also identified other areas where we can build additional greenfield projects.
We believe Brazil has land available to expand sugarcane plantations. The areas
where we believe there is potential for sugarcane growth are illustrated
below:
We have
collected weather and soil data for all these areas. However, in order to obtain
the productivity levels that we expect, we will first establish field trials to
identify the varieties that can be cultivated in each target region. We will
select sugarcane varieties adapted to each target region through a customized
genetic selection program. For that purpose, we intend to establish up to ten
small field stations in the regions specified in the right side map
above.
CanaVialis
has been working with Cosan to organize this network of stations and to ensure
the quality of the field trials and the region-specific genetic selection
program. Approximately US$25.0 million of the net proceeds of our initial public
offering were used in funding this network of field stations over the next six
years. We plan to use advanced genetic research provided by CanaVialis to select
and breed sugarcane varieties for each of these new production
environments.
Environmental
Regulations
We are
subject to various Brazilian federal, state and local environmental protection
and health and safety laws and regulations as well as foreign environmental
protection and health and safety laws and regulations governing, among other
things:
·
|
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.
|
We may
not have been or may not be at all times in complete compliance with such laws
and regulations. Violation of these laws and regulations can result in
substantial fines, administrative sanctions, criminal penalties, revocations of
operating permits and/or shutdowns of our facilities.
We may be
required to repair or remediate environmental damage we cause, as well as damage
caused by third-party subcontractors. Additionally, under certain environmental
laws, we could be held strictly liable for all of the costs relating to any
contamination at our or our predecessors’ current and former facilities and at
third-party waste disposal sites. We could also be held liable for any and all
consequences arising out of human exposure to hazardous substances such as
pesticides and herbicides or other environmental damage.
Permits. Certain
environmental laws also require us to obtain from governmental authorities
permits, licenses and authorizations to install and operate our mills, to burn
sugarcane, and to perform some of our other operations. In addition, under
federal and state laws, we are required to obtain authorizations to use water
resources for irrigation and industrial purposes. Violations of such laws and
regulations can result in the revocation or modification of our licenses,
permits and authorizations, as well as administrative sanctions, fines and
injunctions for the individuals and entities involved.
In
Brazil, prior to the construction, setting up, extension or operation of
facilities or the performance of activities that use natural resources or that
may have a current or potential polluting effect, environmental licenses must be
obtained from the proper federal, state and/or municipal governmental
authorities. In issuing such environmental licenses, the competent governmental
authority establishes conditions, restrictions and inspection measures
applicable to the project, according to environmental laws and administrative
regulations, including pollution control and environmental management
requirements.
We are
subject to the regulations of the Companhia de Tecnologia de
Saneamento Ambiental—CETESB, or “CETESB”, the pollution control and
remediation agency of the State of São Paulo, the AGMA – Agência Goiana de
Meio-Ambiente, the pollution control and remediation agency of the State
of Goiás and the IMASUL –
Instituto de Meio-Ambiente do Mato Grosso do Sul, the pollution control
and remediation agency of the State of Mato Grosso do Sul.
Environmental Licensing of
Cosan. On March 31, 2009 we operated 18 mills (comprising two
refineries) and two port facilities in Brazil. We have obtained 16 environmental
operating licenses for our mills, and we have applied for licenses for the
remaining two. Our port facilities have been excused from obtaining an
installation license, which is granted to authorize setting up the project based
on specifications provided for in the approved plans, programs and designs,
including measures of environmental control and further conditions.
Sugarcane Burning. São Paulo
state and certain local governments have established laws and regulations that
limit our ability to burn sugarcane or that reduce and/or eliminate the burning
of sugarcane entirely. São Paulo state regulations provide for the gradual
reduction of the burning of sugarcane. For areas that are suitable for the
replacement of a manual with a mechanical harvest, the law requires the burning
of sugarcane to be reduced as follows:
·
|
50%
of the harvested area by 2011;
|
·
|
80%
of the harvested area by 2016; and
|
·
|
100%
of the harvested area by 2021.
|
For areas
that do not technically allow the replacement of a manual harvest for a
mechanical harvest, the burning of sugarcane must be reduced as
follows:
·
|
10%
of the harvested area by 2011;
|
·
|
20%
of the harvested area by 2016;
|
·
|
30%
of the harvested area by 2021;
|
·
|
50%
of the harvested area by 2026; and
|
·
|
100%
of the harvested area by 2031.
|
Sugarcane
producers are also required to burn sugarcane at least one kilometer from urban
centers, at least 25 meters from telecommunication stations, at least 15 meters
from electricity transmission and distribution lines and at least 15 meters from
federal and state railways and highways. The law requires sugarcane producers to
give prior notice of the burning of sugarcane to the State of São Paulo
Department for
the
Protection of Natural Resources (Departamento Estadual de Proteção de
Recursos Naturais), or “DEPRN”, and to the owners of lands surrounding
the area where the sugarcane will be burned.
Certain
local governments have recently enacted more stringent laws that prohibit
sugarcane burning completely. It is unclear at this point which, if any, of our
properties might be affected by these local laws. In addition, the laws in this
area are uncertain, complex and subject to change at any time.
There is
a likelihood that increasingly stringent regulations relating to the burning of
sugarcane will be imposed by the State of São Paulo and other governmental
agencies in the near future. As a result, the costs to comply with existing or
new laws or regulations are likely to increase, our ability to operate our own
plants and harvest our sugarcane crops may be adversely impacted, and the price
we may have to pay to purchase already processed sugar may
increase.
Our
actual or alleged failure to comply with these laws and regulations has
subjected and will in the future subject us to legal and administrative actions.
These actions can impose civil or criminal penalties on the company, including a
requirement to pay penalties or fines, an obligation to make capital and other
expenditures or an obligation to materially change or cease some
operations.
We cannot
assure you that the above costs, liabilities and adverse impacts to our
operations will not result in a material adverse effect on our business, results
of operations or financial condition.
Brazilian Forestry Code. We
are subject to the Brazilian Forestry Code, which prohibits land use in certain
permanently protected areas, and obligates us to maintain and register a
forestry reserve in each of our rural landholdings covering at least 20% of the
total area of such land. In those properties where the legal forestry reserve
does not meet the legal minimum, we are permitted to perform gradual
reforestation until 100% of the legal forestry reserve is restored. We are
currently performing the gradual reforestation of our properties and are in the
process of recording this reforestation in the registries of our landholdings,
as required by applicable law. If we violate or fail to comply with the
Brazilian Forestry Code, we could be fined or otherwise sanctioned by
regulators.
Environmental Proceedings. We
are party to a number of administrative and judicial proceedings for actual or
alleged failure to comply with environmental laws and regulations which may
result in fines, shutdowns, or other adverse effects on our
operations.
Noncompliance
with environmental legislation subjects infractors to administrative, civil
and/or criminal sanctions.
·
|
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.
|
In public
civil actions against polluters, the plaintiff may seek money damages or
specific performance to, among other things, (1) discontinue polluting
activities; (2) restore the environment; or (3) fulfill any environmental law
requirement. Usually money damages are awarded to plaintiffs as compensation for
losses or are imposed on polluters when the environment may not be restored. The
plaintiff may also obtain preliminary or temporary injunctions against polluters
by proving the existence of irreparable damages to the environment or public
health.
·
|
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$50.0 to R$50.0 million
(US$21.6 to US$21.6 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.
|
We have
made and expect to make substantial capital expenditures on an ongoing basis to
continue to ensure our compliance with environmental laws and regulations,
including those mentioned above. Our environmental compliance costs are likely
to increase as a result of the projected increase in our production capacity. In
addition, as a result of future expansion of our activities, as well as future
regulatory and other developments, the amount and timing of future expenditures
required for us to remain in compliance with environmental regulations could
increase substantially from their current levels.
Insurance
Cosan
maintains insurance covering all of our inventory of ethanol and sugar and
buildings and equipment in certain of our mills, against fire, lightning and
explosions of any nature, in an aggregate amount of approximately R$2.3 billion
(US$1.0 billion). Our inventories of ethanol and sugar located in different
mills and warehouses are covered by insurance policies that are annually
renewed.
Cosan
Portuária maintains civil liability insurance providing protection against any
damage caused to third parties in its warehouses, equipment and third parties
goods and boats in an aggregate amount equal to approximately R$107 million
(US$46.2 million). Cosan Portuária also maintains employers’ civil liability
insurance.
CCL
maintains real property insurance against fire, lightning and explosions of its
buildings and equipments. The inventories of fuels and lubricants are located in
warehouses and are insured under a policy that expires in October 2009. CCL also
maintains insurance covering buildings and equipment located in certain
terminals, warehouses, tanks, other facilities and services stations. CCL
maintains an insurance policy covering products that are transported by truck,
ship, ferry and trains. CCL maintains a third party liability policy covering
damages to third parties.
We do not
anticipate having any difficulties in renewing any of our insurance policies and
believe that our insurance coverage is reasonable in amount and consistent with
industry standards in Brazil.
The
following subsidiaries were included in our consolidated financial statements
for the eleven months ended March 31, 2009 and the years ended April 30, 2008
and 2007.
|
|
Ownership
% as of March 31,
|
|
Ownership
% as of April 30,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cosan
S.A. Indústria e Comércio
|
|
|
68.9 |
|
|
– |
|
|
62.8 |
|
|
|
– |
|
|
51.0 |
|
|
|
– |
Cosan
Operadora Portuária S.A.
|
|
|
– |
|
|
62.0 |
|
|
– |
|
|
|
56.5 |
|
|
– |
|
|
|
45.9 |
Administração
de Participações Aguassanta Ltda.
|
|
|
– |
|
|
63.0 |
|
|
– |
|
|
|
57.5 |
|
|
– |
|
|
|
46.7 |
Agrícola
Ponte Alta S.A.
|
|
|
– |
|
|
68.6 |
|
|
– |
|
|
|
62.2 |
|
|
– |
|
|
|
50.2 |
Cosan
Distribuidora de Combustíveis Ltda.
|
|
|
– |
|
|
68.8 |
|
|
– |
|
|
|
62.7 |
|
|
– |
|
|
|
50.9 |
Cosan
S.A. Bioenergia
|
|
|
– |
|
|
68.9 |
|
|
– |
|
|
|
62.8 |
|
|
– |
|
|
|
50.9 |
Corona
Bioenergia S.A.(1)
|
|
|
– |
|
|
– |
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
50.2 |
FBA
Bioenergia S.A.(1)
|
|
|
– |
|
|
– |
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
50.2 |
Barra
Bioenergia S.A.(1)
|
|
|
– |
|
|
68.6 |
|
|
– |
|
|
|
62.2 |
|
|
– |
|
|
|
50.2 |
Cosan
International Universal Corporation
|
|
|
– |
|
|
68.9 |
|
|
– |
|
|
|
62.8 |
|
|
– |
|
|
|
51.0 |
Cosan
Finance Limited
|
|
|
– |
|
|
68.9 |
|
|
– |
|
|
|
62.8 |
|
|
– |
|
|
|
51.0 |
Da
Barra Alimentos Ltda.
|
|
|
– |
|
|
68.6 |
|
|
– |
|
|
|
62.2 |
|
|
– |
|
|
|
50.2 |
Jump
Participações S.A.(2),(4)
|
|
|
– |
|
|
– |
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
– |
Mundial
Açúcar e Álcool S.A.(3),(4)
|
|
|
– |
|
|
– |
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
– |
Alcomira
S.A.(3),(4)
|
|
|
– |
|
|
– |
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
– |
ABC
125 Participações Ltda.(2),(4)
|
|
|
– |
|
|
– |
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
– |
ABC
126 Participações Ltda.(2),(4)
|
|
|
– |
|
|
– |
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
– |
Barrapar
Participações Ltda.
|
|
|
– |
|
|
68.6 |
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
– |
Aliança
Indústria e Comércio de Açúcar e Álcool S.A.
|
|
|
– |
|
|
68.6 |
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
– |
Águas
da Ponte Alta S.A.
|
|
|
– |
|
|
68.6 |
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
– |
Vale
da Ponte Alta S.A.
|
|
|
– |
|
|
68.6 |
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
– |
Bonfim
Nova Tamoio—BNT Agrícola Ltda.
|
|
|
– |
|
|
68.6 |
|
|
– |
|
|
|
62.2 |
|
|
– |
|
|
|
50.2 |
Usina
da Barra S.A. Açúcar e Álcool
|
|
|
– |
|
|
68.6 |
|
|
– |
|
|
|
62.2 |
|
|
– |
|
|
|
50.2 |
|
|
Ownership
% as of March 31,
|
|
Ownership
% as of April 30,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copsapar
Participações S.A.
|
|
|
– |
|
|
|
62.0 |
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
– |
Aguapar
Participações S.A.(2),(4)
|
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
– |
Usina
Açucareira Bom Retiro S.A.(3),(4)
|
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
– |
Grançucar
S.A. Refinadora de Açúcar
|
|
|
– |
|
|
|
68.9 |
|
|
– |
|
|
|
62.8 |
|
|
– |
|
|
|
51.0 |
Cosan
Centroeste S.A. Açúcar e Álcool (5)
|
|
|
– |
|
|
|
68.6 |
|
|
– |
|
|
|
62.2 |
|
|
– |
|
|
|
51.0 |
Benálcool
Açúcar e Álcool S.A.
|
|
|
– |
|
|
|
68.6 |
|
|
– |
|
|
|
62.2 |
|
|
– |
|
|
|
– |
Cosanpar
Participações S.A.
|
|
|
– |
|
|
|
68.9 |
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
– |
Cosan
Combustíveis e Lubrificantes S.A.(6)
|
|
|
– |
|
|
|
68.9 |
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
– |
(1)
|
FBA
Bioenergia merged into Barra Bioenergia and Corona Bioenergia, being
renamed as Barra Bioenergia S.A.
|
(2)
|
Holding
companies set up in 2006 to allow the acquisition
process.
|
(3)
|
Companies
acquired through holding companies.
|
(4)
|
Merged
into Cosan in 2007.
|
(5)
|
The
Company sold its equity interest in this company, on July 23, 2007, to
Agrícola Ponte Alta S.A.
|
(6)
|
Cosan
Combustíveis e Lubrificantes S.A. was included from December 1, 2008
onwards.
|
The
following table sets forth the amounts related to property, plant and equipment
at the end of transition fiscal year 2009 and each of the last two fiscal
years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of US$)
|
|
Land
and attached properties
|
|
US$ |
401.1 |
|
|
US$ |
262.4 |
|
|
US$ |
158.0 |
|
Machinery,
equipment and installations
|
|
|
1,285.5 |
|
|
|
1,235.3 |
|
|
|
868.8 |
|
Vehicles
|
|
|
123.9 |
|
|
|
117.4 |
|
|
|
87.8 |
|
Furniture,
fixtures and computer equipment
|
|
|
72.1 |
|
|
|
50.5 |
|
|
|
20.1 |
|
Buildings
|
|
|
229.3 |
|
|
|
128.6 |
|
|
|
94.2 |
|
Leasehold
improvements
|
|
|
153.4 |
|
|
|
141.6 |
|
|
|
93.3 |
|
Construction
in progress
|
|
|
395.2 |
|
|
|
372.0 |
|
|
|
130.3 |
|
Sugarcane
plant development costs
|
|
|
655.3 |
|
|
|
730.7 |
|
|
|
373.3 |
|
|
|
|
3,315.8 |
|
|
|
3,038.4 |
|
|
|
1,825.8 |
|
Accumulated
depreciation and amortization
|
|
|
(1,044.0 |
) |
|
|
(1,020.3 |
) |
|
|
(631.8 |
) |
Total
|
|
US$ |
2,271.8 |
|
|
US$ |
2,018.1 |
|
|
US$ |
1,194.0 |
|
The
following table sets forth the types of products produced by and the production
capacity and production volumes of each of our mills for the periods
indicated:
Name
|
|
Products
|
|
|
Annual
Crushing Capacity
|
|
|
|
Sugarcane
Volume Processed
|
|
|
|
|
|
|
|
|
|
For
Eleven Months Ended
|
|
|
|
For
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
Crop
2008/2009
|
|
|
|
Crop
2007/2008
|
|
|
|
|
|
|
|
|
|
|
March
31,
2009
|
|
|
|
April
30,
2008
|
|
|
|
April
30,
2007
|
|
|
|
April
30,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of tons)
|
Da
Barra
|
|
sugar,
ethanol and cogeneration
|
|
|
8.20 |
|
|
|
7.38 |
|
|
|
6.99 |
|
|
|
6.56 |
|
|
|
6.75 |
|
|
|
7.32 |
|
|
|
7.02 |
|
Bonfim
|
|
sugar,
ethanol and cogeneration
|
|
|
4.32 |
|
|
|
4.79 |
|
|
|
4.46 |
|
|
|
3.81 |
|
|
|
– |
|
|
|
4.99 |
|
|
|
3.81 |
|
Costa
Pinto
|
|
sugar,
ethanol and cogeneration
|
|
|
4.64 |
|
|
|
4.18 |
|
|
|
3.66 |
|
|
|
3.68 |
|
|
|
3.27 |
|
|
|
3.84 |
|
|
|
3.68 |
|
Junqueira
|
|
sugar,
ethanol and cogeneration
|
|
|
3.12 |
|
|
|
2.81 |
|
|
|
2.57 |
|
|
|
2.49 |
|
|
|
2.71 |
|
|
|
2.81 |
|
|
|
2.69 |
|
Rafard
|
|
sugar,
ethanol and cogeneration
|
|
|
2.84 |
|
|
|
2.56 |
|
|
|
2.29 |
|
|
|
2.32 |
|
|
|
2.16 |
|
|
|
2.48 |
|
|
|
2.35 |
|
Univalem
|
|
sugar,
ethanol and cogeneration
|
|
|
2.79 |
|
|
|
2.51 |
|
|
|
2.12 |
|
|
|
2.17 |
|
|
|
1.75 |
|
|
|
2.33 |
|
|
|
2.05 |
|
Santa
Helena
|
|
sugar,
ethanol and cogeneration
|
|
|
2.47 |
|
|
|
2.22 |
|
|
|
2.32 |
|
|
|
1.87 |
|
|
|
1.75 |
|
|
|
2.26 |
|
|
|
1.88 |
|
Ipaussu
|
|
sugar,
ethanol and cogeneration
|
|
|
2.33 |
|
|
|
2.10 |
|
|
|
2.19 |
|
|
|
1.91 |
|
|
|
1.63 |
|
|
|
2.19 |
|
|
|
1.88 |
|
Diamante
|
|
sugar,
ethanol and cogeneration
|
|
|
2.31 |
|
|
|
2.08 |
|
|
|
2.06 |
|
|
|
1.90 |
|
|
|
1.86 |
|
|
|
2.26 |
|
|
|
1.93 |
|
Serra
|
|
sugar,
ethanol and cogeneration
|
|
|
2.16 |
|
|
|
1.95 |
|
|
|
1.86 |
|
|
|
1.63 |
|
|
|
1.55 |
|
|
|
2.23 |
|
|
|
1.63 |
|
Tamoio
|
|
sugar
and cogeneration
|
|
|
1.57 |
|
|
|
1.41 |
|
|
|
1.04 |
|
|
|
0.98 |
|
|
|
– |
|
|
|
1.52 |
|
|
|
0.98 |
|
São
Francisco
|
|
sugar
and cogeneration
|
|
|
1.82 |
|
|
|
1.64 |
|
|
|
2.41 |
|
|
|
1.48 |
|
|
|
1.23 |
|
|
|
2.37 |
|
|
|
1.47 |
|
Name
|
|
Products
|
|
|
Annual
Crushing Capacity
|
|
|
|
Sugarcane
Volume Processed
|
|
|
|
|
|
|
|
|
|
For
Eleven Months Ended
|
|
|
|
For
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
Crop
2008/2009
|
|
|
|
Crop
2007/2008
|
|
|
|
|
|
|
|
|
|
|
March
31,
2009
|
|
|
|
April
30,
2008
|
|
|
|
April
30,
2007
|
|
|
|
April
30,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of tons)
|
Dois
Córregos
|
|
sugar,
ethanol and cogeneration
|
|
|
1.67 |
|
|
|
1.50 |
|
|
|
1.54 |
|
|
|
1.20 |
|
|
|
1.26 |
|
|
|
1.67 |
|
|
|
1.20 |
|
Destivale
|
|
sugar,
ethanol and cogeneration
|
|
|
1.62 |
|
|
|
1.46 |
|
|
|
1.39 |
|
|
|
1.08 |
|
|
|
0.86 |
|
|
|
1.62 |
|
|
|
0.98 |
|
Mundial
|
|
sugar,
ethanol and cogeneration
|
|
|
1.47 |
|
|
|
1.32 |
|
|
|
1.18 |
|
|
|
0.87 |
|
|
|
0.01 |
|
|
|
1.31 |
|
|
|
0.88 |
|
Gasa
|
|
sugar,
ethanol and cogeneration
|
|
|
2.09 |
|
|
|
1.88 |
|
|
|
1.30 |
|
|
|
1.22 |
|
|
|
1.11 |
|
|
|
1.96 |
|
|
|
1.19 |
|
Bom
Retiro
|
|
sugar,
ethanol and cogeneration
|
|
|
1.49 |
|
|
|
1.34 |
|
|
|
0.94 |
|
|
|
0.98 |
|
|
|
– |
|
|
|
0.98 |
|
|
|
0.98 |
|
Benálcool
|
|
sugar,
ethanol and cogeneration
|
|
|
1.22 |
|
|
|
1.10 |
|
|
|
0.59 |
|
|
|
– |
|
|
|
– |
|
|
|
1.14 |
|
|
|
– |
|
The
following map shows the location of our mills:
Expansion
Plans
During
the last several years, our business has grown mainly due to
acquisitions. Because of the increase in acquisition prices in recent
years, we started to invest in the expansion of certain of our mills, Gasa and
Bonfim, and in greenfield projects to improve our overall crushing
capacity. In 2009, however, the prices decreased significantly,
therefore we were able to acquire certain assets related to the trading,
logistics and industrialization of sugar and ethanol, as well as to the
cogeneration of energy of Nova América, which added 10.6 million tons of
crushing capacity to our group.
We
estimate that we may gain up to an additional 10.6 million tons of crushing
capacity from transition fiscal year 2009 to fiscal year 2012 at an estimated
investment of approximately US$500 million, if we decide to continue with these
projects. We believe that our expansion plans provide us with the following
benefits: (1) investments per ton of additional crushing capacity are
significantly lower than the current relative acquisition costs in the Brazilian
market; and (2) expanding our mills will allow us to gain scale and improve our
production processes, thereby reducing operating costs and improving
yields.
Greenfield
Project
We have
announced investments in a sizable, state-of-the-art, fully-dedicated ethanol
greenfield project. The Jataí plant is projected to have approximately 4 million
tons of crushing capacity and is expected to start crushing in the second
quarter of fiscal year 2010.
We
believe that the productivity achieved in this new Plant in the State of Goiás
is equal to or better than currently obtained in our 21 operating Plants in the
State of São Paulo, representing an average of 90.0 tons of cane sugar by
hectare. We hope that the industrial facilities of Jataí will begin operations
in 2009, as shown below:
Crushing Capacity
For Fiscal Year Ended March 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(million
tons)
|
|
Jataí
|
|
|
0.5 |
|
|
|
2.1 |
|
|
|
3.4 |
|
|
|
3.7 |
|
|
|
4.0 |
|
In
addition, we will be able to use the railway network that serves much of central
Brazil, which may significantly reduce logistics costs of the Jataí
plant.
We
believe that the greenfield project will enable us to continue to expand our
operations; provide us with access to a sizeable area for future growth (State
of Goiás) where land prices are currently less expensive than in the State of
São Paulo with similar favorable climate, topography and soil conditions present
in the Center-South region of Brazil; and increase our ethanol production to
meet increasing demand both in Brazil and internationally. Although we expect a
short-term increase in logistics costs given the greater distance from the mills
to the ports or consumption centers (cities of Jataí, Montividiu and Paraúna are
located at approximately 983 kilometers from São Paulo), as well as the less
developed transportation system in the region. Nevertheless, there is a
Petrobrás ethanol pipeline project expected to reach the state of Goiás in the
near future, which may reduce significantly the transportation cost of our
ethanol from these facilities.
We have
already identified other areas where we could build additional greenfield
projects in the future.
None.
You
should read the following discussion along with our consolidated financial
statements and the related notes to our consolidated financial statements as of
and for the eleven months ended March 31, 2009 and the years ended April 30,
2008 and 2007, included elsewhere in this transition report. The following
discussion contains forward-looking statements that are subject to risks,
uncertainties and assumptions, including those discussed under “Item 3. Key
Information—Risk Factors” and described in this transition report generally. Our
actual results, performance and achievements may differ materially from those
expressed in, or implied by, these forward-looking statements. See
“Forward-Looking Statements.”
Overview
We are a
leading global ethanol and sugar company in terms of production with low-cost,
large-scale and integrated operations in Brazil. Our production is based on
sugarcane, a competitive and viable feedstock for ethanol, sugar and energy
because of its low production cost and high energy efficiency ratio relative to
other ethanol sources, such as corn and sugar beet. We believe that we
are:
·
|
Sugarcane:
the largest grower and processor of sugarcane in the world, having crushed
43.2 million tons in transition fiscal year 2009, 40.3 million tons in
fiscal year 2008 and 36.2 million tons in fiscal year 2007 (planted on
approximately 638,000 hectares, of which approximately 58% is leased by
us, 32% is supplier owned and 10% is company
owned);
|
·
|
Ethanol:
the largest ethanol producer in Brazil and the fifth largest in the
world, having produced 394.5 million gallons (1.5 billion liters) in
transition fiscal year 2009, 402.8 million gallons (1.5 billion liters) in
fiscal year 2008 and 326.7 million gallons (1.2 billion liters) in fiscal
year 2007, and the largest exporter of ethanol in the world, having
exported 120.4 million gallons (456.4 million liters) in transition fiscal
year 2009, 107.4 million gallons (406.5 million liters) in fiscal year
2008 and 72.6 million gallons (274.7 million liters) in fiscal year
2007;
|
·
|
Sugar:
the largest sugar producer in Brazil and the third largest sugar
producers in the world, having produced 3.1 million tons in transition
fiscal year 2009, 3.1 million tons in fiscal year 2008 and 3.2 million
tons in fiscal year 2007, and the largest exporter of sugar in the world,
having exported 2.7 million tons in transition fiscal year 2009, 2.6
million tons in fiscal year 2008 and 2.8 million tons in fiscal year 2007;
and
|
·
|
Fuels
Marketing & Lubricants: the fourth largest
fuel distributor in Brazil with an estimated 5.3% market share in terms of
volume sold in 2008, according to ANP. In 2008, we recorded sales of more
than 4.6 billion liters of fuels, principally gasoline, ethanol, diesel
and fuel oil. We have a strong market presence in the South and Southeast
regions of Brazil, where our fuel sales amounted to 1.1 billion liters
(6.6% market share) and 3.1 billion liters (6.4% market share) in 2008,
respectively, according to ANP. The Southeast and South regions are the
largest markets in Brazil, accounting for 49.6% and 17.3%, respectively,
of the total Brazilian fuel market in terms of volume sold in 2008,
according to ANP. We are the fourth largest lubricant player in
Brazil. We sell passenger vehicle lubricants, commercial vehicle
lubricants and industrial lubricants under the “Mobil” and “Esso” brands,
among others, both of which are licensed to us until 2018 by
ExxonMobil.
|
For our
operations, other than our fuels marketing & lubricants, we operated 18
mills, one greenfield (Jataí), two refineries,
two port facilities and numerous warehouses, as of March 31, 2009. All of these
facilities are located in the Center-South region of Brazil, which is one of the
world’s most productive sugarcane regions primarily because of its favorable
soil, topography and climate, nearby research and development organizations and
infrastructure facilities. Following the Nova América acquisition and the
finalization of the greenfield, we now operate 23 mills and four
refineries.
We were
incorporated as a Bermuda company to better position ourselves to take advantage
of favorable industry trends in ethanol and sugar markets in Brazil and
globally. We are constantly pursuing opportunities to capitalize on the growing
demand for ethanol and sugar in the world. We are focused on increasing our
production
capacity through expansion of existing facilities, development of greenfield
projects and, as opportunities present themselves, acquisitions. We are also
continuing to invest in cogeneration of electricity, which allows us to be
energy self-sufficient and also represents a potential additional source of
future cash flow.
Our
management team has experience in running large-scale facilities, as well as a
track record of acquiring, improving and integrating companies and extracting
operational synergies. We significantly expanded our businesses through
acquisitions and organic growth, increasing our crushing capacity to 49.1
million tons currently from 13.2 million tons since Cosan’s inception in
February 2000.
In
transition fiscal year 2009, we sold 394.5 million gallons (1,495.1 million
liters) of ethanol and 3,051.7 thousand tons of sugar. In the same period, we
had net sales of US$2,926.5 million comprising 28.8% of sugar, 18.7% of ethanol,
49.2% of fuel distribution and 3.3% of other products and services. Exports
represented 28.3% of our net sales in the period. In fiscal year 2008, we sold
406.1 million gallons (1,537.1 million liters) of ethanol and 3,114.4 thousand
tons of sugar. In the same period, we had net sales of US$1,491.2 million
comprising 52.6% of sugar, 40.5% of ethanol and 6.9% of other products and
services. Exports represented 55.2% of our net sales in the period. In fiscal
year 2007, we sold 349.3 million gallons (1,322.1 million liters) of ethanol and
3,240.5 thousand tons of sugar. In the same fiscal year, we had net sales of
US$1,679.1 million comprising 61.4% of sugar, 32.8% of ethanol and 5.7% of other
products and services. Exports represented 60.4% of our net sales in the
period.
Consolidated
Financial Statements
The
discussion in this section is based on our audited consolidated financial
statements at March 31, 2009 and April 30, 2008 and 2007 and for the eleven
months ended March 31, 2009 and the fiscal years ended April 30, 2008 and 2007.
We use U.S. GAAP for financial reporting purposes. Our consolidated financial
statements include the financial statements of the Company and its controlled
subsidiaries (i.e.,
companies as to which the Company holds an ownership interest greater than 50%).
Investments in entities in which the Company does not control but has
significant influence over managing the business, are accounted for using the
equity method. All significant intercompany accounts and transactions are
eliminated upon consolidation.
Segment
Presentation
We
operate in four segments: sugar; ethanol; fuel distribution and other products
and services segment. The sugar segment mainly operates and produces a broad
variety of sugar products, including raw, organic, crystal and refined sugars,
which are sold to a wide range of customers in Brazil and abroad. The ethanol
segment substantially produces and sells hydrous, anhydrous and industrial
ethanol, which are sold primarily to the Brazilian market. The fuel distribution
segment principally distributes fuels and also produces and sells lubricants.
The other products and services segment consists primarily of port services that
we provide to third parties, consumer products under the “Da Barra” brand,
electricity sales and diesel fuel sales to our agricultural services providers.
Because we use the same assets to produce products for both our Brazilian and
export markets, we do not identify assets by market. See Note 22 to our audited
consolidated financial statements.
Factors
Affecting Our Results of Operations
Our
results of operations have been influenced and will continue to be influenced by
the following key factors:
Acquisitions,
Partnerships and Corporate Restructurings
Since May
2004, we have expanded our annual sugarcane crushing capacity by 141.9% from
approximately 24.8 million tons to approximately 49.1 million tons as of March
31, 2009 primarily through acquisitions, partnerships and corporate
restructurings (the completion of Nova América acquisition in June
2009 added approximately 10.6 million tons to our sugarcane crushing
capacity). As a result of these
acquisitions,
partnerships and corporate restructurings, our net sales and gross profit have
increased significantly. However, we have not realized all of the expected cost
savings from these transactions, as they have also increased our sugarcane
planting-related general and administrative expenses and capital expenditures in
order to improve the condition of certain sugarcane fields that we acquired
under these transactions.
Our
principal acquisitions, partnerships and corporate restructurings since May 2004
consist of the following:
·
|
In
December 2004, Cosan acquired, through FBA, controlling interests in the
Destivale Group (which consists of Destivale, Destiagro, Agrícola
Destivale, and 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
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, 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 (a company indirectly controlled by our chairman and
chief executive officer), 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 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
February 2007, Usina da Barra merged into Danco Participações S.A., having
its corporate name changed to Usina da Barra S.A. - Açúcar e
Álcool.
|
·
|
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.
|
·
|
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.
|
·
|
We
completed our initial public offering and listed our class A common shares
on the NYSE. We received US$1.1 billion, net of directly attributable
costs, in aggregate proceeds from the initial public
offering.
|
·
|
Cosan
contributed to the capital stock of its controlled entity Usina da Barra
S.A., shares representing 33.33% of the capital stock of Etanol
Participações S.A.
|
·
|
Cosan’s
shareholders approved a capital increase in the amount of 82,700,000
common shares. The results of the capital increase were announced on
January 23, 2008. Minority shareholders subscribed for a total of
26,092,604 common shares and Cosan Limited subscribed for a total of
56,607,396 shares.
|
·
|
On
February 14, 2008, Cosan acquired 100% of the capital stock of Benálcool
Açúcar e Álcool S.A. for US$42.7 million. Cosan recorded
US$88.1 million in goodwill related to this acquisition. The purchase
price was paid in cash by Cosan. The principal asset of Usina Benálcool is
its sugarcane and alcohol mill, which has an annual processing capacity of
approximately 1.3 million tons of sugarcane. Usina Benálcool is located in
the Araçatuba region, where Cosan already has four other operational
units. With this acquisition, Cosan has increased its presence in an
important production region.
|
·
|
On
April 23, 2008, Cosan entered into an agreement with Exxon, for the
acquisition of 100% of the capital of Esso Brasileira de Petróleo Ltda.
and its subsidiaries, or “Essobrás”, a distributor and seller of fuels and
producer and seller of lubricants and specialty petroleum products of
ExxonMobil in Brazil. On December 1, 2008, Cosan completed the acquisition
of all of the outstanding shares of Essobrás for a purchase price of
approximately US$715 million and assumed debts in the amount of US$175
million. On January 16, 2009, the the corporate name of Essobrás has been
changed to Cosan Combustíveis e Lubrificantes S.A. At the time of the
acquisition, CCL had a distribution network of more than 1,500 stations in
Brazil and 40 fuel distribution centers. Additionally, CCL registered
annual sales of more than 5 billion liters of ethanol, gasoline and
diesel, 160 million cubic meters of VNG and 127,000 cubic meters of
lubricants produced at our plant in Rio de Janeiro, which will continue to
offer products under the Esso and Mobil brands, developed using Exxon’s
global technology. With this acquisition, we expanded our business model
to become the first integrated renewable energy company in the world, with
operations ranging from sugarcane cultivation to fuel distribution and
sales in the retail market.
|
·
|
On
August 28, 2008, Cosan announced the incorporation of a new subsidiary
named Radar, which makes real estate investments in Brazil identifying and
acquiring rural properties with high appreciation potential for subsequent
leasing and/or sale. Cosan currently holds 18.9% of Radar. Cosan
initially
|
|
invested
US$35 million and the other investors US$150
million. Furthermore, the parties have committed to invest an
amount equal to US dollar equivalent of the Brazilian reais amount initially
invested, which should only be disbursed when approximately 50% of the
initial capital contribution has been invested. Cosan has the
right to exercise significant influence on Radar’s operations and,
therefore, the investment is accounted using the equity
method.
|
·
|
In
October 2008, a private subscription was announced involving US$50 million
by the controlling shareholder, Rubens Ometto Silveira Mello, and up to
US$150 million by the funds managed by Gávea Investimentos Ltda., at
US$4.50 per class A share or BDR subscribed. The offering was extended to
all class A share or BDR holders, as permitted by applicable law. The
offering was concluded on October 27, 2008. As a result, Rubens Ometto
Silveira Mello holds 41.5% of our total capital and 86.1% of our voting
capital.
|
·
|
On
April 9, 2009, Cosan and Rezende Barbosa, concluded the port terminals
combination of Cosan and Teaçu, a subsidiary of Rezende
Barbosa. As a result, Cosan, through its subsidiary Novo Rumo
acquired 100% of the outstanding shares of Teaçu for a combination of
R$121 million (approximately US$53.0 million) and shares representing
28.82% of Novo Rumo’s capital. Teaçu holds a port concession in
the City of Santos and operates a terminal dedicated to exporting sugar
and other agricultural products. As a result of the
transaction, Cosan’s indirect participation in Novo Rumo’s capital is of
71.18%.
|
·
|
On
June 17, 2009, Cosanpar Participações S.A., or Cosanpar, a wholly-owned
subsidiary of Cosan, sold to Shell Brasil Ltda. its equity interest in
Jacta, a distributor of aviation fuel that was part of
Essobras. Cosanpar received R$115.6 million (US$59.2 million)
from the sale. The results of the transaction were recorded in
the fuel distribution business
unit.
|
·
|
On June 18, 2009,
Cosan entered into an agreement with Rezende Barbosa to acquire 100% of
the outstanding shares of Curupay. The acquisition was carried
out through the merger of Curupay into Cosan resulting in the issuance by
Cosan of 44,300,389 new common shares, representing 11.89% of its
corporate capital, fully subscribed and paid-in by Rezende Barbosa. The
total amount of Cosan’s capital increase was of approximately US$321.1
million. The principal investment of Curupay was the
ownership on 100% of the outstanding shares of Nova
América. Nova América is a producer of sugar, ethanol and
energy co-generation which also operates in trading and
logistics. The assets acquired include the non-controlling
interest in Novo Rumo representing 28.82% of its outstanding shares which
were issued in the Teaçu acquisition, and 100% of the outstanding shares
of two operating companies, Nova América S.A. Trading and Nova América
S.A. Agroenergia and the “União” brand, which is the leading sugar brand
in Brazil. Nova América is a producer of sugar, ethanol and
energy co-generation and also operates in trading and
logistics.
|
We
continue to explore opportunities to grow organically or through strategic
acquisitions and partnerships.
Overview
of The Exchange Offer
On April
18, 2008, the Company announced that Cosan had accepted for exchange all shares
validly tendered pursuant to our offer to exchange up to all of the common
shares issued by our subsidiary Cosan for class A common shares, Brazilian
Depositary Receipts representing class A common shares, or class B series 2
common shares of Cosan Limited.
As of the
expiration of the exchange offer and completion of the auction on the São Paulo
Stock Exchange, 18,237,312 Cosan common shares were tendered and not withdrawn
for class A common shares. As a result, Cosan Limited delivered 3,728,208
Brazilian Depositary Receipts representing class A common shares and 14,504,604
class A common shares for the Cosan common shares accepted in the exchange
offer. Cosan common shares remain listed on the Novo Mercado of the São
Paulo Stock Exchange. We may in the future offer to exchange the outstanding
Cosan common shares not tendered in this exchange offer in
order to better position the
company to take advantage of favorable global industry trends and
opportunities in the ethanol and sugar markets through a global platform. As a
result of the exchange offer, we became holders of 62.8% of Cosan’s outstanding
common shares.
Due to
our acquisitions and restructurings described above, our results of operations
for fiscal years 2008, 2007 and 2006, in particular, are not fully
comparable.
Sugar
The
profitability of our sugar business is principally affected by fluctuations in
the international price of raw sugar and in the real/dollar exchange rate.
International raw sugar prices are determined based on the New York Board of
Trade Futures Contract No. 11, or “NY11”. Refined sugar trades at a premium to
raw sugar, known as the “white premium”, and its price is determined based on
the London International Financial Futures and Options Exchange Contract No. 5,
or “LIFFE No. 5”. Prices are affected by the perceived and actual supply and
demand for sugar and its substitute products. The supply of sugar is affected by
weather conditions, governmental trade policies and regulations and the amount
of sugarcane and sugar beet planted by farmers, including substitution by
farmers of other agricultural commodities for sugarcane or sugar beet. Demand is
affected by growth in worldwide consumption of sugar and the prices of
substitute sugar products. From time to time, imbalances may occur between
overall sugarcane and sugar beet processing capacity, sugarcane and sugar beet
supply and the demand for sugar products. Prices of sugar products are also
affected by these imbalances, which, in turn, impact our decisions regarding
whether and when to purchase, store or process sugarcane, to produce sugar or
whether to produce more ethanol.
The table
below sets forth the prices for raw sugar NY11 for the periods
indicated:
|
|
|
|
|
|
For
Eleven Months Ended March 31,
|
|
|
For
Fiscal Year Ended April 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
quote
|
|
|
0.1065 |
|
|
|
0.0924 |
|
|
|
0.1713 |
|
|
|
0.0861 |
|
|
|
0.0658 |
|
Closing
quote
|
|
|
0.1267 |
|
|
|
0.1065 |
|
|
|
0.0924 |
|
|
|
0.1713 |
|
|
|
0.0861 |
|
Daily
average quote
|
|
|
0.1217 |
|
|
|
0.1055 |
|
|
|
0.1247 |
|
|
|
0.1269 |
|
|
|
0.0827 |
|
Monthly
average quote
|
|
|
0.1218 |
|
|
|
0.1049 |
|
|
|
0.1249 |
|
|
|
0.1275 |
|
|
|
0.0824 |
|
High
quote
|
|
|
0.1419 |
|
|
|
0.1502 |
|
|
|
0.1791 |
|
|
|
0.1930 |
|
|
|
0.0932 |
|
Low
quote
|
|
|
0.0952 |
|
|
|
0.0845 |
|
|
|
0.0924 |
|
|
|
0.0823 |
|
|
|
0.0629 |
|
The table
below sets forth the prices for refined sugar LIFFE for the periods
indicated:
|
|
|
|
|
|
For
Eleven Months Ended March 31,
|
|
|
For
Fiscal Year Ended April 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
quote
|
|
|
337.50 |
|
|
|
308.00 |
|
|
|
470.00 |
|
|
|
247.80 |
|
|
|
228.30 |
|
Closing
quote
|
|
|
392.80 |
|
|
|
337.50 |
|
|
|
308.00 |
|
|
|
470.00 |
|
|
|
247.80 |
|
Daily
average quote
|
|
|
358.51 |
|
|
|
314.65 |
|
|
|
386.26 |
|
|
|
336.65 |
|
|
|
244.30 |
|
Monthly
average quote
|
|
|
361.74 |
|
|
|
318.04 |
|
|
|
383.52 |
|
|
|
341.05 |
|
|
|
245.98 |
|
High
quote
|
|
|
392.80 |
|
|
|
397.00 |
|
|
|
489.00 |
|
|
|
479.20 |
|
|
|
275.50 |
|
Low
quote
|
|
|
294.80 |
|
|
|
259.50 |
|
|
|
300.40 |
|
|
|
238.50 |
|
|
|
211.70 |
|
World raw
sugar prices increased from US$0.0861 per pound at the end of fiscal year 2005
to US$0.1713 per pound at the end of fiscal year 2006 (peaking at US$0.1930
during February 2006), principally due to: (1) demand for sugar that exceeded
supply in part due to lower sugar production caused by adverse climactic
conditions and a resulting reduction in world sugar inventories to meet demand;
(2) high oil prices, as a result of the positive correlation with sugar prices;
and (3) the devaluation of the U.S. dollar vis-à-vis a majority of other
currencies. Domestic Brazilian crystal sugar prices rose similarly, increasing
from US$10.81 per 50 kilogram bag at the end of April 2005 to US$23.76 per 50
kilogram bag at the end of April 2006. Due to the 21.2% appreciation of the
real against the U.S.
dollar during this period (or 17.5% devaluation of the U.S. dollar against the
real), the domestic
Brazilian price of raw sugar in U.S. dollar terms increased by approximately
119.8% (compared to 81.5% in reais).
World raw
sugar prices decreased from US$0.1713 per pound at the end of fiscal year 2006
to US$0.0924 per pound at the end of fiscal year 2007, principally due to: (1)
higher U.S. interest rates and uncertainty as to future changes in interest
rates, as well as projected lower rates of worldwide economic growth, which
caused investors to reduce substantially their emerging market securities and
commodities positions; (2) preliminary harvest estimates of a sugar supply
surplus in excess of 3 million tons (compared to sugar supply deficits during
the previous three harvests), resulting in part from the recovery of sugarcane
production in India to pre-2003 levels (when it had a harvest failure); (3) the
granting of a 1.4 million ton allowance for subsidized sugar exports from the
European Community, which led to higher exports from producers in the European
Community in the period prior to the effectiveness of such restrictions in May
2006; and (4) increased domestic sugar production in Russia, China and Ukraine,
which historically have been among the largest importers of sugar in the world.
Domestic crystal sugar prices in Brazil also decreased, from US$23.76 per 50
kilogram bag at the end of April 2006 to US$15.81 per 50 kilogram bag at the end
of April 2007. Due to the 2.7% appreciation of the real against the U.S. dollar
during this period, the domestic price of crystal sugar in Brazil in U.S. dollar
terms decreased by approximately 33.5% (compared to 32.5% in reais).
World raw
sugar prices increased from US$0.0924 per pound at the end of fiscal year 2007
to US$0.1065 per pound at the end of the period ended April 30, 2008,
principally due to: (1) the Indian harvest, which was significantly lower than
expected mainly due to a reduction in planted area driven by low prices, delays
in defining the government-stipulated sugar cane price at the beginning of the
harvest and higher returns from other crops such as wheat and rice; (2) the
sugar surplus from the last harvest and lower demand; (3) the increase of
Russia’s demand for sugar caused by the lift of the surcharge in sugar import on
May 2008. Crystal sugar prices in Brazil increased from US$15.81 per 50 kilogram
bag at the end of April 2007 to US$16.40 per 50 kilogram bag at the end of April
30, 2008, principally due to the continued weakening of the dollar, since its
price in R$ have decreased.
World raw
sugar prices increased from US$0.1065 per pound at the end of fiscal year 2008
to US$0.1267 at the end of transition fiscal year 2009, principally due to (1)
lower production than expected in India (declined from 22 million tons to 15
million tons); (2) combined with the devaluation of 6.4% the U.S. dollar against
the real caused the
average cost to remain 24.4% above fiscal year 2008. Crystal sugar prices in
Brazil increased from US$16.40 per 50 kilogram bag at the end of April 30, 2008
to US$20.18 per 50 kilogram bag at the end of March 31, 2009, principally due to
the devaluation of the U.S. dollar against the real.
Ethanol
Our
ethanol operations are affected by domestic Brazilian and international prices
of ethanol, competition, governmental policies and regulations and market demand
for ethanol as an alternative or additive to gasoline. The price for ethanol we
sell in Brazil is set in accordance with market prices, using indices published
by the Agriculture School of the University of São Paulo (Escola Superior de Agricultura Luiz
de Queiroz—ESALQ) and BM&FBOVESPA as a reference. Prices for ethanol
we export are set based on international market prices, including the New York
Board of Trade’s recently-launched ethanol futures contract. Prices for the
industrial alcohol and bottled alcohol products we sell are also set based on
market prices and have been historically higher than market prices for
ethanol.
The table
below sets forth the prices for hydrous ethanol in the Brazilian market for the
periods indicated:
|
|
Hydrous
Ethanol Esalq
(US$/thousand
liters)
|
|
|
|
For
Eleven Months Ended March 31,
|
|
|
For
Fiscal Year Ended April 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
quote
|
|
|
435.50 |
|
|
|
451.53 |
|
|
|
433.59 |
|
|
|
270.26 |
|
|
|
136.72 |
|
Closing
quote
|
|
|
262.98 |
|
|
|
434.50 |
|
|
|
451.53 |
|
|
|
433.59 |
|
|
|
270.26 |
|
Daily
average quote
|
|
|
371.24 |
|
|
|
366.11 |
|
|
|
386.90 |
|
|
|
377.92 |
|
|
|
248.46 |
|
Monthly
average quote
|
|
|
378.66 |
|
|
|
372.35 |
|
|
|
394.59 |
|
|
|
369.98 |
|
|
|
243.80 |
|
High
quote
|
|
|
456.78 |
|
|
|
448.62 |
|
|
|
475.19 |
|
|
|
579.86 |
|
|
|
304.48 |
|
Low
quote
|
|
|
262.98 |
|
|
|
283.10 |
|
|
|
337.12 |
|
|
|
231.83 |
|
|
|
134.21 |
|
The table
below sets forth the prices for anhydrous ethanol in the Brazilian market for
the periods indicated:
|
|
Anhydrous
Ethanol Esalq
(US$/thousand
liters)
|
|
|
|
For
Eleven Months Ended March 31,
|
|
|
For
Fiscal Year Ended April 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
quote
|
|
|
476.93 |
|
|
|
528.96 |
|
|
|
498.36 |
|
|
|
308.54 |
|
|
|
154.62 |
|
Closing
quote
|
|
|
302.17 |
|
|
|
476.93 |
|
|
|
528.96 |
|
|
|
498.36 |
|
|
|
308.54 |
|
Daily
average quote
|
|
|
438.58 |
|
|
|
417.24 |
|
|
|
432.22 |
|
|
|
413.33 |
|
|
|
287.26 |
|
Monthly
average quote
|
|
|
449.11 |
|
|
|
423.88 |
|
|
|
443.02 |
|
|
|
406.45 |
|
|
|
281.23 |
|
High
quote
|
|
|
559.85 |
|
|
|
524.69 |
|
|
|
537.59 |
|
|
|
569.90 |
|
|
|
356.03 |
|
Low
quote
|
|
|
302.17 |
|
|
|
325.32 |
|
|
|
370.03 |
|
|
|
265.57 |
|
|
|
154.98 |
|
We
expected an increase in ethanol prices due to the growing demand for the product
in the domestic market. However, ethanol price reduced mainly because of the
international crisis and the credit crunch. The main factors that can explain
fluctuations in the price of ethanol are the seasonal and harvests sugarcane,
climatic variations and the volume of existing stock. Consequently, the
Brazilian market price of ethanol reached US$1.8053 per gallon (US$476.93 per
thousand liters) of anhydrous ethanol and US$1.6447 per gallon (US$434,50 per
thousand liters) of hydrous ethanol at April 30, 2008, less than April 30, 2007
prices of US$2.0023 per gallon (US$528.96 per thousand liters) of anhydrous
ethanol and US$1.7092 per gallon (US$451.53 per thousand liters) of hydrous
ethanol. In the transition fiscal year 2009, the Brazilian market price of
ethanol reached US$1.1438 per gallon (US$302.17 per thousand liters) of
anhydrous ethanol and US$0.9955 per gallon (US$262.98 per thousand liters) of
hydrous ethanol. This decrease occurred in the producing units of São Paulo,
between May and June 2008, when the average price of hydrous ethanol has reduced
in 5%, because of both the beginning of sugarcane harvest period of 2008/2009 -
started in April 2008 – and an increase in the ethanol offer by the producers.
From June to September 2008, the average price of hydrous ethanol has increased
13%, which can be justified by a significant expansion of both domestic demand –
due to the increase in the number of flex-fuel cars and the advantage economic
on relative prices between gasoline and hydrous ethanol - and external demand.
In October 2008, the average price of fuel production fell by 5% in comparison
with the previous month, because of the excess in the hydrated alcohol offer in
the Center-South of Brazil because all demand for ethanol in the Northeast
region started to be supplied by the production of the local plants after the
beginning of harvest 2008/2009 in that region.
Demand
for Fuels
Demand
for gasoline, ethanol and diesel is susceptible to volatility related to the
level of economic activity in Brazil and may also fluctuate depending on the
performance of specific industries in the Brazilian market. We expect that a
decrease in economic activity would adversely affect demand for
fuels.
Recent
economic indicators published by IBGE have shown a decrease in unemployment
levels over the long-term. IBGE indicators have also shown an improvement in the
Brazilian economy, with GDP having increased by 5.1% in 2008 from 2007 and 5.7%
in 2007 from 2006. This, together with greater availability of credit, has
resulted in record levels of vehicle sales. Despite record car sales, however,
Brazil’s current fleet is small compared to other Latin American countries, with
7.2 inhabitants per vehicle, whereas Argentina has 4.9 and the U.S. has 1.2
inhabitants per vehicle, according to ANFAVEA. Nonetheless, the latter half of
2008 was marked by a slowdown in Brazil’s GDP, in part due to the global
economic crises. The impact is greater on sales of diesel fuel, which is
primarily used in Brazil by trucks and industrial businesses most affected by a
slowdown in the economy. We expect demand for our products,
particularly diesel fuels, to continue to be adversely affected with the global
financial crisis.
Currency
Fluctuations
In
transition fiscal year 2009, 68.2% of our net sales were invoiced in reais and 31.8% of our net
sales were invoiced in U.S. dollars or linked to dollar prices. A devaluation of
the real affects our
consolidated financial statements by:
·
|
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.
|
Similarly,
an appreciation of the real in relation to the U.S.
dollar would have opposite effects.
Seasonality
Our
business is subject to seasonal trends based on the sugarcane growing cycle in
the Center-South region of Brazil. The annual sugarcane harvesting period in the
Center-South region of Brazil begins in May and ends in November. This creates
fluctuations in our inventory, usually peaking in December to cover sales
between crop harvest (i.e., January through April),
and a degree of seasonality in our gross profit, with ethanol and sugar sales
significantly lower in the last quarter of our fiscal year. Our overall
sugarcane supply can be impacted by adverse weather conditions such as flood or
drought. In addition, ethanol and sugar sales are systematically lower in the
last quarter of each fiscal year.
Inflation
Inflation
rates in Brazil were 12.1% in 2004, 1.2% in 2005, 3.8% in 2006, 7.7% in 2007,
and 9.1% in 2008, as
measured by the General Price Index—Internal Availability. Inflation affects our
financial performance by increasing certain of our operating expenses
denominated in reais
(and not linked to the U.S.
dollar).
These operating expenses include labor costs, leases, selling and general
administrative expenses. However, inflation did not have a material impact on
our business for the periods presented.
Cost
Structure
Our cost
structure may be divided into costs that are linked to the prices of our
products and costs that are not linked to the prices of our products. Two of our
principal cost components, raw materials and land leases, are linked to the
prices of our products. Accordingly, we adjust the prices of our products to
follow fluctuations in the cost of our raw materials and leased lands,
substantially minimizing the impact of this cost volatility on our results of
operations. In addition, another relevant portion of our costs is represented by
agricultural and industrial inputs, some of which are imported and which are
also subject to price fluctuations primarily as a result of exchange rate
variations. As the majority of our net sales are derived from exports, a
substantial portion of fluctuations in the costs of these inputs is offset by
similar fluctuations in our Brazilian and international prices, substantially
minimizing the impact of this cost volatility on our results of
operations.
Other
Factors
Other
factors that will impact the results of our ethanol and sugar operations
include:
·
|
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 derivatives as an alternative to oil derivatives
and as a cleaner-burning fuel, derived from renewable
sources;
|
·
|
the
use of ethanol as a cleaner-burning fuel, derived from renewable
sources;
|
·
|
changes
in international prices of oil (denominated in U.S. dollars) and related
changes in the domestic prices of oil (denominated in reais);
|
·
|
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.
|
Critical
Accounting Policies
The
presentation of our financial condition and results of operation based on U.S.
GAAP requires us to make certain judgments and estimates regarding the effects
of matters that are inherently uncertain and that impact the carrying value of
our assets and liabilities. Actual results could differ from those estimates. In
order to provide an understanding about how we form our judgments and estimates
about certain future events, including the variables and assumptions underlying
the estimates, and the sensitivity of those judgments to different variables and
conditions, we have summarized the critical accounting policies set forth below
under U.S. GAAP.
Revenue Recognition and Provision
for Doubtful Accounts. We recognize net sales for our product sales when
risk and title to the product are transferred to our customer. Transfer occurs
at the time when the product is delivered to our customers or their freight
carriers. We record a provision for doubtful accounts in selling expenses in an
amount that we consider sufficient to cover any probable losses on realization
of our accounts receivable. In order to determine the overall adequacy of the
allowance for doubtful accounts, we
constantly
evaluate the amount and characteristics of our accounts receivable. We record a
provision in light of past collection experience, as well as when significant
payment delays occur, and we believe that we may not receive payment in full. We
do not record a provision when the accounts receivable are guaranteed by a
creditworthy entity or where there are other reasonable grounds to believe that
they will be paid. A substantial portion of our production is sold to a small
number of customers that acquire large portions of our production and most of
them are well known multinational dealers in our industry. Historically, we have
faced no write-offs in relation to our accounts receivable. Given the
assumptions involved, such as the financial situation of our debtors, commercial
and economic trends, allowances for doubtful accounts are subject to uncertainty
and may be revised upward or downward depending on the actual performance of an
account receivable.
Inventory Valuation.
Inventories are comprised of finished products, harvest costs and materials for
consumption. Inventories are recorded at average acquisition or production cost,
not exceeding market value. The plantation period costs correspond to the
expenses incurred in connection with the maintenance of our sugarcane
plantations, which are charged to the production costs of the succeeding
harvest. Inventories of materials for consumption are classified as current
assets based on our estimates of when they will be consumed. In determining
inventory market values, substantial consideration is given to expected product
selling prices. We consider various factors, including estimated quantities of
slow-moving and obsolete inventory by reviewing on-hand quantities. We then
estimate expected selling prices based on our historical recovery rates for sale
of slow-moving and obsolete inventory and other factors, such as market
conditions. The ethanol and sugar industries are highly competitive which may
affect profitability and therefore we continuously review whether the inventory
cost of these products exceeds their market value. In recent years we have not
experienced losses related to the excess of costs over market and we have also
not experienced slow moving inventories related to ethanol and sugar. Estimates
may differ from actual results due to the quantity, quality and mix of products
in inventory, consumer preferences and economic conditions.
Valuation of Goodwill. We
evaluate the impairment of goodwill of our sugar and ethanol operating segments
annually (or on an interim basis if certain indicators are present) by comparing
the fair value of the operating segments to their carrying values, which we
estimate using a discounted cash flow method. In applying this methodology, we
rely on a number of factors, including actual operating results, future business
plans, economic projections and market data. Future adverse changes in market
conditions or poor operating results of the operating segments and increase in
competition could result in an inability to recover the carrying value of the
investments, thereby requiring impairment charges in the future.
Valuation of Long-lived Assets and
Identified Intangible Assets with Defined Useful Lives. We evaluate
long-lived assets and identifiable intangible assets with defined useful lives
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets is
measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset. If the
estimated undiscounted cash flows change in the future, we may be required to
reduce the carrying amount of an asset. In order to estimate future cash flows,
management makes various assumptions and estimates. These assumptions and
estimates can be influenced by different external and internal factors, such as
economic and industry trends, interest rates, foreign exchange rates and changes
in the business strategies and in the type of products offered to the market. No
events or changes in circumstances have indicated that the carrying amount of an
asset may not be recoverable and accordingly, no impairment was
required.
Derivative and Foreign Exchange
Management Activities. We recognize all derivatives as assets and
liabilities at their fair values. The fair values are determined using widely
accepted valuation models that incorporate quoted market prices and dealer
quotes and reflect assumptions about currency fluctuations based on current
market conditions. The aggregate fair values of derivative instruments used to
manage currency exposures are sensitive to changes in market conditions and to
changes in the timing and amounts of forecasted exposures. Based on our currency
hedged position as of March 31, 2009, we believe that a hypothetical 1%
appreciation of the dollar against the real would reduce our asset
carrying value by US$4.8 million as a result of a reduction in our financial
income. The aggregate fair values of derivative instruments used to manage
commodity exposures are sensitive to changes in market prices of the
commodities. Based on
our
commodity hedged position as of March 31, 2009, we believe that a hypothetical
US$10 per ton increase in sugar prices would increase our liability carrying
value by US$6.8 million as a result of a reduction in our financial
income.
Income Taxes and Deferred Tax
Assets. We are also required to estimate income tax provisions and
amounts ultimately payable or recoverable. Such estimates involve significant
interpretations of regulations and are inherently very complex. Resolution of
income tax treatments may not be known for many years after completion of any
fiscal year. We recognize deferred tax assets and liabilities based on the
differences between the financial statement carrying amounts and the tax basis
of assets and liabilities, as well as on the tax loss carry forward, using
prevailing tax rates. We regularly review any deferred tax assets for
recoverability and reduce their carrying value, as required, based on projected
future taxable income and the expected timing of any reversals of existing
temporary differences. If one of our subsidiaries operates at a loss or is
unable to generate sufficient future taxable income, or if there is a material
change in the actual effective tax rates or the time period within which the
underlying temporary differences become taxable or deductible, we evaluate the
need to partially or completely reduce the carrying value of our deferred tax
assets. Significant management judgment is required in determining any valuation
allowance. The principal uncertainty relates to the likelihood of future taxable
income from the subsidiary that generated the deferred tax asset. A change in
our projections of profitability could result in the need to record a valuation
allowance against deferred tax assets, resulting in a negative impact of future
results. Based on the weight of available evidence, we have not recorded
valuation allowances in recent years and also, we are currently in a net
deferred income tax liability position which mitigates the risk of the need for
a valuation allowance to reduce the deferred tax assets to the amount that is
more likely than not to be realized.
Stock-Based Compensation. We
account for our stock-based awards to our employees and officers using the fair
value method as required by SFAS No. 123(R), share-based payment. SFAS No.
123(R) requires that the compensation cost related to share-based payment
transactions, measured based on the fair value of the equity or liability
instruments issued, be recognized in the financial statements. Determining the
fair value of options using the Binomial model, or other currently accepted
option valuation models, requires highly subjective assumptions, including
future stock price volatility and expected time until exercise, which greatly
affect the calculated fair value on the grant date. If actual results are not
consistent with the Company’s assumptions and judgments used in estimating the
key assumptions, the Company may be required to record additional compensation
or income tax expense, which could have a material impact on financial position
and results of operations. Due to Cosan’s limited history as a publicly traded
company in Brazil, we used the volatility based on similar public companies. We
believe that a hypothetical 5% increase or decrease in future stock-price
volatility would increase or decrease our compensation expense by US$0.2 million and US$0.1 million,
respectively.
Provisions for Contingencies.
We create a provision for contingencies whenever there is a legal obligation as
a result of a past event, and it is probable that an economic resource is
required to reach a settlement as to this obligation. Provisions are registered
based on the best estimates of the risks involved and analyzed on a case-by-case
basis. Management continuously evaluates the estimates and assumptions used to
establish the provision for contingencies based on relevant facts and
circumstances that may have a material effect on the result of operations and
shareholders equity. Even though management believes that the provisions for
contingencies are presently adequate, the establishment of provisions for
judicial proceedings involves estimates that can result in the final amount
being different than the provisions as a result of uncertainties that are
inherent to the establishment of the provision. Additionally, the Brazilian
authorities normally take a long time to reach a final decision on each case and
we are unable to estimate the length that the contingencies will ultimately be
resolved. In case the amount of provisions for contingencies is lower than the
amount actually due, an increase in provisions would be necessary.
Hedging
Transactions and Exposures
In
accordance with a policy established by our risk management committee, we hedge
part of the future price risk of our production through sugar and exchange rate
derivative transactions, using future contracts,
options
and swaps. We recently formed a risk management committee that is responsible
for advising the board on risk management, by establishing exposure limits and
hedging ratios so as to achieve better operational and financial
controls.
Our risk
committee determines our hedging policy. Our current policy seeks to reduce the
effects of fluctuations of sugar prices and foreign exchange rates in our
results of operations in order to assure the servicing of our debt and the
execution of our investment plan as well as to maintain satisfactory
profitability levels. In our hedging transactions, we use derivative financial
instruments, including future contracts, swaps and options in over-the-counter
markets as well as stock exchanges or in transactions with creditworthy
institutions approved by our hedging committee. We favor off-balance sheet
hedging transactions. However, we may, eventually, due to market conditions and
based on our internal risk assessments, use option premiums.
Our
hedging policy allows us to settle our derivative instruments in cash through
financial transactions or by actual physical delivery of the hedged asset (i.e., ethanol, sugar or U.S.
dollars). Under our hedging policy, we may enter into hedging contracts with
maximum notional amounts equivalent to up to 50% of our expected net operating
revenues (as set forth in our annual budget and business plan). Generally, our
risk committee meets weekly. In addition, the committee is required to meet and
reassess our hedging policy whenever the balance between the market value and
the purchase value of our derivative instruments becomes negative and higher
than 10% of our current net worth.
Our
derivatives-related losses, recorded as financial expenses, were largely offset
by our actual sale of sugar at high market prices primarily during the first six
months ended October 31, 2006. As a result, the net price of sugar sold (actual
sales at market prices less derivatives financial expenses, net) was equal to
the prices we hedged. Conversely, due to a decrease in sugar prices in the
future markets in fiscal year 2007, at April 30, 2007 we had 1,317.3 thousand
tons of sugar hedged at the average price of US$0.1161 per pound while the NY11
price was US$0.0924 per pound. Therefore, the market price of our derivatives
portfolio on April 30, 2007 was US$51.9 million, which at fair value contributed
US$190.6 million to our net profit in fiscal year 2007. Similarly, if the price
of sugar remained at those levels, we would sell our production at market
prices, which combined with a positive derivatives result would cause the price
of sugar actually sold to match our hedged price.
At April
30, 2008 we had 2,241.7 thousand tons of sugar hedged at the average price of
US$0.1278 per pound while the NY11 price was US$0.1065 per pound. The market
value of that derivatives portfolio on
April 30, 2008 was negative US$27.8 million. We also had 62.5 thousand tons of
sugar hedged at the average price of U$339.02 per ton while the London#5 price
was US$337.50 per ton, resulting in a market value of US$0.1 million. In terms
of exchange rate hedges, we had US$711.6 million hedged at the average rate of
R$1.8176 per US$1.00, while the existing exchange rate was R$1.6872 per US$1.00,
resulting in a market value of US$31.5 million.
At March
31, 2009 we had 775.6 thousand tons of sugar hedged at the average price of
US$0.1384 per pound while the NY11 price was US$0.1319 per pound. The market
value of that derivatives portfolio on
March 31, 2009 was US$1,186 million. We also had 26.7 thousand tons of sugar
hedged at the average price of U$395.31 per ton while the London#5 price was
US$392.80 per ton, resulting in a market value of US$0.671 million. In terms of
exchange rate hedges, we had US$574.67 million hedged at the average rate of
R$2.24 per US$1.00, while the existing exchange rate was R$2.34 per US$1.00,
resulting in a negative market value of US$24.18 million.
Our
hedging policy seeks to protect us from cash flow risks caused by commodities
price and exchange rates fluctuations. However, because we record derivatives at
fair value, fluctuations in such derivative prices may cause significant
fluctuations in our net profit in the future resulting from the related non-cash
derivative expenses. We recorded US$22.9 million gains with derivative
transactions in transition fiscal year 2009, US$49.3 million gains with those
transactions in fiscal year 2008 and US$190.6 million gains with those
transactions in fiscal year 2007.
The
following discussion of our results of operations is based on the financial
information derived from our consolidated financial statements prepared in
accordance with U.S. GAAP. In the following discussion, references to increases
or decreases in any year are made by comparison with the corresponding prior
year, as applicable, except as the context otherwise indicates.
Transition
Fiscal Year Ended March 31, 2009 compared to Fiscal Year Ended April 30,
2008
Consolidated
Results
The
following table sets forth audited consolidated financial information for
transition fiscal year ended March 31, 2009, the fiscal year ended April 30,
2008 and the eleven months ended March 31, 2008.
|
|
For
Transition Fiscal Year Ended
March
31, 2009 and For Fiscal Year Ended
April
30, 2008
|
|
|
For
Eleven Months Ended
March
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of US$, except percentages)
|
|
|
(in
millions of US$)
|
|
Statement
of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales:
|
|
US$ |
2,926.5 |
|
|
US$ |
1,491.2 |
|
|
|
96.2 |
% |
|
US$ |
1,289.1 |
|
Sugar
|
|
|
843.1 |
|
|
|
784.4 |
|
|
|
7.5 |
|
|
|
678.1 |
|
Ethanol
|
|
|
548.7 |
|
|
|
604.7 |
|
|
|
(9.3 |
) |
|
|
528.5 |
|
Fuel
distribution
|
|
|
1,440.3 |
|
|
|
– |
|
|
|
* |
|
|
|
– |
|
Other
products and services
|
|
|
94.4 |
|
|
|
102.1 |
|
|
|
(7.5 |
) |
|
|
77.5 |
|
Cost
of goods sold
|
|
|
(2,621.9 |
) |
|
|
(1,345.6 |
) |
|
|
94.8 |
|
|
|
1,170.5 |
|
Gross
profit
|
|
|
304.6 |
|
|
|
145.6 |
|
|
|
109.1 |
|
|
|
113.6 |
|
Selling
expenses
|
|
|
(213.3 |
) |
|
|
(168.6 |
) |
|
|
26.5 |
|
|
|
(151.1 |
) |
General
and administrative expenses
|
|
|
(140.1 |
) |
|
|
(115.1 |
) |
|
|
21.7 |
|
|
|
(105.1 |
) |
Operating
loss
|
|
|
(48.8 |
) |
|
|
(138.1 |
) |
|
|
(64.7 |
) |
|
|
(142.5 |
) |
Other
income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
income (expense), net
|
|
|
(370.8 |
) |
|
|
116.8 |
|
|
|
* |
|
|
|
66.7 |
|
Other
expenses, net
|
|
|
(2.3 |
) |
|
|
(3.7 |
) |
|
|
(37.6 |
) |
|
|
(3.7 |
) |
Loss
before income taxes, equity in income of affiliates and minority
interest
|
|
|
(421.9 |
) |
|
|
(25.0 |
) |
|
|
* |
|
|
|
(47.7 |
) |
Income
taxes (expense) benefit
|
|
|
144.7 |
|
|
|
19.8 |
|
|
|
* |
|
|
|
31.8 |
|
Loss
before equity in income of affiliates and minority
interest
|
|
|
(277.2 |
) |
|
|
(5.2 |
) |
|
|
* |
|
|
|
(47.7 |
) |
Equity
in income (loss) of affiliates
|
|
|
6.1 |
|
|
|
(0.2 |
) |
|
|
* |
|
|
|
(2.8 |
) |
Minority
interest in net income (loss) of subsidiaries
|
|
|
83.0 |
|
|
|
22.0 |
|
|
|
* |
|
|
|
32.8 |
|
Net
income (loss)
|
|
US$ |
(188.1 |
) |
|
US$ |
16.6 |
|
|
|
* |
|
|
US$ |
(17.7 |
) |
* Not a
meaningful comparison.
Net
Sales
We report
net sales after deducting Brazilian federal and state taxes assessed on gross
sales (ICMS, PIS, COFINS, IPI and INSS). Deductions from gross sales in the
Brazilian domestic market, which are subject to these taxes, are significantly
greater than our deductions from gross sales in export markets. Total sales
deductions can be broken down as follows:
·
|
ICMS taxes. ICMS is a
state value-added tax assessed on our gross sales in the Brazilian market
at a rate that varies 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%.
|
Net sales
increased by 96.2%, to US$2,926.5 million in 2009 from US$1,491.2 million in
fiscal year 2008, primarily as a result of:
·
|
the
inclusion in transition fiscal year 2009 of the four months results of CCL
subsequent to its acquisition, generating a net revenue of US$1,440.3
million, which represents 49.2% of consolidated net revenues;
and
|
·
|
a
2.7% decrease in our ethanol sales volume to 395.0 million gallons (1,495.1 million liters) in
transition fiscal year 2009 from 406.1 million gallons
(1,537.1 million liters) in fiscal year 2008, and a 2.0% decrease in our
sugar sales volumes to 3,051.7 thousand tons in transition fiscal year
2009 from 3,114.4 thousand tons in fiscal year
2008.
|
Net sales
from exports of sugar, ethanol and services were US$929.7 million in transition
fiscal year 2009, which represented 31.8% of our net sales for this
period compared to 55.2%
of our net sales in fiscal year 2008. This decrease in the relative contribution
of exports to total net sales was primarily caused by a 9.4% devaluation of the real
against the US dollar to a daily average of R$2.0010 per US dollar in transition
fiscal year 2009, from a daily average of R$1.8281 per US dollar in fiscal year
2008.
Sugar. Net sales from sugar
increased by 7.5% to US$843.1 million in transition fiscal
year 2009, from US$784.5
million in fiscal year 2008, primarily as a result of:
·
|
a
9.7% increase in the
average realized price per ton (including all of the types of sugar that
we produce) to US$276.3 per ton in transition fiscal year 2009 from
US$251.9 per ton in fiscal year 2008;
and
|
·
|
a
2.0% decrease in our sugar sales volume to 3,051.7 thousand tons in
transition fiscal year 2009 from 3,114.4 thousand tons in fiscal year
2008.
|
Sales of
sugar represented 28.8% and 52.6% of total net sales in transition fiscal year
2009 and fiscal year 2008, respectively. This decrease in the relative
contribution of sugar to total net revenues was primarily caused by four months
results of CCL in 2009 subsequent to its acquisition.
Ethanol. Net sales from
ethanol decreased by 9.3% to US$548.7 million in transition fiscal year 2009
from US$604.7 million in fiscal year 2008, primarily as a result
of:
·
|
a
2.7% decrease in our ethanol sales volume to 395.0 million gallons
(1,495.1 million liters) in transition fiscal year 2009 from 406.1 million
gallons (1,537.1 million liters) in fiscal year 2008, mainly due to
the upturn in output (43.1 million tons crushed in transition
fiscal year 2009 as compared to 40.3 million in fiscal year 2008) and the
increased emphasis on ethanol in our production mix (49% of ATR converted
to ethanol in transition fiscal year 2009 as compared to 44% in fiscal
year 2008); and
|
·
|
a
6.7% decrease in our average realized unit price to US$1.389 per gallon
(US$367.0 per thousand liters) in transition fiscal year 2009 from
US$1.489 per gallon (US$393.4 per thousand liters) in transition period
2008, due to the combination of a decrease in the domestic price and the
appreciation of the Real.
|
Fuel distribution. Net sales
from fuel distributions in 2009 represent the sales of CCL since the date of its
acquisition, December 1, 2008.
Other products and services.
Other products and services consist primarily of electricity sales, port
services that we provide to third parties, consumer products under the Da Barra
brand and fuel diesel sales to our agricultural services providers.
Net sales
from other products and services decreased by 7.5% to US$94.4 million in
transition fiscal year 2009 from US$102.1 million in fiscal year
2008.
Cost
of Goods Sold
We divide
our cost of goods sold into two major categories: agricultural costs and
industrial costs. Agricultural costs include costs related to the production of
sugarcane, acquiring sugarcane from suppliers, fertilizers, personnel costs,
delivery and logistical services, land and equipment leases, depreciation and
third-party services. Industrial costs include the purchase of raw materials
(other than sugarcane), personnel costs, depreciation and other chemical and
maintenance expenses.
Cost of
goods sold increased by 94.8% to US$2,621.9 million in transition fiscal year
2009 from US$1,345.6 million in fiscal year 2008. This increase was primarily
due to the inclusion of the results of a CCL since its acquisition on December
1, 2008, generating a cost of good sold of US$1,388.3 million, representing
53.0% of cost. In reais, cost of goods sold in transition fiscal year 2009 was
129.2% higher than in fiscal year 2008.
Sugar. Cost of sugar sold decreased by 10.5%
to US$629.3 million in
transition fiscal year 2009 from US$703.5 million in transition period 2008,
primarily as a result of the devaluation of the real against the U.S. dollar
as discussed above.
Ethanol. Cost of ethanol sold
decreased by 6.5% to US$521.8 million in the transition fiscal year 2009 from
US$558.2 million in fiscal year 2008 primarily as a result of: (1) a 4.5%
increase in the average unit cost per gallon (thousand liters) of ethanol to
US$1,321 per gallon (US$349.0 per thousand liters) in 2009 from US$1.384 per
gallon (US$365.6 per thousand liters) in 2008; and (2) the devaluation of the
real against the U.S.
dollar as discussed above.
Fuel Distribution. As our
fuel distribution business has only been a part of Cosan since December 1, 2008,
we have no meaningful comparative data to provide for periods before this date.
The fuel distributions represented in the transition fiscal year 2009 53% of our
cost of goods sold.
Other products and services.
Cost of other products and services decreased by 1.8% to US$82.4 million in
transition fiscal year 2009 from US$83.9 million in fiscal year 2008. These
costs were primarily denominated in reais, which devaluated 37.2%
against the U.S. dollar, resulting in increased costs.
Selling
Expenses
Selling
expenses are primarily related to transportation costs, including freight and
shipping costs for ethanol, sugar, fuel and lubricant distribution sold in
Brazil and exported, as well as storage and loading expenses of ethanol and
sugar for export at our and third parties port facilities. The major portion of
our sales of ethanol in Brazil is sold at the mill to refineries, and therefore
there are no shipping costs.
Selling
expenses increased by 26.5% to US$213.3 million
in transition fiscal year 2009 from US$168.6 million in 2008. This increase
resulted primarily from the inclusion of a four month result of CCL, generating
selling expenses of US$49.8 million, representing 23.4% of cost.
General
and Administrative Expenses
General
and administrative expenses consist of salaries and benefits paid to employees,
taxes, expenses related to third-party services, rentals and other
expenses.
General
and administrative expenses increased by 21.7% to US$140.1 million in transition
fiscal year 2009 from US$115.1 million in fiscal year 2008. This increase
resulted mainly from the partial consolidation of four month results of CCL,
generating a selling expenses of US$22.9 million, representing 16.3% of
cost.
Financial
Income (expense), Net
Financial
expenses, net in transition fiscal year 2009 totaled a negative amount of
US$370.8 million compared to financial income (expense) net of
US$116.8 million in fiscal year 2008.
Financial Income
Our
financial income primarily consists of: (1) gains on monetary variation related
to our financial investments; (2) gains on foreign exchange variations related
to our foreign currency-denominated indebtedness; (3) gains on
derivatives (swaps, futures, forwards and options); (4) income from financial
investments; and (5) financial income related to compensation awarded in a legal
proceeding against the Brazilian federal government.
Financial
income in transition fiscal year 2009 totaled US$365.0 million compared to
financial income of US$274.7 million in fical year 2008. This increase was
primarily the result of:
·
|
a
US$97.5 million increase in financial income from derivative transactions
from US$179.0 million in fiscal year 2008 to US$276.5 million in
transition fiscal year 2009 as a result of the changes in market prices of
sugar and foreign exchange rate effect on derivative transactions;
and
|
·
|
a
reduction of US$34.8 million in income from financial investments, related
to the decrease of the average balance during the year and a decrease in
the average interest rate as a consequence of the decrease of CDI
rate.
|
Financial
Expenses
Our
financial expenses primarily consist of: (1) accrued interest on our
indebtedness; (2) losses on monetary variation related to our financial
investments; (3) losses on foreign exchange variations related to our foreign
currency-denominated indebtedness; (4) losses on derivatives (swaps, futures,
forwards and options); (5) fees, commissions and other charges paid to financial
institutions; and (6) interest and fees paid in connection with the pre-payment
of aggregate principal amount of our US$200.0 million 9.0% senior notes due
2009.
Financial
expenses in transition fiscal year 2009 totaled US$735.8 million compared to
financial expenses of US$157.9 million in fiscal year 2008. This increase was
primarily the result of:
·
|
a
US$494.2 million decrease in gains from foreign exchange variation on our
U.S. dollar denominated debt, from US$185.2 million in fiscal year 2008 to
US$308.9 million in transition fiscal year 2009 as a result of a 37.2%
devaluation of the Brazilian real against the U.S.
dollar;
|
·
|
a
US$123.9 million increase in financial expenses on derivative transactions
from US$129.7 million in fiscal year 2008 to US$253.6 million in
transition fiscal year 2009 as a result of the changes in market prices
for sugar and foreign exchange rate effect on derivative transactions and
new debt (CCL acquisition promissory
notes).
|
Other
Expenses, Net
Other
expenses were US$2.3 million in transition fiscal year 2009, compared to other
income of US$3.7 million in fiscal year 2008, mainly resulting from the residual
value of fixed assets disposals.
Income
Taxes Benefit
Income
taxes benefit totaled US$144.7 million in transition fiscal year 2009,
representing taxable income at the current Brazilian statutory rate of 34% and
adjusted for non-deductible expenses and non-taxable income in accordance with
Brazilian tax law and by the exempted financial income at the Cosan Limited
level, resulting in an effective tax rate of 34.3%, compared to an effective tax
rate of 79.2% in fiscal year 2008, when we recorded a tax benefit of US$19.8
million.
Net
Income (Loss)
As a
result of the foregoing, we incurred a net loss of US$188.1 million in transition
fiscal year 2009, compared to a net income of US$16.6 million in fiscal year
2008.
Fiscal
Year Ended April 30, 2008 Compared to Fiscal Year Ended April 30,
2007
Consolidated
Results
The
following table sets forth audited consolidated financial information for each
of the fiscal years ended April 30, 2008 and 2007.
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For
Fiscal Year Ended April 30,
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|
|
|
|
|
|
|
|
|
|
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|
(in
millions of US$, except percentages)
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|
Statement
of Operations:
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|
|
|
|
|
|
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|
Net
sales:
|
|
US$ |
1,491.2 |
|
|
US$ |
1,679.1 |
|
|
|
(11.2 |
)% |
Sugar
|
|
|
784.5 |
|
|
|
1,031.7 |
|
|
|
(24.0 |
) |
Ethanol
|
|
|
604.7 |
|
|
|
551.5 |
|
|
|
9.6 |
|
Other
products and services
|
|
|
102.1 |
|
|
|
95.8 |
|
|
|
6.5 |
|
Cost
of goods sold
|
|
|
(1,345.6 |
) |
|
|
(1,191.3 |
) |
|
|
13.0 |
|
Gross
profit
|
|
|
145.6 |
|
|
|
487.8 |
|
|
|
(70.1 |
) |
Selling
expenses
|
|
|
(168.6 |
) |
|
|
(133.8 |
) |
|
|
26.0 |
|
General
and administrative expenses
|
|
|
(115.1 |
) |
|
|
(121.1 |
) |
|
|
(4.9 |
) |
Operating
income (loss)
|
|
|
(138.1 |
) |
|
|
232.9 |
|
|
|
(159.3 |
) |
Other
income (expenses):
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|
|
|
|
|
|
|
|
|
|
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|
Financial
income, net
|
|
|
116.8 |
|
|
|
289.4 |
|
|
|
(59.6 |
) |
Other
income (expenses), net
|
|
|
(3.7 |
) |
|
|
16.3 |
|
|
|
* |
|
Income
(loss) before income taxes, equity in income of affiliates and minority
interest
|
|
|
(25.0 |
) |
|
|
538.5 |
|
|
|
* |
|
Income
taxes (expense) benefit
|
|
|
19.8 |
|
|
|
(188.8 |
) |
|
|
* |
|
Income
(loss) before equity in income of affiliates and minority
interest
|
|
|
(5.2 |
) |
|
|
349.7 |
|
|
|
* |
|
Equity
in income (loss) of affiliates
|
|
|
(0.2 |
) |
|
|
– |
|
|
|
* |
|
Minority
interest in net income (loss) of subsidiaries
|
|
|
22.0 |
|
|
|
(173.0 |
) |
|
|
* |
|
Net
income
|
|
US$ |
16.6 |
|
|
US$ |
176.7 |
|
|
|
(90.6 |
) |
* Not a
meaningful comparison.
Net
Sales
Net sales
decreased by 11.2%, to US$1,491.2 million in 2008 from US$1,679.1 million in
2007, primarily as a result of:
·
|
a
15.4% decrease in market daily average prices for raw sugar as measured by
contract number 11 of NYBOT, to US$0.1055 per pound in fiscal year 2008
from US$0.1247 per pound in fiscal year 2007;
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|
18.5%
decrease in market daily average prices for white refined sugar as
measured by contract number 5 of LIFFE, to US$314.65 per ton in fiscal
year 2008 from US$386.26 per ton in fiscal year 2007; 25.3% decrease in
market daily average prices for Brazilian Crystal sugar as measured by
ESALQ/CEPEA, to US$13.99 per 50 kilogram bag in fiscal year 2008, from
US$18.73 per 50 kilogram bag in fiscal year 2007; 5.4% decrease in market
weekly average prices for Brazilian hydrous ethanol as measured by
ESALQ/CEPEA, to US$0.3661 per liter in fiscal year 2008 from US$0.3869 per
liter in fiscal year 2007; 3.5% decrease in market weekly average prices
for Brazilian anhydrous ethanol as measured by ESALQ/CEPEA, to US$0.4172
per liter in fiscal year 2008 from US$0.4322 per liter in fiscal year
2007;
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·
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a
16.3% increase in our ethanol sales volumes, to 406.1 million gallons
(1,537.1 million liters) in fiscal year 2008 from 349.3 million gallons
(1,322.1 million liters) in fiscal year 2007, and a 3.9% decrease in our
sugar sales volumes to 3,114.4 thousand tons in fiscal year 2008, from
3,240.5 thousand tons in fiscal year
2007.
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Net sales
from exports of sugar, ethanol and services were US$823.2 million in fiscal year
2008, which represented 55.2% of our net sales for this period compared to 60.4%
of our net sales in the same period of previous fiscal year. This decrease in
the relative contribution of exports to total net sales was primarily caused by
a 14.8% appreciation of the real against the US dollar to a daily average of
R$1.8281 per US dollar in fiscal year 2008, from a daily average of R$2.1468 per
US dollar in the same period of the previous fiscal year.
Sugar. Net sales from sugar
decreased by 24.0% to US$784.5 million in 2008, from US$1,031.7 million in
fiscal year 2007, primarily as a result of:
·
|
a
20.9% decrease in the average realized price per ton (including all of the
types of sugar that we produce) to US$251.9 per ton in fiscal year 2008
from US$318.4 per ton in fiscal year 2007;
and
|
·
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a
3.9% decrease in our sugar sales volume to 3,114.4 thousand tons in fiscal
year 2008 from 3,240.5 thousand tons in fiscal year
2007.
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Sales of
sugar represented 52.6% and 61.4% of total net sales in fiscal years 2008 and
2007, respectively. This decrease in the relative contribution of sugar to total
net sales was primarily caused by lower export average sugar market
prices.
Ethanol. Net sales from
ethanol increased by 9.6%, to US$604.7 million in fiscal year 2008 from US$551.5
million in fiscal year 2007, primarily as a result of:
·
|
a
16.3% increase in our ethanol sales volume to 406.1 million gallons
(1,537.1 million liters) in fiscal year 2008 from 349.3 million gallons
(1,322.1 million liters) in fiscal year 2007, mainly due to the upturn
in output (40.3 million tons crushed in fiscal year 2008 as compared to
36.2 million in fiscal year 2007) and the increased
emphasis on ethanol in our production mix (44% of ATR converted to ethanol
in fiscal year 2008 as compared to 39% in fiscal year 2007);
and
|
·
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a
5.7% decrease in our average realized unit price to US$1.4891 per gallon
(US$393.4 per thousand liters) in fiscal years 2008 from US$1.5790 per
gallon (US$417.1 per thousand liters) in fiscal year 2007, due to the
combination of a decrease in the domestic price and the appreciation of
the Real.
|
Net sales
from other products and services increased by 6.5% to US$102.1 million in 2008
from US$95.8 million in 2007.
Cost
of Goods Sold
Cost of
goods sold increased by 13.0% to US$1,345.6 million in 2008 from US$1,191.3
million in 2007. This increase was primarily due to the appreciation
of the real against the
U.S. dollar, resulting in a
substantial
increase in U.S. dollar terms in costs originally quoted in reais. In reais, cost of
goods sold in 2008 was 3.8% lower than in 2007.
Sugar. Cost of sugar sold
increased by 4.0% to US$703.5 million in 2008 from US$676.5 million in 2007,
primarily as a result of the appreciation of the real against the U.S. dollar
as discussed above,.
Ethanol. Cost of ethanol sold
increased by 29.5% to US$558.2 million in 2008 from US$431.1 million in 2007
mainly due to (1) a 12.1% increase in the average unit cost per gallon (thousand
liters) of ethanol to US$1.384 per gallon (US$365.6 per thousand liters) in 2008
from US$1.234 per gallon (US$326.1 per thousand liters) in 2007; and (2) the
appreciation of the real against the U.S. dollar
as discussed above.
Other products and services.
Cost of other products and services increased by 0.3% to US$83.9 million in 2008
from US$83.6 million in 2007. These costs were primarily denominated in reais, which appreciated
17.7% against the U.S. dollar, which increased the costs. The main reason why
costs did not increase was a reclassification of approximately
US$10.0 million in fiscal year 2008, of loading expenses of own sugar in our own
port terminal which were recorded previously as costs of other services, and now
are recorded as selling expenses.
Selling
Expenses
Selling
expenses are primarily related to transportation costs, including freight and
shipping costs for ethanol and sugar sold in Brazil and exported, as well as
storage and loading expenses of ethanol and sugar for export at our and third
parties port facilities. The major portion of our sales of ethanol in Brazil is
sold at the mill to refineries, and therefore there are no shipping
costs.
Selling
expenses increased by 26.0% to US$168.6 million in 2008 from US$133.8 million in
2007. This increase resulted primarily from the 17.7% appreciation of the real against the U.S. dollar,
in average terms, since our selling expenses were primarily denominated in reais, but was also due to
the increase in the volume of ethanol exports, which impacted freight and port
loading costs. As discussed in "Cost of Goods Sold – Other products
and services" above, selling expenses also increased due to the approximately
US$10.0 million reclassification between accounts.
General
and Administrative Expenses
General
and administrative expenses consist of salaries and benefits paid to employees,
taxes, expenses related to third-party services, rentals and other
expenses.
General
and administrative expenses decreased by 4.9% to US$115.1 million in 2008 from
US$121.1 million in 2007. This decrease resulted mainly from the cost reduction
initiatives adopted by us.
Financial
income, net
Financial
income, net in fiscal year 2008 totaled US$116.8 million compared to financial
income, net of US$289.4 million in fiscal year 2007.
Financial
Income
Financial
income in fiscal year 2008 totaled US$274.7 million compared to financial income
of US$555.5 million in fiscal year 2007. This decrease was primarily the result
of:
·
|
financial
income of US$149.1 million in 2007 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;
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·
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a
US$122.9 million decrease in financial income from derivative transactions
from US$301.8 million in fiscal year 2007 to US$178.9 in fiscal year 2008
as a result of the mark-to-market method of accounting for derivative
transactions related to sugar prices and foreign exchange rate
variations;
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·
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financial
income of US$43.4 million in fiscal year 2007 resulting from renegotiation
of promissory notes issued in connection with our acquisition of Usina da
Barra and financial income of US$32.2 million in fiscal year 2007 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; and
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·
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financial
income of US$19.8 million in fiscal year 2007 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 “Item 8. Financial Information—A. Consolidated Statements and Other
Financial Information—Legal 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.
|
Financial
Expenses
Financial
expenses in fiscal year 2008 totaled US$157.9 million compared to financial
expenses of US$266.2 million in fiscal year 2007. This decrease was primarily
the result of:
·
|
a
US$165.2 million increase in gains from foreign exchange variation on our
U.S. dollar denominated debt, from US$20.0 million in fiscal year 2007 to
US$185.2 million in fiscal year 2008 as a result of a 17.1% appreciation
of the Brazilian real against the U.S.
dollar;
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which was
partially offset by:
·
|
a
US$22.2 million increase in financial expenses due to accrued interest on
our indebtedness from US$126.9 million in fiscal year 2007 to US$149.1
million in fiscal year 2008 as a result of the partial reversal of
provisions recorded in connection with the Sugar and Alcohol Institute
(Instituto do Açúcar e
Álcool) litigation;
|
·
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a
US$18.6 million increase in financial expenses from derivative
transactions from US$111.1 million in fiscal year 2007 to US$129.7 million
in fiscal year 2008 as a result of foreign exchange rate variations;
and
|
·
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financial
expense of US$16.5 million in fiscal year 2008 relating to the payment of
fees and commissions to financial institutions resulting from the
pre-payment of aggregate principal amount of our US$200.0 million 9.0%
senior notes due 2009.
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Other
Income (Expenses)
Other
expenses were US$3.7 million in 2008, compared to other income of US$16.3
million in 2007, resulting primarily from operating gains of US$20.0 million
related to the portion of the discount on the state of São Paulo VAT penalty and
interest amounts following a tax amnesty granted by the state of São Paulo (as
discussed above) which discount and interest amounts were recorded as other
income.
Income
Taxes (Expense) Benefit
Income
taxes benefit totaled US$19.8 million in 2008, representing taxable income at
the current Brazilian statutory rate of 34.0% and adjusted for non-deductible
expenses and non-taxable income in accordance with Brazilian tax law and by the
exempted financial income at the Cosan Limited level, resulting in an effective
tax rate of 79.2%, compared to an effective tax rate of 35.1% in 2007, when we
recorded taxes expenses of US$188.8 million.
Net
Income
As a
result of the foregoing, we had net income of US$16.6 million in 2008, compared
to a net income of US$176.7 million in 2007.
Our
financial condition and liquidity are influenced by several factors,
including:
·
|
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.
|
Our cash
needs have traditionally consisted of working capital requirements, servicing of
our indebtedness, capital expenditures related to investments in operations,
maintenance and expansion of plant facilities, as well as acquisitions. Our
sources of liquidity have traditionally consisted of cash flows from our
operations and short- and long-term borrowings. We have financed acquisitions of
business and agricultural land through seller financing, third party-financing
or capital contributions by our shareholders.
In
transition fiscal year 2009, the cash flow used in investing activities was
funded principally by increased borrowing, while in fiscal year 2008, it was
funded principally by the net proceeds of our initial public offering and in
fiscal year 2007 it was funded principally by cash flow from operations and from
our finance subsidiary’s issuance of US$400.0 million in notes in January 2007.
In transition fiscal year 2009, the cash flow generated by operations was used
primarily for working capital requirements and to service our outstanding debt
obligations. As of March 31, 2009, our consolidated cash, cash equivalents and
marketable securities amounted to US$508.8 million compared to US$1,082.9
million and US$598.4 million, as of April 30, 2008 and 2007,
respectively.
Cash
Flow from Operating Activities
We had
net cash flows from operating activities of US$256.6 million in transition
fiscal year 2009, compared to US$57.6 million in fiscal year 2008. This increase
was primarily attributable to the 109.1% increase in gross profit as a
consequence of the 169.5% increase in the sugar unit contribution margin (net
prices per ton minus
unitary costs per ton) and the results of four months of our subsidiary
CCL.
We had
net cash flows from operating activities of US$57.6 million in 2008, compared to
US$284.0 million in 2007. This decrease was primarily attributable to the 70.1%
decrease in gross profit, as a consequence of the significant decreases in
ethanol and sugar prices, as well as by the concentration of accounts receivable
at the end of fiscal year 2008.
Cash
Flow Used in Investing Activities
We had
net cash flows used in investing activities of US$787.8 million in transition
fiscal year 2009, compared to US$1,441.7 million in 2008. This variation was
attributable to:
·
|
an
increase in the amount invested in acquisitions;
and
|
·
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an
increase in marketable securities.
|
We had
net cash flows used in investing activities of US$1,441.7 million in 2008,
compared to US$251.6 million in 2007. This variation was attributable
to:
·
|
an
80.5% increase in capital expenditures for property, plant and equipment
acquisitions to US$642.9 million in 2008 from US$356.2 million in
2007;
|
·
|
cash
investments in marketable securities in 2008 with the net proceeds from
our initial public offering compared to a reduction in marketable
securities in 2007;
|
·
|
net
cash investments in restricted cash to cover margin calls in derivative
operations in fiscal year 2008 compared to a net cash withdrawal of
restricted cash in fiscal year
2007;
|
·
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an
increase in the amount invested in acquisitions, from US$39.4 million in
2007 to fund the 33.3% stake of Etanol Participações S.A. to US$102.0
million in 2008 to fund the acquisition of 100% of the shares of Benalcool
Açúcar e Álcool S.A. and an advance payment of US$59.3 million in
connection with the acquisition of 49% of Terminal
Teaçu.
|
Cash
Flow from Financing Activities
We had
net cash flows from financing activities of US$871.9 million in transition
fiscal year 2009, compared to US$1,023.3 million in fiscal year 2008. This
decrease was primarily attributable to the reduction in the proceeds of the
common stock offering in the amount of US$918 million, received in 2008, which
did not repeat in 2009, offset by increased borrowing in 2009 of US$675
million.
We had
net cash flows from financing activities of US$1,023.3 million in fiscal year
2008, compared to US$222.8 million in fiscal year 2007. This increase was
primarily attributable to the net proceeds from the issuance of our initial
public offering in 2008 and for the proceeds received from the minority
shareholders who exercised their tag-along rights in connection with the capital
increase of a subsidiary.
Working
Capital
At March 31, 2009, we had working
capital of US$362.8 million, compared to US$1,503.8 million at April 30, 2008,
primarily attributable to:
·
|
a
decrease in marketable securities and cash and cash equivalents, from
US$1,082.9 million at April 30, 2008 to US$508.8 million in fiscal year
2009; and
|
·
|
an
increase in current portion of long-term debt, from US$653.1 million to
US$743.5 million related to the acquisition of CCL and US$99.1 million for
energy cogeneration.
|
At April
30, 2008, we had working capital of US$1,503.8 million, compared to US$865.3
million at April 30, 2007, primarily attributable to:
·
|
an
increase in cash, cash equivalents and marketable securities, as mentioned
above; and
|
·
|
an
increase in inventories originally denominated in reais due to
appreciation of the real against the dollar
and an increase in days sales of inventory of
sugar;
|
which was
partially offset by:
·
|
reduction
of market value of derivative financial instruments from a net asset
carrying value of US$55.4 million in 2007 to a net liability of US$23.6
million.
|
We
believe our current liquidity and our cash flow from operations will be
sufficient to meet our working capital requirements for at least the next 12
months.
Capital
Expenditures
Our
capital expenditures in property, plant and equipment, including acquisitions
(net of cash acquired), expenditures for crop formation and expenditures for
purchases of land, were US$1,320.5 million in transition fiscal year 2009,
compared to US$744.8 million and US$395.6 million in the fiscal years 2008 and
2007, respectively. Excluding our acquisitions, our operating capital
expenditures were US$606.2 million in transition fiscal year 2009, compared to
US$642.9 million and US$356.2 million in the fiscal years 2008 and 2007,
respectively.
We are
continuously searching for opportunities to increase our production capacity of
sugar, ethanol and bio-electricity, including the development of greenfield and
beownfield projects. In 2009, two new mills which will commence
operation Jataí mill in the State of Goiás and Carapó mill in the State of Mato
Grosso do Sul. When all current projects and de-bottlenecking initiatives are
operating on full capacity, up to fiscal year 2013, Cosan will have capacity to
crush more than 60 million tons of sugarcane a year.
Our
capital expenditure program is focused on four key areas:
Greenfield
Project
We are
currently building ethanol and sugar plants in the States of Goiás and Mato
Grosso do Sul, Brazil. We have acquired the land for the industrial facilities
and entered into leases for sugarcane cultivation. Our estimated capital
expenditures for the Goiás project is approximately US$390 million, and
production is expected to begin in 2009, reaching full capacity by fiscal year
2013, with an expected crushing capacity of 4 million tons of sugarcane and
production of approximately 97 million gallons (370 million liters) of ethanol
per year. Our estimated capital expenditures for the Mato Grosso do Sul project
is approximately US$245 million, and production is expected to begin in 2009
reaching full capacity by fiscal year 2011, with an expected crushing capacity
of 2 million tons of sugarcane and production of approximately 75 million liters
of ethanol per year.
Expansion
of Our Crushing Capacity
We intend
to make additional investments to expand the crushing capacity of our mills.
These investments are expected to be applied primarily to our Univalem, Gasa,
Presidente Prudente, Destivale, Mundial, Bonfim and Junqueira mills, both in
industrial equipment and in new sugar cane crop plantation.
Cogeneration
Projects
We intend
to invest in cogeneration projects in six of our existing 21 mills and in our
greenfield projects, which will allow them to sell energy to the grid. Besides
those projects, we have already finalized cogeneration projects in Costa Pinto,
Rafard, Tarumã and Maracaí mills. By the end of 2012, all these projects will
have received R$2.4 billion in investments, out of which approximately R$1.0
billion have already been invested.
Cosan has
already won bids in seven government energy auctions and entered into four
bilateral contracts to sell, during the next 15 years, approximately 2.7
GWh/year to the Brazilian electricity grid at an average price of R$156.00 to
R$160.00/MWh (approximately US$ 78-80/MWh). We expect that five of our mills
will start delivering energy to the grid this fiscal year.
Strategic
Acquisitions along the Business Chain
We
invested approximately US$1.0 billion in strategic acquisitions along the
business chain in the past year. We have added fuel distribution
operations through the acquisition of downstream assets of ExxonMobil in Brazil
and taken equity stakes in Radar, a newly incorporated land development company,
Rumo, a new sugar logistics company, and Uniduto, a newly incorporated company
that is exploring an ethanol pipeline project in the central-south region of
Brazil. In November 2007, we acquired 50% interest in Vertical UK LLP, a leading
ethanol trading company.
On
December 1, 2008, Cosan acquired 100% of the capital of Essobras (now CCL) and
certain affiliates, marketers and distributors of fuel and lubricants in the
Brazilian retail and wholesale markets as well as aviation fuel supply from
Exxon. On May 2009, we sold the aviation fuel business to Shell by US$75
million, aligned with our strategy of focusing investments on our core
businesses.
On June 18, 2009, Cosan
acquired 100% of the outstanding shares of Curupay, the parent company of Nova
América and controlling sharehholder of other assets related to trading,
logistics and industrial production of sugar and ethanol and energy
co-generation. Nova América is a producer of sugar, ethanol
and energy co-generation which also operates in trading and
logistics. The assets acquired include the non-controlling interest
in Novo Rumo representing 28.82% of its outstanding shares which were issued in
the Teaçu acquisition, and 100% of the outstanding shares of two operating
companies, Nova América S.A. Trading and Nova América S.A.
Agroenergia. Nova América is a producer of sugar, ethanol and energy
co-generation and also operates in trading and logistics and the União” brand,
which is the leading sugar brand in Brazil. We are now focused on the
integration of these assets and extraction of synergies, however we will
continue to analyze opportunities to grow organically or through strategic
acquisitions and partnerships.
Indebtedness
Our total
debt of US$2,032.8 at March 31, 2009 was higher than our total debt of
US$1,287.5 million at April 30, 2008. Our short-term debt, comprised only by
current portion of long-term debt and interest accrued, represented 38.5% of our
total indebtedness at March 31, 2009. Our U.S. dollar denominated debt at March
31, 2009 represented 54.1% of our indebtedness. In addition, at March 31, 2009,
approximately 44.2% of our total indebtedness was unsecured.
As of
March 31, 2009, we had total assets of US$5,421.1 million compared to US$5,269.1
million at April 30, 2008. Our total assets increased 2.9%, mainly due to our
acquisition of CCL. Our net debt at March 31, 2009 was US$1,420.7 million,
significantly higher than our net debt of US$90.8 million at April 30, 2008,
mainly resulting from the reduction in marketable securities in the total amount
of US$486.0 million and the issuance of promissory notes in the amount of
US$501.9 million.
Certain
of our long-term debt agreements, in particular the IFC Loans (described above),
require us to comply with certain financial and negative covenants. Our US$450.0
million 8.25% perpetual notes, our US$400.0 million 7.0% senior notes due 2017
and our remaining outstanding balance of US$200.0 million 9.0% senior notes due
2009 and our indirect subsidiary CCL Finance $350,000,000 its 9.50%
Senior Notes due 2014 limit our ability and the ability of our subsidiaries to
enter into certain transactions with shareholders or affiliates, create liens
and engage in a merger, sale or consolidation transactions. The IFC Loans
include restrictions on our ability to incur additional indebtedness and pay
dividends.
On
November 17, 2008, Cosan issued promissory notes for an aggregate outstanding
principal amount of R$1.1 billion. The promissory notes are subject to interest
consisting of the accumulated change in average daily rates of Interfinancial
Deposits plus 3% annual rate, payable on November 12, 2009, together with the
principal amount of promissory notes. The promissory notes are secured by: (1) a
guarantee of Mr. Rubens Ometto Silveira Mello; and (2) chattel mortgage of
shares of CCL (current name of Essobrás).
IFC
Loans
On June
28, 2005, Cosan entered into a US$70.0 million credit facility with IFC. Cosan
used the proceeds of the loans, or “IFC Loans”, to expand and modernize our
mills and refineries. The IFC Loans consist of two loans: (1) up to a US$50.0
million loan, or “IFC A Loan”; and (2) up to a US$20.0 million loan, or “IFC C
Loan”. On October 14, 2005, we borrowed the full amount under the IFC C Loan,
and on February 23, 2006, we borrowed the full amount available under the IFC A
Loan.
Interest
on the IFC Loans is payable semi-annually in arrears on January 15 and July 15
of each year, at the rate of LIBOR plus 3.75% per annum for the IFC C Loan and
at the rate of LIBOR plus 3.75% per annum for the IFC A Loan. Pursuant to the
terms of the IFC Loan agreement, Cosan granted IFC an option to purchase an
amount of its common shares equal to the reais equivalent of US$20.0
million divided by R$48.0. IFC elected to partially (and not fully) exercise its
option to convert US$5.0 million of the IFC C Loan into 228,750 (or 686,250
following the three-for-one stock split of August 2006) of Cosan’s common
shares, and the outstanding US$15.0 million principal amount of the IFC C Loan
will be payable in a single principal installment on January 15, 2013 and will
bear additional interest at a rate calculated based on a formula linked to
Cosan’s EBITDA based upon its annual audited financial statements for the
applicable fiscal year. The IFC A Loan will be payable in 12 semi-annual,
approximately equal installments commencing on July 15, 2007.
The IFC
Loans are secured by a mortgage over the Da Barra mill and certain equipment of
Da Barra. In addition, the IFC Loans are jointly and severally guaranteed by Mr.
Rubens Ometto Silveira Mello, Amaralina, and Cosan’s subsidiaries, Da Barra,
Cosan Portuária, Cosan Refinadora and Agrícola Ponte Alta S.A., or “Agrícola
Ponte Alta”. The IFC Loans include certain ongoing covenant obligations on
Cosan, including, restrictions on Cosan’s payment of dividends or its incurrence
of additional debt if certain financial ratios are not satisfied.
In
addition, as a condition precedent to the IFC Loan agreement, Cosan, together
with Mr. Rubens Ometto Silveira Mello and certain of Cosan’s then controlling
shareholders and subsidiaries, entered into an equity rights agreement with the
IFC, pursuant to which tag-along rights and a put option were granted to the
IFC, and Mr. Rubens Ometto Silveira Mello, directly or indirectly, is required
to maintain no less than a 51% minimum ownership level in certain of their
equity investments.
Special
Agricultural Financing Program (Programa Especial de Saneamento de
Ativos)
To extend
the repayment period of debt 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 agricultural producers
with certain types of debt the opportunity to acquire 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 these
securities would mature in 20 years. The acquisition price was calculated as the
present value, discounted at a rate of 12.0% per year or at the equivalent of
10.4% of its face value. The face value of the CTNs will be readjusted according
to IGP-M plus 12.0% per year. The CTNs were deposited as a guarantee and cannot
be sold 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 repay our PESA debt. We joined the PESA
program between 1998 and 2000 and the program is structured to automatically
settle our PESA debt between 2018 and 2020. Our PESA debt is guaranteed by
mortgages on our land.
As of
March 31, 2009, our PESA related outstanding debt totaled US$215.6 million,
compared to 273.2 million as April 30, 2008. As of March 31, 2009, our CTN
credits totaled US$103.3 million, compared to US$113.9 million as April 30,
2008. Our total debt, excluding PESA debt, was US$ 1,817.1 million at March 31,
2009. Our negative net debt, excluding CTN credits and PESA debt, was US$1,308.3 million at March 31,
2009.
See “Item
4. Information on the Company—Business Overview—Research and
Development.”
Other
than as disclosed elsewhere in this transition report including under “Item 3D.
Key Information —Risk Factors” and elsewhere in this transition report, we are
not aware of any trends, uncertainties, demands, commitments or events which are
reasonably likely to have a material effect upon our net sales or revenues,
income from continuing operations, profitability, liquidity or capital
resources, or that would cause reported financial information to not necessarily
be indicative of future operating results or financial condition.
As of
March 31, 2009 we leased 370.353 hectares, through approximately 2,000 land
lease contracts with an average term of five years. Eight of these contracts
(covering 55,339 hectares, or approximately 14.9% of the land leased by us) are
entities controlled by our chief executive officer and controlling shareholder
under arms-length terms. In accordance with these land lease contracts, we pay
the lessors a certain fixed number of tons of sugarcane per hectare as
consideration for the use of the land, and a certain fixed productivity per ton
of sugarcane in terms of TSR. The overall volume of TSR is obtained by
multiplying the number of hectares leased by the committed tons of sugarcane per
hectare by the TSR per ton of sugarcane. The price that we pay for each kilogram
of TSR is set by CONSECANA. In fiscal year 2007, we paid an average of 16.4
tons of sugarcane per hectare, and an average of 123 kilograms of TSR per ton of
sugarcane, at an average cost of US$0.1715 million per kilogram of TSR under our
land lease contracts. In fiscal year 2008, we paid an average of 16.9 tons of
sugarcane per hectare, and an average of 122.8 kilograms of TSR per ton of
sugarcane, at an average cost of US$0.2987 million per kilogram of TSR under our
land lease contracts. In transition fiscal year 2009, we paid an average of 17.2
tons of sugarcane per hectare, and an average of 121.6 kilograms of TSR per ton
of sugarcane, at an average cost of US$0.1461 million per kilogram of TSR under
our land lease contracts.
The
following table sets forth the maturity schedule of our material contractual
financial obligations at March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of US$)
|
|
Long-term
debt obligations(1)
|
|
US$ |
2,032.8 |
|
|
US$ |
781.7 |
|
|
US$ |
39.9 |
|
|
US$ |
66.6 |
|
|
US$ |
1,144.6 |
|
Operating
lease obligations(2)
|
|
|
659.4 |
|
|
|
40.5 |
|
|
|
81.8 |
|
|
|
72.9 |
|
|
|
464.2 |
|
Purchase
obligations
|
|
|
1,219.9 |
|
|
|
313.1 |
|
|
|
501.1 |
|
|
|
264.7 |
|
|
|
141.0 |
|
Advances
from customers
|
|
|
11.3 |
|
|
|
11.3 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Total
|
|
US$ |
3,923.4 |
|
|
US$ |
1,146.6 |
|
|
US$ |
622.8 |
|
|
US$ |
404.2 |
|
|
US$ |
1,749.8 |
|
(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
142.5 kg per ton, at a price of US$150.4, per ton as defined by CONSECANA
for March 2009.
|
Our
long-term debt consists primarily of:
·
|
US$456.4
million perpetual notes with call option for Cosan beginning on February
2011;
|
·
|
US$405.4
million senior notes due February
2017;
|
·
|
US$215.9
million PESA debt due between 2018 and 2020, payable against CTN credits;
and
|
·
|
US$49.4
million IFC C Loan due January 2013 with call option for
Cosan.
|
We
believe we will be able to refinance our existing debt on favorable market
conditions. However, if we experience unfavorable market conditions, we believe
that we already have available cash to repay our debt obligations due in the
next three fiscal years, and, after that period, we expect to repay our debt
obligations as they become due with cash generated by our
operations.
Recently
Issued Accounting Standards
In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 141(R), “Business Combinations” (“SFAS 141(R)”) which replaces FASB
Statement No. 141, Business Combinations. This Statement establishes principles
and requirements for how the acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree; recognizes and measures the goodwill
acquired in the business combination or a gain from a bargain purchase; and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. This Statement is effective for Cosan as of April 1, 2009.
This Statement will only impact Cosan’s financial statements in the event of a
business combination on or after April 1, 2009.
In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 160, “Noncontrolling Interests in Consolidated Financial Statements”
(“SFAS 160”) which amends ARB 51 to establish accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. Before this Statement was issued,
limited guidance existed for reporting noncontrolling interests. This Statement
changes the way the consolidated income statement is presented. It requires
consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the noncontrolling interest. It also
requires disclosure, on the face of the consolidated statement of income, of the
amounts of consolidated net income attributable to the parent and to the
noncontrolling interest. This Statement is effective for Cosan as of April 1,
2009. Cosan is evaluating the impact of this statement on its consolidated
financial statements and related disclosures.
In
February 2008, the FASB issued FASB Staff Position FAS 140-3, “Accounting for
Transfers of Financial Assets and Repurchase Financing Transactions.” The
objective of the FSP is to provide guidance on accounting for a transfer of a
financial asset and repurchase financing. The FSP presumes that an initial
transfer of a financial asset and a repurchase financing are considered part of
the same arrangement (linked transaction) under Statement 140. However, if
certain criteria are met, the initial transfer and repurchase financing shall
not be evaluated as a linked transaction and shall be evaluated separately under
Statement 140. FSP FAS 140-3 is effective for annual and interim periods
beginning after November 15, 2008 and early adoption is not permitted.
Cosan does not anticipate that the adoption of this standard will materially
impact the Company’s financial position or results of operations.
In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities—an amendment of FASB Statement No. 133" (Statement 161).
Statement 161, which amends FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, requires companies
with derivative instruments to disclose information about how and why a company
uses derivative instruments, how derivative instruments and related hedged items
are accounted for under Statement 133, and how derivative instruments and
related hedged items affect a company's financial position, financial
performance, and cash flows. The required disclosures include the fair value of
derivative instruments and their gains or losses in tabular format, information
about credit-risk-related contingent features in derivative agreements,
counterparty credit risk, and the company's strategies and objectives for using
derivative instruments. The Statement expands the current disclosure framework
in Statement 133. Statement 161 is effective prospectively for periods beginning
on or after November 15, 2008. Early adoption is encouraged. The Company has not
yet determined the potential impact, if any, this would have on its consolidated
financial
statements. In April 2008, the FASB issued FASB Staff Position FAS 142-3,
“Determination of the Useful Life of Intangible Assets.” FSP FAS 142-3 amends
the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under Statement 142. FSP FAS 142-3 is effective for fiscal years beginning
after December 15, 2008. Cosan does not anticipate that the adoption of
this standard will materially impact the Company’s financial position or results
of operations.
In May
2008, the FASB issued SFAS No. 162, the hierarchy of generally accepted
accounting principles. This statement identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States (the GAAP hierarchy). This statement is effective
60 days following the SEC’s approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, “the Meaning of Present Fairly in Conformity
With Generally Accepted Accounting Principles.” The Company has not yet
determined the potential impact, if any, this would have on its consolidated
financial statements.
In May
2008, also the FASB issued SFAS No. 163, Accounting for finance guarantee
insurance contracts – an interpretation of FASB Statement No. 60. The premium
revenue recognition approach for a financial guarantee insurance contract links
premium revenue recognition to the amount of insurance protection and the period
in which it is provided. For purposes of this statement, the amount of insurance
protection provided is assumed to be a function of the insured principal amount
outstanding, since the premium received requires the insurance enterprise to
stand ready to protect holders of an insured financial obligation from loss due
to default over the period of the insured financial obligation. This Statement
is effective for financial statements issued for fiscal years beginning after
December 15, 2008. This Statement is effective for Cosan as of April 1, 2009.
Cosan is evaluating the impact of this statement on its consolidated financial
statements and related disclosures.
In June
2008, the FASB’s Emerging Issues Task Force reached a consensus on EITF Issue
No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to
an Entity’s Own Stock.” This EITF Issue provides guidance on the determination
of whether such instruments are classified in equity or as a derivative
instrument. Cosan will adopt the provisions of EITF 07-5 on April 1, 2009. Cosan
is currently evaluating the impact, if any, of adopting EITF 07-5 on its
financial position and results of operations.
In
June 2008, the FASB issued FASB Staff Position Emerging Issues Task
Force (EITF) No. 03-6-1, “Determining whether instruments granted in
share based payment transactions are participating securities” (“FSP EITF No.
03-6-1”). Under FSP EITF No. 03-6-1, unvested share-based payment
awards that contain rights to receive nonforfeitable dividends (whether paid or
unpaid) are participating securities, and should be included in the two-class
method of computing EPS. FSP EITF No. 03-6-1 is effective for fiscal years
beginning after December 15, 2008, and interim periods within those years,
and is not expected to have a significant impact on the Company’s financial
statements. This Statement is effective for Cosan as of April 1, 2009. Cosan is
evaluating the impact of this statement on its consolidated financial statements
and related disclosures.
In
November 2008, the FASB’s Emerging Issues Task Force reached a consensus on EITF
Issue No. 08-6, “Equity Method Investment Accounting
Considerations”. EITF 08-6 continues to follow the accounting for the
initial carrying value of equity method investments in APB Opinion No. 18, The
Equity Method of Accounting for Investments in Common Stock, which is based on a
cost accumulation model and generally excludes contingent consideration. EITF
08-6 also specifies that other-than-temporary impairment testing by the investor
should be performed at the investment level and that a separate impairment
assessment of the underlying assets is not required. An impairment
charge by the investee should result in an adjustment of the investor’s basis of
the impaired asset for the investor’s pro-rata share of such impairment. In
addition, EITF 08-6 reached a consensus on how to account for an issuance of
shares by an investee that reduces the investor’s ownership share of the
investee. An investor should account for such transactions as if it had sold a
proportionate share of its investment with any gains or losses recorded through
earnings. EITF 08-6 also addresses the accounting for a change in an investment
from the equity method to the cost method after
adoption
of Statement 160. EITF 08-6 affirms the existing guidance in APB 18, which
requires cessation of the equity method of accounting and application of FASB
Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities, or the cost method under APB 18, as appropriate. EITF
08-6 is effective for transactions occurring on or after December 15, 2008.
Cosan does not anticipate that the adoption of EITF 08-6 will materially impact
the Company’s financial position or results of operations. This Statement is
effective for Cosan as of April 1, 2009. Cosan is evaluating the impact of this
statement on its consolidated financial statements and related
disclosures.
In
November 2008, the Emerging Issues Task Force (“EITF”) issued Issue
No. 08-7, Accounting for Defensive Intangible Assets (“EITF 08-7”). EITF
08-7 applies to all acquired intangible assets in which the acquirer does not
intend to actively use the asset but intends to hold (lock up) the asset to
prevent its competitors from obtaining access to the asset (a defensive asset),
assets that the acquirer will never actually use, as well as assets that will be
used by the acquirer during a transition period when the intention of the
acquirer is to discontinue the use of those assets. EITF 08-7 is effective as of
January 1, 2009. This Statement is effective for Cosan as of April 1, 2009.
Cosan is evaluating the impact of this statement on its consolidated financial
statements and related disclosures.In December 2008, the FASB issued FASB Staff
Position FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan
Assets.” FSP FAS 132(R)-1 provides guidance on an employer’s disclosures about
plan assets of a defined benefit pension or other postretirement plan. FSP FAS
132(R)-1 also includes a technical amendment to FASB Statement No. 132(R),
effective immediately, which requires nonpublic entities to disclose net
periodic benefit cost for each annual period for which a statement of income is
presented. The Company has disclosed net periodic benefit cost in Note 13. The
disclosures about plan assets required by FSP FAS 132(R)-1 must be provided for
fiscal years ending after December 15, 2009. The Company is currently
evaluating the impact of the FSP on its disclosures about plan
assets.
On
January 12, 2009 the FASB issued a final Staff Position ("FSP") amending the
impairment guidance in EITF Issue No. 99-20, Recognition of Interest Income and
Impairment on Purchased Beneficial Interests and Beneficial Interests That
Continue to Be Held by a Transferor in Securitized Financial Assets to achieve
more consistent determination of whether another-than-temporary impairment has
occurred. This FSP does not have an impact on the Company at the present
time.
On April
9, 2009 the FASB issued three FSPs intended to provide additional application
guidance and enhance disclosures regarding fair value measurements and
impairments of securities. FSP FAS 157-4, Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly, provides guidelines for
making fair value measurements more consistent with the principles presented in
FASB Statement No. 157, Fair Value Measurements. FSP FAS 107-1 and APB 28-1,
Interim Disclosures about Fair Value of Financial Instruments, enhances
consistency in financial reporting by increasing the frequency of fair value
disclosures. FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments, provides additional guidance designed to
create greater clarity and consistency in accounting for and presenting
impairment losses on securities. These FSPs do not have an impact on the Company
at the present time.
On April
1, 2009 the FASB issued FSP FAS 141(R)-1 that amends and clarifies FASB No. 141
(revised 2007), Business Combinations, to address application issues on initial
recognition and measurement, subsequent measurement and accounting, and
disclosures of assets and liabilities arising from contingencies in a business
combination. This Statement is effective for Cosan as of April 1, 2009. Cosan is
evaluating the impact of this statement on its consolidated financial statements
and related disclosures.
On May
28, 2009 the FASB announced the issuance of SFAS 165, Subsequent Events. SFAS
165 should not result in significant changes in the subsequent events that an
entity reports. Rather, SFAS 165 introduces the concept of financial statements
being available to be issued. Financial statements are considered available to
be issued when they are complete in a form and format that complies with
generally accepted accounting principles (GAAP) and all approvals necessary for
issuance have been obtained.
In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets – an amendment of Statement No. 140”, which improves the relevance,
representational faithfulness and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance and cash flows; and a transferor’s continuing involvement, if any,
in transferred financial assets. This Statement must be applied as of the
beginning of each reporting entity’s first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual reporting
period and for interim and annual reporting periods thereafter. Earlier
application is prohibited. This Statement must be applied to transfers occurring
on or after the effective date. This Statement is effective for Cosan as of
April 1, 2009. Cosan is evaluating the impact of this statement on its
consolidated financial statements and related disclosures.
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)”, which improves financial reporting by enterprises involved with variable
interest entities. The Board developed this pronouncement to address (1) the
effects on certain provisions of FASB Interpretation No. 46 (revised December
2003), “Consolidation of Variable Interest Entities”, as a result of the
elimination of the qualifying special-purpose entity concept in FASB Statement
No. 166, “Accounting for Transfers of Financial Assets”, and (2) constituent
concerns about the application of certain key provisions of Interpretation
46(R), including those in which the accounting and disclosures under the
Interpretation do not always provide timely and useful information about an
enterprise’s involvement in a variable interest entity. This Statement shall be
effective as of the beginning of each reporting entity’s first annual reporting
period that begins after November 15, 2009, for interim periods within that
first annual reporting period, and for interim and annual reporting periods
thereafter. Earlier application is prohibited. This Statement is effective for
Cosan as of April 1, 2009. Cosan is evaluating the impact of this statement on
its consolidated financial statements and related disclosures.
Our board
of directors and our executive officers are responsible for the operation of our
business. Nevertheless, Mr. Rubens Ometto Silveira Mello, who controls all of
our class B series 1 common shares, has the overall power to control us,
including the power to establish our management policies.
Board
of Directors
Our
bye-laws provide that our board of directors shall consist of between five and
eleven directors. Our board of directors currently consists of eleven
directors.
Our board
of directors is the decision-making body responsible for, among other things,
determining policies and guidelines for our business. Our board of directors
also supervises our executive officers and monitors their implementation of
policies and guidelines established from time to time by our board of
directors.
Our board
of directors is divided into three classes (Class I, Class II and Class III)
that are, as nearly as possible, of equal size. Each class of directors is
elected for a three-year term of office, and the terms are staggered so that the
term of only one class of directors expires at each annual general meeting.
Members of our board of directors are subject to removal at any time with or
without cause at a general meeting of shareholders. Our bye-laws do not include
any citizenship or residency requirements for members of our board of
directors.
The
following table lists the members of our board of directors on March 31,
2009:
|
|
Initial
Year of Appointment to Cosan Limited’s Board
|
|
Initial
Year of Appointment to Cosan’s Board
|
|
|
|
|
|
|
Rubens
Ometto Silveira Mello(2)
|
|
2007
|
|
2000
|
|
III
|
|
Chairman
|
|
1950
|
Marcus
Vinicius Pratini de Moraes(2)(3)
|
|
2007
|
|
2005
|
|
II
|
|
Vice
Chairman
|
|
1939
|
Marcelo
Eduardo Martins (2)
|
|
2009
|
|
2009
|
|
III
|
|
Director
|
|
1966
|
Mailson
Ferreira da Nóbrega(3)
|
|
2007
|
|
–
|
|
I
|
|
Director
|
|
1942
|
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
|
Burkhard
Otto Cordes(2)
|
|
2008
|
|
2005
|
|
II
|
|
Director
|
|
1975
|
Luiz
Henrique Fraga(3)
|
|
2008
|
|
–
|
|
III
|
|
Director
|
|
1960
|
(1)
|
The
terms of the directors expire as follows: Class I at the annual general
meeting held in fiscal year 2011; Class II at the annual general meeting
held in the transition fiscal year 2009; and Class III at the annual
general meeting held in the fiscal year 2010.
|
(2)
|
Also
serves as director of Cosan.
|
(3)
|
Independent
director.
|
The
following is a summary of the business experience of our current directors.
Unless otherwise indicated, the business address of our current directors is Av.
Juscelino Kubitschek, 1726, 6th floor, São Paulo, SP, Brazil.
Rubens Ometto Silveira Mello.
Mr. Mello is our chairman and chief executive officer. He has been chairman of
Cosan’s board of directors and Cosan’s chief executive officer since 2000. He
holds a degree in mechanical engineering from the Escola Politécnica of the
University of São Paulo (1972). Mr. Mello has more than 30 years of experience
in the management of large companies. He has also served as general director and
chairman of the board of directors of Costa Pinto S.A. since 1980, vice
president of Pedro Ometto S.A. Administração e Participações since 1980,
director of Cosan Operadora Portuária S.A. since 1998, chairman of the board of
directors of FBA from 2001 until its merger into Corona, and director of Usina
da Barra, currently Da Barra, since 2002. He also holds the position of director
of UNICA, the Sugarcane Agroindustry Association of the State of São Paulo
(UNICA—União da Agroindústria Canavieira do
Estado de São Paulo). Prior to joining Cosan, Mr. Mello worked from 1971
to 1973 as an advisor to the board of executive officers of UNIBANCO União de
Bancos Brasileiros S.A. and from 1973 to 1980 as chief financial officer of
Indústrias Votorantim S.A.
Marcus Vinicius Pratini de
Moraes. Mr. Pratini de Moraes is our vice-chairman and has been a member
of Cosan’s board of directors since 2005. He holds a degree in economics from
Faculdade de Ciências Econômicas da Universidade do Rio Grande do Sul (1963), a
postgraduate degree in public administration from Deutsche Stiftung fur
Entwicklungsländer—Berlin (1965) and a business administration degree from
University of Pittsburgh and Carnegie Institute of Technology (1966). Mr.
Pratini de Moraes held several positions in the Brazilian federal government,
including Minister of Planning and General Coordination (1968-1969), Minister of
Industry and Commerce (1970-1974), Minister of Mines and Energy (1992) and
Minister of Agriculture, Livestock and Food Supply (1999-2002). He also served a
term as a congressman from the state of Rio Grande Do Sul (1982-1986). He was a
board member of Solvay do Brasil (1998-1999) and chairman (2003); member of the
advisory council of the Brazilian Mercantile & Futures Exchange—BM&F
(2003); member of the Brazil—China Business Council (2004); president of the
Brazil—Russia Business Council (2004); member of the National Council of
Industrial Development (2005); and vice-
president
of the Beef Information Center—SIC (2005). Mr. Pratini de Moraes is currently
the chairman of ABIEC (Brazilian Beef Export Industries Association), a board
member of FIESP (Federation of Industries of the State of São Paulo), a board
member of JBS S.A. and a member of the supervisory board and the audit committee
of ABN AMRO Bank N.V.
Marcelo Eduardo Martins. Mr. Martins has been a
member of our board of directors since March 23, 2009 Mr. Martins currently
holds the position of Executive Vice President of Finance and Investor Relations
and cumulates the Mergers & Acquisitions Officer position. His duties
include identifying acquisition opportunities and implementing takeovers as well
as business development activities for which the company may have strategic
interest in the future. In July 2007, Mr. Martins was appointed as an executive
officer of Aguassanta Participações S.A. Prior to joining the Cosan Group, Mr.
Martins was the Chief Financial and Business Development Officer of Votorantim
Cimentos between July 2003 and July 2007 and, prior to that, head of Latin
American Fixed Income at Salomon Smith Barney (Citigroup) in New York. He has
significant experience in capital markets, having worked at Citibank (where he
began his career as a trainee in 1989), Unibanco, UBS and FleetBoston. He has a
degree in business administration from the Getúlio Vargas Foundation, majoring
in Finance.
Mailson Ferreira da Nóbrega.
Mr. Nóbrega has been a member of our board of directors since November 2007. He
is an economist and was Brazil’s Minister of Finance from 1988 to 1990. He was
previously Technical Consultant and Chief of Project Analysis Department at
Banco do Brasil; Coordination Chief of Economic Affairs of the Ministry of
Industry and Commerce and Secretary General of the Ministry of Finance. He
performed as the Chief Executive Officer of the European Brazilian
Bank—EUROBRAZ, in London. Mr. Nóbrega is also member of the board of directors
of the following companies: Abyara Planejamento Imobiliário, CSU Cardsystem
S.A., Grendene S.A., Portobello S.A., Rodobens Negócios Imobiliários S.A., Tim
Participações S.A. and Veracel Celulose S.A.
Marcos Marinho Lutz. Mr. Lutz
is a member of our board of directors and our chief commercial officer. He has
been Cosan’s chief commercial officer since 2006. Mr. Lutz holds a naval
engineering degree from Escola Politécnica of the University of São Paulo and a
master’s degree in business administration from Kellogg Graduate School of
Management, Northwestern University. From 2002 to 2006, Mr. Lutz was the
executive director of infra-structure and energy at CSN (SID) and board member
of MRS Logística, CFN Railways, and Itá Energética. Before that, Mr. Lutz was
the chief operating officer at Ultracargo S.A., the logistics affiliate of the
Ultra Group.
Pedro Isamu Mizutani. Mr.
Mizutani is a member of our board directors and our chief operating officer. He
has been a member of Cosan’s board of directors since 2000 and has served as
Cosan’s managing director since 2001, currently also serving as Cosan’s chief
operating officer. Mr. Mizutani holds a production-engineering degree from the
Escola Politécnica of the University of São Paulo (1982), a postgraduate degree
in finance from UNIMEP—Universidade Metodista de Piracicaba (1986) and a
master’s degree in business management from FGV—Fundacão Getúlio Vargas, São
Paulo, with an extension degree from Ohio University (2001). Mr. Mizutani has
more than 20 years of experience in finance and administration with companies in
the ethanol and sugar industries. He also served as a planning director of Usina
Costa Pinto S.A. from 1983 to 1987, as financial manager from 1987 to 1988, and
as administrative and financial director from 1988 to 1990. From 1990 to 2001,
he acted as managing administrative and financial director of the
group.
George E. Pataki. Mr. Pataki
is a member of our board of directors. He has a bachelor’s degree from Yale
University (1967), and a law degree from Columbia Law School (1970). Mr. Pataki
was a partner in the New York law firm of Plunkett & Jaffe until 1987. He
was elected mayor of Peekskill, New York in 1981, and served in the New York
State Legislature as an assemblyman and then a senator from 1985 to 1994. In
1994, Mr. Pataki became the fifty-third Governor of the State of New York and
was reelected in 1998 and 2002. He served as Governor from January 1, 1995 until
January 1, 2007. Mr. Pataki is counsel at Chadbourne & Parke
LLP.
Marcelo de Souza Scarcela
Portela. Mr. Portela is a member of our board of directors and has been a
member of Cosan’s board of directors since 2005. He holds a law degree from
Faculdade de Direito da
Universidade
de São Paulo (1983), and completed graduate studies in commercial law from
Faculdade de Direito da Universidade de São Paulo (1988) and McGill University
Law School (1990) in Montreal, Canada. Since 2000, Mr. Portela has been a
partner in the Brazilian law firm of Portela Advogados Associados S/C. Mr.
Portela provides legal services to our company on a regular basis.
José Alexandre Scheinkman.
Mr. Scheinkman is a member of our board of directors. He is the Theodore A.
Wells ’29 Professor of Economics at Princeton University. He has a bachelor’s
degree in economics from the Federal University of the State of Rio de Janeiro
(1969), a master’s degree (1973) and doctorate degree (1974) in economics from
the University of Rochester, and a master’s degree in mathematics from Instituto
de Matemática Pura e Aplicada (Brazil) (1976). Mr. Scheinkman is a Fellow of the
American Academy of Arts and Sciences, a Fellow of the Econometric Society, and
received a “docteur honoris
causa” from the Université Paris-Dauphine. In 2002, he was a Blaise
Pascal Research Professor (France). Professor Scheinkman is a member of the
Conseil Scientifique of the Institute Europlace de Finance (Paris) and a member
of the Conselho Acadêmico of IBMEC (São Paulo). Previously, he was the Alvin H.
Baum Distinguished Service Professor and Chairman of the Department of Economics
at the University of Chicago, Vice President in the Financial Strategies Group
of Goldman, Sachs & Co., co-editor of the Journal of Political Economy
and a member of the advisory panel in economics to the Sloan
Foundation.
Burkhard Otto Cordes. Mr.
Cordes is member of our Board of Directors since 2005. He graduated with a
degree in business administration from Fundação Armando Álvares Penteado (1997)
and he holds a master’s degree in finance from IBMEC-SP (2001). Mr. Cordes has
worked in financial markets over the last seven years. He worked at Banco
BBM S.A., a company owned by Grupo Mariani, where he worked at its commercial
division focusing corporate and middle market segments. Currently, he serves as
financial manager. Before holding his current position, he had worked at IBM
Brasil in its financial division. Mr. Cordes is Mr. Mello’s
son-in-law.
Luiz Henrique Fraga. Mr.
Fraga is a founding partner of Gávea Investimentos where he also serves as
member of is investment committee. Mr. Fraga graduated with a master’s degree in
business administration and finance at the American Graduate School of
International Management (Thunderbird, 1985) and holds a bachelor’s degree in
economics from the Catholic University in Rio de Janeiro (1982). Between 1994
and 2002 he served as president of Latinvest Asset Management and senior partner
of Globalvest Management Co, one of the largest independent asset managers of
United States (investing in equity in Latin America). Since 1994, Globalvest
investments in Brazil are carried out by Latinvest. He supervised such a
company’s venture capital investments carried out by LatinTechCapital. Before
holding his current position, Mr. Fraga served at Bear Stearns in the Emerging
Markets Department and led the activities of the mergers & acquisitions and
corporate finance of Bear Stearns in Brazil (1989-94). Mr. Fraga has also held
senior positions in the areas of trading fixed income and equities, and was
responsible for the Bear Stearn's portfolio in Latin America. In 1986-89, he was
Director of a branch of Unibanco in New York and worked in the corporate finance
division of Citibank in Brazil.
Executive
Officers
Our
executive officers serve as our executive management body. They are responsible
for our internal organization and day-to-day operations and for the
implementation of the general policies and guidelines established from time to
time by our board of directors.
Our
executive officers are elected by our board of directors for one-year terms and
are eligible for reelection. Our board of directors may remove any executive
officer from office at any time with or without cause. Our executive officers
hold meetings when called by any of our executive officers.
The
following table lists our current executive officers:
|
|
Initial
Year of Appointment to Cosan Limited
|
|
Initial
Year of Appointment to Cosan
|
|
|
|
|
Rubens
Ometto Silveira Mello
|
|
2007
|
|
2000
|
|
Chief
Executive Officer
|
|
1950
|
Pedro
Isamu Mizutani
|
|
2007
|
|
2000
|
|
Chief
Operating Officer
|
|
1959
|
Marcelo
Eduardo Martins
|
|
2009
|
|
2009
|
|
Chief
Financial and Investor Relations Officer
|
|
1966
|
Marcos
Marinho Lutz
|
|
2007
|
|
2006
|
|
Chief
Commercial Officer
|
|
1969
|
The
business address of our current executive officers is Av. Juscelino Kubitschek,
1726, 6th floor, São Paulo, SP, Brazil.
Our
Relationship with our Executive Officers and Directors
There are
no family relationships among our directors or executive officers.
There are
no arrangements or understandings with any of our shareholders, customers,
suppliers or others, pursuant to which any director or member of our senior
management has been or will be selected.
Committees
of the Board of Directors
Audit
Committee
Our board
of directors has determined that Marcus Vinicius Pratini de Moraes (chairman)
and Mailson Ferreira da Nóbrega are “audit committee financial expert” as
defined by current SEC rules and meet the independence requirements of the SEC
and the NYSE listing standards. For a discussion of the role of our audit
committee, see “Item 6C. Board Practices— Audit Committee”. The members of our
audit committee are Messrs. Marcus Vinicius Pratini de Moraes (chairman),
Mailson Ferreira da Nóbrega, and Luiz Henrique Fraga.
Compensation
Committee
We have a
compensation committee that reviews and approves the compensation and benefits
for our executive officers and other key executives, makes recommendations to
the board regarding compensation matters and is responsible for awarding
equity-based compensation to our executive officers and other employees under
our employee equity incentive plan. The committee also has the discretion to
interpret the terms of the plan, to amend the plan and take all other actions
necessary to administer the plan in our best interests. The members of our
compensation committee are Messrs. Pedro Isamu Mizutani (chairman), Marcus
Vinicius Pratini de Moraes and Marcelo de Souza Scarcela Portela.
Risk
Management Committee
We have a
risk management committee that is responsible for advising the board on risk
management, by establishing exposure limits and hedging ratios on a periodic
basis so as to achieve better operational and financial controls. The members of
our risk management committee are Messrs. José Alexandre Scheinkman (chairman),
Marcelo Eduardo Martins and Marcos Marinho Lutz.
Under our
bye-laws, our board of directors is responsible for establishing the annual
aggregate compensation that we pay to the members of our board of directors and
our executive officers.
The
aggregate amount of compensation paid to all members of Cosan’s board of
directors and its executive officers in transition fiscal year 2009 was US$3.2
million. For fiscal year ended April 30, 2008, 2007 and 2006 the aggregate
compensation paid to all members of Cosan’s board of directors and its
executive
officers were US$3.5 million, US$2.5 million and US$3.1 million, respectively.
The compensation to be paid to directors and executive officers of Cosan who
also act as such for our company will be in addition to compensation paid to
them by our company.
Our
executive officers receive the same benefits generally provided to our
employees. Members of our board of directors are not entitled to these
benefits.
We
currently have no employment agreements with our directors and executive
officers providing for benefits upon the termination of employment. Our
directors and executive officers who serve for both us and Cosan will receive
compensation from both companies.
The NYSE
Corporate Governance Rules provide that we are required to disclose any
significant differences on our corporate governance practices from those
required to be followed by U.S. companies under NYSE listing standards. We have
summarized these significant differences below.
We are
permitted to follow practice in Bermuda in lieu of the provisions of the NYSE
Corporate Governance Rules, except that we will be required to have a qualifying
audit committee under Section 303A.06 of the Rules, or avail ourselves of an
appropriate exemption. In addition, Section 303A.12(b) provides that our chief
executive officer is obligated to promptly notify the NYSE in writing after any
of our executive officers becomes aware of any material non-compliance with any
applicable provisions of the NYSE Corporate Governance Rules.
Majority
of Independent Directors
NYSE Rule
303A.01 provides that each U.S. company that is listed on the Exchange must have
a majority of independent directors. Bermuda corporate law does not require that
we have a majority of independent directors. Under our bye-laws, at least 40% of
our directors are required to be independent directors; which requirement
increases to 60% following the death or permanent incapacitation of Mr. Rubens
Ometto Silveira Mello.
Separate
Meetings of Non-Management Directors
NYSE Rule
303A.03 provides that the non-management directors of each U.S. company that is
listed on the Exchange must meet at regularly scheduled executive sessions
without management. We are not required to have such executive sessions for the
non-management directors under Bermuda law.
Nominating
and Corporate Governance Committee
NYSE Rule
303A.04 provides that each U.S. company that is listed on the Exchange must have
a nominating/corporate governance committee composed entirely of independent
directors. We are not required to have such a committee under Bermuda law. We
believe that, pursuant to our bye-laws, the role of a nominating committee is
generally performed by our board of directors and that the role of the corporate
governance committee is generally performed by either our board of directors or
our senior management.
Compensation
Committee
NYSE Rule
303A.05 provides that each U.S. company that is listed on the Exchange must have
a compensation committee composed entirely of independent directors. We are not
required to have such a committee under Bermuda law. However, we formed such a
committee with one independent director.
Audit
Committee
NYSE Rule
303A.06 and the requirements of Rule 10A-3 of the SEC provide that each listed
company is required to have an audit committee consisting entirely of
independent members that comply with the
requirements
of Rule 10A-3. In addition, the company must have an internal audit function and
otherwise fulfill the other requirements of the NYSE rules and Rule 10A-3 of the
SEC.
While we
are not required under Bermuda law to have an audit committee, we have formed a
committee that will have the following responsibilities:
·
|
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, accounting and internal control
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
recommendations given by our independent auditor and internal audits and
management’s responses;
|
·
|
provide
recommendations on the audit committee’s bye-laws;
and
|
·
|
the
receipt, retention and treatment of complaints received by the issuer
regarding accounting, internal controls or auditing
matters.
|
Equity
Compensation Plans
NYSE Rule
303A.08 provides that shareholders must be given the opportunity to vote on all
equity compensation plans and material revisions thereto, with certain limited
exemptions as described in the rule. Under Bermuda law, shareholder pre-approval
is not required for the adoption of equity compensation plans nor any material
revision thereto.
Corporate
Governance Guidelines
NYSE Rule
303A.09 provides that each U.S. listed company must adopt and disclose their
corporate governance guidelines. We do not have a similar requirement under
Bermuda law. In addition, we have adopted a written policy of trading of
securities and disclosure matters.
Code
of Business Conduct and Ethics
NYSE Rule
303A.10 provides that each U.S. listed company must adopt and disclose a code of
business conduct and ethics for directors, officers and employees and promptly
disclose any waivers of the code for directors or executive officers. Although
not required under Bermuda law, the Company has adopted a code of business
conduct and ethics for directors, officers and employees as provided for in NYSE
Rule 303A.10, which has been filed with the SEC.
As of
March 31, 2009, we had 20,103 permanent employees and 11,545 temporary employees
(who were contracted for the harvest). The following table sets forth the number
of our total employees by main category of activity for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
|
|
|
23,391 |
|
|
|
36,024 |
|
|
|
27,063 |
|
Industrial
|
|
|
5,581 |
|
|
|
6,328 |
|
|
|
6,256 |
|
Commercial
|
|
|
561 |
|
|
|
777 |
|
|
|
85 |
|
Administrative
|
|
|
1,895 |
|
|
|
1,893 |
|
|
|
1,930 |
|
Financial
and investor relations
|
|
|
60 |
|
|
|
120 |
|
|
|
42 |
|
Port
|
|
|
160 |
|
|
|
198 |
|
|
|
213 |
|
Total
|
|
|
31,648 |
|
|
|
45,340 |
|
|
|
35,589 |
|
Although
approximately 30.0% of our non-management employees were members of unions at
March 31, 2009, we pay a mandatory union contribution for all of our employees.
We believe that we have good relations with our employees and the unions that
represent them, and we have not experienced a strike or other labor slowdown
since 1992. Collective bargaining agreements to which we are party
have either one-year or two-year terms, are subject to annual renewal and are
subject to changes in Brazilian law. We apply the terms of bargaining agreements
entered into with the unions equally to unionized and non-unionized
employees.
Our total
annual payroll was US$344.4 million as of March 31, 2009, which
includes a provision for vacations, and bonuses, taxes and social
contributions.
We offer
our employees, including our executive officers, various benefits, which are
provided in accordance with the employee’s position in our company. Benefits
include medical (including dental) assistance, meal and transport vouchers, life
insurance, maternity leave, scholarships and funeral assistance and nursery
assistance. Members of our board of directors are not entitled to these
benefits. All of our employees participate in profit sharing plans (Programas de Participação nos
Resultados) developed with the labor unions of which our employees are
members, which provide performance-based compensation. In the eleven months
ended March 31, 2009, we paid US$7.3 million as profit sharing
distributions.
Except
for Mr. Rubens Ometto Silveira Mello, our indirect controlling shareholder,
chairman and chief executive officer, who indirectly holds 96,332,044 of our
class B series 1 common shares and 16,111,111 Class A common shares, none of our
directors and executive officers currently owns or holds class A common shares
or class B common shares of our company.
Equity-Based
Compensation Plans
Cosan
Limited
We have
adopted a Cosan Limited equity incentive plan. We have reserved up to 5% of our
issued and outstanding class A common shares as of the granting date for
issuance under our equity incentive plan. The plan is intended to attract,
retain and motivate our directors, officers and employees, to link compensation
to the overall performance of the company in order to promote cooperation among
our diverse areas of business and to create an ownership interest in the company
with respect to these directors, officers and employees in order align their
interests with the interests of our shareholders.
Cosan
On August
30, 2005, Cosan’s shareholders approved a stock option plan that authorized the
issuance of a maximum of 5% of Cosan’s total share capital. On September 22,
2005, Cosan’s board of directors approved the distribution of stock options
corresponding to 4,302,780 common shares, or 3.25% of Cosan’s total share
capital. A remaining 1.75% of Cosan’s share capital may subsequently be issued
pursuant to the terms of Cosan’s stock option plan. The stock options that were
issued have an option price of US$2.93 per common
share,
and may be partially exercised (up to a maximum of 25% annually) after November
18, 2006. On November 20, 2006, Cosan’s board of directors approved the issuance
of 1,132,707 new common shares to certain of Cosan’s executive officers under
Cosan’s stock option plan, which resulted in an increase in the number of
Cosan’s issued and outstanding common shares on that date. On September 11,
2007, Cosan’s board of directors granted 450,000 options to one of Cosan’s
executive officers. On November 19, 2007 and December 11, 2007, 922,947 and
38,725 options, respectively, were exercised. On March 31, 2009, there were
outstanding options corresponding to 1,470,832 common shares under this
plan.
The stock
option plan is valid until December 31, 2010. If a holder of stock options
ceases to be an executive officer, manager or eligible employee for any reason
(other than termination of his or her employment contract without just cause on
Cosan’s part, death, retirement or permanent incapacitation), after partially
exercising his or her option to purchase Cosan’s common shares, the options that
have not yet been exercised will be extinguished as of the date that the holder
ceases to be an executive officer, manager or eligible employee.
Cosan
stock options held by Cosan’s executive officers may, at their option, be
canceled and converted into awards of Cosan Limited, and we will comply with the
limit of shares we have reserved for our equity incentive plan. The Cosan stock
options will be converted based upon a ratio equal to the initial offering price
of our common stock, divided by the weighted average stock price of Cosan’s
common stock for a specified period immediately preceding the date of the
completion of our initial public offering. The converted securities, if
unvested, generally will continue to vest over their original vesting
periods.
Cosan
Limited
As of the
date of this transition report our authorized; share capital is
US$11,888,863.60, consisting of 1,000,000,000 class A common shares, par value
US$0.01 per share, 96,332,044 class B series 1 common shares, par value US$0.01
per share and 92,554,316 class B series 2 common shares, par value US$0.01 per
share. Each of our class A common shares entitles its holder to one vote. Each
of our class B common shares entitles its holder to ten votes. Our chief
executive officer and chairman of our board of directors, Mr. Rubens Ometto
Silveira Mello controls 41.5% of our issued and outstanding share capital, and
86.1% of our voting power by virtue of his control of 100% of our class B common
shares and 9.2% of our class A common shares. Other than the entities and
individuals mentioned below, no other single shareholder holds more than 5.0% of
our issued and outstanding share capital.
The
following table sets forth the principal holders of our issued and outstanding
share capital and their respective shareholding as of the date of this
transition report:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aguassanta
Participações S.A.
|
|
|
5,000,000 |
|
|
|
2.9 |
|
|
|
– |
|
|
|
– |
|
|
|
5,000,000 |
|
|
|
1.8 |
|
Capital
World Investors (1)
|
|
|
9,678,000 |
|
|
|
5.6 |
|
|
|
– |
|
|
|
– |
|
|
|
9,678,000 |
|
|
|
3.6 |
|
FMR
LLC (2)
|
|
|
16,568,005 |
|
|
|
9.5 |
|
|
|
– |
|
|
|
– |
|
|
|
16,568,005 |
|
|
|
6.1 |
|
Janus
Capital Management LLC(3)
|
|
|
17,141,850 |
|
|
|
9.8 |
|
|
|
– |
|
|
|
– |
|
|
|
17,141,850 |
|
|
|
6.3 |
|
Queluz
Holdings Limited
|
|
|
11,111,111 |
|
|
|
6.4 |
|
|
|
66,321,766 |
|
|
|
68.8 |
|
|
|
77,432,877 |
|
|
|
28.6 |
|
Usina
Costa Pinto S.A. Açúcar e Álcool
|
|
|
– |
|
|
|
– |
|
|
|
30,010,278 |
|
|
|
31.2 |
|
|
|
30,010,278 |
|
|
|
11.1 |
|
Fundos
Gávea
|
|
|
39,445,393 |
|
|
|
22.6 |
|
|
|
– |
|
|
|
– |
|
|
|
39,445,393 |
|
|
|
14.6 |
|
Others
|
|
|
78,411,628 |
|
|
|
45.0 |
|
|
|
– |
|
|
|
– |
|
|
|
78,411,628 |
|
|
|
29.0 |
|
Total
|
|
|
174,355,341 |
|
|
|
100.0 |
% |
|
|
96,332,044 |
|
|
|
100.0 |
% |
|
|
270,687,385 |
|
|
|
100.0 |
% |
(1)
|
Based
on information filed by Capital World Investors, a division of Capital
Research and Management Company, with the SEC on February 13, 2009.
Capital World Investors is deemed to be the beneficial owner of 9,678,000
class A common shares believed to be outstanding as a result of Capital
Research and Management Company acting as investment adviser to various
investment companies registered under Section 8 of the Investment Company
Act of 1940.
|
(2)
|
Based on information filed by FMR
LLC with the SEC on February 17, 2009. Fidelity Management &
Research Company, a wholly-owned subsidiary of FMR LLC and an investment
adviser registered under Section 203 of the Investment Advisers Act of
1940, is the beneficial owner of 16,568,005 class A common shares as a result
of acting as investment adviser to various investment companies registered
under Section 8 of the Investment Company Act of 1940. The ownership of
one investment company, Fidelity Growth Company Fund, amounted to
10,683,455
class A common
shares.
|
(3)
|
Based
on information filed by Janus Capital Management LLC, or “Janus Capital”
with the SEC on November 12, 2008. As a result of its role
as investment adviser or sub-adviser to various managed portfolios, Janus
Capital may be deemed to be the beneficial owner of 17,141,850 class A
common shares held by such managed portfolios. The interest of Janus
Overseas Fund, which is one of the managed portfolios to which Janus
Capital provides investment advice, amounted to 10,961,459 class A common
shares.
|
No class
B series 2 common shares are currently issued and outstanding.
Queluz
Holdings Limited, Costa Pinto and Aguassanta Participações S.A.
Queluz
Holdings Limited and Costa Pinto own all of our class B series 1 common shares
Queluz Holdings Limited also holds 6.4% of our class A common shares and another
entity controlled by our controlling shareholder owns 2.9% of our class A common
shares. These companies are indirectly controlled by Mr. Rubens Ometto Silveira
Mello, our chief executive officer and chairman of our board of directors
through several companies controlled directly and indirectly by him. Although
the control is exercised by Mr. Rubens Ometto Silveira Mello, there are some
family members and other individuals who are also beneficial owners of minority
interests in these companies.
Cosan
The
following table sets forth information relating to the beneficial ownership of
Cosan’s common shares as of the date hereof.
|
|
|
|
|
|
|
Cosan
Limited
|
|
|
226,165,734 |
|
|
|
68.9 |
|
Kuok
Group (Ventoria Limited)
|
|
|
5,421,708 |
|
|
|
1.7 |
|
Sucres
et Denrées
|
|
|
3,597,903 |
|
|
|
1.1 |
|
Others
|
|
|
93,099,539 |
|
|
|
28.3 |
|
Total
|
|
|
328,284,884 |
|
|
|
100.0 |
|
On
December 7, 2006, Cosan’s strategic shareholders Commonwealth Carriers S.A., or
“Commonwealth”, Lewington Pte. Ltd., or “Lewington”, part of the Kuok Group, and
Sucden, agreed to purchase common shares of Cosan from Aguassanta Participações
S.A., or “Aguassanta Participações”, a company controlled by our controlling
shareholder, and certain of its affiliates. As a result, at October 31, 2007,
Sucden’s aggregate equity interest in Cosan was 4,185,512 common shares (or 2.2%
of Cosan’s total outstanding common shares), Commonwealth’s aggregate equity
interest was 1,258,785 common shares (or 0.7% of Cosan’s total outstanding
common shares), and Lewington’s aggregate equity interest was 11,329,050 common
shares (or 6.0% of Cosan’s total outstanding common shares). As a result,
Aguassanta Participacões’ aggregate equity interest in Cosan decreased to
66,154,951 common shares (or 35.0% of Cosan’s total outstanding common
shares).
In June
2007, Tereos do Brasil Participações Ltda. sold in the open market in Brazil all
of its 11,716,797 common shares of Cosan, representing 6.2% of Cosan’s total
outstanding common shares.
On
December 5, 2007, Cosan’s shareholders approved a capital increase in the amount
of 82,700,000 common shares. The results of the capital increase were announced
on January 23, 2008. Minority shareholders subscribed for a total of 26,092,604
common shares and Cosan Limited subscribed for a total of 56,607,396
shares.
On
September 19, 2008, the board of directors approved a capital increase in the
total amount of R$880 million (US$456.1 million) through the issuance of
55,000,000 new shares at a price of R$16.00 (US$8.29) each. Each new share had
one warrants attached to it. Each warrant grants its holder the right to
subscribe for 0.6 commom shares. The warrants are valid until December 31, 2009.
The subscription price through the use of warrants is of R$16.00 (US$8.29) per
sahre. Cosan will not issue fractions of shares and, therefore, in order to
exercise the rights attributed to the warrants. As of March 31, 2009, there were
33,000,000 outstanding warrants in the market.
Because
not all shareholders exercised their preeptive rights under the capital increase
Cosan Limited increased its holding of Cosan’s commom shares from 171,172,252 to
226,165,734, or from 62.81% to 69.05% of the Company’s capital.
On March
6, 2009, the board of directors approved a capital increase in the total amount
of US$1.9 million through the issuance of 736,852 new commom shares, to be used
under Cosan’s Stock Option Plan. As a result of the capital increase, currently
Cosan share capital is of 328,284,884 common shares, 226,165,734 (69.0%) of
which are owned by us and 102,119,150 (31.0%) of which are outstanding in the
market.
Set forth
below is a brief description of each of the shareholders mentioned in the table
above.
Cosan
Limited
On April
30, 2008, we owned 62.8% of Cosan’s common shares. Prior to our initial public
offering, Usina Costa Pinto S.A. Açúcar e Álcool and Aguassanta Participações
S.A., each company indirectly controlled by our chief executive officer, Mr.
Rubens Ometto Silveira Mello and his family, were the controlling shareholders
of Cosan.
Lewington
Pte. Ltd.
The Kuok
Group, Cosan’s indirect shareholder through Lewington, owns and controls mills
and refineries in Malaysia, Indonesia, Thailand and China, producing
fertilizers, sugar, flour and vegetable oils, among other agricultural
products.
Sucres
et Denrées S.A.
Sucres et
Denrées S.A., is one of the largest sugar trading companies in the world. Sucden
sells approximately 9 million tons of sugar per year, or approximately 20% of
the total sugar sold in the world market, 50.0% of which is currently exported
from Brazil. The Sucden Group has operations worldwide and its principal
subsidiaries are in the United States, Brazil, Russia and the United Arab
Emirates. Sucden is also a sugar producer and owns three mills in Russia with a
refinery capacity of 500,000 tons of demerara sugar and a grinding capacity of
one million tons of beetroot.
Shareholders’
Agreements and Other Arrangements
Cosan
Limited
Aguassanta
and Costa Pinto, our indirect controlling shareholders, entered into a
shareholders’ agreement pursuant to which they undertake to vote jointly with
respect to any matter related to us and our subsidiaries. Aguassanta and Costa
Pinto agree to meet before any shareholders’ or board of directors meeting to
reach an agreement as to their votes regarding such matters. The vote of the
indirect shareholder that owns a greater equity stake on us shall
prevail.
Cosan
IFC
Loans
On June
28, 2005, Cosan entered into a US$70.0 million credit facility with IFC. Cosan
used the proceeds of the IFC Loans, to expand and modernize its mills and
refineries. The IFC Loans consist of two loans: (1) IFC A Loan; and (2) IFC C
Loan. On October 14, 2005, we borrowed the full amount under the IFC C Loan, and
on February 23, 2006, we borrowed the full amount available under the IFC A
Loan. IFC elected to partially (and not fully) exercise its option to convert
US$5.0 million of the IFC C Loan into 228,750 of Cosan’s common shares (or
686,250 after the three-to-one split of Cosan’s common shares in August 2006),
and the outstanding US$15.0 million principal amount of the IFC C Loan will be
payable in a single principal installment on January 15, 2013.
The
security for the IFC Loans consists of a mortgage over the Da Barra mill and
certain other movable assets of Da Barra. In addition, the IFC Loans are jointly
and severally guaranteed by Mr. Rubens Ometto Silveira Mello, Amaralina and
Cosan’s subsidiaries, Da Barra, Cosan Portuária, Cosan Refinadora and Agrícola
Ponte Alta S.A. The IFC Loans include certain ongoing covenant obligations on
Cosan, including, without limitation, restrictions on Cosan’s payment of
dividends and Cosan’s incurrence of additional debt unless certain financial
ratios are satisfied.
Additionally,
on June 28, 2005, Cosan, together with Mr. Rubens Ometto Silveira Mello,
Aguassanta Participações S.A., Costa Pinto, Santa Bárbara Agrícola S.A., FBA,
Barra, Cosan Refinadora and Cosan Portuária entered into an equity rights
agreement with IFC governing certain matters regarding Cosan’s common shares,
the equity capital of Cosan’s controlling shareholders and the equity capital of
Cosan Refinadora, Cosan Portuária, Barra and FBA.
The
equity rights agreements refer to Aguassanta Participações, Costa Pinto and
Santa Bárbara Agrícola S.A. as Cosan’s controlling shareholders. Pursuant to the
equity rights agreement and so long as the IFC Loans remain outstanding, (1) Mr.
Rubens Ometto Silveira Mello has agreed to retain, directly or indirectly, not
less than a 51.0% ownership share in the aggregate total voting capital of the
controlling shareholders, (2) the controlling shareholders agree to retain,
directly or indirectly, not less than a 51.0% ownership share in the
aggregate
total voting capital of Cosan and (3) Cosan agrees to retain, directly or
indirectly, not less than a 51.0% ownership share in the total voting capital of
Cosan Refinadora, Cosan Portuária or Barra, and not less than a 51.0% ownership
share in the total voting capital of FBA.
Under the
equity rights agreement, the controlling shareholders have granted tag along
rights to IFC such that if any of the controlling shareholders receives an offer
from a third party to sell any of the shares in Cosan that they own, IFC may
participate on a pro rata basis in such sale on the same terms and conditions as
Cosan’s controlling shareholders. In addition, pursuant to the terms of the
equity rights agreement and as long as IFC remains Cosan’s shareholder, IFC may
sell Cosan’s common shares that it owns, in whole or in part, to Mr. Rubens
Ometto Silveira Mello if (1) an event of default occurs and is continuing under
the IFC Loan agreement or (2) Cosan’s common shares are delisted from any stock
exchange.
Shareholders’
Agreement with Kuok Group (Lewington), Commonwealth and Sucden
On July
22, 2005, Cosan, Usina Costa Pinto S.A., Santa Bárbara Agrícola S.A., Aguassanta
Participações, each company indirectly controlled by our chief executive
officer, Mr. Rubens Ometto Silveira Mello and his family, and Belga
Empreendimentos e Participações Ltda. entered into a shareholders’ agreement
with Sucden, Lewington and Commonwealth, pursuant to which Sucden, Lewington and
Commonwealth will together have the right to appoint one member of Cosan’s board
of directors as long as (1) they collectively hold two-thirds of the number of
Cosan’s shares (25,959,450 shares) that they currently own and (2) their
collective ownership interest in Cosan represents at least 3.5% of Cosan’s total
share capital.
In March
and September 2006, amendments to this shareholder agreement were executed in
order to allow Sucden to pledge up to 2,400,000 common shares of Cosan’s capital
stock to BNP Paribas or any of its subsidiaries. Nonetheless, for such a pledge
to be valid, the amendment requires that BNP Paribas undertake in writing in the
pledge documentation not to enforce such pledge and not to sell any of the
relevant shares.
Cosan
Portuária
On
February 8, 1999, São Francisco and Tate & Lyle do Brasil Serviços e
Participações S.A. entered into a shareholders’ agreement that regulates the
rights of the shareholders of Cosan Portuária (formerly São Francisco Operadora
Portuária de Granéis Ltda.). In April 2004, Cosan acquired 90.0% of the
outstanding capital stock of Cosan Portúaria through a Cosan capital increase in
the amount of US$1.5 million, which was fully subscribed by Cosan’s shareholder,
São Francisco, using shares that it held at Cosan Portuária.
Under
this shareholders’ agreement, the following matters require the approval of
shareholders representing at least 92% of Cosan Portuária’s share
capital:
·
|
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).
|
The board
of directors of Cosan Portuária is comprised of ten members, nine of which (and
their alternates) are designated by Cosan’s and one (and his alternate) is
designated by Tate & Lyle. Holders of non-voting preferred shares of Cosan
Portuária are entitled to dividends in an amount that is 10% higher than
dividends distributed to holders of its common shares. Dividends to be
distributed to Tate & Lyle may be applied (through set-off or in the form of
a discount) against payments due from Tate & Lyle pursuant to the commercial
agreements entered into between Tate & Lyle and Cosan. This shareholders
agreement remains valid as long as the port concession granted to Cosan
Portuária is in effect.
Shareholders’
Agreements and Other Arrangements Involving our Controlling
Shareholder
Our
controlling shareholder Mr. Rubens Ometto Silveira Mello, is a party, together
with his mother, Mrs. Isaltina Ometto, an indirect minority shareholder of
Cosan, to shareholders’ agreements as well as other contractual arrangements
governing the holding companies that own, directly and indirectly, Cosan’s and
our share capital. The terms of these agreements, which were entered into in
1996 and 1997, grant veto rights to Mrs. Ometto for any changes in the share
capital of these holding companies, their respective dividend policies, their
ability to sell assets and other corporate actions that may result in a dilution
of her equity interest in these companies. In addition, Mrs. Ometto has a right
of first refusal in connection with the sale of equity interests in, or held by,
these holding companies.
The
agreement governing the purchase by Mr. Rubens Ometto Silveira Mello of Mrs.
Isaltina Ometto’s equity interest in Nova Celisa also provides that if Mr.
Ometto were to default in the payment of the purchase price for preferred shares
of Nova Celisa S.A., 2% of the common shares that he acquired would be returned
to Mrs. Ometto, which would effectively transfer control of Cosan to Mrs.
Ometto. However, we believe that the risk of default is minimal, as the
remaining unpaid portion of the purchase price is a monthly stipend for living
expenses required to be paid by Mr. Ometto to his mother, together with
additional non-cash consideration. All payments required to be made under this
agreement have been made to date.
We engage
in related party transactions with certain of our affiliates, some of which are
of a recurring nature. Financial information with respect to certain material
related party transactions is set forth in Note 12 to our audited financial
statements included in this transition report.
Our board
of directors delegates to the audit committee the responsibility for reviewing
and approving all related party transactions (within the meaning of Item 404 of
Regulation S-K of the SEC). The audit committee is responsible for obtaining
information from our directors, executive officers and major shareholders with
respect to related party transactions and for then determining, based on the
facts and circumstances, whether our company or a related party has a direct or
indirect material interest in the transaction. As required under SEC rules,
transactions that are determined to be directly or indirectly material to our
company or a related party has been disclosed herein.
In
October 2008, a private placement of the Company’s class A shares was made in
the amount of US$50 million by the controlling shareholder, Rubens Ometto
Silveira Mello, and US$150 million by the funds managed by Gávea Investimentos
Ltda., at US$4.50 per class A share or BDR subscribed. The offering was extended
to all class A share or BDR holders, as permitted by applicable law. The
offering was concluded on October 27, 2008. As a result and following the date
of the acquisition, Rubens Ometto Silveira Mello holds 41.5% of the Company’s
total capital and 86.1% of its voting capital.
Recurring
Transactions with Shareholders
Cosan
leases agricultural land for planting sugarcane from certain of our and its
shareholders and other related parties on market terms. As of March 31, 2009,
Cosan leased 370,353 hectares through approximately 2,000 land lease contracts
with an average term of five years. Eight of these contracts (covering 55,339
hectares, or approximately 14.9% of the land leased by us) are with entities
controlled by our chief executive officer and controlling shareholder. These
land lease agreements are on arm’s length terms equivalent to those we enter
into with third parties. Lease payments under these agreements are based on the
price of approximately 16.5 tons of sugarcane per hectare, calculated in
accordance with certain regulations of CONSECANA.
Guarantees
with Related Parties
On
November 17, 2008, Cosan issued promissory notes for an aggregate outstanding
principal amount of R$1.1 billion (US$501.9 million as of March 31, 2009). The
promissory notes are subject to interest consisting of the accumulated change in
average daily rates of Interfinancial Deposits plus 3% annual rate, payable on
November 12, 2009, together with the principal amount of promissory notes. The
promissory notes are secured by: (1) a guarantee of Mr. Rubens Ometto Silveira
Mello; and (2) chattel mortgage of shares of CCL (current name of
Essobrás).
On June
28, 2005, Mr. Rubens Ometto Silveira Mello, Barra, Amaralina, Cosan Portuária,
Cosan S.A. Refinadora de Açúcar and Agrícola Ponte Alta entered into a guarantee
agreement with the IFC, pursuant to which they jointly and severally guaranteed
Cosan’s obligations under the IFC Loans up to an aggregate principal amount of
US$70.0 million. See “Item 5. Operating and Financial Review and
Prospects—B. Liquidity and Capital Resources—Indebtedness—IFC
Loans”.
As a
result of Cosan’s participation in the PESA federal government financing program
between 1998 and 2000, Amaralina mortgaged land to secure the restructuring of
Cosan’s debt, and Agrícola Ponte Alta and Pedro Ometto S.A. mortgaged land to
secure the restructuring of the debt of Da Barra. See “Item 5. Operating and
Financial Review and Prospects - Liquidity and Capital Resources - Special
Agricultural Financing Program (Programa Especial De Saneamento De
Ativos).
Not
applicable.
See
Item 18 for our audited consolidated financial statements.
Legal
Proceedings
Tax
Proceedings
We are
engaged in a number of legal proceedings with Brazilian tax authorities in the
total amount of US$1,200.0 million for which we have recorded provisions in an
aggregate amount of US$430.3 million at March 31, 2009. In addition, there are
currently certain legal proceedings pending in which we are involved for which
we have not recorded provisions. If any of these legal proceedings is decided
adversely against us, our results of operations or financial condition could be
materially adversely affected.
Cosan has
tax credits related to IPI Premium Credit introduced by Decree Law No. 491/69,
which represents an incentive to export trading companies, through the grant of
IPI tax credits calculated on export sales, as a form of compensation for the
tax paid internally. We have used a portion of these credits to offset federal
taxes and contributions. The Superior Court of Justice of Brazil had previously
ruled that IPI premium credits could be used by companies to offset against
other federal taxes. However, in a ruling dated November
9, 2005,
the Superior Court of Justice of Brazil, a Brazilian appellate court, changed
its prior position. This decision may be appealed by the losing party with the
Superior Court of Justice of Brazil, and, if the party loses this appeal, it may
further appeal the decision with the Superior Federal Court of Brazil (Supremo Tribunal Federal). As
these proceedings remain pending, we have established a provision in the amount
of US$116.3 million in our consolidated financial statements at April 30, 2008
for the full amount of the taxes that we have offset pursuant to the initial
judicial authorization (including interest calculated at the Brazilian base
interest rate, or “SELIC rate”). At March 31, 2009, we had an amount of US$220.1
million related to these credits that we have not used to offset any federal
taxes and contributions. These credits are not recognized in the financial
statements.
Da Barra
is a party to legal actions challenging the right to recognize the IPI tax
credits arising from purchases of raw materials, intermediary products and
packaging materials that are tax-exempt, non-taxable or taxed at a zero percent
rate. We have offset US$11.8 million of taxes with IPI tax credits as of March
31, 2009, and we have established a provision in the amount of US$24.6 million
in our consolidated financial statements for the full amount of the taxes that
we have offset pursuant to a judicial authorization granted (including interest
calculated at the SELIC rate).
On
October 31, 2006, Cosan and controlled company Da Barra adhered to the Special
Program for the Payment of ICMS Tax Debts. As a result, we settled a material
portion of our ICMS tax debts and reduced considerably the amount of the
corresponding provision. As for the remaining ICMS debts, we had established a
provision in an aggregate amount of US$20.0 million as of March 31, 2009. As of
March 31, 2009, the total amount related to the remaining ICMS tax debts was of
US$97.8 million.
In
addition, the Brazilian federal tax authorities issued tax deficiency notices
against Cosan and its subsidiaries alleging that it had not collected an
aggregate amount of US$62.6 million in PIS and COFINS with respect to foreign
exchange gains and other income. Based on the opinion of our legal counsel, we
have assessed the likelihood of loss in these cases as probable. As these
proceedings remain pending, as of March 31, 2009 we have recorded a provision in
the full amount of US$62.6 million claimed by the Brazilian federal tax
authorities.
Da Barra
instituted administrative proceedings to recover IPI taxes paid with respect to
refined amorphous sugar and the right to offset these IPI taxes against other
federal taxes. During these proceedings, Da Barra offset these IPI tax credits
against other federal taxes. However, despite the ongoing administrative
proceeding, the Brazilian federal tax authority (Receita Federal do Brasil),
or “RFB”, issued tax deficiency notices against Da Barra, claiming that Da Barra
owed the full amount of the federal taxes that it offset with these IPI tax
credits. To suspend the effectiveness of these tax deficiency notices, Da Barra
filed suit for and obtained a preliminary injunction through a writ of mandamus.
As of March 31, 2009, Da Barra has used a portion of these IPI tax credits to
offset IPI and other federal taxes in an aggregate amount of US$68.0 million. We
have not recorded a provision.
Da Barra
is a party to legal proceedings challenging the constitutionality of
contributions that it did not pay to the Sugar and Alcohol Institute (Instituto do Açúcar e
Álcool), or “IAA”, which were levied on the sale of sugar and ethanol
during the period between March 1989 and November 1991, in an aggregate amount
equal to US$18.3 million. In addition, Da Barra is a party to several tax
execution proceedings filed by the Brazilian federal government, as successor to
credits held by the now-dissolved IAA, deriving from the default by Açucareira
Nova Tamoio S.A. (which was subsequently merged into Da Barra) with respect to
payments under cross-border loans for which the Brazilian federal government
acted as guarantor. The claims involved in these suits amounted to US$55.4
million at April 30, 2008. However, in light of the judicial decision in favor
of Da Barra during the second quarter of 2006, our legal advisors reassessed the
estimate of loss for these tax collection claims, reducing them to US$27.5
million, which has been reserved for in financial statements. As a result of the
reassessment of the loss estimate, Da Barra recognized a reversal of the
updating of the provision for these claims for the year ended April 30, 2007, in
the amount of US$25.4 million, which was recorded under the financial income
(expenses), net. At March 31, 2009, the total provision for these claims was
US$36.7 million.
In
September 2006, the Brazilian federal tax authorities issued a tax notice
against Cosan in an aggregate amount equal to US$69.7 million, including
penalties and interest, related to withholding income tax. Despite what we
believe is a remote chance of our success on the administrative level, we
believe, based on the advice of our external legal counsel, that it is possible
that we will prevail once this matter is brought before a court, and
accordingly, we have not recorded a provision in our consolidated financial
statements for this contingency.
We are
also involved in other tax proceedings relating to ICMS, the IAA tax, IPI and
other federal taxes, including withholding income tax mentioned above, with
claims in an aggregate amount of US$424.9 million as of March 31, 2009. We have
not established a provision for these tax proceedings based on our assessment
that we will prevail in these proceedings.
CCL and
its direct subsidiary, Sociedade Técnica e Industrial de Lubrificantes Ltda., or
“Solutec”, initiated a lawsuit in 1993 discussing the balance sheet monetary
correction index established by the Federal Government in 1989, wich did not
reflect inflation in the period. Because of the adoption of the index imposed by
the federal government, CCL determined and paid IRPJ and CSLL amounts allegedly
higher than wich would be due. CCL and Solutec were granted a favorable
preliminary injunction ruling regarding recalculation of the balance sheet
monetary correction, now using the inflation indices for the period, thus
determining new IRPJ ans CSLL amounts. The IRPJ ans CSLL overpayments were
offset in subsequent years until 1997. Despite the favorable
decision, tax authorities served Solutec a tax deficiency notice relating to the
offsets made during the period from 1993 to 1997, whereas CCL was served a
notice only in relation to the offset carried out in 1993. In view of the
contingent characteristics of such offsets, these amounts were also recorded as
provision for judicial demands, and are undergoing restatement based on the
SELIC rate variation. The aggregate claims amount equal to US$35.2.
During
the period from June to December 2004, CCL offset amounts due of COFINS and
several other taxes against the Finsocial paid prior to such period, based on
preliminary injunction under a lawsuit in which the constitutionality of the
Finsocial was discussed. In 1995, CCL was declared COFINS immune. Accordingly,
it interpreted that the COFINS amount offset against Finsocial did not, in fact,
occur, and in 2003, based on favorable court decision handed down to CCL in
connection with Finsocial, it concluded that the credits relating to such tax
offset against COFINS were once again available for offset against other taxes.
As such, the CCL began offsetting such credits against IRPJ, CSLL, CIDE, PIS,
COFINS and IRRF resulting from its operations. Once again, considering the
contingent characteristic of this offset, the entire offset amount was recorded
as provision for judicial demands, until the approval by the Brazilian Federal
tax authorities (Receita
Federal do Brasil) of such offset. In 2008, the Brazilian Federal tax
authorities (Receita Federal
do Brasil) denied the abovementioned offset, claiming that such credits
had already been offset against COFINS in 1994. As a result of such position,
the management decided to file administrative appeal against the decision, which
is still pending of judgment. The provision is being monetarily restated based
on the SELIC rate variation, amounting to US$70.7 million.
Social
Security Proceedings
The
National Social Security Institute (Instituto Nacional da Seguridade
Social), or “INSS”, a Brazilian federal agency, has filed several claims
against us. The social security claims that have been filed against us total
US$135.1 million in respect of differences in payroll contributions to
agricultural employees, differences in joint responsibility contributions with
hired service providers and differences in the Workmen’s Compensation Insurance
contribution, over a period of several years. We believe that it is probable
that we will be required to pay certain of these claims depending on the periods
covered thereby. We have recorded a provision in an aggregate amount of US$7.8
million as of March 31, 2009.
Environmental
Proceedings
We are
party to a number of administrative and judicial proceedings regarding
environmental matters. We are subject to several public civil actions related to
matters including our burning of sugarcane (which is part of the manual
sugarcane harvesting process), historical patrimony preservation, and protected
areas. We
are also
subject to over 100 administrative proceedings concerning matters including the
burning of sugarcane, liquid effluent discharge, air pollution, damage to
environmentally protected areas and death of fish, with the claims in these
proceedings totaling US$11.3 million in the aggregate. We have not recorded a
provision for such proceedings and are unable to estimate the amount of eventual
losses that could potentially result from these proceedings.
Labor
Claims
As of
March 31, 2009, there were approximately 2,474 individual labor lawsuits
filed against us and the total amount of our potential liability under these
lawsuits amounted to a total of US$178.8 million. As of March 31, 2009, we had
established a provision for these contingencies in the amount of US$26.7
million. The labor claims principally relate to claims to overtime and wage
premiums related to workplace hazards.
Other
Proceedings
We are
party to numerous civil lawsuits involving claims that amounted to US$115.1 million in the aggregate
as of March 3l, 2009. Based on the opinions of the legal counsel handling these
lawsuits, we have recorded a provision for civil contingencies in our
consolidated financial statements of US$17.2 million as of March 31,
2009.
For
certain tax, civil and labor lawsuits, we have made judicial deposits in an
aggregate amount of US$74.0 million as of March 31, 2009.
We are
involved in numerous other lawsuits from time to time, including commercial
litigation.
On
February 28, 2007, the subsidiary Usina da Barra S.A. Açúcar e Álcool recognized
financial income in the amount of US$149.1 million. The company had sought
damages from the Brazilian federal government for setting prices for its
products below the established price control guidelines. In the third quarter of
fiscal year 2007, Brazilian courts reached a final and unappealable decision
favorable to us. On March 31, 2009, this account receivable from government
amounted to US$139.7 million.
Costa
Pinto, one of the entities through which Mr. Rubens Ometto Silveira Mello
previously held Cosan’s shares, its officers, directors, members of the fiscal
council and controlling shareholders were party to an administrative proceeding
initiated by the CVM for non-payment of minimum dividends to preferred
shareholders during fiscal years 2000, 2002 and 2003. In this proceeding, it was
asserted, among other things, that the equity method of accounting to determine
net income available for dividends should not have been used. On July 14, 2004,
a special preferred shareholders meeting approved the distribution of the
dividends and ratified an agreement between the preferred shareholders and Costa
Pinto. The parties entered into a consent decree with the CVM, agreeing to pay a
total amount of R$0.3 million, and as of the date of this transition report, all
issues relating to such administrative proceeding have been resolved and Costa
Pinto has paid all dividends due to its preferred shareholders.
On August
10, 2007, the CVM requested information from Mr. Rubens Ometto Silveira Mello,
in his capacity as chairman of the board of directors and chief executive
officer of Cosan, as to whether he breached any duty of loyalty to Cosan’s
minority shareholders under Brazilian law by taking actions to effect the
corporate reorganization or by potentially usurping corporate opportunities
otherwise available to Cosan, especially with regard to business activities
outside of Brazil by our company that could be conducted by Cosan. Mr. Rubens
Ometto Silveira Mello informed the CVM on August 14, 2007 that his roles in the
corporate reorganization and with respect to the corporate reorganization have
been, and will continue to be, conducted in compliance with Brazilian
law.
In
addition, during a meeting held on August 15, 2007, we were informed by CVM
commissioners that, in their opinion, future conduct of business activities
outside of Brazil by our company, when these activities could be carried out by
Cosan, may breach provisions of Brazilian law relating to the duty of loyalty
and corporate opportunities. The CVM stated that, if our company pursues in the
future corporate opportunities
outside
Brazil to the detriment of Cosan, the CVM may bring an administrative proceeding
against Mr. Rubens Ometto Silveira Mello or us, which we anticipate may result
in the imposition of monetary penalties. Mr. Rubens Ometto Silveira Mello has
informed us that he believes he has not, and we also believe that we have not,
breached any applicable Brazilian law; and, as and if necessary, he and we will
seek to take measures to ensure compliance with such law.
On
December 5, 2007, following receipt of the approval of the Extraordinary
Shareholders Meeting of Cosan, Cosan Limited, Cosan and Mr. Rubens Ometto
Silveira Mello executed a “Commitment to Offer Commercial Opportunities,” which
regulates the terms and conditions in which the international commercial
opportunities developed by Cosan Limited are to be offered to Cosan, allowing
Cosan to participate, in accordance with the conditions established under the
agreement, in those commercial opportunities.
Our
company has undertaken to the CVM not to change the steps of the corporate
reorganization as described in our registration statement on Form F-4
(Registration No. 333-147235) filed by the Company with the U.S. Securities and
Exchange Commission as well as in this transition report, particularly with
respect to the exchange offer to be made to Cosan shareholders.
Dividends
and Dividend Policy
Dividend
Rights
Cosan
Limited is a holding company and can only pay dividends to the extent, if any,
that funds are received from our subsidiaries. Our dividend policy is similar to
the current dividend policy of our main subsidiary, Cosan. Cosan is required by
the Brazilian corporate law to distribute (and has historically done so) on an
annual basis dividends representing 25% of its net income (as calculated under
Brazilian GAAP, subject to certain adjustments mandated by Brazilian corporate
law). We intend to pay cash dividends representing on an annual basis 25% of our
annual consolidated net income (as calculated under U.S. GAAP), to holders of
class A common shares and class B common shares in proportion to the number of
shares held by them unless our board of directors has determined, in its
discretion, that such distribution would not be advisable or appropriate in
light of our financial condition or we are unable to meet applicable statutory
solvency requirements under Bermuda law.
Cosan has
a dividend policy that is similar to that of our company, although the net
income is calculated in accordance with Brazilian GAAP (subject to certain
adjustments mandated by Brazilian corporate law). Because Brazilian GAAP differs
in significant respects from U.S. GAAP, Cosan’s dividends to us may be lower
than the corresponding amounts under our dividend policy, which is based upon
net income under U.S. GAAP. The main difference between U.S. GAAP and Brazilian
GAAP that produces material variances in net income relates to hedging
transactions. Under Brazilian GAAP, hedging results are allocated to the income
statement together with the result of the underlying asset. Under U.S. GAAP, we
“mark to market” our hedging portfolio against financial income (expense). As a
result, for U.S. GAAP purposes, our hedging policy is likely to be responsible
for fluctuations in our net income. We expect that differences may occur in the
transition fiscal year 2009 and future periods, as Cosan continues to enter into
hedging transactions. The amount of Cosan’s dividends to us will also depend
upon the level of our future ownership in Cosan’s common shares. In the event of
any difference between dividends to be paid under our dividend policy and
dividends paid to us by Cosan, our board of directors will be required to
decide, at the relevant time, either to pay dividends above 25% of net income
(as calculated under U.S. GAAP) or else pay dividends below that 25% level using
cash dividends received from Cosan and any other subsidiaries.
Our board
of directors may, in its discretion, amend or repeal our dividend policy. You
may not receive the level of dividends provided for in the dividend policy or
any dividends at all due to a number of factors, such as:
·
|
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;
|
·
|
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;
|
·
|
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.
|
Under
Bermuda law, a company’s board of directors may declare and pay dividends from
time to time unless there are reasonable grounds for believing that the company
is or would, after the payment, be unable to pay its liabilities as they become
due or that the realizable value of its assets would thereby be less than the
aggregate of its liabilities and issued share capital and share premium
accounts. Under our bye-laws, each class A common share and class B common share
is entitled to dividends if, as and when dividends are declared by our board of
directors, subject to any preferred dividend right of holders of any preference
shares. There are no restrictions on our ability to transfer funds (other than
funds denominated in Bermuda dollars) in or out of Bermuda or to pay dividends
to U.S. residents who are holders of our common shares.
We expect
to have sufficient available cash to pay dividends in accordance with our
dividend policy. We do not, however, plan to pay dividends in the event that we
do not generate sufficient cash from operations. In addition, we will not pay
dividends if we believe that such payment will limit or preclude our or our
subsidiaries’ ability to pursue growth opportunities. Although our bye-laws and
Cosan’s bye-laws do not restrict us from borrowing funds to pay dividends, we do
not intend to borrow funds to pay dividends.
The
dividend rights attaching to our class A common shares and class B common shares
are not cumulative in the event that we do not, for any reason, pay dividends on
those shares.
Any cash
dividends payable to holders of our common shares quoted on the NYSE will be
paid to Mellon Investors Services LLC, our transfer agent in the United States,
for disbursement to those holders.
As of
March 31, 2009, there were no retained earnings available for
dividends.
Cosan’s
Dividend Policy
Brazilian
corporate law and Cosan’s bye-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 incorporated to
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.
The
following table sets forth Cosan’s dividend distributions calculated, under
Brazilian GAAP, for each of the last five fiscal years:
|
|
Total
Dividend
Distribution
|
|
|
|
(in
millions of US$)
|
|
2004
|
|
US$ |
1.0 |
|
2005
|
|
|
0.6 |
|
2006
|
|
|
– |
|
2007
|
|
|
37.3 |
|
2008
|
|
|
– |
|
2009
|
|
|
– |
|
Brazilian
Taxation
Dividends
paid by Cosan to us are currently not subject to withholding income tax in
Brazil, to the extent that such amounts are related to profits generated as of
January 1, 1996. In addition, Brazilian tax laws permit Cosan to make
distributions to shareholders of interest on shareholders’ equity and treat
those payments as a deductible expense for purposes of calculating Brazilian
income tax and social contributions. For tax purposes, this interest is limited
to the daily pro rata portion of the TJLP, as determined by the Central Bank
from time to time, and the amount of the deduction is limited to (1) 50% of net
income (after social contributions but before income tax and the amount to be
distributed as interest on shareholders’ equity) related to the period in
respect of which the payment is made; or (2) 50% of the sum of retained profits
and profit reserves as of the date of the beginning of the period in respect of
which the payment is made. A payment to us of interest on shareholders’ equity
is subject to withholding income tax at the rate of 25%.
A
discussion of the significant changes in our business can be found under
“Item 4. Information on the Company—A. History and Development of the
Company.” Please also see our earnings reports filed with the SEC on Form 6-Ks
on August 24, 2009.
Prior to
August 16, 2007, no public market existed for our class A common shares. Since
August 16, 2007, our class A common shares have been listed on the NYSE and
trade under the symbol “CZZ”. The BDRs representing our class A common shares
are listed on the BM&FBOVESPA and trade under the symbol
“CZLT11”.
The
following information concerning the trading history of our class A common
shares and BDRs representing our class A common shares is presented solely for
informational purposes. This information should not be viewed as indicative of
future sales prices for either our class A common shares on the NYSE or BDRs
representing our class A common shares on the BM&FBOVESPA. Actual future
sales prices for our class A common shares and the BDRs are likely to be
significantly different from their trading history.
The
following table sets forth the high and low closing sales prices for our class A
common shares on the NYSE and the BDRs representing our class A common shares on
the BM&FBOVESPA for the periods indicated.
|
|
NYSE
(US$
per common share)
|
|
|
|
|
|
|
|
|
Eleven
Months Ended March 31, 2009
|
|
|
14.02 |
|
|
|
2.03 |
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended April 30, 2008
|
|
|
16.19 |
|
|
|
9.70 |
|
Fiscal
Quarter
|
|
|
|
|
|
|
|
|
First
Fiscal Quarter 2009
|
|
|
14.02 |
|
|
|
10.75 |
|
Second
Fiscal Quarter 2009
|
|
|
13.58 |
|
|
|
2.03 |
|
Third
Fiscal Quarter 2009
|
|
|
4.34 |
|
|
|
2.05 |
|
Two
month period ended March 31, 2009
|
|
|
4.03 |
|
|
|
2.21 |
|
First
Fiscal Quarter 2010
|
|
|
6.82 |
|
|
|
2.21 |
|
Month
|
|
|
|
|
|
|
|
|
April
2009
|
|
|
5.20 |
|
|
|
2.21 |
|
May
2009
|
|
|
5.73 |
|
|
|
3.54 |
|
June
2009
|
|
|
6.82 |
|
|
|
5.05 |
|
July
2009
|
|
|
6.80 |
|
|
|
4.67 |
|
August
2009
|
|
|
8.53 |
|
|
|
6.76 |
|
September
2009 (through September 25, 2009)
|
|
|
8.61 |
|
|
|
7.45 |
|
Sources: Factset;
Reuters.
|
|
BM&FBOVESPA
(reais per
BDR)
|
|
|
|
|
|
|
|
|
Eleven
Months Ended March 31,
|
|
|
|
|
|
|
2009
|
|
|
23.20 |
|
|
|
5.40 |
|
Fiscal
Year Ended April 30,
|
|
|
|
|
|
|
|
|
2008
|
|
|
26.99 |
|
|
|
17.80 |
|
Fiscal
Quarter
|
|
|
|
|
|
|
|
|
First
Fiscal Quarter 2009
|
|
|
23.20 |
|
|
|
17.90 |
|
Second
Fiscal Quarter 2009
|
|
|
20.95 |
|
|
|
5.40 |
|
Third
Fiscal Quarter 2009
|
|
|
9.50 |
|
|
|
5.40 |
|
Two
month period ended March 31, 2009
|
|
|
8.90 |
|
|
|
5.40 |
|
First
Fiscal Quarter 2010
|
|
|
12.90 |
|
|
|
5.78 |
|
Month
|
|
|
|
|
|
|
|
|
April
2009
|
|
|
10.82 |
|
|
|
5.78 |
|
May
2009
|
|
|
11.13 |
|
|
|
7.70 |
|
June
2009
|
|
|
12.90 |
|
|
|
10.13 |
|
July
2009
|
|
|
12.49 |
|
|
|
9.81 |
|
August
2009
|
|
|
15.80 |
|
|
|
12.51 |
|
September
2009 (through September 25, 2009)
|
|
|
15.79 |
|
|
|
13.95 |
|
Sources: Economatica;
Reuters.
On
September 16, 2009, the last reported closing sale price of our class A common
shares on the New York Exchange and the BDRs representing our class A common
shares on the BM&FBOVESPA were US$8.32 and R$15.79 (US$8.77) per class A
common share and BDR representing our class A common shares,
respectively.
Trading
History of Cosan’s Common Shares
Prior to
our initial public offering and the formation of our company, Cosan’s common
shares have been listed on the Novo Mercado segment of the
BM&FBOVESPA under the symbol “CSAN3”. Because the exchange offer has been
completed and not all shareholders accepted our exchange offer, we do not expect
to seek delisting from trading on the Novo Mercado. For more
information regarding the exchange offer see our registration statement on Form
F-4 (Registration No. 333-147235) filed by the Company with the U.S. Securities
and Exchange Commission.
The
following information concerning the trading history of Cosan’s common shares is
presented solely for informational purposes. This information should not be
viewed as indicative of future sales prices for either our class A common shares
on the NYSE or BDRs representing our class A common shares on the
BM&FBOVESPA. Actual future sales prices for our class A common shares and
the BDRs are likely to be significantly different from the trading history of
Cosan’s common shares.
The
market information in the following tables has been restated to reflect the
three-for-one share split of Cosan’s common shares on August 31,
2006.
The
following table sets forth the high and low closing sales prices for Cosan’s
common shares on the BM&FBOVESPA for the periods indicated.
|
|
BM&FBOVESPA
(reais per common
share)
|
|
|
|
|
|
|
|
|
Fiscal
Year
|
|
|
|
|
|
|
2007
|
|
|
59.42 |
|
|
|
27.46 |
|
2008
|
|
|
42.30 |
|
|
|
18.90 |
|
Fiscal
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Fiscal Quarter 2008
|
|
|
42.53 |
|
|
|
29.86 |
|
Second
Fiscal Quarter 2008
|
|
|
33.40 |
|
|
|
20.48 |
|
Third
Fiscal Quarter 2008
|
|
|
28.10 |
|
|
|
18.47 |
|
Fourth
Fiscal Quarter 2008
|
|
|
32.20 |
|
|
|
23.05 |
|
First
Fiscal Quarter 2009
|
|
|
34.15 |
|
|
|
23.71 |
|
Second
Fiscal Quarter 2009
|
|
|
31.09 |
|
|
|
8.00 |
|
Third
Fiscal Quarter 2009
|
|
|
13.19 |
|
|
|
8.90 |
|
Two
month period ended March 31, 2009
|
|
|
12.15 |
|
|
|
9.25 |
|
First
Fiscal Quarter 2010
|
|
|
16.89 |
|
|
|
9.34 |
|
|
|
|
|
|
|
|
|
|
Month
|
|
|
|
|
|
|
|
|
April
2009
|
|
|
15.10 |
|
|
|
9.34 |
|
May
2009
|
|
|
16.89 |
|
|
|
13.28 |
|
June
2009
|
|
|
16.62 |
|
|
|
13.23 |
|
July
2009
|
|
|
18.03 |
|
|
|
13.85 |
|
August
2009
|
|
|
21.59 |
|
|
|
26.66 |
|
September
2009 (through September 25, 2009)
|
|
|
21.47 |
|
|
|
19.02 |
|
Source: Economatica,
Reuters.
On
September 16, 2009, the last reported closing sale price of Cosan’s common
shares on the BM&FBOVESPA was R$20.15 (US$11.19) per share.
Trading
on the BM&FBOVESPA
The BDRs
are traded only in the secondary market of the BM&FBOVESPA, and private
trading is not permitted. The CVM and the BM&FBOVESPA have discretionary
authority to suspend trading in shares of a
particular
issuer under certain circumstances. Trading in securities listed on the
BM&FBOVESPA may be effected off the exchanges in the over-the-counter market
in certain limited circumstances. The shares of all companies listed on the
BM&FBOVESPA, including the Novo Mercado and Level 1 and
Level 2 companies, are traded together. Settlement of transactions occurs three
business days after the trade date. Delivery of and payment for shares are made
through the facilities of separate clearing houses for each exchange, which
maintain accounts for member brokerage firms. The seller is ordinarily required
to deliver the shares to the clearing house on the second business day following
the trade date. The clearing house for the BM&FBOVESPA is the Companhia Brasileira de Liquidação e
Custódia, or “CBLC”. In order to reduce volatility, the BM&FBOVESPA
has adopted a circuit breaker system pursuant to which trading sessions may be
suspended for a period of 30 minutes or one hour whenever specified indices of
the BM&FBOVESPA fall below the limits of 10% and 15%, respectively, in
relation to the index levels for the previous trading session.
Although
the Brazilian equity market is the largest in Latin America in terms of
capitalization, it is smaller and less liquid than the major U.S. and European
securities markets. The BM&FBOVESPA is significantly less liquid than the
NYSE, or other major exchanges in the world. As of December 31, 2008, the
aggregate market capitalization of the companies listed on the BM&FBOVESPA
was equivalent to approximately is $588 billion and the 10 largest companies
listed on the BM&FBOVESPA represented 5.24% of the total market
capitalization of all listed companies. In contrast, at December 31, 2008, the
aggregate market capitalization of the companies listed on the NYSE was
approximately US$8.3 trillion and the 10 largest companies listed on the NYSE
represented approximately 14.0% of the total market capitalization of all listed
companies. Although any of the outstanding shares of a listed company may trade
on the BM&FBOVESPA, in most cases fewer than half of the listed shares are
actually available for trading by the public, the remainder being held by small
groups of controlling persons, by government entities or by one principal
shareholder. The relative volatility and illiquidity of the Brazilian securities
markets may negatively impact the market price of the BDRs representing our
class A common shares.
Trading
on the BM&FBOVESPA by a holder not deemed to be domiciled in Brazil for
Brazilian tax and regulatory purposes, or by a non-Brazilian holder, is subject
to certain limitations under Brazilian foreign investment regulation. With
limited exceptions, non-Brazilian holders that invest in Brazil under the terms
of Conselho Monetário
Nacional (National Monetary Council), or “CMN” Resolution No. 2,689 of
January 26, 2000, as amended, or Resolution 2,689, may trade on Brazilian stock
exchanges or Brazilian organized and authorized over-the-counter markets, and
must restrict their securities trading to transactions on such markets. With
limited exceptions, non-Brazilian holders may not transfer the ownership of
investments made under Resolution 2,689 to other non-Brazilian holders through a
private transaction. Resolution 2,689 requires that securities held by
non-Brazilian holders be maintained in the custody of, or in deposit accounts
with, financial institutions and be registered with a clearing house. Such
financial institutions and clearing houses must be duly authorized to act as
such by the Central Bank and the CVM.
Regulation
of Brazilian Securities Markets
The
Brazilian securities markets are principally governed by Law No. 6,385, of
December 7, 1976, and by Law No. 6,404 of December 15, 1976, or “Brazilian
corporate law”, each as amended and supplemented, and by regulations issued by
the CVM, which has authority over stock exchanges and the securities markets
generally; the CMN; and the Central Bank of Brazil, or “Central Bank”, which
has, among other powers, licensing authority over brokerage firms and regulates
foreign investment and foreign exchange transactions. These laws and
regulations, among others, provide for licensing and oversight of brokerage
firms, governance of the Brazilian stock exchanges, disclosure requirements
applicable to issuers of traded securities, restrictions on price manipulation
and protection of minority shareholders. They also provide for restrictions on
insider trading. However, the Brazilian securities markets are not as highly
regulated and supervised as the U.S. securities markets or securities markets in
some other jurisdictions.
Any
trades or transfers of the BDRs representing our class A common shares by our
officers and directors, our controlling shareholders or any of the officers and
directors of our controlling shareholders must comply with the regulations
issued by the CVM. Under Brazilian corporate law, a Brazilian corporation is
either publicly held (companhia aberta), as Cosan
is, or closely held (companhia
fechada). All publicly held
companies
are registered with the CVM and are subject to reporting requirements.
Additionally, non-Brazilian companies sponsors of BDR programs are also
registered with the CVM and, to the extent permitted by the respective
applicable laws and regulations, are also subject to reporting
requirements.
A company
registered with the CVM may trade its securities either in stock exchanges or in
the Brazilian over-the-counter market. The common shares issued by Cosan are
listed on the Novo
Mercado segment of the BM&FBOVESPA. We have applied to list the BDRs
representing our class A common shares on the BM&FBOVESPA. The trading of
securities of a listed company on the BM&FBOVESPA may be suspended at the
request of such company in anticipation of a material announcement. Trading may
also be suspended on the initiative of the BM&FBOVESPA or the CVM, based on
or due to, among other reasons, a belief that a company has provided inadequate
information regarding a material event or has provided inadequate responses to
inquiries by the CVM or the BM&FBOVESPA.
The
Brazilian over-the-counter market consists of direct trades between individuals
in which a financial institution registered with the CVM serves as intermediary.
No special application, other than registration with the CVM, is necessary for
securities of a publicly held company to be traded in this market. The CVM
requires that it be given notice of all trades carried out in the Brazilian
over-the-counter market by the respective intermediaries.
Investment
in BDRs by Non-Residents of Brazil
Investors
residing outside Brazil, including institutional investors, are authorized to
purchase equity instruments, including BDRs, on a Brazilian stock exchange,
provided that they comply with the registration requirements set forth in
Resolution 2,689 and CVM Instruction No. 325. With certain limited exceptions,
Resolution 2,689 investors are permitted to carry out any type of transaction in
the Brazilian financial and capital markets involving a security traded on a
stock, futures or organized and authorized over-the-counter market. Investments
and remittances outside Brazil of gains, dividends, profits or other payments
under our BDRs are made through the exchange markets and are subject to
restrictions under foreign investment regulations which generally require, among
other things, registration with the Central Bank and the CVM. In order to
subscribe BDRs through the foreign exchange market, under the Resolution 2,689,
an investor residing outside Brazil must:
·
|
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.
|
Securities
and other financial assets held by foreign investors pursuant to Resolution
2,689 must be registered or maintained in deposit accounts or under the custody
of an entity duly licensed by the Central Bank or the CVM. In addition,
securities trading by foreign investors are generally restricted to transactions
on the Brazilian stock exchanges and organized over-the-counter markets
involving securities listed for trading in such markets.
Additionally,
an investor operating under the provisions of Resolution 2,689 must be
registered with the Brazilian Taxpayers’ Registry, managed by the Brazilian
Federal Revenue Office (Receita Federal do Brasil),
pursuant to its Instruction No. 568. For information on certain possible
Brazilian tax effects on the sale of our BDRs, see “Risk Factors”.
Not
applicable.
Our class
A common shares are listed on the NYSE and trade under the symbol “CZZ”. The
BDRs representing our class A common shares are listed on the BM&FBOVESPA
and trade under the symbol “CZLT11”.
Not
applicable.
Not
applicable.
Not
applicable.
Not
Applicable
General
We are a
limited liability exempted company incorporated under the laws of Bermuda on
April 30, 2007. We are registered with the Registrar of Companies in Bermuda
under registration number EC 39981. Our registered office is located at Canon’s
Court, 22 Victoria Street, Hamilton HM12, Bermuda.
The
objects of our business are set forth in our memorandum of association and
provide that we have unrestricted objects and powers and rights including
to:
·
|
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
|
·
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hold
equity interests in other
companies.
|
There
have been no bankruptcy, receivership or similar proceedings with respect to us
or our subsidiaries.
Issued
Share Capital
We
increased our authorized class A common shares from 1,000 to 1,000,000,000 class
A common shares, on July 27, 2007, and approved the issuance, transfer and
exchange of 96,332,044 class B series 1 common shares to Queluz Holdings Limited
and Costa Pinto.
Our
authorized share capital consists of 1,000,000,000 class A common shares, par
value US$0.01 per share, and 188,886,360 class B common shares, par value
US$0.01 per share. The authorized class B common shares are, in turn, divided
into two series: 96,332,044 class B series 1 common shares, par value US$0.01
per share; and 92,554,316 class B series 2 common shares, par value US$0.01 per
share. We have 174,355,341 class A common shares and 96,332,044 class B series 1 common
shares issued and outstanding.
As of the
date of this transition report, no preference shares are issued and outstanding.
All of our common shares issued and outstanding prior to completion of the
exchange offer are and will be fully paid, and all of our shares to be issued in
the exchange offer will be issued as fully paid. In accordance with Bermuda law,
and subject to any contrary provision in any agreement between us and our
shareholders, in relation to fully-paid shares of our company, no shareholder
shall be obliged to contribute further amounts to the capital of our company,
either in order to complete payment for their shares, to satisfy claims of
creditors of our company, or otherwise; and no shareholder will be bound by an
alteration of the memorandum of association or bye-laws of our company after the
date on which he or she became a shareholder, if and so far as the alteration
requires him or her to take, or subscribe for additional shares, or in any way
increases his or her liability to contribute to the share capital of, or
otherwise to pay money to, our company.
Pursuant
to our bye-laws, and subject to the requirements of any stock exchange on which
our shares are listed, our board of directors is authorized to issue any of our
authorized but unissued share capital.
Under our
bye-laws, the holders of our class A common shares and class B common shares
will be offered the preemptive right to purchase, in the first instance, on a
pro rata basis according to their ownership interests, additional shares in the
event of any increase in share capital. However, this preemptive right may be
waived by (1) a majority of our board of directors in the case of an offering
(whether or not registered under the Securities Act) or (2) a majority of the
independent directors on our board of directors in any
circumstance.
Pursuant
to and in accordance with the Notice to the Public dated June 1, 2005 issued by
the Bermuda Monetary Authority, there is no limitation on the right of
non-residents of Bermuda to hold our shares as long as we remain listed on the
NYSE.
Common
Shares
Holders
of class A common shares are entitled to one vote per share on all matters
submitted to a vote of shareholders in general meeting. Holders of class B
series 1 common shares or class B series 2 common shares are entitled to ten
votes per share on all matters submitted to a vote of shareholders in general
meeting, except as otherwise provided by our bye-laws.
Except
for the conversion provisions relating to our class B common shares, holders of
our class A common shares and class B common shares have no redemption,
conversion or sinking fund rights. Unless a different majority is required by
law or by our bye-laws, resolutions to be approved by holders of common shares
require approval by a simple majority of votes cast at a meeting at which a
quorum is present.
In the
event of our liquidation, dissolution or winding-up, the holders of class A
common shares and class B common shares are entitled to share equally and
ratably in our assets, if any, remaining after the payment of all of our debts
and liabilities, subject to any liquidation preference on any outstanding
preference shares.
Preference
Shares
Under our
bye-laws, we may, subject to the affirmative vote of a majority of our board of
directors and, in certain circumstances as provided for in our bye-laws, a
majority of our class A common shares and class B common shares, each voting as
a separate class, establish one or more series of preference shares having such
number of shares, designations, dividend rates, relative voting rights,
conversion or exchange rights, redemption rights, liquidation rights and other
relative participation, optional or other special rights, qualifications,
limitations or restrictions as may be fixed. Such rights, preferences, powers
and limitations as may be established could also have the effect of discouraging
an attempt to obtain control of us. There are no outstanding preference shares,
and we have no present plans to issue any preference shares.
Dividend
Rights
For
information concerning dividend rights of our class A common shares, class B
series 1 common shares and class B series 2 common shares, see “Item 8.
Financial Information—A. Consolidated Statements and Other Financial
Information—Dividends and Dividend Policy”.
Tag-along
Rights
Following
the consummation of our initial public offering, no person or group of persons
(other than a holder of class B series 1 common shares) may, in a transaction or
series of transactions, acquire, directly or indirectly, the beneficial
ownership of class A common shares representing more than 15% of our issued and
outstanding common shares from any person or otherwise acquire control over our
company, unless the terms and conditions of such transaction or transactions
include an offer by the acquiring person or group of persons to the holders of
all other class A common shares or class B common shares to acquire at the
option of each applicable shareholder, all or any part of the respective shares
owned by such shareholder. The price per share paid by the acquiring person or
group of persons will be equivalent to the greater of (1) the highest price per
share paid by the acquiring person or group of persons to acquire any such class
A shares representing 15% of our issued and outstanding common shares or
control, as applicable and (2) a price determined based on an appraisal report.
The tag-along tender offer must be launched promptly after closing of the sale
that triggers application of the tag-along provision and be completed within 60
days after the consummation of the transaction or series of transactions. In the
event that the tag-along tender offer is not completed within the 60-day period,
the holder or holders of the shares acquired in the sale that triggered the
preemption rights will not be entitled to vote such shares, and we will be
entitled to compel such holder or holders to sell these shares to unaffiliated
persons deemed acceptable by a majority of our board of directors at the lower
of (A) the lowest acquisition price for the class A common shares and (B) the
then prevailing market price on the NYSE or such other stock exchange which
constitutes the principal market for the class A common shares on a date
selected by our board of directors that is not more than ten trading days on the
applicable exchange following the expiration of the 60-day period.
Conversion
Our class
A common shares are not convertible into any other shares of our authorized
share capital.
Each
class B common share is convertible at any time after three years following our
initial public offering (August 16, 2007), at the option of the holder, into one
class A common share. In addition, each class B common share will, subject to
limited exceptions applicable to class B series 1 common shares referred to
below, automatically convert into one class A common share upon any transfer of
its current beneficial ownership, whether or not for value.
Following
the death of Mr. Rubens Ometto Silveira Mello or a determination by 66-2/3% of
our board of directors based on the medical determination of two
internationally-recognized certified physicians that he is permanently mentally
incapacitated, the beneficial ownership of class B series 1 common shares may be
transferred from him to his immediate family members without resulting in the
automatic conversion of those shares into class A common shares. So long as
class B common shares are issued and outstanding, in the case of death or
permanent incapacitation of Mr. Rubens Ometto Silveira Mello, the following
actions or events will be subject to approval by a majority of the then
independent members of our board of directors, in addition to any other approval
of shareholders or members of our board required by Bermuda law or our
bye-laws:
·
|
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;
|
·
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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;
|
·
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amendment
of the provisions of any of the foregoing actions or events;
and
|
·
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agreeing
to, or otherwise committing to take, any of the foregoing
actions.
|
Mr.
Rubens Ometto Silveira Mello may also transfer his class B series 1 common
shares to a trust, corporation, partnership or limited liability company in
which he and, following his death or permanent incapacitation, a member or
members of his immediate family, directly or indirectly, retain sole dispositive
power and exclusive voting control with respect to such entity and the class B
series 1 common shares held by such entity. In addition, any such trust,
corporation, partnership, or limited liability company that directly holds class
B series 1 common shares may distribute those shares to its respective partners,
members or owners (which may further distribute the class B series 1 common
shares to their respective partners, members or owners) without triggering a
conversion to class A common shares, provided that Mr. Rubens Ometto Silveira
Mello and, following his death or permanent incapacitation, his immediate family
members continue to hold sole dispositive power and exclusive voting control
over the class B series 1 common shares.
Class B
common shares also will automatically convert into class A common shares when
the aggregate outstanding class B series 1 common shares represent less than 45%
of our total voting power in respect of the issued and outstanding share capital
in the company. In addition, class B series 2 common shares will automatically
convert into class A common shares if all the class B series 1 common shares
convert into class A common shares.
Once
transferred and converted into class A common shares, class B common shares will
not be reissued. No class of common shares may be subdivided or combined unless
the other class of common shares concurrently is subdivided or combined in the
same proportion and in the same manner.
Transfer
of Shares
Our board
of directors may, in its discretion and without assigning any reason, refuse to
register the transfer of a share that it is not fully paid. Our board of
directors may also refuse to register the transfer of a share unless the
instrument of transfer for such share is duly stamped (if required by law), is
in respect of one class of shares, is in favor of less than 5 persons jointly
and is accompanied by the relevant share certificate (if one has been issued)
and such other evidence of the transferor’s right to make the transfer as our
board of directors shall reasonably require. Any transfer of beneficial
ownership of class B series 1 common shares or class B series 2 common shares
not registered with the company will be null and void. For a period of three
years following our initial public offering (August 16, 2007), holders of our
class B series 2 common shares may not transfer less than all of the class B
series 2 common shares that they own. Subject to these restrictions as are more
fully set out in our bye-laws a holder of shares in the company may transfer the
title to all or any of such holder’s shares in the company by completing a form
of transfer in such form as our board of directors may reasonably approve. The
instrument of transfer must be signed by the transferor and transferee, although
in the case of a fully paid share, our board of directors may accept the
instrument signed only by the transferor. The board may also accept mechanically
executed transfers.
Meetings
of Shareholders
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 capital of the company as of the date of deposit carries the right
to vote. Bermuda law also requires that shareholders be given at least five
days’ advance 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 the chairman of the Board may call an annual general meeting or a special
general meeting. Special general meetings of the shareholders may also be
convened by our board of directors.
Under our
bye-laws, at least 10 clear days notice of an annual general meeting or a
special general meeting must be given to each shareholder entitled to receive
notice of such meeting. This notice requirement is subject to the ability to
hold such meetings on shorter notice if notice is served pursuant to Bermuda law
in the manner provided by the Companies Act 1981. The quorum required for a
general meeting of shareholders is two or more persons present in person or by
proxy and entitled to vote representing the holders of more than 45% of the
aggregate voting power of the shares in the Company which by their terms carry
the right to vote.
Any
action required to be taken at a meeting of shareholders except in the case of
the removal of auditors or directors may be taken without a meeting and without
vote if a consent or consents in writing, setting forth the action so taken, is
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. Notice of
any resolution in writing shall be given to all shareholders entitled to attend
a vote at a shareholder meeting.
Access
to Books and Records and Dissemination of Information
Members
of the general public have the right to inspect the public documents of a
company available at the office of 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 and the
company’s audited financial statements, which audited financial statements must
be presented at the annual general meeting unless waived in accordance with the
provisions of the Companies Act 1981. The register of shareholders of a company
is also open to inspection by shareholders and by members of the general public
without charge. 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 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.
Election
and Removal of Directors
Our
bye-laws provide that our board of directors must consist of between five and
eleven directors or such greater number as the board may determine. Our board of
directors currently consists of eleven directors. Our bye-laws provide that at
least 40% (and, following the death or permanent incapacitation of Mr. Rubens
Ometto Silveira Mello, at least 60%) of the members of our board of directors
must be independent (as defined by the rules promulgated by (1) the U.S.
Securities and Exchange Commission under the Exchange Act and (2) by the NYSE or
any other principal securities exchange on which the class A common shares are
so listed).
Our board
of directors is divided into three classes that are, as nearly as possible, of
equal size. Each class of directors is elected for a three-year term of office,
and the terms are staggered so that the term of only one class of directors
expires at each annual general meeting. There is also no requirement under
Bermuda law or in our bye-laws that our directors must retire at a certain
age.
Any
shareholder wishing to propose for election as a director a person who is not an
existing director must give notice to the company of the intention to propose
that person for election. The notice must be given not later than 90 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 earlier.
Our
bye-laws provide that a director may be removed with or without cause by a
majority of the other directors then in office. Our bye-laws also provide that a
director may be removed for cause by the affirmative vote of the holders of a
majority of the shareholder votes cast at a general meeting at which a quorum is
present, provided notice is given to the director of the shareholders general
meeting convened to remove the director. A director may be removed without cause
upon the affirmative vote of the holders of a majority of the aggregate voting
power of the shares of the Company which carry the right to vote on all matters
submitted to shareholders, provided notice is given to the director of the
general meeting convened to remove the director, which notice must contain a
summary of the facts justifying the removal and must be served on the director
not less than fourteen days before the meeting. As long as a director has made a
written request deposited at the registered office of the Company pursuant to
the Companies Act 1981, a director is entitled to attend the general meeting and
be heard at any general meeting called for his removal.
So long
as a quorum remains in office, our board of directors may fill any casual
vacancy occurring.
Proceedings
of Board of Directors
Our
bye-laws provide that our business is to be managed and conducted by our board
of directors. Bermuda law requires that our directors be individuals, but there
is no requirement in our bye-laws or Bermuda law that directors hold any of our
shares.
The
remuneration of our directors is determined by our board of directors, and there
is no requirement that a specified number or percentage of “independent”
directors must approve any such determination. Our directors may also be paid
all travel, hotel and other expenses properly incurred by them in connection
with our business or their duties as directors.
Provided
that he or she discloses a direct or indirect interest in any contract or
arrangement with us as required by Bermuda law, our bye-laws provide that a
director is entitled to be counted in the quorum, but may not vote in respect of
any such contract or arrangement in which he or she is interested. Under Bermuda
law, a director (including the spouse or children of the director or any company
(other than a company which
is a
holding company or a subsidiary of the company making 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 from us without the consent
of any shareholders holding in the aggregate not less than 90% of the total
voting rights of all shareholders having the right to vote at any general
meeting of the shareholders.
Waiver
of Claims by Shareholders; Indemnification of Directors and
Officers
Our
bye-laws contain a provision by virtue of which our shareholders waive any claim
or right of action that they may have, both individually and on our behalf,
against any director or officer in relation to any action or failure to take
action by such director or officer, except in respect of any fraud or dishonesty
of such director or officer. We understand that, in the opinion of the staff of
the SEC, the operation of this provision as a waiver of the right to sue for
violations of U.S. federal securities laws would likely be unenforceable in U.S.
courts.
Our
bye-laws also indemnify our directors and officers in respect of their actions
and omissions, except in respect of their fraud or dishonesty.
Amalgamations
and Other Business Combinations
Under
Bermuda law, the amalgamation or other business combination of a Bermuda company
with another company (other than certain affiliated companies), unless the
bye-laws otherwise provide requires the amalgamation or other business
combination to be approved by a majority of the Bermuda company’s board of
directors and by a majority of 75% of those voting at the general meeting of the
Bermuda company. The quorum for the shareholder approval is two persons holding
or representing at least one-third of the issued shares of the
Company.
Our
bye-laws provide that an amalgamation or other business combination (as defined
in our bye-laws) (other than with a wholly-owned subsidiary) that has been
approved by our board of directors must only be approved by a majority of the
votes cast at a general meeting of our shareholders at which the quorum must be
two persons representing the holders of more than 45% of the aggregate voting
power of the paid-up and outstanding shares carrying the right to vote. Any
amalgamation or other business combination (as defined in our bye-laws) not
approved by our board of directors must be approved by resolution passed by
66-2/3% of all votes attaching to all shares then in issue entitling the holder
to attend and vote on the resolution.
Specified
Transactions Involving Interested Shareholders
Specified
transactions include the following:
·
|
any
merger, consolidation or amalgamation of the Company 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.
|
In
addition to any affirmative vote required by law or our bye-laws, a specified
transaction with any interested shareholder will require the affirmative vote of
not less than 66-2/3% of the aggregate voting power of the voting shares, voting
together as a single class, excluding voting shares beneficially owned by any
interested
shareholder. Alternatively, a specified transaction may proceed with any
affirmative vote required by law or our bye-laws if the following principal
conditions are satisfied in relation to common shares: (1) the approval of a
majority of directors who are not affiliates of the interested shareholder; and
(2) the aggregate amount of the cash and the fair market value as of the date of
the consummation of the specified transaction of consideration other than cash
to be received by the holder of common shares in such specified transaction
shall be at least equal to the highest per share amount paid by the interested
shareholder within a two-year period immediately prior to the first public
announcement of the proposed specified transaction; or in the transaction in
which he or she became such an interested shareholder (whichever is higher) or,
if higher, the closing sales prices of such shares on the NYSE on the
announcement date for the specified transaction or on the date of the
transaction in which he or she became such an interested
shareholder.
For
purposes of our bye-laws, an “interested shareholder” includes, among others,
any person who is or has publicly disclosed an intention to become the
beneficial owner of shares representing 10% or more of our aggregate voting
power of the voting shares.
Non-Competition
Provision Applicable to Brazil
Our
bye-laws provide that we will operate and conduct business in Brazil exclusively
through Cosan and its subsidiaries, and we will not compete, directly or
indirectly, with Cosan in Brazil, unless otherwise approved by a majority of our
independent directors.
Amendment
of Memorandum of Association and Bye-laws
Bermuda
law provides that the memorandum of association of a company may be amended by a
resolution passed at a general meeting of shareholders of which due notice has
been given.
Our
bye-laws provide that no bye-law will be rescinded, altered or amended, unless
it has been approved by a resolution of our board of directors and by a
resolution of the shareholders. 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, specified transactions involving interested
shareholders, our discontinuation into another jurisdiction, tag-along rights
and amendment or alterations of bye-laws, the required resolutions must include
the affirmative vote of at least 66-2/3% of our directors then in office and
holders of at least 66-2/3% of class A common shares and at least a majority of
class B common shares then in issue entitling the holder to attend and vote on
the resolution, with each class voting separately as a class. In the case of
rescission, alteration or amendment to the bye-laws relating to the transmission
of shares upon the death of a 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 a majority of
the directors then in office and holders of a majority of each of class A common
shares and class B common shares then in issue entitling the holder to attend
and vote on the resolution, with each class voting separately as a
class.
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 and or
the holders of not less in the aggregate than 20% of the company’s debentures
entitled to object to amendments to the memorandum of association have the right
to apply to the Bermuda court for an annulment of any amendment of the
memorandum of association adopted by shareholders at any general meeting, other
than an amendment which alters or reduces a company’s share capital as provided
in the Companies Act 1981.
Where
such an application is made, the amendment becomes effective only to the extent
that it is confirmed by the Bermuda court. An application for an annulment of an
amendment of the memorandum of association must be made within twenty-one days
after the date on which the resolution altering the company’s memorandum of
association is passed and may be made on behalf of persons entitled to make the
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.
Modification
of Rights
While we
have more than one class of shares and more than one series of class B common
shares, the rights attaching to any class or series, unless otherwise provided
for by the terms of issue of the relevant class or series, may be modified with
the consent in writing of the holders or the approval of the votes cast at a
general meeting representing not less than 66- 2/3 % of the aggregate voting
power of the shares in issue and not less than 75% of the aggregate voting power
of the issued shares of that class or series, as the case may be. The quorum for
any such general meeting will be two or more persons holding or representing by
proxy one-third of the voting power of the issued shares of the class or series,
as the case may be. Our bye-laws specify that the creation or issue of shares
ranking equally with existing shares will not, unless expressly provided by the
terms of issue of those new shares, vary the rights attached to existing
shares.
Appraisal
Rights and Shareholder Suits
Under
Bermuda law, in the event of an amalgamation of a Bermuda company with another
company, a shareholder of the Bermuda company who is not satisfied that fair
value has been offered for such shareholder’s shares may apply to the Bermuda
court to appraise the fair value of those shares within one month of the giving
of the notice of the shareholders’ meeting called to approve the
amalgamation.
Class
actions and derivative actions are generally not available to shareholders under
Bermuda law. Bermuda courts, however, 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 a 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
shareholders may apply to a Bermuda court, which may make such 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 of any shareholders by other
shareholders or by the company.
Capitalization
of Profits and Reserves
Pursuant
to our bye-laws, our board of directors may capitalize any part of the amount of
our share premium account or any reserve or fund which is available for
distribution by either: (1) paying up unissued shares to be allotted on a pro
rata basis to shareholders as fully paid bonus shares; or (2) paying up in full
partly paid shares of those shareholders who would be entitled to such sums if
they were distributed by way of dividend or other distribution (or partly in one
way and partly the other) provided that a share premium account may be applied
only in paying up of unissued shares to be issued to such shareholders as fully
paid.
Untraced
Shareholders
Our
bye-laws provide that our board of directors may forfeit any dividend or other
monies payable in respect of any shares which remain unclaimed for six years. In
addition, we are entitled to cease sending dividend warrants and checks by post
or otherwise to a shareholder if such instruments have been returned undelivered
to, or left uncashed by, such shareholder on at least two consecutive occasions
or, following one such occasion, reasonable inquires have failed to establish
the shareholder’s new address. This entitlement ceases if the shareholder claims
a dividend or cashes a dividend check or a warrant.
Certain
Provisions of Bermuda Law
We have
been designated by the Bermuda Monetary Authority as a non-resident for Bermuda
exchange control purposes. This designation allows us to engage in transactions
only in currencies other than the Bermuda dollar, and there are no restrictions
on our ability to transfer funds (other than funds denominated in
Bermuda
dollars) in and out of Bermuda or to pay dividends to U.S. residents who are
holders of our common shares.
Pursuant
to a Notice to the Public dated June 1, 2005, issued by the Bermuda Monetary
Authority, the Bermuda Monetary Authority granted general permission for the
issue and subsequent transfer of any shares of a Bermuda company to and between
non-residents of Bermuda where any shares of the company are listed and remain
so listed on an appointed stock exchange, which includes the NYSE. Approvals or
permissions given by the Bermuda Monetary Authority do not constitute a
guarantee by the Bermuda Monetary Authority as to our performance or our
creditworthiness. Accordingly, in giving such permissions, the Bermuda Monetary
Authority will not be liable for the financial soundness, performance or default
of our business or for the correctness of any opinions or statements expressed
in this transition report.
In
accordance with Bermuda law, share certificates are only issued in the names of
companies, partnerships or individuals. In the case of a shareholder acting in a
special capacity (for example, as a trustee), certificates may, at the request
of the shareholder, record the capacity in which the shareholder is acting.
Notwithstanding such recording of any special capacity, we are not bound to
investigate or see to the execution of any such trust. We will take no notice of
any trust applicable to any of our shares, whether or not we have been notified
of such trust.
Registrar
or Transfer Agent
A
register of holders of the class A common shares and class B common shares and
any other issued share capital is maintained by Compass Administration Services
Ltd. in Bermuda, and a branch register is maintained in the United States by
Mellon Investor Services LLC, who serves as branch registrar and transfer
agent.
Anti-takeover
Effects Of Our Bye-laws
·
|
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 cast at a general meeting 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”.
|
On August
11, 2009, our indirect subsidiary CCL Finance Limited entered into an Indenture
with the Bank of New York Mellon, as trustee and The Bank of New York Mellon
Trust (Japan), Ltd., as principal payment agent in connection with its 9.50%
Senior Notes due 2014.
On
December 1, 2008, Cosan acquired 100% of the capital of Essobras (now CCL) and
certain affiliates, marketers and distributors of fuel and lubricants in the
Brazilian retail and wholesale markets as well as aviation fuel supply from
Exxon. The purchase price was US$715 million and included the assumption of debt
in the amount of US$175 million.
On
December 5, 2007, we, Cosan and Rubens Ometto Silveira entered into a Commitment
to Offer Commercial Opportunities, whereby we agreed to offer investments in
commercial opportunities in the sugar and ethanol sector outside of Brazil
deemed material to Cosan, for joint development by the parties to the contract.
Opportunities that represent an investment in excess of US$ 50.0 million on the
part of Cosan
Limited
would be deemed material. The Commitment became effective upon execution of the
Commitment and remains effective until the earliest occurrence of one of the
following events: (1) lapse of three years from the date of the Commitment; (2)
the number of free float shares of Cosan, as defined by the Listing Regulations
of the Novo Mercado of the BM&FBOVESPA, is less than 5% (five percent) of
the total number of shares representing the capital stock of Cosan; or (3) the
registration of Cosan as a publicly-traded corporation is
cancelled.
On
January 26, 2007, our subsidiary Cosan Finance Limited entered into an Indenture
with the Bank of New York, as trustee, registrar, and transfer agent, the Bank
of Tokyo-Mitsubishi UFJ, Ltd., as principal paying agent, and the Bank of New
York (Luxembourg) S.A., as paying agent and transfer agent, in connection with
its 7.00% Senior Notes due 2017.
See “Item
9. The Offer and Listing—A. Offer, Listing Details”.
U.S.
Federal Income Tax Considerations
The
following are the material U.S. federal income tax consequences of owning and
disposing of our common shares. This discussion applies only to U.S. Holders (as
defined below) that hold our common shares as capital assets for tax
purposes.
This
discussion does not describe all of the tax consequences that may be relevant to
a holder in light of the holder’s particular circumstances, including
alternative minimum tax consequences and tax consequences applicable to holders
subject to special rules, such as:
·
|
certain
financial institutions;
|
·
|
persons
holding 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;
|
·
|
entities
classified as partnerships for U.S. federal income tax
purposes;
|
·
|
tax-exempt
organizations;
|
·
|
persons
holding common shares that own or are deemed to own ten percent or more of
our voting stock; or
|
·
|
persons
who acquire our common shares pursuant to the exercise of any employee
stock option or otherwise as
compensation.
|
If an
entity that is classified as a partnership for U.S. federal income tax purposes
holds common shares, the U.S. federal income tax treatment of a partner will
generally depend on the status of the partner and upon the activities of the
partnership. Partnerships holding common shares and partners in such
partnerships should consult their tax advisers as to the particular U.S. federal
income tax consequences of holding and disposing of the common
shares.
This
discussion is based on the U.S. Internal Revenue Code of 1986, as amended, or
the “Code,” administrative pronouncements, judicial decisions and final,
temporary and proposed Treasury regulations, all
as of the
date hereof, any of which is subject to change, possibly with retroactive
effect. Please consult your tax advisers concerning the U.S. federal,
state, local and foreign tax consequences of owning and disposing of common
shares in your particular circumstances.
As used
herein, the term “U.S. Holder” means a beneficial owner of common shares that
is, for U.S. federal tax purposes:
·
|
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 state therein
or the District of Columbia or
|
·
|
an
estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source.
|
This discussion assumes that we are
not, and will not become a passive foreign investment company, as described
below.
Taxation
of Distributions
Distributions
paid on common shares, other than certain pro rata distributions of common
shares, will be treated as dividends to the extent paid out of our current or
accumulated earnings and profits (as determined under U.S. federal income tax
principles). To the extent that the amount of any distribution exceeds our
current and accumulated earnings and profits for a taxable year (as determined
under U.S. federal income tax principles), the distribution will first be
treated as a tax-free return of capital, causing a reduction in the adjusted
basis of your common shares, and the balance in excess of adjusted basis will be
treated as capital gain recognized on a sale or exchange. Because we do not
expect to keep earnings and profits in accordance with U.S. federal income tax
principles, you should expect that a distribution will generally be treated as a
dividend. Subject to applicable limitations, dividends paid to certain
non-corporate U.S. Holders in taxable years beginning before January 1,
2011, will be taxable at favorable rates, up to a maximum rate of 15%, provided
that certain holding period and other requirements are satisfied. The amount of
the dividend will be treated as foreign source dividend income to you and will
not be eligible for the dividends received deduction generally allowed to U.S.
corporations under the Code.
Dividends
will be included in a U.S. Holder’s income on the date of the U.S. Holder’s
receipt of the dividend.
Sale
and Other Disposition of Common Shares
For U.S.
federal income tax purposes, gain or loss you realize on the sale or other
disposition of common shares will be capital gain or loss, and will be long-term
capital gain or loss if you held our common shares for more than one year at the
time of disposition. The amount of gain or loss will be equal to the difference
between your tax basis in our common shares disposed of and the amount realized
on the disposition. Such gain or loss will generally be U.S. source gain or loss
for foreign tax credit purposes.
Passive
Foreign Investment Company Rules
In
general, a non-U.S. corporation will be classified as a “passive foreign
investment company,” or “PFIC”, for U.S. federal income tax purposes in any
taxable year in which, after applying certain look-through rules, either
(1) at least 75% of its gross income is “passive income” or (2) at
least 50% of the average value of its gross assets is attributable to assets
that produce “passive income” or are held for the production of “passive
income”. Passive income for this purpose generally includes dividends, interest,
royalties, rents and gains from commodities, foreign currency and securities
transactions. Based on the current composition of our income and the market
value and composition of our assets, we do not believe that we were a PFIC for
our taxable year ended 2009. However, since PFIC status depends upon the
composition of our income and assets and the market value of our assets
(including, among others, goodwill and less than
25% owned
equity investments) from time to time, we cannot assure you that we will not be
considered a PFIC for any taxable year.
If we
were treated as a PFIC for any taxable year during which a U.S. Holder held the
common shares, gain recognized by such U.S. Holder on a sale or other
disposition (including certain pledges) of the common shares would be allocated
ratably over the U.S. Holder’s holding period for the common shares. The amounts
allocated to the taxable year of the sale or other exchange and to any year
before we became a PFIC would be taxed as ordinary income. The amount allocated
to each other taxable year would be subject to tax at the highest rate in effect
for individuals or corporations, as appropriate, and an interest charge would be
imposed on the resulting tax liability. Further, to the extent any distribution
in respect of common shares exceeded 125% of the average of the annual
distributions on common shares received by the U.S. Holder during the preceding
three years or the U.S. Holder’s holding period, whichever was shorter, that
distribution would be subject to taxation in the same manner as gain, described
immediately above. Certain elections might be available that would result in
alternative treatments (such as mark-to-market treatment) of the common shares.
U.S. Holders should consult their tax advisers to determine whether these
elections would be available and, if so, what the consequences of the
alternative treatments would be in their particular circumstances.
In
addition, if we were to be treated as a PFIC in a taxable year in which we paid
a dividend or the prior taxable year, the 15% tax rate discussed above with
respect to dividends paid to non-corporate holders would not apply.
Information
Reporting and Backup Withholding
Payments
of dividends and sales proceeds that are made within the United States or
through certain U.S.-related financial intermediaries generally are subject to
information reporting and to backup withholding unless (1) you are a
corporation or other exempt recipient or (2) in the case of backup
withholding, you provide a correct taxpayer identification number and certify
that you are not subject to backup withholding.
The
amount of any backup withholding from a payment to you will be allowed as a
credit against your U.S. federal income tax liability and may entitle you to a
refund, provided that the required information is timely furnished to the
Internal Revenue Service.
Bermuda
Tax Considerations
The
Company has received an assurance from the Ministry of Finance granting an
exemption, until March 28, 2016, from the imposition of tax under any applicable
Bermuda law computed on profits or income or computed on any capital asset, gain
or appreciation, or any tax in the nature of estate duty or inheritance tax,
provided that such exemption shall not prevent the application of any such tax
or duty to such persons as are ordinarily resident in Bermuda and shall not
prevent the application of any tax payable in accordance with the Land Tax Act
1967 or otherwise payable in relation to land in Bermuda leased to the
Company.
Not
applicable.
Not
applicable.
Statements
contained in this transition report as to the contents of any contract or other
document referred to are not necessarily complete, and each of these statements
is qualified in all respects by reference to the full text of such contract or
other document filed as an exhibit hereto. A copy of the complete transition
report including the exhibits and schedules filed herewith may be inspected
without charge at the public reference facilities maintained by the SEC at 100 F
Street NE., Washington, D.C., and at the SEC’s regional offices
located
at 233 Broadway, New York, N.Y., 10279 and North Western Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 - 2511. Copies of such
materials may be obtained by mail from the Public Reference Section of the SEC,
100 F Street NE., Washington, D.C., at prescribed rates. Such reports and other
information may also be inspected at the offices of the New York Stock Exchange,
11 Wall Street, New York, New York 10005, on which our class A common shares are
listed. In addition the SEC maintains a website that contains information filed
electronically with the SEC, which can be accessed over the Internet at
http://www.sec.gov.
We are
subject to the information and periodic reporting requirements of the Securities
Exchange Act of 1934 as amended, and, in accordance therewith, file periodic
reports and other information with the SEC. However, as a foreign private
issuer, we are exempt from the rules under the Exchange Act relating to the
furnishing and content of proxy statements and relating to short-swing profits
reporting and liability.
We also
file financial statements and other periodic reports with the CVM located as Rua
Sete de Setembro, 111, Rio de Janeiro, Brazil 20159-900.
Not
applicable.
Risk
Management
We
consider market risk to be the potential loss arising from adverse changes in
market rates and prices. We are exposed to a number of market risks arising from
our normal business activities. Such market risks principally involve the
possibility that changes in commodity prices, interest rates or exchange rates
will adversely affect the value of our financial assets and liabilities or
future cash flows and earnings. We periodically review our exposure to market
risks and determine at the senior management level how to manage and reduce the
impact of these risks. We use derivative financial instruments solely for the
purpose of managing market risks, primarily fluctuations in commodity prices and
foreign exchange. While these hedging instruments fluctuate in value, these
variations are generally offset by the value of the underlying hedged exposures.
The counterparties to these contractual arrangements are primarily commodities
exchanges, in the case of commodity futures and options, and major financial
institutions, in the case of foreign exchange derivative instruments and
interest rate swaps. As a result, we do not believe that we are subject to any
material credit risk arising from these contracts, and accordingly, we do not
anticipate any material credit-related losses. We do not enter into derivative
or other hedging instruments for speculative purposes.
We have
formed a risk management committee that is responsible for advising the board on
risk management, by establishing exposure limits and hedging ratios so as to
achieve better operational and financial controls.
Commodities
Risk
The
availability and prices of agricultural commodities fluctuate widely due to
unpredictable factors, such as weather, level of crop plantings, worldwide
government agricultural programs and policies, changes in global demand
resulting from population growth and migration, changes in standards of living
and global production of similar, competitive products. We enter into various
types of derivative contracts, primarily commodity exchange-traded futures and
options, mainly in order to manage our exposure to adverse price changes in
sugar. We use a sensitivity analysis to regularly estimate our exposure to
market risk on our agricultural commodity position.
Based on
the sugar and ethanol sales volumes in transition fiscal year 2009, we believe
that a hypothetical 10% decrease in unhedged prices would reduce our sugar and
ethanol net sales by approximately US$67.5 million and US$54.9 million,
respectively, in transition fiscal year 2009 as set forth below.
|
|
|
|
|
|
|
|
Market
Risk - 10% Price Decrease
|
|
|
|
(in
millions of US$)
|
|
|
(thousand
tons of sugar or thousand liters of ethanol)
|
|
|
(in
millions of US$)
|
|
Sugar
sales volumes in the eleven months ended March 31, 2009
|
|
|
843.1 |
|
|
|
3,051.7 |
|
|
|
67.5 |
|
Hedged
sugar position at March 31, 2009
|
|
|
168.5 |
|
|
|
610.0 |
|
|
|
– |
|
VHP
sugar
|
|
|
161.4 |
|
|
|
583.3 |
|
|
|
– |
|
White
sugar
|
|
|
7.4 |
|
|
|
26.7 |
|
|
|
– |
|
Unhedged
sugar position at March 31, 2009
|
|
|
674.6 |
|
|
|
2,441.7 |
|
|
|
67.5 |
|
Ethanol
sales volumes (unhedged) in transition fiscal year 2009
|
|
|
548.7 |
|
|
|
1,495.1 |
|
|
|
54.9 |
|
Total
unhedged position at March 31, 2009
|
|
|
1,223.3 |
|
|
|
– |
|
|
|
122.3 |
|
For risk
management purposes and to evaluate our overall level of commodity price
exposure, we further reduce our exposure to commodity market risk related to the
sugar and ethanol produced from sugarcane that we purchase from growers and
sugarcane harvested from leased land, as we pay for the lease costs in TSR.
Unlike sugarcane harvested from our own land, the price of sugarcane supplied by
growers or the lease payments we incur to produce sugarcane harvested by us from
leased land is indexed to the market price of sugar and ethanol, which provides
a partial natural hedge to our sugar price exposure. When we acquire sugarcane
from growers, we take samples from the delivered sugarcane to measure its sugar
content and pay only for the TSR that we acquire according to a formula
established by CONSECANA. In addition, the lease payments are also calculated
based on an established TSR volume and a price calculated using the CONSECANA
formula. Based on the foregoing, we believe that a hypothetical 10% decrease in
prices would increase our net commodities risk by US$76.5 million as set forth
below.
|
|
Fair
Value -
Net
Sales
|
|
|
Commodities
Risk - 10% Price Decrease
|
|
|
|
(in
millions of US$)
|
|
|
(in
millions of US$)
|
|
Total
unhedged position at March 31, 2009
|
|
|
1,223.3 |
|
|
|
122.3 |
|
Sugarcane
paid to growers in transition fiscal year 2009
|
|
|
(369.7 |
) |
|
|
(37.0 |
) |
Sugarcane
from leased land in transition fiscal year 2009
|
|
|
(88.9 |
) |
|
|
(8.9 |
) |
Net
unhedged position at March 31, 2009
|
|
|
764.7 |
|
|
|
76.5 |
|
As of
March 31, 2009, we had entered into hedging agreements with respect to 775.6
thousand tons of VHP sugar at an average fixed price of US$0.1384 per pound and
26.7 thousand tons of refined sugar at an average fixed price of US$395.31 per
ton.
The table
below provides information about the Company’s sugar inventory and derivative
contracts that are sensitive to changes in commodity prices, specifically sugar
prices. For inventory, the table presents the carrying amount and fair value at
March 31, 2009. For the derivative contracts the table presents the notional
amounts in tons, the weighted average contract prices, and the total U.S. dollar
contract amount by expected maturity dates.
On
Balance Sheet Commodity Position and Related Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(¢US$/lb)
|
|
|
lots
|
|
|
US$/ton
|
|
|
US$/ton
|
|
|
(tons)
|
|
|
(US$’000)
|
|
|
(US$’000)
|
|
Future
contracts – sell commitments
|
|
NYBOT
|
|
|
#11 |
|
May/09
|
|
4/30/09
|
|
|
– |
|
|
|
7,237 |
|
|
|
281.49 |
|
|
|
279.83 |
|
|
|
367.663 |
|
|
|
103.493 |
|
|
|
798 |
|
Future
contracts - sell commitments
|
|
NYBOT
|
|
|
#11 |
|
July/09
|
|
6/30/09
|
|
|
– |
|
|
|
1,658 |
|
|
|
300.47 |
|
|
|
293.88 |
|
|
|
84.232 |
|
|
|
25.309 |
|
|
|
556 |
|
Future
contracts – sell commitments
|
|
NYBOT
|
|
|
#11 |
|
Oct./09
|
|
9/30/09
|
|
|
– |
|
|
|
2,590 |
|
|
|
331.25 |
|
|
|
310.41 |
|
|
|
131.580 |
|
|
|
43,586 |
|
|
|
2,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(¢US$/lb)
|
|
|
lots
|
|
|
US$/ton
|
|
|
US$/ton
|
|
|
(tons)
|
|
|
(US$’000)
|
|
|
(US$’000)
|
|
Future
contracts – sell commitments
|
|
LIFFE
|
|
|
#05 |
|
May/09
|
|
4/30/09
|
|
|
– |
|
|
|
534 |
|
|
|
395.31 |
|
|
|
392.80 |
|
|
|
26.700 |
|
|
|
10,555 |
|
|
|
67 |
|
Future
contracts - sell commitments
|
|
NYBOT
|
|
|
#11 |
|
May/09
|
|
4/30/09
|
|
|
– |
|
|
|
4 |
|
|
|
298.95 |
|
|
|
279.33 |
|
|
|
(203 |
) |
|
|
61 |
|
|
|
(4 |
) |
Subtotal
futures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
609.972 |
|
|
|
183,004 |
|
|
|
4,160 |
|
Call
options - written
|
|
NYBOT
|
|
|
#11 |
|
July/09
|
|
6/15/09
|
|
|
13.00 |
|
|
|
475 |
|
|
|
33.21 |
|
|
|
22.49 |
|
|
|
24.132 |
|
|
|
6,916 |
|
|
|
(543 |
) |
Call
options - written
|
|
NYBOT
|
|
|
#11 |
|
July/09
|
|
6/15/09
|
|
|
14.00 |
|
|
|
500 |
|
|
|
29.92 |
|
|
|
13.23 |
|
|
|
25.402 |
|
|
|
7,840 |
|
|
|
(336 |
) |
Call
options - written
|
|
NYBOT
|
|
|
#11 |
|
July/09
|
|
6/15/09
|
|
|
17.00 |
|
|
|
1,835 |
|
|
|
29.45 |
|
|
|
2.87 |
|
|
|
93.224 |
|
|
|
34,938 |
|
|
|
(267 |
) |
Call
options - written
|
|
NYBOT
|
|
|
#11 |
|
Oct./09
|
|
9/15/09
|
|
|
13.00 |
|
|
|
550 |
|
|
|
36.26 |
|
|
|
40.34 |
|
|
|
27.942 |
|
|
|
8,008 |
|
|
|
(1,127 |
) |
Call
options - written
|
|
NYBOT
|
|
|
#11 |
|
Oct./09
|
|
9/15/09
|
|
|
14.00 |
|
|
|
425 |
|
|
|
33.67 |
|
|
|
29.32 |
|
|
|
21.591 |
|
|
|
6,664 |
|
|
|
(633 |
) |
Subtotal
options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
192.290 |
|
|
|
64,366 |
|
|
|
(2,906 |
) |
Total
commodities derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
802,262 |
|
|
|
247,370 |
|
|
|
1,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Risk
We have
fixed and floating rate indebtedness, and, therefore, we are exposed to market
risk as a result of changes in interest rates. We engage in interest
rate-related hedging transactions from time to time for reasons other than
trading or speculative purposes. As of March 31, 2009, 84.4 %, or US$1,716.3
million, of our consolidated total debt outstanding of US$2,032.8 million was
fixed rate debt. Interest rate risk is the effect on our financial results
resulting from an increase in interest rates on our variable rate debt indexed
to the London Interbank Offered Rate, or “LIBOR”, the Long-Term Interest Rate
(Taxa de Juros ao Longo
Prazo), or “TJLP”, Reference Rate (Taxa Referencial), or “TR”,
IGP-M, and Interbank Deposit Certificate (Certificado de Depósito
Interbancário), or “CDI”. Based on the amount of our floating-rate
indebtedness at March 31, 2009, we believe that a hypothetical 10% increase in
interest rates would increase our interest expense by US$14.9 million in
transition fiscal year 2009.
Foreign
Currency Exchange Rate Risk
A
substantial portion of our net sales is denominated in U.S. dollars. Exports
amounted to US$929.7 million in transition fiscal year 2009. Based on our net
sales from exports in transition fiscal year 2009, we believe that a
hypothetical 10% depreciation of the U.S. dollar to the real would decrease our net
sales by US$93.0 million in transition fiscal year 2009. The majority of our
costs are denominated in reais, therefore, our
operating margins are negatively affected when there is an appreciation of the
real to the U.S.
dollar.
We enter
into transactions involving derivatives with a view to reducing our exposure to
foreign exchange rate variations on exports. We operate mainly in the OTC
segment with leading institutions, through non-deliverable forwards, or “NDFs”,
and swaps. We use a sensitivity analysis to regularly estimate our exposure to
foreign exchange risk on our export positions. Based on our export net sales in
transition fiscal year 2009, we believe that a hypothetical 10% decrease in
foreign exchange would reduce our export net sales by approximately US$10.3
million in transition fiscal year 2009 as set forth below.
|
|
|
|
|
|
|
|
Foreign
Exchange
Risk -
10%
Decrease
|
|
|
|
(in
millions of US$)
|
|
Hedged
export net sales at March 31, 2009
|
|
US$ |
826.4 |
|
|
US$ |
826.4 |
|
|
US$ |
– |
|
Unhedged
export net sales at March 31, 2009
|
|
|
103.3 |
|
|
|
103.3 |
|
|
|
10.3 |
|
Total
export net sales in transition fiscal year 2009
|
|
|
929.7 |
|
|
|
929.7 |
|
|
|
10.3 |
|
A
substantial portion of our debt is denominated in U.S. dollars. We are therefore
exposed to market risk related to exchange movements between the real and the U.S. dollar. We
engage from time to time in foreign
exchange
rate-related financial transactions for reasons other than trading or
speculative purposes. As of March 31, 2009, 54.1%, or US$1,099.8 million, of our debt was
denominated in U.S. dollars.
We
estimate our foreign currency exchange rate risk as the potential devaluation of
the real on our U.S.
dollar-denominated debt and other U.S. dollar-denominated liabilities. Based on
our outstanding U.S. dollar denominated exposure at March 31, 2009, we believe
that a hypothetical 10% devaluation of the real would increase our
financial expenses by US$46.8
million in transition fiscal year 2009 as set forth below.
|
|
|
|
|
Market
Risk on Net Financial Expenses
|
|
|
|
(in
millions of US$)
|
|
U.S.
dollar-denominated debt
|
|
US$ |
1,099.8 |
|
|
US$ |
110.0 |
|
U.S.
dollar-denominated cash and cash equivalents
|
|
|
(109.9 |
) |
|
|
(11.0 |
) |
U.S.
dollar-denominated restricted cash
|
|
|
(5.1 |
) |
|
|
(0.5 |
) |
U.S.
dollar-denominated marketable securities
|
|
|
(450.8 |
) |
|
|
(45.1 |
) |
U.S.
dollar-denominated derivative financial instruments (net)
|
|
|
21.5 |
|
|
|
2.2 |
|
U.S.
dollar-denominated trade accounts receivable
|
|
|
(70.3 |
) |
|
|
(7.0 |
) |
U.S.
dollar-denominated related parties
|
|
|
(17.7 |
) |
|
|
(1.8 |
) |
Total
U.S. dollar-denominated exposure
|
|
US$ |
467.6 |
|
|
US$ |
46.8 |
|
Not
applicable.
None.
In
connection with our initial public offering, we filed a registration statement
on Form F-1. The registration statement was declared effective by the
SEC on August 16, 2007 and was assigned file number 333-144010.
Our net
offering proceeds, after deducting total expenses, was US$1,118.4 million. In
January 2008, Cosan Limited subscribed 56.6 million new shares of Cosan,
transferring approximately R$ 1,190 million to its subsidiary. In October 2008,
Cosan Limited issued class A shares to certain Gávea funds and Mr. Rubens Ometto
for US$150 million and US$ 50 million, respectively. In December 2008, Cosan
Limited acquired 55,000,000 common shares of Cosan in a private placement for
approximately R$880 million. These proceeds are being used by Cosan for the
development of our greenfield projects at Jataí/GO and Carapó/MS, for the
construction of co-generation plants in our mills, increase in capacity to
produce sugar and for the acquisition of mechanical harvesters and related
equipment for the agricultural mechanization project. In December 2008, Cosan
Limited obtained a US$150 million financing in the international market in
connection of its acquisition of Essobrás. In August 2009, Cosan Limited repaid
the US$150 million finance with proceeds from a bond issuance by its subsidiary
CCL Finance Limited. The remaining US$225 million balance remains in cash, cash
equivalents and marketable securities in Cosan Limited treasuries and will
probably continue to be used primarily in the greenfield, brownfield and
co-generation projects.
(a)
Disclosure Controls and Procedures
As of
March 31, 2009, under management’s supervision and with its participation,
including our chief executive officer and chief financial officer, we performed
an evaluation of our disclosure controls and procedures (as defined in Rule
13a-15(e) under the Securities Exchange Act of 1934). There are inherent
limitations to the effectiveness of any system of disclosure controls and
procedures. Accordingly, even effective disclosure controls and procedures can
only provide reasonable assurance of achieving their control
objectives.
Based on
this evaluation, our chief executive officer and chief financial officer
concluded that our disclosure controls and procedures were effective as of March
31, 2009 to ensure that information required to be disclosed under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the Commissions rules and forms, and that the information required
to be disclosed is accumulated and communicated to them, to allow timely
decisions regarding required disclosure.
(b)
Management’s Annual Report on Internal Control over Financial
Reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as defined in Rule 13a-15(f) under the Securities Act of
1934. Management conducted an assessment of the effectiveness of internal
control over financial reporting based on the criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Based on this assessment and those criteria,
management concluded that internal control over financial reporting was
effective as of March 31, 2009.
We
excluded the recently acquired operations and related assets and liabilities of
CCL from the scope of our assessment of internal control over financial
reporting. As of March 31, 2009 and for the period from its acquisition through
March 31, 2009, amounts excluded were total assets, net assets and total
revenues representing 12.3%, 6.4% and 46.1%, respectively, of the consolidated
amounts and an immaterial amount of net loss.
Management's
report on internal control over financial reporting appears on F-1. The
financial statements and internal control over financial reporting have been
audited by Ernst & Young Auditores Independentes S.S. or “E&Y S.S.”, an independent
registered public accounting firm. E&Y S.S.'s reports with respect to
fairness of the presentation of the statements, and the effectiveness of
internal control over financial reporting, are included herein and appear on F-2
and F-4, respectively.
(c)
Attestation Report of the Registered Public Accounting Firm
See
Report Of Independent Registered Public Accounting Firm on F-2.
(d)
Changes in Internal Control over Financial Reporting
There was
no change in our internal control over financial reporting that occurred during
the period covered by this transition report that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
Audit
Committee
We have
an audit committee that is responsible for advising the board about the
selection of independent auditors, reviewing the scope of the audit and other
services provided by our independent auditors, approving related party
transactions and evaluating our internal controls. The members of our audit
committee are Messrs. Marcus Vinicius Pratini de Moraes (chairman), Mailson
Ferreira da Nóbrega, and Luis Henrique Fraga.
These
members are independent, and our board of directors has determined that Marcus
Vinicius Pratini de Moraes and Mailson Ferreira da Nóbrega are the “Audit
Committee Financial Expert” in accordance with SEC rules and
regulations.
NYSE Rule
303A.10 provides that each U.S. listed company must adopt and disclose a code of
business conduct and ethics for directors, officers and employees and promptly
disclose any waivers of the code for directors or executive officers. Although
not required under Bermuda law, the Company has adopted a code of business
conduct and ethics for directors, officers and employees as provided for in NYSE
Rule 303A.10, which has been filed with the SEC.
The
following table describes the total amount billed to us by E&Y S.S. for
services performed in the transition fiscal year ended March 31, 2009, and
fiscal years ended April 30, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands of reais)
|
|
Audit
fees
|
|
R$ |
4,035 |
|
|
R$ |
2,173 |
|
|
R$ |
1,373 |
|
Audit
related fees
|
|
|
– |
|
|
|
1,871 |
|
|
|
3,037 |
|
Tax
fees
|
|
|
– |
|
|
|
382 |
|
|
|
– |
|
All
other fees
|
|
|
739 |
|
|
|
1,403 |
|
|
|
856 |
|
Total
consolidated audit fees
|
|
R$ |
4,774 |
|
|
R$ |
5,829 |
|
|
R$ |
5,266 |
|
Audit
Fees
Audit
fees are fees billed for the audit of our annual consolidated financial
statements and for the reviews of our quarterly financial statements submitted
on Form 6-K.
Audit-Related
Fees
Audit-related
fees are fees charged by E&Y S.S. for assurance and related services that
are reasonably related to the performance of the audit or review of our
financial statements for fiscal years ended April 30, 2008 and 2007.
Additionally, audit related fees include comfort letters, statutory audits,
consents and other services related to SEC matters.
Tax
Fees
Tax fees
are fees for professional services rendered by E&Y S.S. for tax advice
services
All
Other Fees
E&Y other fees refer to other assurance services
regarding the review of the process related to access profiles of data systems
and advisory services
related to the Sarbanes-Oxley Act.
Pre-Approval
Policies and Procedures
Our audit
committee approves all audit, audit-related services, tax services and other
services provided by E&Y S.S. Any services provided by E&Y S.S. that are
not specifically included within the scope of the audit must be pre-approved by
the board of directors in advance of any engagement. The board of directors is
permitted to approve certain
fees for
audit-related services, tax services and other services pursuant to a de minimis exception prior to
the completion of the audit engagement.
Not
applicable.
None.
Not
applicable.
For a
comparison of the significant differences between our corporate governance
practices and the NYSE Corporate Governance Standards, please see “Item 6.
Directors, Senior Management and Employees—C. Summary of Significant Differences
of Corporate Governance Practices”.
We have
responded to Item 18 in lieu of responding to this Item.
See our
audited consolidated financial statements beginning on page F-1.
We are
filing the following documents as part of this transition report Form
20F:
1.1
|
Memorandum
of Association (incorporated by reference to our amended registration
statement filed on Form F-1/A with the Securities and Exchange Commission
on August 9, 2007)
|
1.2
|
Bye-Laws
(incorporated by reference to our amended registration statement filed on
Form F-1/A with the Securities and Exchange Commission on August 9,
2007)
|
2.1
|
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 by reference to
our registration statement filed on Form F-1 with the Securities and
Exchange Commission on June 25, 2007)
|
2.2
|
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 by
reference to our registration statement filed on Form F-1 with the
Securities and Exchange Commission on June 25, 2007)
|
2.3
|
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 by reference to our
registration statement filed on Form F-1 with the Securities and Exchange
Commission on June 25, 2007)
|
4.1
|
Loan
Agreement dated as of June 28, 2005 among Cosan S.A. Indústria e Comércio,
as borrower, and International Finance Corporation (incorporated by
reference to our registration statement filed on Form F-1 with the
Securities and Exchange Commission on June 25, 2007)
|
4.2
|
Commitment
to Offer Commercial Opportunities dated as of December 5, 2007 among Cosan
Limited, Cosan S.A., and Rubens Ometto Silveira (incorporated by reference
to our registration statement filed on Form F-4 with the Securities and
Exchange Commission on February 4, 2008)
|
4.3
|
Agreement
for the Sale and Purchase of all of the Member Interests in Parent
Co-Operative 1 and Parent Co-Operative 2 dated April 23, 2008, between
ExxonMobil International Holdings B.V., as vendor, and the registrant’s
subsidiaries Cosan S.A. Indústria e Comércio and Usina da Barra S.A.
Açúcar e Álcool, as purchasers* (incorporated by reference to our
Amendment to our Current Report filed on Form 6-K/A on June 10,
2009)
|
4.4
|
Indenture
dated August 11, 2009 among CCL Finance Limited, Cosan Combustíveis e
Lubrificantes S.A., The Bank Of New York Mellon, as Trustee, The Bank of
New York Mellon Trust (Japan), Ltd., as Principal Paying Agent, and the
Bank of New York Mellon (Luxembourg) S.A., as Luxembourg Listing, Paying
and Transfer Agent
|
8.1
|
Subsidiaries
of the Registrant
|
11.1
|
Code
of Ethics (incorporated by reference from our exhibit to our annual report
filed on Form 20-F for the Fiscal Year ended April 30,
2008)
|
12.1
|
Certification
pursuant to section 302 of the Sarbanes-Oxley Act of 2002 of the Chief
Executive Officer
|
12.2
|
Certification
pursuant to section 302 of the Sarbanes-Oxley Act of 2002 of the Chief
Financial Officer
|
13.1
|
Certification
pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of
the Sarbanes-Oxley Act of 2002, of the Chief Executive
Officer
|
13.2
|
Certification
pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of
the Sarbanes-Oxley Act of 2002, of the Chief Financial
Officer
|
15.1
|
Unaudited
condensed consolidated financial statements of Cosan Limited as of and for
the eleven-month period ended March 31,
2008
|
__________
|
*
Portions of this item have been omitted pursuant to a request for
confidential treatment.
|
SIGNATURES
The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this transition report on its behalf.
Cosan
Limited
|
|
|
|
|
|
By:
|
/s/
Marcelo Eduardo Martins
|
|
|
Name:
|
Marcelo
Eduardo Martins
|
|
|
Title:
|
Chief
Financial and
Investor
Relations Officer
|
|
Date: September
30, 2009
COSAN
LIMITED
CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2009 and
April 30, 2008 and 2007
TABLE
OF CONTENTS
|
F-1 |
|
F-2
|
|
F-4
|
|
F-5
|
|
F-7
|
|
F-8
|
|
F-9
|
|
F-10
|
The
management of Cosan Limited is responsible for establishing and maintaining
adequate internal control over financial reporting for the Company.
The
Company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. The company’s internal control
over financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of
the Company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore even those systems determined to be
effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions.
As
disclosed in notes 1 and 8 of its consolidated financial statements, on December
1, 2008, the Company acquired Cosan Combustíveis e Lubrificantes S.A. (Cosan
CL), former Esso Brasileira de Petróleo Ltda.. As provided under the
Sarbanes-Oxley Act of 2002 and the applicable rules and regulations of the
Securities and Exchange Commission, management has elected to exclude Cosan CL
from this evaluation. Cosan CL is a wholly owned subsidiary, which is included
in the 2009 consolidated financial statements of Cosan Limited and constituted
US$666,680 (12.3%) and US$102,057 (6.4%) of total and net assets, respectively,
as of March 31, 2009 and US$1,349,201 (46.1%) of revenues and an immaterial
amount of net loss, for the year then ended.
Management
assessed the effectiveness of the company’s internal control over financial
reporting as of March 31, 2009, based on the criteria set forth by the COSO –
Committee of Sponsoring Organization of the Treadway Commission in Internal
Control – Integrated Framework. Based on that assessment management has
concluded that as of March 31, 2009, the Company’s internal control over
financial reporting is effective.
Management’s
assessment of the effectiveness of the company’s internal control over financial
reporting as of March 31, 2009 has been audited by Ernst & Young Auditores
Independentes S.S., the company’s independent registered public accounting firm,
as stated in their report which appears herein.
/s/ Rubens Ometto
Silveira Mello |
Rubens
Ometto Silveira Mello
Chief
Executive Officer
Date:
June 19, 2009
The Board of
Directors and Shareholders of
Cosan
Limited
We
have audited Cosan Limited’s internal control over financial reporting as of
March 31, 2009, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Cosan Limited’s management is responsible for
maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness annual internal control over financial reporting
included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the
company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Internal control
definition paragraph:
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
As
indicated in the accompanying Management’s Annual Report on Internal Control
over Financial Reporting, management’s assessment of and conclusion on the
effectiveness of internal control over financial reporting did not include the
internal controls of Cosan Combustíveis e Lubrificantes S.A. (“Cosan CL”), which
is included in the 2009 consolidated financial statements of Cosan Limited and
constituted US$666,680 (12.3%) and US$102,057 (6.4%) of total and net assets,
respectively, as of March 31, 2009 and US$1,349,201 (46.1%) of revenues and an
immaterial amount of net loss, for the year then ended. Our audit of internal
control over financial reporting of Cosan Limited also did not include an
evaluation of the internal control over financial reporting of Cosan
CL.
In
our opinion, Cosan Limited maintained, in all material respects, effective
internal control over financial reporting as of March 31, 2009, based on the
COSO criteria.
We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Cosan Limited as of March 31, 2009 and April 30, 2008, and the related
consolidated statements of operations, shareholders’ equity, and cash flows for
eleven-month period ended March 31, 2009 and for the years ended April 30,
2008 and 2007 of Cosan Limited and our report dated June 19, 2009 expressed an
unqualified opinion thereon.
São Paulo, June 19,
2009
ERNST &
YOUNG
Auditores
Independentes S.S.
CRC
2SP015199/O-8
Luiz Carlos
Nannini
Accountant CRC
1SP171638/O-7
The Board of
Directors and Shareholders of
Cosan
Limited
We
have audited the accompanying consolidated balance sheets of Cosan Limited and
subsidiaries as of March 31, 2009 and April 30, 2008, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the eleven-month period ended March 31, 2009 and for the years ended April 30,
2008 and 2007. These financial statements are the responsibility of the
Company's 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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
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 Limited and
subsidiaries at March 31, 2009 and April 30, 2008, and the consolidated results
of their operations and their cash flows for the eleven-month period ended March
31, 2009 and for the years ended April 30, 2008 and 2007, in conformity with
U.S. generally accepted accounting principles.
We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America), Cosan Limited's internal
control over financial reporting as of March 31, 2009, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated June
19, 2009 expressed an unqualified opinion thereon.
São Paulo, June 19, 2009
ERNST &
YOUNG
Auditores
Independentes S.S.
CRC
2SP015199/O-8
Luiz Carlos
Nannini
Accountant CRC
1SP171638/O-7
COSAN
LIMITED
March 31, 2009 and
April 30, 2008
(In thousands of
U.S. dollars, except share data)
|
|
2009
|
|
|
2008
|
|
Assets
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
|
508,784 |
|
|
|
68,377 |
|
Restricted
cash
|
|
|
5,078 |
|
|
|
47,190 |
|
Derivative
financial instruments
|
|
|
7,352 |
|
|
|
31,458 |
|
Marketable
securities
|
|
|
- |
|
|
|
1,014,515 |
|
Trade accounts receivable, less
allowances: 2009 – $21,241; 2008 – $1,298
|
|
|
258,863 |
|
|
|
126,910 |
|
Inventories
|
|
|
477,792 |
|
|
|
337,699 |
|
Advances to
suppliers
|
|
|
88,991 |
|
|
|
133,687 |
|
Taxes
recoverable
|
|
|
114,641 |
|
|
|
76,508 |
|
Other current
assets
|
|
|
65,956 |
|
|
|
26,646 |
|
|
|
|
1,527,457 |
|
|
|
1,862,990 |
|
|
|
|
|
|
|
|
|
|
Property, plant, and equipment,
net
|
|
|
2,271,828 |
|
|
|
2,018,090 |
|
Goodwill
|
|
|
888,793 |
|
|
|
772,590 |
|
Intangible assets,
net
|
|
|
230,741 |
|
|
|
106,137 |
|
Accounts receivable from Federal
Government
|
|
|
139,700 |
|
|
|
202,822 |
|
Judicial
deposits
|
|
|
73,975 |
|
|
|
27,265 |
|
Other non-current
assets
|
|
|
288,608 |
|
|
|
279,174 |
|
|
|
|
3,893,645 |
|
|
|
3,406,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
5,421,102 |
|
|
|
5,269,068 |
|
COSAN
LIMITED
Consolidated
balance sheets
March 31, 2009 and
April 30, 2008
(In thousands of
U.S. dollars, except share data)
|
|
2009
|
|
|
2008
|
|
Liabilities and shareholders’
equity
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
Trade accounts
payable
|
|
|
197,220 |
|
|
|
114,446 |
|
Taxes
payable
|
|
|
69,042 |
|
|
|
62,870 |
|
Salaries
payable
|
|
|
40,237 |
|
|
|
47,833 |
|
Current portion of long-term
debt
|
|
|
781,664 |
|
|
|
38,175 |
|
Derivative financial
instruments
|
|
|
28,894 |
|
|
|
55,028 |
|
Other
liabilities
|
|
|
47,641 |
|
|
|
40,795 |
|
|
|
|
1,164,698 |
|
|
|
359,147 |
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
1,251,095 |
|
|
|
1,249,348 |
|
Estimated liability for legal
proceedings and labor claims
|
|
|
497,648 |
|
|
|
494,098 |
|
Taxes
payable
|
|
|
151,476 |
|
|
|
170,393 |
|
Deferred income
taxes
|
|
|
40,377 |
|
|
|
101,836 |
|
Other long-term
liabilities
|
|
|
175,043 |
|
|
|
101,746 |
|
|
|
|
2,115,639 |
|
|
|
2,117,421 |
|
|
|
|
|
|
|
|
|
|
Minority interest in consolidated
subsidiaries
|
|
|
544,528 |
|
|
|
796,764 |
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
|
Common shares class A1, $.01 par
value. 1,000,000,000 shares authorized; 174,355,341 shares issued and
outstanding in 2009 and 129,910,812 in 2008
|
|
|
1,743 |
|
|
|
1,299 |
|
Common shares class B1, $.01 par
value. 96,332,044 shares authorized, issued and
outstanding
|
|
|
963 |
|
|
|
963 |
|
Common shares class B2, $.01 par
value. 92,554,316 shares authorized
|
|
|
- |
|
|
|
- |
|
Additional paid-in
capital
|
|
|
1,926,733 |
|
|
|
1,723,140 |
|
Accumulated other comprehensive
income
|
|
|
(243,607 |
) |
|
|
171,841 |
|
Retained earnings (accumulated
losses)
|
|
|
(89,595 |
) |
|
|
98,493 |
|
Total shareholders’
equity
|
|
|
1,596,237 |
|
|
|
1,995,736 |
|
Total liabilities and
shareholders’ equity
|
|
|
5,421,102 |
|
|
|
5,269,068 |
|
See accompanying notes to consolidated
financial statements.
COSAN LIMITED
Eleven-month period
ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, except
share data)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Net sales
|
|
|
2,926,460 |
|
|
|
1,491,233 |
|
|
|
1,679,050 |
|
Cost of goods
sold
|
|
|
(2,621,861 |
) |
|
|
(1,345,592 |
) |
|
|
(1,191,251 |
) |
Gross
profit
|
|
|
304,599 |
|
|
|
145,641 |
|
|
|
487,799 |
|
Selling
expenses
|
|
|
(213,257 |
) |
|
|
(168,623 |
) |
|
|
(133,807 |
) |
General and administrative
expenses
|
|
|
(140,147 |
) |
|
|
(115,127 |
) |
|
|
(121,094 |
) |
Operating income
(loss)
|
|
|
(48,805 |
) |
|
|
(138,109 |
) |
|
|
232,898 |
|
Other income
(expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
income
|
|
|
365,038 |
|
|
|
274,750 |
|
|
|
555,550 |
|
Financial
expenses
|
|
|
(735,844 |
) |
|
|
(157,983 |
) |
|
|
(266,187 |
) |
Other
|
|
|
(2,290 |
) |
|
|
(3,670 |
) |
|
|
16,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes,
equity in income (loss) of affiliates and minority
interest
|
|
|
(421,901 |
) |
|
|
(25,012 |
) |
|
|
538,545 |
|
Income taxes (expense)
benefit
|
|
|
144,690 |
|
|
|
19,810 |
|
|
|
(188,818 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in
income (loss) of affiliates and minority interest
|
|
|
(277,211 |
) |
|
|
(5,202 |
) |
|
|
349,727 |
|
Equity in income (loss) of
affiliates
|
|
|
6,128 |
|
|
|
(239 |
) |
|
|
(38 |
) |
Minority interest in loss (income)
of subsidiaries
|
|
|
82,995 |
|
|
|
22,004 |
|
|
|
(172,989 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
|
(188,088 |
) |
|
|
16,563 |
|
|
|
176,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted
|
|
|
(0.76 |
) |
|
|
0.09 |
|
|
|
1.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted number of shares
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted
|
|
|
246,868,311 |
|
|
|
174,893,145 |
|
|
|
96,745,329 |
|
See accompanying notes to consolidated
financial statements.
COSAN LIMITED
Eleven-month period ended March 31, 2009
and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, except
share data)
|
|
Capital
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common number of class A
shares
|
|
|
Common number of class B
shares
|
|
|
Common amount of class A
shares
|
|
|
Common amount of class B
shares
|
|
|
Additional paid-in
capital
|
|
|
Retained earnings (accumulated
losses)
|
|
|
Accumulated other comprehensive
income (loss)
|
|
|
Total shareholders’
equity
|
|
Balances at April 30,
2006
|
|
|
- |
|
|
|
96,332,044 |
|
|
|
- |
|
|
|
963 |
|
|
|
349,231 |
|
|
|
(75,767 |
) |
|
|
19,819 |
|
|
|
294,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock
option
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,633 |
|
|
|
- |
|
|
|
- |
|
|
|
1,633 |
|
Share based
compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,158 |
|
|
|
- |
|
|
|
- |
|
|
|
3,158 |
|
Dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(19,003 |
) |
|
|
- |
|
|
|
(19,003 |
) |
Net income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
176,700 |
|
|
|
- |
|
|
|
176,700 |
|
Currency translation
adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
16,877 |
|
|
|
16,877 |
|
Total comprehensive
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
193,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at April 30,
2007
|
|
|
- |
|
|
|
96,332,044 |
|
|
|
- |
|
|
|
963 |
|
|
|
354,022 |
|
|
|
81,930 |
|
|
|
36,696 |
|
|
|
473,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares for
cash
|
|
|
111,678,000 |
|
|
|
- |
|
|
|
1,117 |
|
|
|
- |
|
|
|
1,117,316 |
|
|
|
- |
|
|
|
- |
|
|
|
1,118,433 |
|
Public Tender Offering for
Shares
|
|
|
18,232,812 |
|
|
|
- |
|
|
|
182 |
|
|
|
- |
|
|
|
250,774 |
|
|
|
- |
|
|
|
- |
|
|
|
250,956 |
|
Stock
compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,466 |
|
|
|
- |
|
|
|
- |
|
|
|
3,466 |
|
Dilution on exercise of Cosan S.A.
stock options
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,438 |
) |
|
|
- |
|
|
|
- |
|
|
|
(2,438 |
) |
Net income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
16,563 |
|
|
|
- |
|
|
|
16,563 |
|
Currency translation
adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
135,145 |
|
|
|
135,145 |
|
Total comprehensive
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
151,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at April 30,
2008
|
|
|
129,910,812 |
|
|
|
96,332,044 |
|
|
|
1,299 |
|
|
|
963 |
|
|
|
1,723,140 |
|
|
|
98,493 |
|
|
|
171,841 |
|
|
|
1,995,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares for
cash
|
|
|
44,444,529 |
|
|
|
- |
|
|
|
444 |
|
|
|
- |
|
|
|
199,556 |
|
|
|
- |
|
|
|
- |
|
|
|
200,000 |
|
Stock
compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,037 |
|
|
|
- |
|
|
|
|
|
|
|
4,037 |
|
Pension
plan
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,629 |
|
|
|
1,629 |
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(188,088 |
) |
|
|
- |
|
|
|
(188,088 |
) |
Currency translation
adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(417,077 |
) |
|
|
(417,077 |
) |
Total comprehensive
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(605,165 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31,
2009
|
|
|
174,355,341 |
|
|
|
96,332,044 |
|
|
|
1,743 |
|
|
|
963 |
|
|
|
1,926,733 |
|
|
|
(89,595 |
) |
|
|
(243,607 |
) |
|
|
1,596,237 |
|
See accompanying notes to consolidated
financial statements.
COSAN
LIMITED
Eleven-month period ended March 31, 2009
and years ended April 30, 2008 and 2007
(In thousands of U.S.
dollars)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Cash flow from operating
activities:
|
|
|
|
|
|
|
|
|
|
Net (loss) income for the
year
|
|
|
(188,088 |
) |
|
|
16,563 |
|
|
|
176,700 |
|
Adjustments to reconcile net
income to cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
290,739 |
|
|
|
236,065 |
|
|
|
187,367 |
|
Deferred income and social
contribution taxes
|
|
|
(145,328 |
) |
|
|
(52,438 |
) |
|
|
150,242 |
|
Interest, monetary and exchange
variation
|
|
|
497,342 |
|
|
|
(43,684 |
) |
|
|
116,284 |
|
Minority interest in net income of
subsidiaries
|
|
|
(82,995 |
) |
|
|
(22,004 |
) |
|
|
172,989 |
|
Accounts receivable from Federal
Government
|
|
|
- |
|
|
|
- |
|
|
|
(149,121 |
) |
Others
|
|
|
14,465 |
|
|
|
15,248 |
|
|
|
(27,669 |
) |
Decrease/increase in operating
assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable,
net
|
|
|
(23,694 |
) |
|
|
(57,107 |
) |
|
|
48,226 |
|
Inventories
|
|
|
(85,891 |
) |
|
|
(31,739 |
) |
|
|
(54,108 |
) |
Advances to
suppliers
|
|
|
21,091 |
|
|
|
(8,363 |
) |
|
|
(38,707 |
) |
Taxes
receivable
|
|
|
(32,858 |
) |
|
|
(44,543 |
) |
|
|
4,637 |
|
Trade accounts
payable
|
|
|
33,426 |
|
|
|
33,702 |
|
|
|
(43,239 |
) |
Derivative financial
instruments
|
|
|
4,365 |
|
|
|
90,383 |
|
|
|
(155,028 |
) |
Taxes
payable
|
|
|
(17,072 |
) |
|
|
(19,588 |
) |
|
|
(36,592 |
) |
Other assets and liabilities,
net
|
|
|
(28,924 |
) |
|
|
(54,902 |
) |
|
|
(68,030 |
) |
Net cash provided by operating
activities
|
|
|
256,578 |
|
|
|
57,593 |
|
|
|
283,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
cash
|
|
|
29,312 |
|
|
|
(25,886 |
) |
|
|
47,037 |
|
Marketable
securities
|
|
|
558,761 |
|
|
|
(670,980 |
) |
|
|
96,987 |
|
Cash received from sales of
permanent assets
|
|
|
160,703 |
|
|
|
- |
|
|
|
- |
|
Acquisition of
investment
|
|
|
(216,058 |
) |
|
|
- |
|
|
|
- |
|
Acquisition of property, plant and
equipment
|
|
|
(606,155 |
) |
|
|
(642,886 |
) |
|
|
(356,225 |
) |
Acquisitions, net of cash
acquired
|
|
|
(714,353 |
) |
|
|
(101,961 |
) |
|
|
(39,409 |
) |
Net cash used in investing
activities
|
|
|
(787,790 |
) |
|
|
(1,441,713 |
) |
|
|
(251,610 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common
stock
|
|
|
200,000 |
|
|
|
1,118,433 |
|
|
|
3,201 |
|
Capital increase in subsidiaries
from minorities
|
|
|
11,247 |
|
|
|
324,351 |
|
|
|
- |
|
Treasury
stock
|
|
|
(1,979 |
) |
|
|
- |
|
|
|
- |
|
Related
parties
|
|
|
(15,823 |
) |
|
|
- |
|
|
|
- |
|
Payments of dividends from
subsidiaries
|
|
|
- |
|
|
|
(44,935 |
) |
|
|
- |
|
Additions of long-term
debts
|
|
|
789,549 |
|
|
|
117,533 |
|
|
|
424,605 |
|
Payments of long-term
debts
|
|
|
(111,079 |
) |
|
|
(492,052 |
) |
|
|
(204,959 |
) |
Net cash provided by financing
activities
|
|
|
871,915 |
|
|
|
1,023,330 |
|
|
|
222,847 |
|
Effect of exchange rate changes on
cash and cash equivalents
|
|
|
99,704 |
|
|
|
112,625 |
|
|
|
32,139 |
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
440,407 |
|
|
|
(248,165 |
) |
|
|
287,327 |
|
Cash and cash equivalents at
beginning of year
|
|
|
68,377 |
|
|
|
316,542 |
|
|
|
29,215 |
|
Cash and cash equivalents at end
of year
|
|
|
508,784 |
|
|
|
68,377 |
|
|
|
316,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow
information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for
interest
|
|
|
74,049 |
|
|
|
124,502 |
|
|
|
74,567 |
|
Income tax
|
|
|
3,855 |
|
|
|
18,787 |
|
|
|
12,760 |
|
Non-cash
transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions paid with
equity
|
|
|
- |
|
|
|
250,774 |
|
|
|
- |
|
See accompanying notes to consolidated
financial statements.
COSAN LIMITED
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
Cosan Limited
(“Cosan” and “the Company”) was incorporated in Bermuda as an exempted company
on April 30, 2007. In connection with its incorporation, 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 S.A.”).
The companies
included in the consolidated financial statements have as their primary activity
the production of ethanol and sugar in Brazil. They are constantly pursuing
opportunities to capitalize on the growing demand for ethanol and sugar in the
world. They are focused on increasing production capacity through expansion of
existing facilities, development of greenfield projects and, as opportunities
present themselves, acquisitions.
Cosan S.A. was the
predecessor to Cosan and was the primary operating business in the consolidated
group prior to a reorganization in August, 2007. In contemplation of an initial
public offering on August 1, 2007, Aguassanta Participações S.A. and Usina Costa
Pinto S.A. Açúcar e Álcool, controlling shareholders of Cosan S.A. and both
indirectly controlled by Mr. Rubens Ometto Silveira Mello, the controlling
shareholder, contributed their common shares of Cosan S.A. to Cosan in exchange
for 96,332,044 of our class B1 common shares. The common shares contributed to
the Company by Aguassanta Participações S.A. and Usina Costa Pinto S.A. Açúcar e
Álcool consisted of 96,332,044 common shares of Cosan, representing 51.0% of
Cosan S.A. outstanding common shares. As a result of this reorganization Cosan
Ltd. became the controlling shareholder of Cosan S.A.. The reorganization was
accounted for as a reorganization of companies under common control in a manner
similar to a pooling of interests.
On
August 17, 2007, the Company concluded its global offering of 111,678,000 class
A common shares which resulted in gross proceeds in the amount of US$1,171,027.
As a result of the global offering, Cosan’s shares are traded on the New York
Stock Exchange (NYSE) and on the São Paulo Stock Exchange (Bovespa) by BDR
(Brazilian Depositary Receipts).
The costs directly
attributable to the offering were charged against the gross proceeds of the
offering in a total amount of US$52,594. Therefore the net proceeds related to
the IPO totaled US$1,118,433.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
1.
|
Operations
(Continued)
|
On
April 23, 2008, Cosan S.A. entered into an agreement with ExxonMobil
International Holding B.V., or “Exxon”, for the acquisition of 100% of the
capital of Esso Brasileira de Petróleo Ltda. and its subsidiaries (“Essobrás”),
a distributor and seller of fuels and producer and seller of lubricants and
specialty petroleum products of ExxonMobil in Brazil. On December 1, 2008 the
Company completed the acquisition of all of the outstanding shares of Essobrás
(see further discussion regarding this acquisition at Note 8). On
January 16, 2009 the Company changed the corporate name of Essobrás to Cosan
Combustíveis e Lubrificantes S.A. (“Cosan CL”).
On
July 17, 2008, the Board Director’s approved the modification of the
end of fiscal year from April 30 to March 31 of each year.
On
August 28, 2008, Cosan S.A. announced the incorporation of a new affiliate named
Radar Propriedades Agrícolas S.A. (“Radar”), which engages in farm real estate
investments in Brazil by identifying and acquiring rural properties likely to
experience an increase in value and acquiring them for later leasing and/or
sale. The initial capital contribution was US$185,000, of which US$35,000 was
invested by Cosan (18.92%) and US$150,000 by another shareholder (81.08%).
Pursuant to a subscription agreement, the parties have committed to an
additional capital contribution equal to the U.S. dollar equivalent of the
Brazilian real amounts initially contributed, which will be undertaken when the
initial capital contribution is approximately 50% invested. Cosan
S.A. has the ability to exercise significant influence over the operation of
this investee so the investment is accounted for using the equity
method.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
2.
|
Presentation
of the consolidated financial
statements
|
Basis
of presentation
The consolidated
financial statements include the accounts of Cosan Limited and its subsidiaries.
All significant intercompany transactions have been eliminated.
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 S.A. uses to prepare its statutory consolidated financial statements as
filed with the Brazilian Securities Commission - CVM (“Comissão de Valores
Mobiliários”).
The functional currency and the
reporting currency of Cosan is the U.S. dollar. The Brazilian real is
the currency of the primary economic environment in which Cosan S.A. 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 S.A. utilizes the U.S.
dollar as its reporting currency. The accounts of Cosan S.A. 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$2.3152=US$1.00 at March 31, 2009,
R$1.6872=US$1.00 at April 30, 2008 and R$2.0339=US$1.00 at April 30,
2007.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
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.
The following
subsidiaries were included in the consolidated financial statements for the
eleven-month period ended March 31, 2009 and the years ended April 30, 2008 and
2007.
|
|
Ownership
%
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Direct
|
|
|
Indirect
|
|
|
Direct
|
|
|
Indirect
|
|
|
Direct
|
|
|
Indirect
|
|
Cosan S.A.
Indústria e Comércio
|
|
|
68.9 |
% |
|
|
- |
|
|
|
62.8 |
% |
|
|
- |
|
|
|
51.0 |
% |
|
|
- |
|
Cosan
Operadora Portuária S.A.
|
|
|
- |
|
|
|
62.0 |
% |
|
|
- |
|
|
|
56.5 |
% |
|
|
- |
|
|
|
45.9 |
% |
Administração
de Participações Aguassanta Ltda.
|
|
|
- |
|
|
|
63.0 |
% |
|
|
- |
|
|
|
57.5 |
% |
|
|
- |
|
|
|
46.7 |
% |
Agrícola
Ponte Alta S.A.
|
|
|
- |
|
|
|
68.6 |
% |
|
|
- |
|
|
|
62.2 |
% |
|
|
- |
|
|
|
50.2 |
% |
Cosan
Distribuidora de Combustíveis Ltda.
|
|
|
- |
|
|
|
68.8 |
% |
|
|
- |
|
|
|
62.7 |
% |
|
|
- |
|
|
|
50.9 |
% |
Cosan S.A.
Bioenergia
|
|
|
- |
|
|
|
68.9 |
% |
|
|
- |
|
|
|
62.8 |
% |
|
|
- |
|
|
|
50.9 |
% |
Corona
Bioenergia S.A (1)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
50.2 |
% |
FBA
Bioenergia S.A. (1)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
50.2 |
% |
Barra
Bioenergia S.A. (1)
|
|
|
- |
|
|
|
68.6 |
% |
|
|
- |
|
|
|
62.2 |
% |
|
|
- |
|
|
|
50.2 |
% |
Cosan
International Universal Corporation
|
|
|
- |
|
|
|
68.9 |
% |
|
|
- |
|
|
|
62.8 |
% |
|
|
- |
|
|
|
51.0 |
% |
Cosan Finance
Limited
|
|
|
- |
|
|
|
68.9 |
% |
|
|
- |
|
|
|
62.8 |
% |
|
|
- |
|
|
|
51.0 |
% |
Da Barra
Alimentos Ltda.
|
|
|
- |
|
|
|
68.6 |
% |
|
|
- |
|
|
|
62.2 |
% |
|
|
- |
|
|
|
50.2 |
% |
Barrapar
Participações Ltda.
|
|
|
- |
|
|
|
68.6 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Aliança
Indústria e Comercio de açúcar e Álcool S.A.
|
|
|
- |
|
|
|
68.6 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Águas da
Ponte Alta S.A.
|
|
|
- |
|
|
|
68.6 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Vale da Ponte
Alta S.A.
|
|
|
- |
|
|
|
68.6 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Bonfim Nova
Tamoio – BNT Agrícola Ltda.
|
|
|
- |
|
|
|
68.6 |
% |
|
|
- |
|
|
|
62.2 |
% |
|
|
- |
|
|
|
50.2 |
% |
Usina da
Barra S.A. Açúcar e Álcool
|
|
|
- |
|
|
|
68.6 |
% |
|
|
- |
|
|
|
62.2 |
% |
|
|
- |
|
|
|
50.2 |
% |
Cosanpar
Participações S.A.
|
|
|
- |
|
|
|
68.9 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cosan
Combustíveis e Lubrificantes S.A.
|
|
|
- |
|
|
|
68.9 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Copsapar
Participações S.A.
|
|
|
- |
|
|
|
62.0 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Grançucar
S.A. Refinadora de Açúcar
|
|
|
- |
|
|
|
68.9 |
% |
|
|
- |
|
|
|
62.8 |
% |
|
|
- |
|
|
|
51.0 |
% |
Cosan
Centroeste S.A. Açúcar e Álcool (2)
|
|
|
- |
|
|
|
68.6 |
% |
|
|
- |
|
|
|
62.2 |
% |
|
|
- |
|
|
|
51.0 |
% |
Benálcool
S.A. Açúcar e Álcool
|
|
|
- |
|
|
|
68.6 |
% |
|
|
- |
|
|
|
62.2 |
% |
|
|
- |
|
|
|
- |
|
|
(1)
|
FBA Bioenergia merged into Barra
Bioenergia and Corona Bioenergia, being renamed as Barra Bioenergia
S.A.;
|
|
(2)
|
The Company sold its equity
interest in this company, on July 23, 2007, to Agrícola Ponte Alta
S.A.
|
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
3.
|
Significant accounting
policies (Continued)
|
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. Revenue for fuel distribution is recognized when products
are delivered to the service station or customer. Provision is made for estimated
returns.
Shipping and handling costs are
classified as selling expenses in the consolidated statement of
income.
Sales incentives on
fuel distribution are recognized as revenue reduction and correspond to
volume-based incentives.
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. Excess cash and cash equivalents are invested in short-term,
highly liquid money market funds.
The restricted cash amounts are related
to deposits of margin requirements with commodities brokers that trade Cosan’s
derivative instruments.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
3.
|
Significant accounting
policies (Continued)
|
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,
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.
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.
Cosan’s harvest period in Brazil 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.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
3.
|
Significant accounting
policies (Continued)
|
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 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 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.
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.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
3.
|
Significant accounting
policies (Continued)
|
k.
Asset
retirement obligations
Retirement of
long-lived assets is accounted for in accordance with SFAS 143 –“Accounting for Asset Retirement
Obligations”-. The retirement obligations of the subsidiary Cosan CL
relate to the legally required obligation to remove underground fuel tanks upon
retirement, the initial measurement of which is recognized as a liability
discounted to present values and subsequently accreted through earnings. An
asset retirement cost equal to the initial estimated liability is capitalized as
part of the related asset’s carrying value and depreciated over the asset’s
useful life.
l. 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.
Cosan’s production facilities and its
plantation activities in Brazil 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.
n. 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 in Brazil 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.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
3.
|
Significant accounting
policies (Continued)
|
Deferred income
taxes are recognized for the differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carryforward.
Beginning with the
adoption of FASB Interpretation No. 48, accounting for Uncertainty in Income
Taxes (FIN 48) as of May 1, 2007, the Company recognizes the effect of income
tax positions only if those positions are more likely than not of being
sustained. Recognized income tax positions are measured at the largest amount
that is greater than a 50% likelihood of being realized. Changes in recognition
or measurement are reflected in the period in which the change in estimate
occurs. Prior to the adoption of FIN 48, the Company recognized the effect of
income tax positions only if such positions were probable of being
sustained.
The Company records
interest related to unrecognized tax benefits in interest expense and penalties
in financial expenses.
Valuation
allowances are established when management determines that it is more likely
than not that the deferred tax assets will not be realized.
p. 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 options.
q. Share-based
compensation
Cosan S.A.’s share based compensation
plan, which was adopted on August 30, 2005, is accounted for in accordance with
SFAS No. 123(R), Share-Based
Payments, which requires it to recognize expense related to the fair
value of its share-based compensation awards. Compensation expense for all
share-based compensation awards granted is based on the grant-date fair value
estimated in accordance with the provisions of SFAS No. 123(R) and the expense
is 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 S.A. uses a binomial model.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
3.
|
Significant accounting
policies (Continued)
|
r. 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 Cosan’s 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.
s. Fair
Value Measurements
On January 1, 2008,
Cosan adopted the provisions of FASB Statement No. 157, Fair Value Measurements,
for fair value measurements of financial assets and financial liabilities and
for fair value measurements of nonfinancial items that are recognized or
disclosed at fair value in the financial statements on a recurring basis.
Statement 157 defines fair value as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Statement 157 also establishes a framework
for measuring fair value and expands disclosures about fair value measurements.
FASB Staff Position FAS 157-2, “Effective Date of FASB Statement No. 157,”
delays the effective date of Statement 157 until fiscal years beginning after
November 15, 2008 for all nonfinancial assets and nonfinancial liabilities that
are recognized or disclosed at fair value in the financial statements on a
nonrecurring basis. In accordance with FSP FAS 157-2, Cosan has not applied the
provisions of Statement 157 to the following assets and liabilities that have
been recognized or disclosed at fair value for the eleven month period ended
March 31, 2009:
|
·
|
Initial
measurement of asset retirement obligations;
and
|
|
·
|
Initial
measurement of intangible assets acquired in business combinations during
2008 (Note 8).
|
On
April 1, 2009, the Company will be required to apply the provisions of Statement
157 to fair value measurements of nonfinancial assets and nonfinancial
liabilities that are recognized or disclosed at fair value in the financial
statements on a nonrecurring basis. The Company is in the process of evaluating
the impact, if any, of applying these provisions on its financial position and
results of operations.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
3.
|
Significant accounting
policies (Continued)
|
s.
Fair Value
Measurements (Continued)
In
October 2008, the FASB issued FASB Staff Position FAS 157-3, “Determining the
Fair Value of a Financial Asset When the Market for That Asset is Not Active,”
which was effective immediately. FSP FAS 157-3 clarifies the application of
Statement 157 in cases where the market for a financial instrument is not active
and provides an example to illustrate key considerations in determining fair
value in those circumstances. Cosan has considered the guidance provided by
FSP FAS 157-3 in its determination of estimated fair values during
2008.
t. Recently issued accounting
standards
In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 141(R), “Business Combinations” (“SFAS 141(R)”) which replaces FASB
Statement No. 141, Business
Combinations. This Statement establishes principles and requirements for
how the acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree; recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase; and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. This Statement is
effective for Cosan as of April 1, 2009. This Statement will only impact
Cosan’s financial statements in the event of a business combination on or after
April 1, 2009.
In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 160, “Noncontrolling Interests in Consolidated Financial Statements”
(“SFAS 160”) which amends ARB 51 to establish accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. Before this Statement was issued,
limited guidance existed for reporting noncontrolling interests. This Statement
changes the way the consolidated income statement is presented. It requires
consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the noncontrolling interest. It also
requires disclosure, on the face of the consolidated statement of income, of the
amounts of consolidated net income attributable to the parent and to the
noncontrolling interest. This Statement is effective for Cosan as of April 1,
2009. Cosan is evaluating the impact of this statement on its consolidated
financial statements and related disclosures.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
3.
|
Significant accounting
polices (Continued)
|
t.
Recently issued
accounting standards (Continued)
In
February 2008, the FASB issued FASB Staff Position FAS 140-3, “Accounting for
Transfers of Financial Assets and Repurchase Financing Transactions.” The
objective of the FSP is to provide guidance on accounting for a transfer of a
financial asset and repurchase financing. The FSP presumes that an initial
transfer of a financial asset and a repurchase financing are considered part of
the same arrangement (linked transaction) under Statement 140. However, if
certain criteria are met, the initial transfer and repurchase financing shall
not be evaluated as a linked transaction and shall be evaluated separately under
Statement 140. FSP FAS 140-3 is effective for annual and interim periods
beginning after November 15, 2008 and early adoption is not permitted.
Cosan does not anticipate that the adoption of this standard will materially
impact the Company’s financial position or results of operations.
In
March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133" (Statement 161). Statement 161, which amends FASB Statement No. 133,
Accounting for Derivative
Instruments and Hedging Activities, requires companies with derivative
instruments to disclose information about how and why a company uses derivative
instruments, how derivative instruments and related hedged items are accounted
for under Statement 133, and how derivative instruments and related hedged items
affect a company's financial position, financial performance, and cash flows.
The required disclosures include the fair value of derivative instruments and
their gains or losses in tabular format, information about credit-risk-related
contingent features in derivative agreements, counterparty credit risk, and the
company's strategies and objectives for using derivative instruments. The
Statement expands the current disclosure framework in Statement 133. Statement
161 is effective prospectively for periods beginning on or after November 15,
2008. Early adoption is encouraged. The Company has not yet determined the
potential impact, if any, this would have on its consolidated financial
statements.
In April 2008, the
FASB issued FASB Staff Position FAS 142-3, “Determination of the Useful Life of
Intangible Assets.” FSP FAS 142-3 amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under Statement 142. FSP FAS 142-3 is
effective for fiscal years beginning after December 15, 2008. Cosan does
not anticipate that the adoption of this standard will materially impact the
Company’s financial position or results of operations.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
3.
|
Significant accounting
polices (Continued)
|
t.
Recently issued
accounting standards (Continued)
In May 2008, the
FASB issued SFAS No. 162, the hierarchy of generally accepted accounting
principles. This statement identifies the sources of accounting principles and
the framework for selecting the principles to be used in the preparation of
financial statements of nongovernmental entities that are presented in
conformity with generally accepted accounting principles (GAAP) in the United
States (the GAAP hierarchy). This statement is effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, “the Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles.” The Company has not yet determined
the potential impact, if any, this would have on its consolidated financial
statements.
In May 2008, also
the FASB issued SFAS No. 163, Accounting for finance guarantee insurance
contracts – an interpretation of FASB Statement No. 60. The premium revenue
recognition approach for a financial guarantee insurance contract links premium
revenue recognition to the amount of insurance protection and the period in
which it is provided. For purposes of this statement, the amount of insurance
protection provided is assumed to be a function of the insured principal amount
outstanding, since the premium received requires the insurance enterprise to
stand ready to protect holders of an insured financial obligation from loss due
to default over the period of the insured financial obligation. This Statement
is effective for financial statements issued for fiscal years beginning after
December 15, 2008. This Statement is effective for Cosan as of April 1, 2009.
Cosan is evaluating the impact of this statement on its consolidated financial
statements and related disclosures.
In June 2008, the
FASB’s Emerging Issues Task Force reached a consensus on EITF Issue No. 07-5,
“Determining Whether an Instrument (or Embedded Feature) Is Indexed to an
Entity’s Own Stock.” This EITF Issue provides guidance on the determination of
whether such instruments are classified in equity or as a derivative instrument.
Cosan will adopt the provisions of EITF 07-5 on April 1, 2009. Cosan is
currently evaluating the impact, if any, of adopting EITF 07-5 on its financial
position and results of operations.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
3.
|
Significant accounting
polices (Continued)
|
t.
Recently issued
accounting standards (Continued)
In June 2008,
the FASB issued FASB Staff Position Emerging Issues Task Force
(EITF) No. 03-6-1, “Determining whether instruments granted in share
based payment transactions are participating securities” (“FSP EITF No.
03-6-1”). Under FSP EITF No. 03-6-1, unvested share-based payment
awards that contain rights to receive nonforfeitable dividends (whether paid or
unpaid) are participating securities, and should be included in the two-class
method of computing EPS. FSP EITF No. 03-6-1 is effective for fiscal years
beginning after December 15, 2008, and interim periods within those years,
and is not expected to have a significant impact on the Company’s financial
statements. This Statement is effective for Cosan as of April 1, 2009. Cosan is
evaluating the impact of this statement on its consolidated financial statements
and related disclosures.
In November 2008,
the FASB’s Emerging Issues Task Force reached a consensus on EITF Issue
No. 08-6, “Equity Method Investment Accounting
Considerations”. EITF 08-6 continues to follow the accounting for the
initial carrying value of equity method investments in APB Opinion No. 18, The
Equity Method of Accounting for Investments in Common Stock, which is based on a
cost accumulation model and generally excludes contingent consideration. EITF
08-6 also specifies that other-than-temporary impairment testing by the investor
should be performed at the investment level and that a separate impairment
assessment of the underlying assets is not required. An impairment
charge by the investee should result in an adjustment of the investor’s basis of
the impaired asset for the investor’s pro-rata share of such impairment. In
addition, EITF 08-6 reached a consensus on how to account for an issuance of
shares by an investee that reduces the investor’s ownership share of the
investee. An investor should account for such transactions as if it had sold a
proportionate share of its investment with any gains or losses recorded through
earnings. EITF 08-6 also addresses the accounting for a change in an investment
from the equity method to the cost method after adoption of Statement 160. EITF
08-6 affirms the existing guidance in APB 18, which requires cessation of the
equity method of accounting and application of FASB Statement No. 115,
Accounting for Certain Investments in Debt and Equity Securities, or the cost
method under APB 18, as appropriate. EITF 08-6 is effective for
transactions occurring on or after December 15, 2008. Cosan does not anticipate
that the adoption of EITF 08-6 will materially impact the Company’s financial
position or results of operations. This Statement is effective for Cosan as of
April 1, 2009. Cosan is evaluating the impact of this statement on its
consolidated financial statements and related disclosures.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
3.
|
Significant accounting
polices (Continued)
|
t.
Recently issued
accounting standards (Continued)
In
November 2008, the Emerging Issues Task Force (“EITF”) issued Issue
No. 08-7, Accounting for
Defensive Intangible Assets (“EITF 08-7”). EITF 08-7 applies to all
acquired intangible assets in which the acquirer does not intend to actively use
the asset but intends to hold (lock up) the asset to prevent its competitors
from obtaining access to the asset (a defensive asset), assets that the acquirer
will never actually use, as well as assets that will be used by the acquirer
during a transition period when the intention of the acquirer is to discontinue
the use of those assets. EITF 08-7 is effective as of January 1, 2009. This
Statement is effective for Cosan as of April 1, 2009. Cosan is evaluating the
impact of this statement on its consolidated financial statements and related
disclosures.
In December 2008,
the FASB issued FASB Staff Position FAS 132(R)-1, “Employers’ Disclosures about
Postretirement Benefit Plan Assets.” FSP FAS 132(R)-1 provides guidance on an
employer’s disclosures about plan assets of a defined benefit pension or other
postretirement plan. FSP FAS 132(R)-1 also includes a technical amendment to
FASB Statement No. 132(R), effective immediately, which requires nonpublic
entities to disclose net periodic benefit cost for each annual period for which
a statement of income
is presented. The Company has disclosed net periodic benefit cost in Note 13.
The disclosures about plan assets required by FSP FAS 132(R)-1 must be provided
for fiscal years ending after December 15, 2009. The Company is currently
evaluating the impact of the FSP on its disclosures about plan
assets.
On
January 12, 2009 the FASB issued a final Staff Position ("FSP") amending the
impairment guidance in EITF Issue No. 99-20, Recognition of Interest Income and
Impairment on Purchased Beneficial Interests and Beneficial Interests That
Continue to Be Held by a Transferor in Securitized Financial Assets to achieve
more consistent determination of whether another-than-temporary impairment has
occurred. This FSP does not have an impact on the Company at the present
time.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
3.
|
Significant accounting
polices (Continued)
|
t.
Recently issued
accounting standards (Continued)
On
April 9, 2009 the FASB issued three FSPs intended to provide additional
application guidance and enhance disclosures regarding fair value measurements
and impairments of securities. FSP FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly, provides guidelines
for making fair value measurements more consistent with the principles presented
in FASB Statement No. 157, Fair Value Measurements. FSP FAS 107-1 and APB 28-1,
Interim Disclosures about Fair Value of Financial Instruments, enhances
consistency in financial reporting by increasing the frequency of fair value
disclosures. FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments, provides additional guidance designed to
create greater clarity and consistency in accounting for and presenting
impairment losses on securities. These FSPs do not have an impact on the Company
at the present time.
On
April 1, 2009 the FASB issued FSP FAS 141(R)-1 that amends and clarifies FASB
No. 141 (revised 2007), Business Combinations, to address application issues on
initial recognition and measurement, subsequent measurement and accounting, and
disclosures of assets and liabilities arising from contingencies in a business
combination. This Statement is effective for Cosan as of April 1, 2009. Cosan is
evaluating the impact of this statement on its consolidated financial statements
and related disclosures.
On
May 28, 2009 the FASB announced the issuance of SFAS 165, Subsequent Events.
SFAS 165 should not result in significant changes in the subsequent events that
an entity reports. Rather, SFAS 165 introduces the concept of financial
statements being available to be issued. Financial statements are considered
available to be issued when they are complete in a form and format that complies
with generally accepted accounting principles (GAAP) and all approvals necessary
for issuance have been obtained.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
3.
|
Significant accounting
polices (Continued)
|
t.
Recently issued
accounting standards (Continued)
In
June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)”, which improves financial reporting by enterprises involved with variable
interest entities. The Board developed this pronouncement to address (1) the
effects on certain provisions of FASB Interpretation No. 46 (revised December
2003), “Consolidation of Variable Interest Entities”, as a result of the
elimination of the qualifying special-purpose entity concept in FASB Statement
No. 166, “Accounting for Transfers of Financial Assets”, and (2) constituent
concerns about the application of certain key provisions of Interpretation
46(R), including those in which the accounting and disclosures under the
Interpretation do not always provide timely and useful information about an
enterprise’s involvement in a variable interest entity. This Statement shall be
effective as of the beginning of each reporting entity’s first annual reporting
period that begins after November 15, 2009, for interim periods within that
first annual reporting period, and for interim and annual reporting periods
thereafter. Earlier application is prohibited. This Statement is effective for
Cosan as of April 1, 2009. Cosan is evaluating the impact of this statement on
its consolidated financial statements and related disclosures.
In
June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets – an amendment of Statement No. 140”, which improves the relevance,
representational faithfulness and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance and cash flows; and a transferor’s continuing involvement, if any,
in transferred financial assets. This Statement must be applied as of the
beginning of each reporting entity’s first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual reporting
period and for interim and annual reporting periods thereafter. Earlier
application is prohibited. This Statement must be applied to transfers occurring
on or after the effective date. This Statement is effective for Cosan as of
April 1, 2009. Cosan is evaluating the impact of this statement on its
consolidated financial statements and related disclosures.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
4.
|
Cash and cash
equivalents
|
|
|
2009
|
|
|
2008
|
|
Local
currency
|
|
|
|
|
|
|
Cash and bank
accounts
|
|
|
64,644 |
|
|
|
64,638 |
|
Foreign
currency
|
|
|
|
|
|
|
|
|
Bank
accounts
|
|
|
21,151 |
|
|
|
3,739 |
|
Highly liquid
investments
|
|
|
422,989 |
|
|
|
- |
|
|
|
|
508,784 |
|
|
|
68,377 |
|
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)
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Commodities
derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
Future
contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
Commitments
|
|
|
61 |
|
|
|
- |
|
|
|
(4 |
) |
|
|
- |
|
Sell
commitments
|
|
|
182,943 |
|
|
|
550,132 |
|
|
|
4,163 |
|
|
|
(11,821 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Written
|
|
|
64,366 |
|
|
|
110,077 |
|
|
|
(2,906 |
) |
|
|
(16,123 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
commitments
|
|
|
184,653 |
|
|
|
766,536 |
|
|
|
(23,035 |
) |
|
|
31,458 |
|
Swap
agreements
|
|
|
246,501 |
|
|
|
338,253 |
|
|
|
(2,949 |
) |
|
|
(27,084 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future
contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
commitments
|
|
|
372,230 |
|
|
|
- |
|
|
|
3,189 |
|
|
|
- |
|
Total
assets
|
|
|
|
|
|
|
|
|
|
|
7,352 |
|
|
|
31,458 |
|
Total
liabilities
|
|
|
|
|
|
|
|
|
|
|
(28,894 |
) |
|
|
(55,028 |
) |
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
|
|
2009
|
|
|
2008
|
|
Finished
goods:
|
|
|
|
|
|
|
Sugar
|
|
|
47,195 |
|
|
|
31,736 |
|
Ethanol
|
|
|
86,809 |
|
|
|
14,700 |
|
Lubricants
|
|
|
38,852 |
|
|
|
- |
|
Fuel
(Gasoline, Diesel and Ethanol)
|
|
|
74,582 |
|
|
|
- |
|
Others
|
|
|
6,674 |
|
|
|
2,155 |
|
|
|
|
254,112 |
|
|
|
48,591 |
|
Annual maintenance cost of growing
crops
|
|
|
167,576 |
|
|
|
211,300 |
|
Other
|
|
|
56,104 |
|
|
|
77,808 |
|
|
|
|
477,792 |
|
|
|
337,699 |
|
7.
|
Property, plant and
Equipment
|
|
|
2009
|
|
|
2008
|
|
Land and rural
properties
|
|
|
401,074 |
|
|
|
262,391 |
|
Machinery, equipment and
installations
|
|
|
1,285,524 |
|
|
|
1,235,279 |
|
Vehicles
|
|
|
123,867 |
|
|
|
117,394 |
|
Furniture, fixtures and computer
equipment
|
|
|
72,126 |
|
|
|
50,470 |
|
Buildings
|
|
|
229,322 |
|
|
|
128,585 |
|
Improvements
|
|
|
153,432 |
|
|
|
141,558 |
|
Construction in
progress
|
|
|
395,200 |
|
|
|
372,018 |
|
Sugarcane plant development
costs
|
|
|
655,306 |
|
|
|
730,684 |
|
|
|
|
3,315,851 |
|
|
|
3,038,379 |
|
Accumulated depreciation and
amortization
|
|
|
(1,044,023 |
) |
|
|
(1,020,289 |
) |
Total
|
|
|
2,271,828 |
|
|
|
2,018,090 |
|
At
the Extraordinary General Meeting held by Cosan S.A. on December 5, 2007, a
capital increase of US$967,198 was approved, through issue of 82,700,000 common
registered uncertified shares without par value, by means of private
subscription, at the issue price of US$11.70 each. On January 23, 2008, the
period for exercising the capital subscription right ended. Cosan subscribed and
paid in 56,607,396 common shares in the amount of US$662,038, followed by
subscription and payment by minority shareholders of 26,092,604 common shares
equivalent to US$305,160. As a result of the subscription of shares, Cosan holds
152,939,440 common shares, increasing its proportionate interest of Cosan S.A.’s
capital from 50.8% to 56.1%.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
8.
|
Acquisitions
(Continued)
|
Cosan S.A. and
Cosan announced the Share Acquisition Voluntary Public Offering (OPA) where
Cosan aimed to acquire up to 100% of the unowned common shares of Cosan S.A.
through and exchange for Class A shares depositary receipts (BDRs), for Class A
shares, issued by Cosan. Upon the conclusion of the OPA on April 18, 2008,
18,232,812 shares of Cosan were exchanged, representing an increase in its
interest in Cosan S.A. of 6.7%. With the OPA, Cosan became the holder of 62.8%
of the Cosan S.A.’s total common shares.
On
February 14, 2008, Cosan S.A. acquired through its subsidiary, Usina da Barra
S.A. Açúcar e Álcool (“Usina da Barra”), 100% of the outstanding shares of
Benálcool Açúcar e Álcool S.A. (“Benálcool”) and its affiliate Benagri Agrícola
Ltda. (“Benagri”), processors of sugar and ethanol from sugarcane for US$42,687,
net of cash acquired. The acquisition resulted in goodwill of
US$88,104.
|
On September
19, 2008, the board of directors of Cosan S.A. approved a capital increase
of US$456,084 through issuance of 55,000,000 previously unissued
registered common shares without par value in a private subscription at an
issuance price of US$8.29 each. October 22, 2008 was the
deadline to exercise the right of capital subscription, approved in the
meeting of the board of directors on September 19, 2008. Since a large
number of the minority shareholders did not exercise their preemptive
rights, Cosan Limited, the controlling shareholder, subscribed for and
paid up 54,993,482 common shares valued at US$456,034, and the minority
shareholders subscribed for and paid up 6,518 common shares, valued at
US$50. As a result, Cosan Limited increased its holding of company’s
common shares from 171,172,252 to 226,165,734. This transaction, which
generated immaterial negative goodwill, increased Cosan Limited’s
ownership percentage from 62.81% to 69.05% of the Company’s
capital.
|
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
8.
|
Acquisitions
(Continued)
|
On
December 1, 2008, Cosan S.A. and its subsidiary Usina da Barra S.A. Açúcar e
Álcool (“Usina da Barra”), through Cosan S.A.’s subsidiary Cosanpar
Participações Ltda. (“Cosanpar”), acquired, for US$714,353 cash and US$8,289 in
transaction costs, 100 percent of the outstanding shares of Essobrás, a
distributor in Brazil of oil products, ethanol, lubricants, and aviation fuel as
well as an operator of convenience stores. The network of service
stations to which Essobrás distributes such products is comprised of more than
1,500 service stations. The results of Essobrás's operations have been included
in the consolidated financial statements since the acquisition
date.
As
additional consideration for the purchase, Cosan will pay to the sellers as a
contingent payment an amount based on a percentage of gross revenues of Essobrás
and other amounts based on the quantity of barrels of some ExxonMobil products
sold during a 10 year period. These contingent payments will be recorded as
additional cost of the acquired entity when the contingency is
resolved.
The liabilities
assumed in the acquisition include Notes issued by Essobrás on December 16, 1999
and December 10, 1999 pursuant to a Note Purchase Agreement dated December 8,
1999, as amended, in the aggregate principal amount of US$175,000, plus accrued
interest on such amount which was held by ExxonMobil Capital N.V.
From March 1992
until December 2001 Essobrás did not pay the COFINS tax levied on sales or this
tax was paid and used to offset or otherwise applied against other taxes on the
sale of fuels and other oil derivatives which have been discussed with the
taxing authorities. During this period Essobrás has made judicial deposits,
which are restricted cash placed on deposit with the court and are held in
judicial escrow for certain COFINS cases. The sellers have agreed to indemnify
Cosan for any COFINS matters and any losses related thereto if Essobrás loses
these proceedings. If Essobrás wins the proceedings, Cosan must pay the judicial
deposits and related interest to the sellers. Provision for contingencies net of
judicial deposits in amount of US$18,468 related to this matter, are included in
net assets acquired.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
8.
|
Acquisitions
(Continued)
|
The following table
summarizes the estimated fair value of assets acquired and liabilities assumed
in the all acquisitions:
|
|
2009
|
|
|
2008
|
|
|
|
Essobrás
|
|
|
Cosan
S.A.
6.24%
|
|
|
Benálcool
|
|
|
Cosan
S.A.
5.4%
|
|
|
Cosan
S.A.
6.7%
|
|
Description
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Trade
accounts receivable
|
|
|
134,634 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Inventories
|
|
|
141,167 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Property, plant and
equipment
|
|
|
440,296 |
|
|
|
162,283 |
|
|
|
49,799 |
|
|
|
135,858 |
|
|
|
202,208 |
|
Intangible
assets
|
|
|
167,054 |
|
|
|
6,862 |
|
|
|
- |
|
|
|
2,147 |
|
|
|
2,779 |
|
Other
assets
|
|
|
108,154 |
|
|
|
146,075 |
|
|
|
19,590 |
|
|
|
128,905 |
|
|
|
176,578 |
|
Loans
and financings
|
|
|
(25,638 |
) |
|
|
(83,454 |
) |
|
|
(37,982 |
) |
|
|
(71,924 |
) |
|
|
(87,065 |
) |
Trade
accounts payable
|
|
|
(79,680 |
) |
|
|
(13,215 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Deferred
income taxes
|
|
|
(92,637 |
) |
|
|
(5,220 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Notes payable
to ExxonMobil Capital N.V.
|
|
|
(175,327 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Estimated
liability for legal proceedings and
labor claims (Note 14)
|
|
|
(111,608 |
) |
|
|
(34,031 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Estimated
liability for unrecognized tax benefits (Note 16)
|
|
|
(34,605 |
) |
|
|
-
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Actuarial
liability
|
|
|
(31,338 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
liabilities
|
|
|
(41,107 |
) |
|
|
(54,932 |
) |
|
|
(76,824 |
) |
|
|
(76,038 |
) |
|
|
(95,657 |
) |
Net
assets (liabilities) acquired (assumed)
|
|
|
399,365 |
|
|
|
124,368 |
|
|
|
(45,417 |
) |
|
|
118,948 |
|
|
|
198,843 |
|
Purchase
price, net of cash acquired
|
|
|
711,858 |
|
|
|
124,368 |
|
|
|
42,687 |
|
|
|
151,544 |
|
|
|
- |
|
Acquisition
paid with equity
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
250,774 |
|
Goodwill
|
|
|
312,493 |
|
|
|
- |
|
|
|
88,104 |
|
|
|
32,596 |
|
|
|
51,931 |
|
Goodwill relating
to the Essobrás acquisition, which is substantially based on future
profitability will be substantially deductible for tax purposes, has been
assigned to the fuel distribution segment.
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:
|
|
2009
|
|
|
2008
|
|
Net
sales
|
|
|
6,150,963 |
|
|
|
6,501,001 |
|
Net (loss)
income
|
|
|
(173,880 |
) |
|
|
15,642 |
|
Basic EPS per
thousand shares (US$)
|
|
|
(0.58 |
) |
|
|
0.07 |
|
Diluted EPS
per thousand shares (US$)
|
|
|
* |
|
|
|
0.10 |
|
*Antidilutive
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
8.
|
Acquisitions
(Continued)
|
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. On December 21, 2007, Etanol
was merged into its former subsidiaries. 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.
9.
|
Goodwill and other intangible
assets
|
Goodwill
The carrying amounts of goodwill by
reporting segment for the years ended March 31, 2009 and April 30, 2008 are as
follows:
|
|
Sugar
Segment
|
|
|
Ethanol
Segment
|
|
|
Fuel Distribution
Segment
|
|
|
Total
|
|
Balance as of April 30,
2007
|
|
|
294,554 |
|
|
|
197,303 |
|
|
|
- |
|
|
|
491,857 |
|
Acquisitions
|
|
|
93,669 |
|
|
|
78,962 |
|
|
|
- |
|
|
|
172,631 |
|
Common control
merger
|
|
|
17,920 |
|
|
|
9,969 |
|
|
|
- |
|
|
|
27,889 |
|
Total tax benefit applied to
reduce goodwill
|
|
|
(12,304 |
) |
|
|
(8,233 |
) |
|
|
- |
|
|
|
(20,537 |
) |
Effect of currency
translation
|
|
|
60,353 |
|
|
|
40,397 |
|
|
|
- |
|
|
|
100,750 |
|
Balance as of April 30,
2008
|
|
|
454,192 |
|
|
|
318,398 |
|
|
|
- |
|
|
|
772,590 |
|
Acquisitions
|
|
|
- |
|
|
|
- |
|
|
|
312,493 |
|
|
|
312,493 |
|
Total tax benefit applied to
reduce goodwill
|
|
|
(7,180 |
) |
|
|
(4,556 |
) |
|
|
- |
|
|
|
(11,736 |
) |
Effect of currency
translation
|
|
|
(109,672 |
) |
|
|
(75,736 |
) |
|
|
854 |
|
|
|
(184,554 |
) |
Balance as of March 31,
2009
|
|
|
337,340 |
|
|
|
238,106 |
|
|
|
313,347 |
|
|
|
888,793 |
|
Other intangible
assets
|
|
As of March 31,
2009
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Gross
|
|
average
|
|
|
|
|
Net
|
|
|
|
carrying
|
|
amortization
|
|
Accumulated
|
|
|
carrying
|
|
|
|
amount
|
|
period
|
|
amortization
|
|
|
amount
|
|
Intangible assets subject to
amortization:
|
|
|
|
|
|
|
|
|
|
|
Favorable operating
leases
|
|
|
97,401 |
|
16 years
|
|
|
(30,036 |
) |
|
|
67,365 |
|
Trademark
(“Barra”)
|
|
|
7,104 |
|
15 years
|
|
|
(2,426 |
) |
|
|
4,678 |
|
Trademark
(“Esso”)
|
|
|
53,949 |
|
5 years
|
|
|
(3,597 |
) |
|
|
50,352 |
|
Customer
base
|
|
|
116,085 |
|
5 years
|
|
|
(7,738 |
) |
|
|
108,347 |
|
Total
|
|
|
274,539 |
|
|
|
|
(43,797 |
) |
|
|
230,741 |
|
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
9.
|
Goodwill and
other intangible assets (Continued)
|
Other
intangible assets
(Continued)
|
|
As of April 30,
2008
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Gross
|
|
average
|
|
|
|
|
Net
|
|
|
|
carrying
|
|
amortization
|
|
Accumulated
|
|
|
carrying
|
|
|
|
amount
|
|
period
|
|
amortization
|
|
|
amount
|
|
Intangible assets subject to
amortization:
|
|
|
|
|
|
|
|
|
|
|
Favorable operating
leases
|
|
|
133,655 |
|
16 years
|
|
|
(33,850 |
) |
|
|
99,805 |
|
Trademark
|
|
|
9,019 |
|
15 years
|
|
|
(2,687 |
) |
|
|
6,332 |
|
Total
|
|
|
142,674 |
|
|
|
|
(36,537 |
) |
|
|
106,137 |
|
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.
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:
2010
|
|
|
40,623 |
|
2011
|
|
|
40,623 |
|
2012
|
|
|
40,623 |
|
2013
|
|
|
40,623 |
|
2014
|
|
|
29,287 |
|
Thereafter
|
|
|
38,962 |
|
|
|
|
230,741 |
|
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
Cosan S.A. and its subsidiaries
participate in several programs that provide for payments of Brazilian taxes in
installments, as follows:
|
|
2009
|
|
|
2008
|
|
Tax Recovery
Program – Federal REFIS
|
|
|
71,591 |
|
|
|
100,013 |
|
Special Tax
Payment Program – PAES
|
|
|
28,472 |
|
|
|
45,821 |
|
Income tax
and social contribution
|
|
|
71,747 |
|
|
|
46,113 |
|
Others
|
|
|
48,708 |
|
|
|
41,316 |
|
|
|
|
220,518 |
|
|
|
233,263 |
|
Current
liabilities
|
|
|
(69,042 |
) |
|
|
(62,870 |
) |
Long-term
liabilities
|
|
|
151,476 |
|
|
|
170,393 |
|
Tax Recovery Program - Federal
REFIS
In 2000, several subsidiaries of Cosan
S.A. signed an Option Instrument applying to pay their debts in installments
based on the Tax Recovery Program - Federal REFIS. Therefore, the companies
voluntarily informed the Brazilian Internal Revenue Service - SRF and the
National Institute of Social Security - INSS 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 taxpayer’s monthly gross revenue. The remaining balance is
monetarily adjusted based on the TJLP variation.
Special Tax Payment Program -
PAES
By using the benefit granted by the
Brazilian Special Tax Payment Program - PAES published on May 31, 2003, Cosan
S.A. 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 Cosan S.A.’s revenues, considering a minimum of 120 and a maximum of 180
installments.
Cosan S.A. 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.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
Long-term debt is summarized as
follows:
|
Index
|
|
Average annual interest
rate
|
|
|
2009
|
|
|
2008
|
|
Resolution No. 2471
(PESA)
|
IGP-M
|
|
|
3.95%
|
|
|
|
215,572 |
|
|
|
272,809 |
|
|
Corn price
|
|
|
12.50%
|
|
|
|
59 |
|
|
|
432 |
|
Senior notes due
2009
|
US Dollar
|
|
|
9.0%
|
|
|
|
37,386 |
|
|
|
35,893 |
|
Senior notes due
2017
|
US Dollar
|
|
|
7.0%
|
|
|
|
405,389 |
|
|
|
407,603 |
|
IFC
|
US Dollar
|
|
|
7.44%
|
|
|
|
49,362 |
|
|
|
58,673 |
|
Perpetual
notes
|
US Dollar
|
|
|
8.25%
|
|
|
|
456,463 |
|
|
|
460,156 |
|
BNDES
|
TJLP
|
|
|
2.61%
|
|
|
|
99,561 |
|
|
|
- |
|
Floating rate
notes
|
Libor
|
|
|
2.8%
|
|
|
|
151,207 |
|
|
|
- |
|
Promissory
notes
|
DI
|
|
|
3.00%
|
|
|
|
501,888 |
|
|
|
- |
|
Others
|
Various
|
|
Various
|
|
|
|
115,872 |
|
|
|
51,957 |
|
|
|
|
|
|
|
|
|
2,032,759 |
|
|
|
1,287,523 |
|
Current
liability
|
|
|
|
|
|
|
|
(781,664 |
) |
|
|
(38,175 |
) |
Long-term
debt
|
|
|
|
|
|
|
|
1,251,095 |
|
|
|
1,249,348 |
|
Long-term debt has the following
scheduled maturities:
2011
|
|
|
19,501 |
|
2012
|
|
|
20,421 |
|
2013
|
|
|
58,004 |
|
2014
|
|
|
8,608 |
|
2015
|
|
|
9,965 |
|
2016
|
|
|
8,766 |
|
2017
|
|
|
408,749 |
|
2018 and
thereafter
|
|
|
717,081 |
|
|
|
|
1,251,095 |
|
Resolution No. 2471 - Special
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.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
11.
|
Long-term
debt
(Continued)
|
Resolution
No. 2471 - Special Agricultural Financing Program (Programa Especial de
Saneamento de Ativos), or PESA (Continued)
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 March 31, 2009 and April 30, 2008 amounted to
US$91,717 and US$113,877, respectively, and are classified as Other non-current
assets.
Senior notes due
2017
On January 26, 2007, Cosan Finance
Limited, a wholly-owned subsidiary of Cosan S.A., issued US$400,000 of senior
notes in the international capital markets. These senior notes, listed on the
Luxembourg Stock Exchange, mature in November 2017 and bear interest at a rate
of 7% per annum, payable semi-annually. The senior notes are guaranteed by Cosan
S.A., and its subsidiary, Usina da Barra.
IFC - International Finance
Corporation
On June 28, 2005, Cosan S.A. 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 S.A. 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 S.A. 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 on November 16, 2005.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
11.
|
Long-term
debt
(Continued)
|
IFC
- International Finance Corporation (Continued)
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 Cosan S.A.’s 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, 2008, and is guaranteed by the controlling shareholder and
Usina da Barra, Cosan Operadora Portuária and Agrícola Ponte Alta
S.A.
Cosan S.A., 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 Cosan S.A.’s controlling shareholders to hold a minimum
interest of 51% in Cosan’s share capital.
Perpetual notes
On January 24 and February 10, 2006,
Cosan S.A. issued perpetual notes which are listed on the Luxembourg Stock
Exchange - EURO 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.
These 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 S.A. and by Usina da
Barra.
Promissory Notes
On
November 17, 2008, the Company issued one series of 44 registered promissory
notes for US$520,021. The notes which are due in one year, will bear interest,
due at maturity, at the average rates of DI - Interbank Deposits plus
3%.
The notes are
secured by a guarantee from Mr. Rubens Ometto Silveira Mello (Controlling
Shareholder) and collateralized by a chattel mortgage to be established for the
units of interest issued by Cosan CL which are or may be held by the
Company.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
11.
|
Long-term
debt
(Continued)
|
Covenants
Cosan and its
subsidiaries are subject to certain restrictive covenants related to their
indebtedness, including the following: limitation on transactions with
shareholders and affiliated companies; limitation on payment of dividends and
other payments affecting subsidiaries; and limitation on guarantees granted on
assets.
Also, the Company
and its subsidiaries are subject to other financial restrictive covenants, as
follows:
|
-
|
net
debt/EBTIDA ratio must be less than 3.5 to
1;
|
|
-
|
current
asset/current liability ratio equal or higher than 1.3;
and
|
|
-
|
long-term
indebtedness/shareholders´ equity ratio must be lower than
1.3.
|
At
March 31, 2009, Cosan was in compliance with all
debt covenants.
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:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Transactions
involving assets
|
|
|
|
|
|
|
|
|
|
Cash received
due to the sale of finish products and assets and services held, net of
payments
|
|
|
(242,320 |
) |
|
|
(36,773 |
) |
|
|
21 |
|
Sale of
finished products and services
|
|
|
122,381 |
|
|
|
46,410 |
|
|
|
- |
|
Sale of real
estate (land) (Note 20)
|
|
|
13,967 |
|
|
|
- |
|
|
|
- |
|
Sale of
interest in a subsidiary (Note 20)
|
|
|
123,649 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions
involving liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of
financial resources, net of funding
|
|
|
- |
|
|
|
- |
|
|
|
(11,469 |
) |
Financial
income
|
|
|
1,478 |
|
|
|
- |
|
|
|
- |
|
Land
leasing
|
|
|
- |
|
|
|
- |
|
|
|
11,096 |
|
Other
|
|
|
(2,700 |
) |
|
|
(395 |
) |
|
|
- |
|
The purchase and sale of products are
carried out at arm’s length and unrealized profit or losses with consolidated
companies have been eliminated.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
12.
|
Related
parties
(Continued)
|
In
addition, at March 31, 2009, the Company and its subsidiary Usina da Barra
leased 35,000 hectares (unaudited) of land (37,599 hectares (unaudited) in 2008)
from related companies under the same control as Cosan. These leases are carried
out on an arm’s length basis, and the rent is calculated based on sugarcane tons
per hectare, valued according to price established by CONSECANA (São Paulo State
Council of Sugarcane, Sugar and Ethanol Producers).
13.
|
Pension
and other postretirement benefits
|
a) Description
of the plans
The Company’s
subsidiary Cosan CL has a noncontributory defined benefit pension plan covering
substantially all of its employees upon their retirement.
b) Changes
in plan assets and plan liabilities
Cosan CL applies its defined
benefit plan actuarial assumptions using March 31, 2009 as the measurement date.
Information with respect to Cosan
CL’s defined benefit plan as of the acquisition date and as of March 31,
2009 is as follows:
|
|
March
31, 2009
|
|
Change
in benefit obligation
|
|
|
|
Projected
benefit obligation at date of acquisition
|
|
|
153,171 |
|
Service
cost
|
|
|
578 |
|
Interest cost
on pension benefit obligation
|
|
|
3,367 |
|
Actual
benefits payments
|
|
|
(1,710 |
) |
Effect of
exchange rate changes
|
|
|
1,201 |
|
Actuarial
(gain) losses
|
|
|
(102 |
) |
Projected
benefit obligation at end of year
|
|
|
156,505 |
|
Change
in plan assets
|
|
|
|
|
Fair value of
plan assets at date of acquisition
|
|
|
121,518 |
|
Actual return
on plan assets
|
|
|
6,218 |
|
Employer
contributions
|
|
|
1,371 |
|
Actual
benefits payments
|
|
|
(1,710 |
) |
Effect of
exchange rate changes
|
|
|
985 |
|
Fair
value of plan assets at end of year
|
|
|
128,382 |
|
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
13.
|
Pension and other
postretirement benefits
(Continued)
|
b) Changes in plan assets and plan
liabilities (Continued)
|
|
March
31, 2009
|
|
Accrued
pension cost asset (liability)
|
|
|
|
Funded
status, excess projected benefit obligation over plan
assets
|
|
|
(28,123 |
) |
|
|
|
|
|
Accrued
pension cost – current liabilities
|
|
|
7,211 |
|
Accrued
pension cost - non-current liabilities
|
|
|
(20,912 |
) |
c)
Amounts recognized in accumulated other comprehensive income
(loss)
Amounts recognized
in accumulated other comprehensive income (loss) consist of:
|
|
Pension
benefits
|
|
|
|
March
31, 2009
|
|
Unrecognized
gains
|
|
|
2,448 |
|
Deferred
income taxes
|
|
|
(832 |
) |
Effect of
currency translation
|
|
|
13 |
|
|
|
|
1,629 |
|
d) Net
periodic benefit cost
Net periodic
pension cost includes the following components for the period since the date of
acquisition:
|
|
March
31, 2009
|
|
Service
cost
|
|
|
578 |
|
Interest cost
on projected benefit obligation
|
|
|
3,367 |
|
Expected
return on plan assets:
|
|
|
(2,767 |
) |
Net
periodic pension cost
|
|
|
1,178 |
|
The unrecognized
gain that will be amortized from accumulated other comprehensive income into net
periodic benefit cost during the next year is U$213 by Cosan SA and US$147 by
Cosan.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
13.
|
Pension and other
postretirement benefits
(Continued)
|
Assumptions used
for the actuarial calculations were as follows:
Assumptions used to
determine benefit obligations:
|
|
March
31, 2009
|
|
Discount
rate
|
|
|
9.20 |
% |
Rate of
compensation increase
|
|
|
5.56 |
% |
Assumptions used to
determine net periodic benefit cost:
|
|
March
31, 2009
|
|
Discount
rate
|
|
|
9.20 |
% |
Expected
long-term rates of return on plan assets
|
|
|
10.59 |
% |
Rate of
compensation increase
|
|
|
5.56 |
% |
The discount rate
is determined using bond portfolios with an average maturity approximating that
of the liabilities or spot yield curves, both of which are constructed using
high-quality, local-currency-denominated bonds. The expected long-term rate of
return is based on the portfolio as a whole and not on the sum of the returns on
individual asset categories.
The accumulated
benefit obligation is as follows:
Accumulated
benefit obligation
|
|
March
31, 2009
|
|
Actuarial
present value of:
|
|
|
|
Vested
benefit obligation
|
|
|
121,362 |
|
Non-vested
benefit obligation
|
|
|
17,820 |
|
Total
accumulated benefit obligation
|
|
|
139,182 |
|
The asset
allocations of the Company’s plan assets as of the measurement dates were as
follows:
|
|
Assets allocation
(%)
|
|
|
|
March 31,
|
|
|
December 1,
|
|
|
|
|
Asset
category
|
|
2009
|
|
|
2008
|
|
|
Target
|
|
Equity
securities
|
|
|
25 |
|
|
|
26 |
|
|
|
25 |
|
Debt
securities
|
|
|
75 |
|
|
|
74 |
|
|
|
75 |
|
Total
|
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
13.
|
Pension and other
postretirement benefits
(Continued)
|
f) Cash
flows
The expected Esso’s
contributions for 2009, amounting to US$3,607, were estimated based on the
actual plan cost as of the valuation date. The expected benefits payments for
2008, amounting to US$7,211, were estimated based on the projected benefit
payroll as of the valuation date.
The estimated
future benefits payments are as follows:
2009
|
|
|
7,211 |
|
2010
|
|
|
7,729 |
|
2011
|
|
|
8,158 |
|
2012
|
|
|
8,068 |
|
2013
|
|
|
9,448 |
|
2014 to
2018
|
|
|
62,245 |
|
14.
|
Estimated liability for legal
proceedings and labor claims and
commitments
|
|
|
2009
|
|
|
2008
|
|
Tax
contingencies
|
|
|
430,342 |
|
|
|
435,591 |
|
Civil and labor
contingencies
|
|
|
67,306 |
|
|
|
58,507 |
|
|
|
|
497,648 |
|
|
|
494,098 |
|
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.
Judicial deposits
recorded by Cosan under other non-current assets, in the balance sheets,
amounting to US$73,975 at March 31, 2009 (US$27,265 at April 30, 2008) 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. Judicial deposits include US$66,601
related to exposures of Cosan CL prior to its acquisition by Cosan. If the
Company prevails in the defense of these exposures, these related judicial
deposits must be refunded to the seller.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
14.
|
Estimated
liability for legal proceedings and labor claims and commitments
(Continued)
|
The major tax
contingencies as of March 31, 2009 and April 30, 2008 are described as
follows:
|
|
2009
|
|
|
2008
|
|
Credit
premium – IPI
|
|
|
116,256 |
|
|
|
149,192 |
|
PIS and
Cofins
|
|
|
62,556 |
|
|
|
83,615 |
|
IPI
credits
|
|
|
40,049 |
|
|
|
51,046 |
|
Contribution
to IAA
|
|
|
36,672 |
|
|
|
47,183 |
|
IPI – Federal
VAT
|
|
|
23,626 |
|
|
|
30,835 |
|
ICMS
credits
|
|
|
19,966 |
|
|
|
25,916 |
|
Compensation
with Finsocial
|
|
|
70,693 |
|
|
|
- |
|
Other
|
|
|
60,524 |
|
|
|
47,804 |
|
|
|
|
430,342 |
|
|
|
435,591 |
|
In
addition to the aforementioned claims, Cosan and its subsidiaries are involved
in other contingent liabilities relating to tax, civil and labor claims and
environmental matters, which have not been recorded, considering their current
stage and the likelihood of favorable outcomes. These claims are broken down as
follows:
|
|
2009
|
|
|
2008
|
|
IPI Premium
Credit (RP 67/98)
|
|
|
68,039 |
|
|
|
89,343 |
|
Withholding
Income Tax
|
|
|
69,730 |
|
|
|
91,807 |
|
ICMS – State
VAT
|
|
|
77,052 |
|
|
|
42,445 |
|
IAA - Sugar
and Ethanol Institute
|
|
|
31,610 |
|
|
|
27,970 |
|
IPI - Federal
Value-added tax
|
|
|
32,683 |
|
|
|
43,505 |
|
INSS
|
|
|
795 |
|
|
|
8,376 |
|
PIS and
COFINS
|
|
|
15,529 |
|
|
|
- |
|
Civil and
labor
|
|
|
94,599 |
|
|
|
33,739 |
|
Other
|
|
|
34,851 |
|
|
|
27,348 |
|
|
|
|
424,888 |
|
|
|
364,533 |
|
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 Government‘s control.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
14.
|
Estimated
liability for legal proceedings and labor claims and commitments
(Continued)
|
In
connection with one of these suits, a final and unappealable decision in the
amount of US$149,121 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 to finalize the payment terms within three years which will result in
the amount being 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 in 2007 and remain unpaid at March 31,
2009.
At
March 31, 2009, these amounts totaled US$139,700 and US$16,764 (US$202,822 and
US$24,339 at April 30, 2008), corresponding to related suit and lawyers’ fees,
respectively.
The detail of the movement in the
estimated liability for legal proceedings and labor claims is as
follows:
Balance at April 30,
2007
|
|
|
379,191 |
|
Provision
|
|
|
26,178 |
|
Business
acquisition
|
|
|
37,196 |
|
Settlements
|
|
|
(6,018 |
) |
Reclassification to taxes payables
(FIN48)
|
|
|
(22,769 |
) |
Foreign currency
translation
|
|
|
80,320 |
|
Balance at April 30,
2008
|
|
|
494,098 |
|
Provision
|
|
|
37,731 |
|
Business acquisition (see Note
8)
|
|
|
111,608 |
|
Settlements
|
|
|
(12,097 |
) |
Foreign currency
translation
|
|
|
(133,692 |
) |
Balance at March 31,
2009
|
|
|
497,648 |
|
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
14.
|
Estimated
liability for legal proceedings and labor claims and
commitments
(Continued)
|
The provisions for tax, civil and labor
contingencies are included in the statement of operations as
follows:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Net sales
|
|
|
- |
|
|
|
- |
|
|
|
2,106 |
|
General and administrative
expenses
|
|
|
- |
|
|
|
- |
|
|
|
(6,208 |
) |
Financial
expenses
|
|
|
26,541 |
|
|
|
20,925 |
|
|
|
(1,404 |
) |
Other income
(expense)
|
|
|
11,190 |
|
|
|
4,995 |
|
|
|
(19,960 |
) |
Income
taxes
|
|
|
- |
|
|
|
258 |
|
|
|
- |
|
|
|
|
37,731 |
|
|
|
26,178 |
|
|
|
(25,466 |
)
* |
*
Provision less the effect on the State VAT amnesty.
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
|
|
2009
|
|
|
2008
|
|
Sugar (in
tons)
|
|
|
6,084,000 |
|
|
|
5,068,000 |
|
The commitments by
harvest period are as follows (unaudited):
|
|
|
Sugar
(in tons)
|
|
Harvest
period
|
|
|
2009
|
|
|
2008
|
|
2008/2009 |
|
|
|
147,000 |
|
|
|
2,787,000 |
|
2009/2010 |
|
|
|
2,281,000 |
|
|
|
2,281,000 |
|
2010/2011 |
|
|
|
1,828,000 |
|
|
|
- |
|
2011/2012 |
|
|
|
1,828,000 |
|
|
|
- |
|
Total
|
|
|
|
6,084,000 |
|
|
|
5,068,000 |
|
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
14.
|
Estimated
liability for legal proceedings and labor claims and
commitments
(Continued)
|
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 March 31, 2009 and April 30, 2008 are as
follows (unaudited):
Harvest
period
|
|
|
2009
|
|
|
2008
|
|
2008/2009 |
|
|
|
- |
|
|
|
16,541,028 |
|
2009/2010 |
|
|
|
18,294,022 |
|
|
|
14,872,415 |
|
2010/2011 |
|
|
|
15,597,478 |
|
|
|
12,222,226 |
|
2011/2012 |
|
|
|
13,667,154 |
|
|
|
10,729,106 |
|
2012/2013 |
|
|
|
9,754,713 |
|
|
|
17,716,933 |
|
2013/2014 |
|
|
|
13,931,150 |
|
|
|
- |
|
Total
|
|
|
|
71,244,517 |
|
|
|
72,081,708 |
|
As
of March 31, 2009, Cosan had a normal capacity to mill 45,000 thousand tons
(unaudited) of sugarcane during each harvest period.
In
addition, the Company entered into contracts to purchase industrial equipment
intended for maintenance and expansion of the mills, and to meet the demand of
the electric energy co-generation project, in the total amount of US$309,602 at
March 31, 2009 (US$393,048 at April 30, 2008) (unaudited
information).
Leases
Cosan also has
noncancelable operating leases in Brazil, primarily related to seaport and lands
for the plantation of sugarcane, which expire up to the next 20
years.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
14.
|
Estimated
liability for legal proceedings and labor claims and
commitments
(Continued)
|
Leases (Continued)
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 2009, 2008 and
2007 consisted of the following:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Minimum
rentals
|
|
|
46,233 |
|
|
|
29,767 |
|
|
|
53,081 |
|
Contingent
rentals
|
|
|
44,498 |
|
|
|
65,990 |
|
|
|
55,621 |
|
Rental
expense
|
|
|
90,731 |
|
|
|
95,757 |
|
|
|
108,702 |
|
Future minimum
lease payments under noncancelable operating leases (with initial or remaining
lease terms in excess of one year) as of March 31, 2009 are:
|
|
Operating
|
|
|
|
leases
|
|
Year ending March
31:
|
|
|
|
2010
|
|
|
40,455 |
|
2011
|
|
|
41,622 |
|
2012
|
|
|
40,173 |
|
2013
|
|
|
37,171 |
|
2014
|
|
|
35,706 |
|
Thereafter
|
|
|
464,303 |
|
Total minimum lease
payments
|
|
|
659,430 |
|
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
15.
|
Financial income and expenses,
net
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Financial
expenses
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(142,434 |
) |
|
|
(149,138 |
) |
|
|
(126,876 |
) |
Monetary variation –
losses
|
|
|
(29,978 |
) |
|
|
(36,844 |
) |
|
|
(33,210 |
) |
Foreign exchange variation –
losses
|
|
|
(308,937 |
) |
|
|
185,232 |
|
|
|
20,024 |
|
Results from
derivatives(2)
|
|
|
(253,560 |
) |
|
|
(129,703 |
) |
|
|
(111,156 |
) |
CPMF expenses(3)
|
|
|
- |
|
|
|
(10,376 |
) |
|
|
(11,517 |
) |
Bank
charges
|
|
|
(936 |
) |
|
|
(641 |
) |
|
|
(3,452 |
) |
Interest and
fees paid on advanced payment of Senior Notes 2009
|
|
|
- |
|
|
|
(16,513 |
) |
|
|
- |
|
|
|
|
(735,845 |
) |
|
|
(157,983 |
) |
|
|
(266,187 |
) |
Financial
income
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest(1)
|
|
|
23,762 |
|
|
|
20,598 |
|
|
|
18,951 |
|
Monetary variation –
Gains
|
|
|
4,115 |
|
|
|
17,815 |
|
|
|
3,282 |
|
Foreign exchange -
Gains(1)
|
|
|
33,409 |
|
|
|
(12,369 |
) |
|
|
(629 |
) |
Results from
derivatives(2)
|
|
|
276,478 |
|
|
|
178,956 |
|
|
|
301,795 |
|
Earnings from marketable
securities
|
|
|
35,035 |
|
|
|
69,855 |
|
|
|
36,759 |
|
Discounts
obtained
|
|
|
171 |
|
|
|
(105 |
) |
|
|
43,370 |
|
Accounts receivable from
government agency(4)
|
|
|
(7,932 |
) |
|
|
- |
|
|
|
149,121 |
|
Other
income
|
|
|
- |
|
|
|
- |
|
|
|
2,901 |
|
|
|
|
365,038 |
|
|
|
274,750 |
|
|
|
555,550 |
|
Net amount
|
|
|
(370,807 |
) |
|
|
116,767 |
|
|
|
289,363 |
|
|
(1)
|
Includes
foreign exchange gains on liabilities denominated in foreign
currency.
|
|
(2)
|
Includes
results from transactions in futures, options and forward
contracts.
|
|
(3)
|
Tax on
Financial Transactions - CPMF.
|
Cosan is incorporated in Bermuda which has no income
taxes. The following relates to Brazilian income taxes of Cosan S.A.
and its subsidiaries.
Income tax benefit (expense)
attributable to income from continuing operations consists
of:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Income taxes benefit
(expense):
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(638 |
) |
|
|
21,226 |
|
|
|
(43,346 |
) |
Deferred
|
|
|
145,328 |
|
|
|
(1,416 |
) |
|
|
(145,472 |
) |
|
|
|
144,690 |
|
|
|
19,810 |
|
|
|
(188,818 |
) |
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
16.
|
Income taxes
(Continued)
|
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:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Consolidated income (loss) before
income taxes
|
|
|
(421,901 |
) |
|
|
(25,012 |
) |
|
|
538,545 |
|
Income tax benefit (expense) at
statutory rate — 34%
|
|
|
143,446 |
|
|
|
8,504 |
|
|
|
(183,105 |
) |
Increase (reduction) in income
taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nontaxable income of the
Company
|
|
|
(1,344 |
) |
|
|
11,913 |
|
|
|
- |
|
Equity in earnings of affiliates
not subject to taxation
|
|
|
2,083 |
|
|
|
(81 |
) |
|
|
(12 |
) |
Nondeductible goodwill
amortization
|
|
|
(2,621 |
) |
|
|
(1,952 |
) |
|
|
(3,758 |
) |
Nondeductible donations,
contributions and others
|
|
|
3,126 |
|
|
|
1,426 |
|
|
|
(1,943 |
) |
Income tax benefit
(expense)
|
|
|
144,690 |
|
|
|
19,810 |
|
|
|
(188,818 |
) |
The tax effects of temporary differences
that give rise to significant portions of the deferred tax assets and deferred
tax liabilities at March 31, 2009 and April 30, 2008 are presented
below:
|
|
2009
|
|
|
2008
|
|
Deferred tax
assets:
|
|
|
|
|
|
|
Net operating loss
carryforwards
|
|
|
123,533 |
|
|
|
53,794 |
|
Estimated liability for legal
proceedings and labor claims
|
|
|
137,965 |
|
|
|
121,135 |
|
Provision for assets
realization
|
|
|
30,994 |
|
|
|
22,523 |
|
Sales leaseback (see Note
21)
|
|
|
18,651 |
|
|
|
- |
|
Other temporary
differences
|
|
|
32,912 |
|
|
|
26,186 |
|
Total gross deferred tax
assets
|
|
|
344,055 |
|
|
|
223,638 |
|
Current
portion
|
|
|
10,402 |
|
|
|
1,602 |
|
Non-current
portion
|
|
|
333,653 |
|
|
|
222,036 |
|
|
|
2009
|
|
|
2008
|
|
Deferred tax
liabilities:
|
|
|
|
|
|
|
Deferred tax liabilities on
assigned value of the net assets and temporary
differences:
|
|
|
|
|
|
|
Property, plant and
equipment
|
|
|
200,729 |
|
|
|
175,953 |
|
Intangibles
|
|
|
77,843 |
|
|
|
35,427 |
|
Tax benefit on deductible
statutory goodwill amortization
|
|
|
50,966 |
|
|
|
65,263 |
|
Loans, financings and tax
payables
|
|
|
29,668 |
|
|
|
43,689 |
|
Other temporary differences on
business acquisition
|
|
|
17,135 |
|
|
|
8,150 |
|
Total gross deferred tax
liabilities
|
|
|
376,341 |
|
|
|
328,482 |
|
Current
portion
|
|
|
2,312 |
|
|
|
4,611 |
|
Non-current
portion
|
|
|
374,029 |
|
|
|
323,871 |
|
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
16.
|
Income taxes
(Continued)
|
|
|
2009
|
|
|
2008
|
|
Net deferred tax assets
(liabilities):
|
|
|
|
|
|
|
Current
portion
|
|
|
8,090 |
|
|
|
(3,009 |
) |
Non-current
portion
|
|
|
(40,377 |
) |
|
|
(101,836 |
) |
|
|
|
(32,287 |
) |
|
|
(104,845 |
) |
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 S.A. will realize the benefits of
these deductible differences at April 30, 2008, 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 March 31, 2009, Cosan S.A.
and its subsidiaries have consolidated net operating loss carry forwards
for income tax and social contribution tax losses of US$362,576 and US$365,436,
respectively. Income tax losses carry forwards and social contribution tax
losses may be offset against a maximum of 30% of annual taxable income earned
from 1995 forward, with no statutory limitation period.
Effective May 1,
2007, the Company adopted FASB Interpretation No. 48. Accounting for Uncertainly
in Income Taxes, as interpretation of FASB Statement 109 (FIN48). In connection
therewith Cosan S.A. reclassified in the consolidated balance sheet certain
recorded liabilities to other non-current liabilities related to the gross
amount plus interest and penalties on unrecognized tax benefits, which were
recorded as part of the estimated liability for legal proceedings in the
consolidated balance sheet at May 1, 2007.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
16.
|
Income
taxes
(Continued)
|
A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows:
Balance
at May 1, 2007
|
|
|
22,769 |
|
Accrued
interest on unrecognized tax benefit
|
|
|
1,211 |
|
Settlements
|
|
|
(324 |
) |
Balance
at May 1, 2008
|
|
|
23,656 |
|
Increase
through business acquisition (see Note 8)
|
|
|
34,605 |
|
Accrued
interest on unrecognized tax benefit
|
|
|
1,534 |
|
Settlements
|
|
|
(48 |
) |
Effect of
foreign currency translation
|
|
|
(5,752 |
) |
Balance
at March 31, 2009
|
|
|
53,995 |
|
It
is possible that the amount of unrecognized tax benefits will change in the next
twelve months, however, an estimate of the range of the possible change cannot
be made at this time due to the long time to reach a settlement agreement or
decision with the taxing authorities.
The Company and its
subsidiaries file income tax returns in Brazil and they are subject to income
tax examinations by the relevant tax authorities for the years 2004 through
2009.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
On
August 1, 2007, Cosan became the controlling shareholder of Cosan S.A. in which
it holds 51% interest.
This was carried
out by means of a corporate reorganization involving Cosan’s former direct
controlling shareholders, Usina Costa Pinto S.A. Açúcar e Álcool (“Usina Costa
Pinto”) and Aguassanta Participações S.A. (“Aguassanta Participações”). These
shareholders contributed capital to Cosan in the form of Cosan’s common shares,
as stated below, thus becoming part of Cosan S.A.’s indirect ownership
structure:
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 |
% |
Subsequently,
Aguassanta Participações proceeded with a corporate restructuring involving its
interest held in Cosan. As a result of this restructuring, the equity interest
formerly held by Aguassanta Participações directly in Cosan turned into indirect
interest, by means of holding companies in Brazil and abroad. Upon completion of
this corporate restructuring, the ownership structure of Cosan was as
follows:
Shareholder
|
|
Class
of shares
|
|
|
Number
of shares
|
|
|
Interest
|
|
Usina Costa
Pinto
|
|
|
B1
|
|
|
|
30,010,278 |
|
|
|
11.09 |
% |
Queluz
Holdings Limited
|
|
|
B1
|
|
|
|
66,321,766 |
|
|
|
24.50 |
% |
Aguassanta
Participações
|
|
|
A
|
|
|
|
16,111,111 |
|
|
|
5.95 |
% |
Other
shareholders
|
|
|
A
|
|
|
|
158,244,230 |
|
|
|
58.46 |
% |
|
|
|
|
|
|
|
270,687,385 |
|
|
|
100.00 |
% |
Cosan shares owned
by Usina Costa Pinto and Queluz Holdings Limited are Class B1 shares, which
entitle their holders to 10 votes per share. Other shares are Class A shares,
which entitle holders to 1 vote per share.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
17.
|
Shareholders’ equity
(Continued)
|
On
August 17, 2007, Cosan concluded its Global Initial Public Offering (IPO) at the
New York Stock Exchange by offering 111,678,000 Class A common shares. As of
that date, Cosan priced its IPO at US$10.50 per Class A share. As a result of
the Global Offering Cosan’s shares are traded on the New York Stock Exchange
(NYSE) and on the São Paulo Stock Exchange (BOVESPA) by BDR (Brazilian
Depositary Receipts).
Cosan S.A. and
Cosan announced the Share Acquisition Voluntary Public Offering (OPA) where
Cosan aimed to acquire up to 100% of the unowned common shares of Cosan S.A.
through and exchange for Class A shares depositary receipts (BDRs), for Class A
shares issued by Cosan.
Upon the conclusion
of the OPA on April 18, 2008, 18,232,812 shares of Cosan were exchanged,
representing an increase in its interest in Cosan S.A. of 6.7%.
On October 27, 2008, Cosan Limited
announced the results of the subscription of its class A common shares by
certain investment funds managed by no Gávea Investimentos Ltda. (“Gávea Funds”)
and by Queluz Holding Limited, the controlling shareholder of the
Company.
In accordance with the terms of the
private placement announced on October 16, 2008, (i) the Gávea Funds subscribed
33,333,333 class A common shares and/or Brazilian Depositary Receipts, or
“BDRs”, each representing one class A common share, at the issue price of
US$4.50 per share and/or BDR, in the amount of US$150 million; and (ii) Queluz
Holding Limited subscribed 11,111,111 new class A common shares at the same
price, in the amount of US$50 million.
As a result of the private placement and
the subscription offer, the Company issued 44,444,529 new class A common shares
and/or BDRs and its share capital now consists of:
Shareholder
|
|
Class A shares
and/or BDRs
|
|
|
%
|
|
|
Class B
shares
|
|
|
%
|
|
Queluz Holding
Limited
|
|
|
11,111,111 |
|
|
|
6.37 |
|
|
|
66,321,766 |
|
|
|
68.85 |
|
Usina Costa Pinto S.A. Açúcar e
Álcool
|
|
|
- |
|
|
|
- |
|
|
|
30,010,278 |
|
|
|
31.15 |
|
Aguassanta Participaçơes
S.A.
|
|
|
5,000,000 |
|
|
|
2.87 |
|
|
|
- |
|
|
|
- |
|
Gávea Funds
|
|
|
33,333,333 |
|
|
|
19.12 |
|
|
|
- |
|
|
|
- |
|
Others
|
|
|
124,910,897 |
|
|
|
71.64 |
|
|
|
- |
|
|
|
- |
|
Total
|
|
|
174,355,341 |
|
|
|
100.00 |
|
|
|
96,332,044 |
|
|
|
100.00 |
|
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
18.
|
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 Cosan
S.A. officers and employees were approved, thus authorizing the issue of up to
5% of shares comprising Cosan S.A.’s 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 S.A. On September
22, 2005, Cosan S.A.’s board of directors approved the distribution of stock
options corresponding to 4,302,780 common shares to be issued or purchased by
Cosan S.A. related to 3.25% of the share capital at the time, authorized by the
annual/extraordinary meeting. The remaining 1.75% remains to 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$3.62 (three
dollars and sixty two 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 S.A. The options for
each 25% have a five-year period to be exercised.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
18.
|
Share-based
compensation
(Continued)
|
On
September 11, 2007, the board of directors approved an additional distribution
of stock options, in connection with the stock option plan mentioned above,
corresponding to 450,000 common shares to be issued or purchased by Cosan S.A.
related to 0.24% of
the share capital at September 22, 2005. The remaining 1.51% may still be
distributed.
The exercise of
options may be settled only through issuance of new common shares or treasury
shares.
The employees that
leave Cosan S.A. before the vesting period will forfeit 100% of their rights.
However, if the employment is terminated by Cosan S.A. without 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:
|
|
Options
granted on September 22, 2005
|
|
Options
granted on September 11, 2007
|
Grant price - in U.S.
dollars
|
|
2.64
|
|
2.64
|
Expected life (in
years)
|
|
7.5
|
|
7.5
|
Interest
rate
|
|
14.52%
|
|
9.34%
|
Volatility
|
|
34.00%
|
|
46.45%
|
Dividend
yield
|
|
1.25%
|
|
1.47%
|
Weighted-average fair value at
grant date - in U.S. dollars
|
|
5.33
|
|
7.86
|
Expected Term
– Cosan S.A.’s expected
term represents the period that Cosan S.A.’s share-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 S.A. does not
expect any forfeiture as those options are mainly for officers, whose turnover
is low.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
18.
|
Share-based
compensation
(Continued)
|
Expected Volatility
– For the options
granted on September 22, 2005 Cosan S.A. had its shares
publicly-traded for less than 6 months as of April 30, 2006. Therefore, Cosan
S.A. 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 S.A. 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. For the options granted on September 11, 2007
Cosan S.A. used the volatility of its shares as an assumption in its valuation
model since Cosan S.A.’s IPO in Brazil, in 2005.
Expected Dividends – As the
Cosan S.A. is a relatively new public entity, the expected dividend yield was
calculated based on the current value of the stock at the grant date, adjusted
by the average rate of the return to shareholders for the expected term, in
relation of future book value of the shares.
Risk-Free Interest
Rate - Cosan S.A. bases the
risk-free interest rate used in the Binominal Model valuation method on the
implied yield currently available on SELIC - Special System Settlement Custody,
which is the implied yield currently available on zero-coupon securities in
Brazil.
As of March 31, 2009, the amount of
US$4,310 related to the unrecognized compensation cost related to stock options
is expected to be recognized in 1.5 years. Cosan currently has no shares in
treasury.
Stock option activity for the year ended
March 31, 2009, is as follows:
|
|
Shares
|
|
|
Weighted-average
exercise
price
|
|
Outstanding as of April 30,
2007
|
|
|
2,885,013 |
|
|
|
3.00 |
|
Grants of
options
|
|
|
450,000 |
|
|
|
3.62 |
|
Exercises
|
|
|
(961,672 |
) |
|
|
3.62 |
|
Outstanding as of April 30,
2008
|
|
|
2,373,341 |
|
|
|
3.62 |
|
Exercises
|
|
|
(736,852 |
) |
|
|
2.64 |
|
Forfeitures or
expirations
|
|
|
(165,657 |
) |
|
|
2.64 |
|
Outstanding as of March 31,
2009
|
|
|
1,470,832 |
|
|
|
2.64 |
|
|
|
|
|
|
|
|
|
|
Shares exercisable at March 31,
2009
|
|
|
736,852 |
|
|
|
2.64 |
|
Shares exercisable at April 30,
2008
|
|
|
961,672 |
|
|
|
3.62 |
|
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
19.
|
Risk management and financial
instruments
|
The commodity and
foreign exchange rates price volatilities 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.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
19.
|
Risk management
and financial instruments (Continued)
|
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 such risks. At April 30, 2008, 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 the Company and its subsidiaries is
intended for a selected group of highly qualified counterparties, such as
trading companies, fuel distribution companies and large supermarket chains. In
connection with the fuel distribution activity, a diversified customer
portfolio, in addition to following up on the sales financing terms by business
segment and their individual credit limits, are procedures adopted by the
Company to minimize overdue accounts receivable and defaults. Credit risk is
managed through specific rules of client acceptance, credit rating and
establishment limits for customer exposure, including, when applicable,
requirement of letter of credit from a top rated bank and obtaining security
interest on credits granted. Management considers that the credit risk is
substantially covered by the allowance for doubtful accounts. The Company and
its subsidiaries historically do not record material losses on trade accounts
receivable.
f. Debt acceleration
risk
As of March 31, 2009 and April 30, 2008,
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.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
19.
|
Risk management
and financial instruments (Continued)
|
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 Cosan’s financial instruments at
March 31, 2009 and April 30, 2008. The fair value of a financial instrument is
the amount at which the instrument could be exchanged in a current transaction
between willing parties.
|
|
2009
|
|
|
2008
|
|
|
|
Carrying amount
|
|
|
Fair
value
|
|
|
Carrying
amount
|
|
|
Fair
value
|
|
Financial
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
|
508,784 |
|
|
|
508,784 |
|
|
|
68,377 |
|
|
|
68,377 |
|
Marketable
securities
|
|
|
- |
|
|
|
- |
|
|
|
1,014,515 |
|
|
|
1,014,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term and long-term
debt
|
|
|
2,032,759 |
|
|
|
1,882,847 |
|
|
|
1,287,523 |
|
|
|
1,299,483 |
|
Advances from
customers
|
|
|
11,333 |
|
|
|
11,333 |
|
|
|
15,616 |
|
|
|
15,616 |
|
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
derivative financial instruments.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
20.
|
Deferred gain on sale of
investments in subsidiaries
|
On
December 15, 2008, at the Extraordinary General Meeting, the shareholders of
Usina da Barras’s indirectly controlled subsidiary, Agrícola Ponte Alta S.A.,
approved a partial spin-off and incorporated four new companies.
On
December 30, 2008, Usina da Barra sold to Radar its interest in two of these new
companies, Nova Agrícola Ponte Alta S.A. and Terras da Ponte Alta S.A., at their
fair value which amounted to US$123,649 (see Note 12) and resulted in a gain
amounting to US$47,080. Since these affiliated companies will lease their lands
back to Cosan and its subsidiaries, this gain was deferred and is classified as
other non current liabilities.
Additionally, the
Company sold lands to related part named Santa Bárbara Agrícola S.A. at their
fair value in amount of US$13,967 (see Note 12) and resulted in a gain amounting
to US$7,947. These lands will lease back to Cosan and its subsidiaries. This
gain was deferred and is classified as other non current
liabilities.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
21.
|
Fair value
measurements
|
Effective
May 1, 2008, Cosan adopted SFAS 157, Fair Value Measurements, for all
financial instruments and non-financial instruments accounted for at fair value
on a recurring basis. SFAS 157 establishes a new framework for measuring
fair value and expands related disclosures. Broadly, the SFAS 157 framework
requires fair value to be determined based on the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly
transaction between market participants. SFAS 157 establishes market or
observable inputs as the preferred source of values, followed by assumptions
based on hypothetical transactions in the absence of market inputs.
The valuation
techniques required by SFAS 157 are based upon observable and unobservable
inputs. Observable inputs reflect market data obtained from independent sources,
while unobservable inputs reflect market assumptions. These two types of inputs
create the following fair value hierarchy:
Level 1 - Quoted prices for identical instruments
in active markets.
Level 2 - Quoted prices for similar instruments in
active markets; quoted prices for identical or similar instruments in markets
that are not active; and model-derived valuations whose inputs are observable or
whose significant value drivers are observable.
Level 3 -
Significant inputs to the valuation model are unobservable.
The following
section describes the valuation methodologies Cosan uses to measure different
financial instruments at fair value.
Marketable
securities
When quoted market
prices are unobservable, we use other relevant information including market
interest rate curves. These investments are included in Level 2 and primarily
comprise fixed-income securities,
which are debt securities issued by highly rated financial institutions indexed
in reais with Inter Deposit Rates (CDI).
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
21.
|
Fair value
measurements
(Continued)
|
Derivatives
Cosan uses closing prices for
derivatives included in Level 1, which are traded either on exchanges or liquid
over-the-counter markets.
The remainder of the derivatives
portfolio is valued using internal models, most of which are primarily based on
market observable inputs including interest rate curves and both forward and
spot prices for currencies and commodities. Derivative assets and liabilities
included in Level 2 primarily represent interest rate swaps, foreign currency
swaps and commodity forward contracts.
The following table presents our assets
and liabilities measured at fair value on a recurring basis at January 31,
2009.
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
4,163 |
|
|
|
3,189 |
|
|
|
7,352 |
|
Total
|
|
|
4,163 |
|
|
|
3,189 |
|
|
|
7,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
(2,910 |
) |
|
|
(25,984 |
) |
|
|
(28,894 |
) |
Total
|
|
|
(2,910 |
) |
|
|
(25,984 |
) |
|
|
(28,894 |
) |
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
a. Segment information
The following
information about segments is based upon information used by Cosan’s senior
management to assess the performance of operating segments and decide on the
allocation of resources. Cosan’s reportable segments are business units in
Brazil 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 four segments: sugar, ethanol, fuel
distribution 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 polarization - VHP 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. Cosan’s 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. Cosan’s
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.
With the acquisition of Cosan CL a new
fuel distribution segment has been created. The fuel distribution segment is
engaged in the distribution in Brazil of oil products, ethanol, lubricants
and aviation fuel as well as the operation of convenience stores. The network to
which the fuel distribution segment distributes such products is comprised of
more than 1,500 service stations.
The accounting
policies underlying the financial information provided for the segments are
based on Brazilian GAAP as
Cosan is the operating subsidiary of Cosan S.A.. We evaluate segment performance
based on information generated from the statutory accounting
records.
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
22.
|
Segment
information
(Continued)
|
a.
Segment
information (Continued)
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 and ethanol are the
same.
Measurement of segment profit or loss
and segment assets
Cosan S.A.
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 S.A. is adjusted EBIT (earnings before interest
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.
Cosan reports net sales by geographic
area based on the destination of the net sales.
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Net sales —
Brazilian GAAP
|
|
|
|
|
|
|
|
|
|
Sugar
|
|
|
842,183 |
|
|
|
780,839 |
|
|
|
1,029,592 |
|
Ethanol
|
|
|
548,689 |
|
|
|
604,668 |
|
|
|
551,474 |
|
Fuel
distribution
|
|
|
1,440,123 |
|
|
|
- |
|
|
|
- |
|
Others
|
|
|
94,395 |
|
|
|
102,102 |
|
|
|
95,832 |
|
Total
|
|
|
2,925,390 |
|
|
|
1,487,609 |
|
|
|
1,676,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling
items to U.S. GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
Sugar
|
|
|
922 |
|
|
|
3,624 |
|
|
|
2,152 |
|
Fuel
distribution
|
|
|
148 |
|
|
|
- |
|
|
|
- |
|
Total
|
|
|
1.070 |
|
|
|
3,624 |
|
|
|
2,152 |
|
Total net
sales
|
|
|
2,926,460 |
|
|
|
1,491,233 |
|
|
|
1,679,050 |
|
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
22.
|
Segment
information
(Continued)
|
a.
Segment
information (Continued)
Measurement
of segment profit or loss and segment assets (Continued)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Segment
operating income (loss) - Brazilian GAAP
|
|
|
|
|
|
|
|
|
|
Sugar
|
|
|
(82,247 |
) |
|
|
(128,702 |
) |
|
|
105,290 |
|
Ethanol
|
|
|
(53,584 |
) |
|
|
(99,664 |
) |
|
|
56,396 |
|
Fuel
distribution
|
|
|
21,470 |
|
|
|
- |
|
|
|
- |
|
Others
|
|
|
(9,218 |
) |
|
|
(16,829 |
) |
|
|
9,800 |
|
Operating
income (loss) — Brazilian GAAP
|
|
|
(123,579 |
) |
|
|
(245,195 |
) |
|
|
171,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling
items to U.S. GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Sugar
|
|
|
39,288 |
|
|
|
28,438 |
|
|
|
39,340 |
|
Ethanol
|
|
|
25,597 |
|
|
|
22,022 |
|
|
|
21,072 |
|
Fuel
distribution
|
|
|
415 |
|
|
|
- |
|
|
|
- |
|
Others
|
|
|
4,404 |
|
|
|
3,719 |
|
|
|
3,662 |
|
|
|
|
69,704 |
|
|
|
54,179 |
|
|
|
64,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
Sugar
|
|
|
2,875 |
|
|
|
29,443 |
|
|
|
(816 |
) |
Ethanol
|
|
|
1,873 |
|
|
|
20,075 |
|
|
|
(1,573 |
) |
Fuel
distribution
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Others
|
|
|
322 |
|
|
|
3,389 |
|
|
|
(273 |
) |
Total
sugar
|
|
|
(40,084 |
) |
|
|
(70,821 |
) |
|
|
143,814 |
|
Total
ethanol
|
|
|
(26,114 |
) |
|
|
(57,567 |
) |
|
|
75,895 |
|
Fuel
distribution
|
|
|
21,885 |
|
|
|
- |
|
|
|
- |
|
Total
others
|
|
|
(4,492 |
) |
|
|
(9,721 |
) |
|
|
13,189 |
|
Operating
income (loss) — U.S. GAAP
|
|
|
(48,805 |
) |
|
|
(138,109 |
) |
|
|
232,898 |
|
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
22.
|
Segment
information
(Continued)
|
b. Sales by geographic
area
The following table
includes Cosan’s net sales by region:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Brazil
|
|
|
2,097,053 |
|
|
|
834,549 |
|
|
|
663,886 |
|
Europe
|
|
|
580,225 |
|
|
|
520,663 |
|
|
|
304,634 |
|
Latin
America, other than Brazil
|
|
|
157,186 |
|
|
|
8,926 |
|
|
|
19,392 |
|
Middle East
and Asia
|
|
|
62,572 |
|
|
|
71,405 |
|
|
|
473,752 |
|
North
America
|
|
|
28,219 |
|
|
|
52,066 |
|
|
|
113,010 |
|
Africa
|
|
|
135 |
|
|
|
- |
|
|
|
102,224 |
|
Total
|
|
|
2,925,390 |
|
|
|
1,487,609 |
|
|
|
1,676,898 |
|
c. Sales by principal
customers
Sugar
The following table
sets forth the amount of sugar that we sold to our principal customers during
the eleven-month period ended March 31, 2009 and twelve-month periods ended
April 30, 2008 and 2007 as a percentage of either domestic or international
sales of sugar:
Market
|
Customer
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
International
|
Sucres et
Denrées
|
|
|
21.1 |
% |
|
|
23.6 |
% |
|
|
33.3 |
% |
|
Fluxo - Cane
Overseas Ltd
|
|
|
20.9 |
% |
|
|
16.4 |
% |
|
|
11.7 |
% |
|
Tate &
Lyle International
|
|
|
9.7 |
% |
|
|
11.2 |
% |
|
|
5.3 |
% |
|
Cargill
International S.A.
|
|
|
8.2 |
% |
|
|
- |
|
|
|
- |
|
|
Coimex
Trading Ltd
|
|
|
6.9 |
% |
|
|
6.9 |
% |
|
|
11.5 |
% |
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
22.
|
Segment
information
(Continued)
|
c. Sales
by principal customers
(Continued)
Ethanol
The following table sets forth the
amount of ethanol that we sold to our principal customers during the
eleven-month period ended March 31, 2009 and twelve-month periods ended April
30, 2008 and 2007 as a percentage of either domestic or international sales of
ethanol:
Market
|
|
Customer
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
International
|
|
Vertical UK
LLP
|
|
|
55.4 |
% |
|
|
13.6 |
% |
|
|
11.6 |
% |
|
|
Sekab
Biofuels & Chemicals
|
|
|
17.3 |
% |
|
|
- |
|
|
|
- |
|
|
|
Morgan
Stanley Capital Group Inc.
|
|
|
8.1 |
% |
|
|
2.9 |
% |
|
|
- |
|
|
|
Vitol
Inc.
|
|
|
5.2 |
% |
|
|
3.5 |
% |
|
|
- |
|
|
|
Bauche Energy
S.A.
|
|
|
5.1 |
% |
|
|
1.3 |
% |
|
|
- |
|
|
|
Kolmar
Petrochemicals
|
|
|
- |
|
|
|
- |
|
|
|
6.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
Shell Brasil
Ltda.
|
|
|
27.0 |
% |
|
|
20.1 |
% |
|
|
14.8 |
% |
|
|
Euro Petróleo
do Brasil Ltda.
|
|
|
17.8 |
% |
|
|
14.3 |
% |
|
|
- |
|
|
|
Cia
Brasileira de Petróleo Ipiranga
|
|
|
9.4 |
% |
|
|
6.1 |
% |
|
|
- |
|
|
|
Petrobrás
Distribuidora S.A.
|
|
|
8.5 |
% |
|
|
8.0 |
% |
|
|
9.2 |
% |
|
|
Tux
Distribuidora de Combustíveis Ltda.
|
|
|
0.3 |
% |
|
|
5.7 |
% |
|
|
- |
|
|
|
Manancial
Distribuidora de Petróleo Ltda.
|
|
|
- |
|
|
|
- |
|
|
|
8.2 |
% |
The following table sets forth the
amount of fuel distribution that we sold to our principal customers during the
four-month period ended March 31, 2009 as a percentage of either domestic or
international sales of fuel distribution:
Fuel distribution
Market
|
|
Customer
|
|
2009
|
|
Domestic
|
|
Tam Linhas
Aéreas S.A.
|
|
|
3.3 |
% |
|
|
Mime
Distribuidora de Petróleo Ltda.
|
|
|
1.5 |
% |
|
|
Auto Posto
Túlio Ltda.
|
|
|
1.2 |
% |
|
|
Posto Iccar
Ltda.
|
|
|
1.1 |
% |
|
|
Iberia
L.A.E.
|
|
|
1.0 |
% |
|
|
|
|
|
|
|
COSAN LIMITED
Notes to the consolidated financial
statements (Continued)
Eleven-month period ended March 31, 2009 and years ended April 30, 2008 and 2007
(In thousands of U.S. dollars, unless
otherwise stated)
Corporate
Reorganization with Nova América Group
On
June 18, 2009, the Company’s shareholders approved the acquisition, for shares
valued at approximately US$170,000, of Curupay S.A. Participações (“Curupay”)
and its operating subsidiary Nova América S.A. Agroenergia from Rezende Barbosa
S.A. Administração e Participações (“Rezende Barbosa”). Curupay is a
producer of sugar, ethanol and energy co-generation and also operates in trading
and logistics.
Negotiation
with Shell do Brasil
On
May 20, 2009, subsidiary Cosanpar Participações S.A. concluded the negotiations
with Shell Brasil Ltda. for the execution of the aviation fuel business purchase
and sale contract. On June 17, 2009, the negotiation was materialized for the
amount of approximately US$75,000.
Approval
of the Financial Statements
On
June 19, 2009, the financial statements for the year ended March 31, 2009, were
approved by the Company’s Board of Directors.
F-68