Localiza Rent a Car S.A.
Reference Form 2012
Version 14 May 21, 2013 Reference Form - 2012 - LOCALIZA RENT A CAR SA Version: 14
Contents
onteCn 1. Persons responsible for this form
1.1 - Declaration and Identification of the persons responsible for this form 1
2. Independent auditors
2.1/2.2 - Identification and compensation of Auditors 2
2.3 - Other relevant information 4
3. Selected financial information
3.1 - Financial information - Consolidated 5
3.2 - Non-accounting measurements 6
3.3 - Events subsequent to the latest financial statements 9
3.4 - Profit sharing policy 10
3.5 - Distribution of dividends and retention of profit 12
3.6 - Declaration of dividends from retained earnings or reserves 13
3.7 - Level of indebtedness 14
3.8 - Obligations according to the nature and term 15
3.9 - Other relevant information 16
4. Risk Factors
4.1 - Description of risk factors 17
4.2 - Comments on expected changes in exposure to risk factors 22
4.3 - Non-secret material court, administrative or arbitration proceedings 23
4.4 - Non-secret court, administrative or arbitration proceedings in which opposing parties are officers, former 32 officers, controlling shareholders, former controlling shareholders or investors
4.5 - Secret material proceedings 33
4.6 - Non-secret and jointly material repetitive or connected court, administrative or arbitration proceedings 34
4.7 - Other material contingencies 39
4.8 - Rules of the country of origin and country in which securities are held in custody 40
5. Market Risk
5.1 - Description of main market risks 41 Reference Form - 2012 - LOCALIZA RENT A CAR SA Version :14
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5.2 - Description of market risk management policy 45
5.3 - Significant changes in main market risks 52
5.4 - Other relevant information 53
6. Issuer Historic Track Record
6.1 / 6.2 / 6.4 - Establishment of issuer, period of duration and date of registration with the Brazilian Securitie Commission 54 6.3 - Brief history 55
6.5 - Main corporate events occurred at the issuer’s, subsidiaries’ or associates’ 57
6.6 - Information on claim for bankruptcy grounded on material amount or court or out of court recovery 58
6.7 - Other relevant information 59
7. Issuer’s Activities
7.1 - Description of the activities of the issuer and its subsidiaries 60
7.2 - Information on operation segments 67
7.3 - Information on products and services related to operation segments 68
7.4 - Customers accounting for more than 10% of total net revenues 80
7.5 - Material effects of local government regulations on activities 81
7.6 - Material revenues from overseas operations 83
7.7 - Effects of foreign regulations on activities 84
7.8 - Material long-term relationships 85
7.9 - Other relevant information 89
8. Group
8.1 - Description of the Group 90
8.2 - Organization chart of the group 92
8.3 - Restructuring operations 93
8.4 - Other relevant information 94
9. Material assets
9.1 - Material non-current assets - other 95
9.1 - Material non-current assets / 9.1.a – Property, plant and equipment 96
Reference Form - 2012 - LOCALIZA RENT A CAR SA Version :14
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9.1 - Material non-current assets / 9.1.b – Patents, trademarks, licenses, concessions, franchises and 97 technology transfer agreements
9.1 - Material non-current assets / 9.1.c – Interest in companies 101
9.2 - Other relevant information 104
10. Officers’ comments
10.1 - Financial and equity general conditions 105
10.2 - Operating and financial results 126
10.3 - Events occurred and expected with material effects on the financial statements 146
10.4 - Significant changes in accounting practices – Restriction notes and emphases in auditor’s opinion 148
10.5 - Critical accounting policies 151
10.6 - Internal controls related to preparation of the financial statements –Degree of effectiveness and 157 deficiency and recommendations included in the auditor’s report
10.7 - Allocation of funds of public offerings and eventual deviations 159
10.8 - Material items not evidenced in the financial statements 160
10.9 - Comments on items not evidenced in the financial statements 161
10.10 - Business plan 163
10.11 - Other factors with material influence 166
11. Projections
11.1 – Disclosed projections and assumptions 167
11.2 - Follow-up and changes of disclosed projections 168
12. Shareholders’ meeting and management
12.1 - Description of management structure 170
12.2 - Rules, policies and practices related to general meetings of shareholders 177
12.3 - Dates and publication newspapers of information required by Law 6404/76 181
12.4 - Rules, policies and practices related to the Board of Directors 182
12.5 - Description of arbitration clause for resolution of conflicts 183
12.6 / 8 - Structure and professional experience of management and Audit Committee 184
12.7 - Structure of statutory committees and of audit and finance committees, and compensation of members 187
12.9 - Marital relationships, common law marriage or kinships up to 2nd degree of officers of issuer, 190 subsidiaries and controlling shareholders Reference Form - 2012 - LOCALIZA RENT A CAR SA Version :14
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12.10 - Reporting, service rendering or control relationships among officers and subsidiaries, controlling 191 shareholders and others
12.11 - Agreements, including insurance policies, for payment or reimbursement of expenses borne by 192 officers
12.12 - Other relevant information 193
13. Compensation of Officers
13.1 - Description of compensation policy or practice, including outside executive officers 197
13.2 - Total compensation of the board of directors, executive board and audit committee 201
13.3 - Variable compensation of board of directors, executive board and audit committee 204
13.4 - Share-based compensation plan for members of the board of directors and executive board 205
13.5 - Interests in shares, membership units and other convertible securities held by officers and members 211 of fiscal council – by body
13.6 - Share-based compensation of the board of directors and executive board 212
13.7 - Information on outstanding options held by members of the board of directors and executive board 214
13.8 - Options exercised and shares granted related to share-based compensation of the members of 216 the board of directors and executive board
13.9 - Information necessary for understanding data disclosed in items 13.6 through 13.8 - Method for 217 pricing the value of shares and options
13.10 - Information on pension plans granted to the members of the board of directors and executive board 218
13.11 - Maximum, minimum and average compensation of the members of the board of directors , executive 219 board and members of the audit committee 13.12 - Mechanisms of compensation or indemnification for management in the event of removal or retirement 220
13.13 - Percentage of total compensation retained by officers and members of the fiscal council who are 221 parties related to the controlling shareholders
13.14 - Compensation of management and members of the audit committee, grouped by body, received 222 for any reason other than for the position they hold
13.15 - Compensation of management and members of the audit committee recorded in the results 223 of direct and indirect controlling shareholders, companies under common control and subsidiaries of the issuer
13.16 - Other relevant information 224
14. Human resources
14.1 - Description of human resources 225
14.2 - Relevant changes - Human resources 226 14.3 - Description of employee compensation policy 227
Reference Form - 2012 - LOCALIZA RENT A CAR SA Version :14
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onteCn 14.4 - Description of relationships between issuer and unions 232
15. Control
15.1 / 15.2 – Shareholding composition 233
15.3 - Capital Distribution 234
15.4 – Organizational chart of shareholders 235
15.5 - Shareholders’ agreement filed at issuer’s registered office or to which the controlling shareholder is party 236
15.6 - Material changes in interests held by members of the controlling shareholders group and officers of the issuer 237
15.7 - Other relevant information 238
16. Transactions with related parties
16.1 - Description of issuer’s rules, policies and practices for executing transactions with related parties 239
16.2 - Information on transactions with related parties 240
16.3 - Identification of measures taken to deal with conflicts of interest and demonstrationof the strictly 242 commutative nature of the terms agreed upon or adequate compensatory payment
17. Capital
17.1 - Information on the share capital 245
17.2 - Increases of the share capital 246
17.3 - Information on stock splits, reverse stock splits and stock bonuses 247
17.4 - Information on capital reductions 248
17.5 - Other relevant information 249
18. Securities
18.1 - Rights associated with the shares 250
18.2 - Description of rules in the articles of incorporation that restrict the relevant shareholders voting right or 251 that oblige them to execute a takeover
18.3 - Description of exceptions and suspension clauses related to equity or political rights prescribed in the 255 articles of incorporation
18.4 - Trading volumes and highest and lowest quotations of securities 256
18.5 - Description of other securities issued 257
18.6 - Brazilian markets on which securities are listed for trading 260
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onteCn 18.7 - Information on class and type of security listed for trading on foreign markets 261
18.8 - Public offers for distribution performed by the issuer or by third parties, including controlling 262 shareholders and subsidiaries and associates, related to issuer’s securities
18.9 - Description of public offerings for acquisition made by the issuer with respect to shares issued by third parties 263
18.10 - Other relevant information 264
19. Repurchase plans/treasury
19.1 - Information on plans for repurchase of issuer’s shares 265
19.2 – Balance of securities held in treasury 266
19.3 - Information on securities held in treasury at the end of the last reporting period 267
19.4 – Other relevant information 268
20. Trading policy
20.1 - Information on securities trading policy 270
20.2 - Other relevant information 272
21. Disclosure policy
21.1 - Description of internal norms, regulations or procedures related to disclosure of information 273
21.2 - Description of policy for disclosure of material facts or events and procedures related to confidentiality 274 of undisclosed material information
21.3 - Officers responsible for implementation, maintenance, assessment and inspection of information 276 disclosure policy
21.4 – Other relevant information 277
22. Extraordinary businesses
22.1 - Acquisition or alienation of any material asset that is not classified as a normal operation in the 278 issuer’s business
22.2 - Significant changes in the manner of conducting issuer’s business affairs 279
22.3 - Material agreements entered into between the issuer and its subsidiaries not directly related to their 280 operating activities
22.4 - Other relevant information 281
Reference Form - 2012 - LOCALIZA RENT A CAR SA Version : 14
1.1 Declaration and Identification of the persons responsible for this form
Name of person responsible for form Eugênio Pacelli Mattar content Position CEO
Name of person responsible for form Roberto Antônio Mendes content
Position Investor Relations Officer
The officers identified above hereby declare that: a. they have reviewed this reference form b. all the information contained in this form meet the provisions contained in CVM (Brazilian Securities Commission) Instruction 480, especially articles 14 through 19 c. the set of information contained herein is a true, precise and complete portrayal of the issuer’s economic and financial situation and the risks inherent in its activities and the securities issued by it.
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Reference Form - 2012 - LOCALIZA RENT A CAR SA Version :14
2.1/2.2 – Identification and compensation of Auditors
Does the issuer have an independent auditor? YES
CVM Code Number 385-9
Auditor type National
Corporate Name Deloitte Touche Tohmatsu Auditores Independentes
Corporate taxpayer number (CNPJ) 49.928.567/0006-26
Period of service rendering 9/30/2002 to 03/07/2012
Description of service contracted Audit of Annual Financial Statements and review of Interim Financial Statements (ITR).
Total amount of compensation paid to Deloitte Touche Tohmatsu conducted the Audit of the Financial Statements and Interim Financial Statements of 2011, as well as the independent auditors, segregated by type of service reading of the Reference Form, with compensation net of taxes of BRL596,000.00, BRL21,000.00 for the diagnosis of the internal control processes and BRL197,000.00 relative to the work performed for preparation of comfort letter.
Justification for substitution The substitution of independent auditor is exclusively due to meeting the independent auditors’ rotation, in compliance with Article 31 of CVM Regulatory Instruction No. 308/99. Reason given by the auditor in case of disagreement with issuer’s Not applicable, since the independent auditor did not present any disagreement with the Company’s justification. justification
Individual taxpayer Name of engagement partner Period of service rendering number (CPF) Address Délio Rocha Leite 9/30/2002 to 03/07/2012 094.062.268Individual-80 taxpayer Rua Paraíba nº 1.122, 20º e 21º andares, Funcionários, Belo Horizonte, MG, Brasil, CEP 30130- numbernumber CPF 141, Telefone (31) 32697400, Fax (31) 32697470, e-mail: [email protected]
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Does the issuer have an independent auditor? YES
CVM Code Number 287-9
Auditor type National
Corporate name PricewaterhouseCoopers Auditores Independentes
Corporate taxpayer number (CNPJ) 61.562.112/0005-54
Period of service rendering 03/26/2012
Description of service contracted Audit of the Annual Financial Statements, review of Interim Financial Statements (ITRs) and the reading of the Reference Form.
Total amount of compensation paid to independent auditors, The estimated fees to be paid to PricewaterhouseCoopers Auditores Independentes relative to the works of Audit of the Financial Statements, segregated by type of service Review of Interim Financial Statements and the Reading of the Reference Form of 2012 is BRL588,439.00, net of taxes. Justification for substitution Not applicable, since there was no substitution of the independent auditor.
Reason given by the auditor in case of disagreement with issuer’s Not applicable, since there was no substitution of the independent auditor. justification
Name of engagement partner Period of service rendering CPF Address
Guilherme Campos e Silva 03/26/2012 714.114.966-04 Rua dos Inconfidentes, 1190, 9º andar, Savassi, Belo Horizonte, MG, Brasil, CEP 30140-120, Telefone (31) 32691500, Fax (31) 32616950, e-mail: [email protected]
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2.3 – Other Relevant Information
1) The services rendered by Deloitte Touche Tohmatsu Auditores Independentes mentioned in the previous item encompass the audit of the Annual Financial Statements, review of the Interim Financial Information (ITRs) of 2011 and assistance in the diagnosis of the Company’s processes and internal controls, in order to improve the management of risks. The fees relative to the diagnosis of the Company’s processes and internal controls of the year of 2011, of approximately BRL21.0 thousand, correspond to approximately 3.5% of the value of the fees of the audit of the annual financial statements and fees relative to the works executed in the preparation of comfort letter, in the amount of BRL197 thousand, correspond to approximately 33% of the value of the fees of the audit of the annual financial statements. The additional services above mentioned were approved, given the fact that they do not constitute loss of independence of the independent auditors and are not included in the impediments foreseen in Article 23 of CVM Regulatory Instruction No. 308/99.
2) The engagements for audit of the Annual Financial Statements and review of the Interim Financial Information (ITRs) for the years 2002 to 2008 were led by partner Walmir Bolgheroni, whose individual taxpayer number (CPF) is 012.725.828‐09. In 2009, there was a change in the engagement partner, with Délio Rocha Leite taking over, pursuant to Federal Accounting Council (CFC) Resolution 1034/05.
3) Article 31 of CVM Instruction 308/99 set forth the rotation of auditors, so that the independent auditors do not render services to the same client for a period of more than five consecutive years. However, during the period of adaptation to the provisions of Law 11638/07, CVM authorized the publicly held companies, by means of the CVM Decision 549/08, the non- substitution of the independent auditors until the date of issuance of the audit report for the financial statements relative to accounting period ended in 2011. Thus, the rotation of independent auditors of the Company took place on 26 March, 2012, contracting PricewaterhouseCoopers Auditores Independentes – “PwC”, which begun with the review of the Interim Financial Information of 31 March, 2012.
The communication of the substitution of independent auditors was sent to CVM on 30 March, 2012 in compliance with article 28 of CVM Instruction 308/99.
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Reference Form - 2012 - LOCALIZA RENT A CAR SA Version: 14
3.1 – Financial Information - Consolidated
(BRL) Accounting Year (12/31/2011) Accounting Year (12/31/2010) Accounting Year (12/31/2009) Equity 1,120,583,000.00 898,742,000.00 708,564,000.00
Total Assets 4,009,554,000.00 3,354,711,000.00 2,740,541,000.00
Net Rev./ Intermed. Rev 2,918,130,000.00 2,497,194,000.00 1.820.913.000,00 Fin./Prem. Earned Gross Profit 902,970,000.00 743,795,000.00 443.782.000,00
Net Profit 291,642,000.00 255,892,000.00 109.226.000,00
Quantity of Shares, Ex-Treasury 197,524,820 197,481,700 197.481.700
(Units) Equity Value of Share (Reais 5.673125 4.551014 3,587998 Unit) Net Profit per Share 1.476483 1.295776 0,553094
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3.2 - Non-accounting measurements
(i) EBITDA
a) inform the amount of non‐accounting measurements b) perform reconciliations between the amounts disclosed and the amounts in the audited financial statements
The table below presents the reconciliation between the EBITDA, the adjusted EBITDA and the net profit for the year disclosed in the Annual Consolidated Financial Statements for the years ended as at December 31, 2011, 2010 e 2009:
BRL/thousand 2011 2010 Var. % 2009
Net Profit 291,642 255,892 109,226 Depreciation of cars (a) 201,493 161,875 211,938 Depreciation and amortization of other fixed and intangible assets (b) 24,094 21,145 21,015 Net financial expenses (c) 179,040 130,093 112,901 Income tax and social contribution 125,025 104,296 43,152 EBITDA 821,294 673,301 22,0% 498,232
Cost with Stock Options 6,686 4,473 781 Non recurrent expenses ‐ ‐ ‐ Adjusted EBITDA 827,980 677,774 22,2% 499,013
% EBITDA on net revenues 28.1% 27.0% 27.4% % adjusted EBITDA on net revenue 28.4% 27.1% 27.4% (a) The expenses of depreciation of cars are allocated to line item “Costs” in the income statement for the year in the Annual Consolidated Financial Statements. (b) The expenses of depreciation of other fixed assets and the expenses of amortization of intangible assets (software programs) are allocated to line items “Costs”, “Advertising and sales expenses” and “General and administrative expenses”, according to the nature and allocation of each item, in the income statement for the year in the Annual Consolidated Financial Statements.. (c) These encompass interest expenses incurred on loans, financing and debentures and other interest expenses, net of the interest income on cash and cash equivalents and other interest income, as well as inflation adjustment of assets and liabilities and exchange gain and losses.
c) explain the reason why you believe that such measurement is more appropriate for the correct understanding of your financial condition and the results of your operations
EBITDA is profit before income tax and social contribution, net financial expenses, and depreciation and amortization expenses. EBITDA is used by the Company to measure its own performance and some investors, rating agencies and financial analysts use EBITDA as an indicator of the Company’s operational performance and cash flow.
Adjusted EBITDA is profit before income tax and social contribution, net financial expenses, depreciation and amortization expenses, cost of stock options and non‐recurring expenses.
Additionally, EBITDA and adjusted EBITDA are used to calculate covenants in some offers of Company debentures and other debts.
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3.2 – Non Accounting Measurements
(ii) Net Debt
a) inform the amount of non‐accounting measurements b) perform reconciliations between the amounts disclosed and the amounts in the audited financial statements
The following table presents the reconciliation between net debt and the amounts contained in the Annual Consolidated Financial Statements for the years ended December 31, 2011, 2010 and 2009:
BRL/thousand 2011 2010 2009
Short‐ and long‐term indebtedness 2,074,425 1,696,755 1,538,193 (‐) Cash and cash equivalents (711,002) (415,681) (459,619) Net debt 1,363,423 1,281,074 1,078,574
Equity 1,120,583 898,742 708,564 Indebtedness ratio (net debt / equity) 1.22 1.43 1.52 Net debt / EBITDA 1.66 1.90 2.16 Net debt / adjusted EBITDA 1.65 1.89 2.16
c) explain the reason why you believe that such measurement is more appropriate for the correct understanding of your financial condition and the results of your operations
The Company defines net debt as short‐ and long‐term indebtedness less cash and cash equivalents. Management believes that the net debt represents the Company’s actual indebtedness.
(iii) Capital investment
a) inform the amount of non‐accounting measurements b) perform reconciliations between the amounts disclosed and the amounts in the audited financial statements
The table below presents the reconciliation between capital investments and the amounts contained in the Annual Consolidated Financial Statements for the years ended December 31, 2011, 2010 and 2009:
BRL/thousand Capital Investments 2011 2010 2009 (i) For fleet renewal: Purchase of cars and accessories for fleet renewal 1,504,512 1,370,081 963,111 (‐) Net revenues from cars sold for fleet renewal 1,468,121 1,321,904 922,443 Net investment for fleet renewal 36,391 48,177 40,668 (ii) For fleet growth 271,969 540,354 241,120 Total investment in fleet 308,360 588,531 281,788 (iii) Investment in other fixed and intangible assets 62,993 51,202 20,917 Total capital investments 371,353 639,733 302,705 Quantity of cars purchased: For fleet renewal 50,772 47,285 34,519 For fleet growth 9,178 18,649 8,642 Total 59,950 65,934 43,161
PAGE: 7 of 281 Reference Form - 2012 - LOCALIZA RENT A CAR SA Version : 14 3.2 - Non-accounting measurements
c) explain the reason why you believe that such measurement is more appropriate for the correct understanding of your financial condition and the results of your operations
The Company defines capital investment as being the sum of the investments in fleet (purchases of cars) and investments in other fixed and intangible assets, less net revenues from sales of the cars decommissioned for fleet renewal and additional revenues from sales of such cars. The Company believes that this metrics best represents the capital investment made in the purchase of cars for fleet renewal or growth and other fixed and intangible assets.
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3.3 - Events subsequent to the latest financial statements
No material subsequent events occurred or were disclosed in the Annual Financial Statements (Individual and Consolidated) as at December 31, 2011.
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3.4 - Profit sharing policy
In BRL thousand 12.31.2009 12.31.2010 12.31.2011 a. Rules on retention of profits Article 24 of Articles of Incorporation of the Company: §2. The net income of the fiscal year shall have the following allocation: (a) five percent (5%) shall be applied, prior to any other allocation, to the formation of the legal reserve, which shall not exceed twenty percent (20%) of the capital; (b) a portion, through proposal of administration bodies, may be allocated to the formation of a reserve for contingencies and reversion of such reserves constituted in previous years, pursuant to article 195 of Law No. 6404/76; (c) by proposal of the management bodies a portion of the net income resulting from donations or governmental subventions for investments, that can be excluded from the basis of the calculation of the mandatory dividends shall be allocated for the reserve of tax incentives; (d) in the fiscal year in which the amount of the mandatory dividend, calculated pursuant to paragraph one of this article 24, exceeds the realized portion of the fiscal year profit, the Shareholders’ General Meeting may, by proposal of the management bodies, allocate the surplus to create the unrealized profit reserve, pursuant to the provisions in article 197 of Law 6404/76; (e) a portion shall be allocated to the payment of mandatory dividend to the shareholders, pursuant to the provision in paragraph 1 of this article 24; 4; (f) the residual portion of the adjusted net profit shall be allocated to the ‘reserve for investments, expansion and fleet renewal’, aiming to reinforce the capital and the working capital of the Company to ensure adequate operation conditions. The balance of this reserve, accrued of the balances of the other profit reserves, excluding the unrealized profit reserves and the reserves for contingencies, may not exceed the capital value. Once this maximum limit is achieved, in the Shareholders’ General Meeting they may decide on the investment of the surplus in the payment or capital increase, or dividend distribution; (g) a portion, by proposal of management bodies may be retained based on the previously approved capital budget, pursuant to article 196 of Law 6404/76; and (h) the balance shall have the allocation which given to it in the Shareholders’ General Meeting, complying with the legal provisions.
BRL thousand Values of the Retentions 12.31.2009 12.31.2010 12.31.2011 i. Legal Reserve BRL 5,418 BRL 12,795 BRL 14,582 ii. Statutory Reserve BRL 121,603 BRL 204,432 BRL 211,209 iii. Proposed Additional Dividend BRL 2,120 ‐ ‐
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3.4 - Profit sharing policy
12.31.2009 12.31.2010 12.31.2011 b. Rules for Article 24 of the Articles of Incorporation of the Company: distribution of §3 The shareholders are assured of the right to receive an annual dividends: mandatory dividend, not less than twenty‐five percent (25%) of the net income of the period, minus or plus the following amounts: (i) amount allocated to the formation of the legal reserve; (ii) amount allocated to the formation of the reserve for contingencies and reversion of such reserves constituted in previous years; and (iii) amount resulting from the reversion of the reserve for unrealized profits constituted in previous years, pursuant to article 202, item II of Law No. 6404/76. §4. The payment of the mandatory dividend may be limited to the amount of the realized net income, pursuant to the law. §5. The Company may pay or credit interest, on account of remuneration of own capital, calculated on the equity accounts, complying with the rate and the limits established in the tax legislation. The amount paid to the shareholders by way of interest on shareholders’ equity shall be deduced from the amount of the minimum mandatory dividend. At the discretion of the Board of Directors, ad referendum by the Shareholder’s General Meeting, interest amounts may be credited and paid to the shareholders or credited to the shareholders and later incorporated into the capital, instead of being distributed and paid.
c. Periodicity for The periodicity for distribution of dividends is annual. distribution of However, it is up to the Board of Directors to decide, in a dividends: quarterly basis, on the distribution of interest on own capital, which is attributed to the value of the mandatory dividend.
d. Any restrictions on the There is restriction to the distribution and payment of distribution of dividends dividends and interest on own capital or any other imposed by legislation or participation in profits prescribed in the Company’s Articles of special regulations Incorporation above the legal minimum in the event the applicableto the issuer, as Company is in default in the pecuniary obligations foreseen in well as agreements and its Debenture Issuance Deeds, safeguarding, however, the court, administrative or payment of the minimum dividend foreseen in article 202 of arbitration decisions. the Brazilian Corporation Act.
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Reference Form - 2012 - LOCALIZA RENT A CAR SA Version: 14
3.5 - Distribution of dividends and retention of profit
(BRL) Fiscal year 12/31/2011 Fiscal year 12/31/2010 Fiscal year 12/31/2009 Adjusted profit for the year 277,060,000.00 243,097,000,00 102,935,000.00
Percentage dividend distributed when compared to adjusted profit for the year 25.175828 25.000218 30.840065
Return rate when compared to issuer’s equity 26.025917 28.472242 15.415121
Total dividend distributed 69,752,149.16 60,774,780.63 31,745,221.09
Profit retained 217,227,895.07 127,020,340.21 225,790,467.81
04/25/2011 04/29/2010 Date of approval of retention 04/13/2012
Retained net profit Amount Dividend Payment Amount Dividend Payment Amount Dividend Payment Mandatory Dividend Common share 26,303,424.17 06/06/2012 19,447,466.63 06/22/2011 6,112,215.47 06/25/2010 Common share 3,889,702.35 06/22/2011 Interest on Own Capital Common share 10,405,110.37 08/25/2011 8,711,911.54 11/18/2010 7,347,121.43 08/26/2009 Common share 12,112,314.13 02/10/2012 Common share 11,175,545.84 11/18/2011 Common share 9,755,754.65 05/19/2011 Common share 8,099,343.30 08/20/2010 Common share 7,574,392.38 05/21/2010 Common share 7,294,498.93 02/18/2011 Common share 9,647,167.85 01/21/2011 Common share 7,045,544.93 05/07/2009 Common share 7,350,636.91 11/12/2009
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3.6 - Declaration of dividends from retained earnings or reserves
a. Dividends
Owing to the changes in accounting practices adopted in Brazil, the Company recalculated and restated in its Annual Financial Statements for the year ended December 31, 2010 the profit calculated for the year ended December 31, 2009 in accordance with IFRS and with the new accounting practices adopted in Brazil.
Accordingly, at the Shareholder’s General Meeting held on April 25, 2011, the allocation of the following amounts was ratified: (i) BRL 3,889,702.35 corresponding to the difference of the profit assessed in 2009 upon first‐time adoption of the new accounting practices in Brazil in alignment with IFRS, and (ii) BRL 19,447,466.63 corresponding to the profit calculated for 2010 so as to complete the mandatory dividend of 25% of the adjusted profit for the payment of dividends to the shareholders.
b. Reserves
At the Shareholder’s General Meeting held on April 25, 201 the allocation of the following amount was approved of BRL 260,275,230.51 to the statutory reserve entitled Reserve for Investments, Expansion and Renewal of Fleet, of which BRL 204,432,895.07 referring to 2010 results and BRL 55,842,335.47 referring to prior years’ adjustments based on the adoption of the new accounting practices in Brazil in alignment with IFRS.
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3.7 - Level of indebtedness
Fiscal Year Total amount of debt Type of ratio Debt ratio Description and reason of using another ratio of any nature (Reais) 12/31/2011 2,888,971,000.00 Debt ratio 2.57809640 0.00 Other ratios 0.50842121 Net debt / Value of fleet (Consolidated) – The Company believes that this ratio is appropriate, because it represents the value of the fleet of the Company that would be necessary to pay all Company debt. 0.00 Other ratios 1.21670862 Net debt / Equity (Consolidated) – The Company believes that this ratio is appropriate, because it represents the relation between creditors’ equity and shareholders’ equity. 0.00 Other ratios 1.66009127 Net debt / EBITDA (Consolidated) – The Company believes that this ratio is appropriate since it is contained in the deeds of debentures issuance and is constantly monitored. 0,00 Other ratios 4.58720956 EBITDA / Net Finance Expenses (Consolidated) - The Company believes that this ratio is appropriate as it is contained in the debenture deeds and is constantly monitored. 0,00 Other ratios 1.64668591 Net debt / Adjusted Consolidated EBITDA - The Company uses adjusted EBITDA to calculate covenants of some offers of debentures and other debts. Adjusted EBITDA is profit before income tax and social contribution, net finance expenses, depreciation and amortization expenses,cost of stock options and non-recurring expenses.
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3.8 - Obligations according to their nature and term
Fiscal year (12/31/2011) Type of debt Less than 1 year From 1 to 3 years From 3 to 5 years Over 5 years Total Guarantee 95,528,000.00 3,173,000.00 0.00 92,373,000.00 191,074,000.00 Floating guarantee 118,050,000.00 419,410,000.00 236,482,000.00 121,926,000.00 895,868,000.00 Unsecured 580,200,000.00 116,596,000.00 659,376,000.00 445,857,000.00 1,802,029,000,00 Total 793,778,000.00 539,179,000.00 895,858,000.00 660,156,000.00 2,888,971,000,00 Note The information in this chart refers to the Consolidated Financial Statements. The composition of the balances of each debt kind is as follows: Guarantee – Payable Social and labor obligations, Income Tax and Social Contribution, Deferred Income Tax and Social Contribution and Financial Leasing; Floating guarantee – Debentures (2nd and 4th Issues of Localiza and 1st Issuance of the Total Fleet); Unsecured – Suppliers, Loans and Financing (except financial leasing), Dividends and Interest on Own Capital, Other current liabilities, Provisions and Other non-current liabilities.
PAGE: 15 of 281 Version : 14 Reference Form - 2012 - LOCALIZA RENT A CAR SA
3.9 - Other relevant information
a. Presentation of information upon first‐time adoption of IFRS
In view of the changes in accounting practices adopted in Brazil, the Company adopted for the first time, in its Annual Financial Statements as at December 31, 2010, the international accounting standards, applying the same accounting policies in the Balance Sheet on the transition date established as January 1st, 2009. As from 2009, they have been prepared in accordance with the IFRS and the new accounting practices adopted in Brazil.
The information relative to the years 2010 and 2009 included in item 3.5 discloses the dividends and interest on shareholders’ equity then paid, without any change/adjustment for alignment of that accounting practice with IFRS. The values distributed as dividends and reserves of previous years resulting from the adoption by IFRS are recorded in item 3.6.
b. Information on interest on own capital
The amounts of interest on own capital informed in item 3.5 are shown net of Withholding Income Tax. The amount of the tax recorded in December 2011 was BRL7.5 thousand and the amount effectively paid was BRL 7.1 thousand, generating a difference between the amount paid and the provisioned amount. This difference results from immune and exempt shareholders on the date of the equity position, which was not known on the provision date.
c. Articles of Incorporation the Company
At the Shareholder’s Extraordinary Meeting held on second call on 25 April 2012 they approved the amendment to the Articles of Incorporation aiming to adapt it to the new rules of the BM&F BOVESPA S.A New Market Regulation, as well as other voluntary amendments of corporation governance of the Company.
Accordingly, the rules of profit retention which item 3.4 (a) of this Form deals with, have suffered amendments in sub-item “f” of paragraph 2, of article 24 of the Articles of Incorporation of the Company, so as to clarify the calculation of the “reserve for investments, expansion and renewal of the Company’s fleet, and the final text has now the following wording:
Article 24 § 2 (...) f. a portion formed by up to 100% of the residual profits after legal and statutory deductions may be allocated to the formation of “reserve for investments”, whose purpose is to finance investments in the renewal and expansion of the Company’s and its subsidiaries’ cars. This reserve may not exceed the following values, whichever is less: (i) 80% of the capital; or (ii) the value which, added to the balances of the other profit reserves, excluding the unrealized profit reserve and the reserve for contingencies, does not exceed 100% of the Company’s capital.
PAGE: 16 of 281 Reference Form - 2012 - LOCALIZA RENT A CAR SA Version : 14
4.1 - Description of risk factors
a) Risks Relating to Brazil
a.1) The Federal Government has exercised, and continues to exercise, significant influence over the Brazilian economy. This influence, as well as Brazilian political and economic conditions could adversely affect our business, financial condition and operation results.
The Federal Government frequently intervenes in the Brazilian economy and occasionally makes significant changes in policy and regulations. The Federal Government's actions to control inflation and implement other policies and regulations frequently involve, among other measures, increases in interest rates, price and wage controls, currency devaluations, restrictions on remittances abroad, limits on imports and freezing of current accounts. Localiza does not have any control over what policies or regulations that the Federal Government may adopt in the future or the ability to predict them. Its business, its operation results and its perspectives may be adversely affected by changes in politics or regulations which involve or affect certain factors such as:
• inflation; • exchange rate policies; • domestic economic growth; • reduction in liquidity of domestic capital and credit markets; • monetary policies; • interest rates; • social or political instabilities; • tax policies and changes on tax legislation; and • other political, social and economic developments in or affecting Brazil.
Measures adopted by the Federal Government or speculation about future governmental actions could lead to uncertainties regarding the Brazilian economy and increase the volatility of the domestic capital markets, which could adversely affect its business, financial condition, results of operations and expectations. One of the measures adopted by the Federal Government in order to boost the level of consumption in Brazil, which had been negatively affected by the credit crisis, was the temporary rate reduction of the tax on manufactured products (or IPI), up to 7.0p.p for new cars. This measure was implemented in November 2008 and resulted in a strong decrease of the prices of used cars, negatively affecting the market. In order to reflect the decrease in average used car sales price in 2008 the Company recognized in its financial statements prepared according to North American accounting practices – USGAAP, loss in the amount of BRL87.6 million, which corresponded to 4.6% of the value of our revenue earning vehicles in November 2008.
In May 2012 aiming to stimulate the car industry sector, the Government reduced the IPI (tax on manufactured products) of up to 7.0 p.p for car models of up to 2000 hp, which shall be valued until August 31, 2012. The impact on the value of the assets and the way of recognizing according to the accounting practices adopted in Brazil and the international standards of financial report (IRFS) are under analysis.
Uncertainty over the implementation of changes by the Federal Government in the policies or rules that may affect these or any other factors in the future may contribute to economic uncertainty in Brazil and increase the volatility of the Brazilian securities market and the securities issued abroad by Brazilian companies. Accordingly, such uncertainties and other future developments in the Brazilian economy may adversely affect our business, results of operations and prospects.
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4.1 - Description of risk factors
a.2) Federal Government's efforts to fight inflation may hinder the growth of the Brazilian economy and could harm our business.
Brazil has, in the past, experienced extremely high rates of inflation and therefore the Federal Government followed monetary policies to combat inflation that have had a significant negative effect on the Brazilian economy. Between 2004 and 2011, the base interest rate (SELIC) in Brazil varied between 19.8% and 8.8% per year. As of December 31, 2011, the base interest rate was 11%. Inflation and the Federal Government's measures to fight it, mainly through the Central Bank, have had and may have significant effects on the Brazilian economy and our business. Tight monetary policies with high interest rates may restrict Brazil's growth and the availability of credit. On the other hand, more lenient government and Central Bank policies and interest rate decreases may trigger increases in inflation and, consequently, volatility growth and the need for sudden and significant interest rate increases, which could adversely affect our Company´s business.
b) Risks related to the Issuer
b.1) The business of the Company requires intensive long‐term capital to finance the renewal of the fleet and to implement the growth strategy.
The implementation of growth strategy and competitiveness of the Company depend on the capacity to make investments to expand its fleet. The ability to finance fleet expansion depends, in turn, on the operation performance and capacity to obtain funding. The investments in capital goods related to acquisitions of vehicles, net of revenues arising from used car sales, in the same period, was BRL281.8 million in 2009 and BRL588.5 million in 2010 and BRL308.4 million in 2011. The Company cannot assure that it will be able to obtain sufficient financing to fund the investments in capital goods and to finance its expansion fleet strategy at acceptable costs or in general, as a result of adverse macroeconomic conditions, its performance or other external factors, which could in turn adversely affect the growth strategy.
b.2) The results of the Company may be affected by of failures in the calculation of effective depreciation
The pricing of car and fleet rental rates consider in their calculation an estimate of the depreciation of the cars (the depreciation estimated of the cars is calculated by the difference between the acquisition cost of the car and the market value estimated for the foreseen sales date, less sales expenses).
Over estimating sales value implies in the reduction of the estimated depreciation, impacting in the operation result. On the other hand, underestimating the future sales value implies in increasing the estimated depreciation reducing the competitiveness of the Company.
In either case, its businesses, financial condition and results of operations may be negatively affected by inaccurate estimates of effective depreciation. This risk is particularly significant in the case of fleet rental agreements since they typically carry longer terms.
b.3) The Company is subject to restrictive covenants.
The Company is subject to restrictive covenants pursuant to terms and conditions of certain financing agreements it entered into and of its issued local debentures (or the debentures), which include, among other things, limitations on its ability to incur additional indebtedness. In addition, the Company’s debentures contain early termination provisions triggered by certain events including, the occurrence of additional indebtedness.
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4.1 - Description of risk factors
If it needs to incur new indebtedness, either due to the expansion strategy or to any other capital needs, the Company may be prevented from doing so by virtue of these covenants or it may have to pay the indebtedness in advance related to which the covenants apply, and this may limit the expansion strategy and may adversely affect its cash flow and results of operations.
b.4) The loss of services of our key executive officers or the incapacity to attract and retain employees could adversely affect its activity, financial situation and operation results of the Copmpany.
Our management and operations depend on the participation of key executive officers. We can not assure that we will have success in attract and retain key executive officers. The loss of any member of our top management or our incapacity to attract and hire other new members could adversely affect the Company’s capcacity in implement its strategic, financial situation and operational results.
b.5) The Company does not maintain insurance against certain risks.
Cars from our car rental division are only be covered by insurance during the period in which they are rented, and are uninsured during the periods in which they are not being rented. The business exposes the Company to claims for personal injury, death and pecuniary damage resulting from the use of the rented cars. Fleet rental division has insurance only for a small part of its fleet, to cover costs of third-party claims or repairs, and thefts. Accordingly, the Company may be exposed to liabilities in respect to which it is not insured and, in the event that it is unable to otherwise recover the necessary amounts, its business, financial condition, results of operations and prospects may be adversely affected.
c) Risks related to shareholders
There were not identified risks related to shareholders.
d) Risks related to its suppliers
d.1) There is a concentration of car manufacturers with limited installed capacity in Brazil.
Approximately 78.2% of the car manufacturing industry in Brazil is concentrated in five car manufacturers, namely Fiat, GM, Ford, Volkswagen and Renault. For 2011, ANFAVEA estimated a market of approximately 27.5 million passenger vehicles and light commercial vehicles and an industry installed capacity of approximately 4.3 million units per year in Brazil, with an expected expansion to 5.0 million until 2013 to meet the increase in the demand of the domestic market. In case this increase in installed capacity does not occur, or if there is a change in the sales policy of the car manufacturers, car purchase terms and conditions may be adversely affected, since the Company is among the main purchasers of passenger and light commercial vehicles in Brazil, its ability to renew and expand our fleet and, consequently, its business, financial condition, results of operations and prospects may be adversely affected.
e) Risks related to its customers
e.1) Credit risk of customers The Company is subject to the credit risk of its customers. However the Company significantly operates with credit cards in the rental of cars to individuals and with finance companies and/or leasing companies in the sales of decommissioned cars. And as of 31 December, 2011, one of the three biggest credit card companies represented 16.9% of the balance of the Company’s accounts receivable. Losses above the expectations may impact the Company’s results.
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4.1 - Description of risk factors
f) Economic sectors where the Company operates
f.1) A decline in the level of economic activity in Brazil may reduce the demand for car rental.
The operational results of the Company, particularly those related to the car rental market, are strongly affected by the level of economic activity in Brazil. A reduction in economic activity typically results in a reduction in leisure and business travel and, consequently, a decrease in the volume of car rentals. In the event of a decline in demand for car rental the Company may have to reduce the size of its fleet in order to maintain its profitability. These factors and others may negatively affect its results due to the loss of scale resulting from the dilution of fixed costs. In addition, a decrease in the level of economic activity in Brazil may also negatively affect the results arising from fleet rental business and from sales of used cars.
f.2) The results may be affected by the flow of airline passengers
The car rental operations at airports account for a substantial share of the Company’s revenues. For the fiscal year ended December 31, 2011, 32% of the car rental revenues were generated from rents in airports. A decrease in the flow of passengers traveling by air over a prolonged period of time may adversely affect our business, financial condition, operational results and prospects. Events which may cause a decrease in air travel include substantially higher airfares, strikes, decreased economic activity, air accidents, terrorist incidents and natural occurrences.
f.3) The car rental and fleet rental businesses are highly competitive.
The car rental and fleet rental businesses are highly competitive, both in terms of price and quality. As of December 31, 2011, there were approximately 2,000 car rental and fleet rental companies operating in Brazil. The fleet rental business has few entry barriers and the rental rates are a key factor in customers' purchase decision. In addition, customers generally view the fleet rental industry as a standardized industry with no substantial differences amongst the various companies in the market. The Company faces competition from Brazilian and foreign rental companies of various sizes and from small-sized regional rental companies. It also encounters numerous competitors in local markets who, by nature of their small size and their local operation, operate with lower fixed costs and can offer more competitive prices than those offered by the Company. This may lead to reduction in demand in the segments in which the Company operates or to the increase of costs in respect of attracting and retaining new customers, which may adversely affect its growth and profitability.
g) Regulation of sectors where the Company operates
g.1) The Company is subject to the risk of non-renewal of airport concessions.
In Brazil, the Company directly conducts rental operations at 63 airports, while its franchisees operate in 37 other airports. The Company conducts operations at each airport in Brazil pursuant to its concession agreements granted by INFRAERO, state airport authorities and local airport authorities. The terms of these concessions entered with federal, state, local or private entities (the majority of which is subject to bidding procedures after expiration) vary between 12 and 60 months. Of the concession agreements above referred, 12 are due to expire in 2012 and 27 are due to expire in 2013. In 2011, 32.0% of the car rental revenue derived from rentals in airport (excluding revenues from the franchisees). The Company cannot anticipate whether it will continue to be successful in renewing all or substantially all of these concessions on acceptable terms or at all. The loss of a significant amount of concessions at small airports, or the loss of any concession at major airports, could result in a material decrease in its revenue and may adversely affect our businesses, financial condition, results of operations and prospects.
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4.1 - Description of risk factors
g.2) Changes in tax legislation may result in increases in certain direct and indirect taxes, which may reduce gross margin
The Brazilian government regularly implements changes in the tax system, representing a potential increase in both the Company's tax burden and that of its customers. Such changes include changes in tax rates and, occasionally, the creation of temporary taxes, whose revenue is linked to specific governmental purposes. In case such changes increase the Company's tax burden, its gross margin may be reduced, thus adversely impacting its businesses and operation results.
h) Foreign countries where the Company operates h.1) Losses of franchise agreements abroad
The Company operates in 7 Latin American countries (Argentina, Bolivia, Colombia, Ecuador, Paraguay, Peru and Uruguay) on a franchising basis, with total annual revenue of BRL378 thousand, BRL434 thousand and BRL1,166 thousand in 2011, 2010 and 2009, respectively. The loss of some international franchise may affect the Company's results.
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4.2 – Comments on expected changes in exposure to risk factors
No increases or decreases in exposure to the risk factors described in the previous item are expected.
PAGE: 22 of 281 Reference Form - 2012 - LOCALIZA RENT A CAR SA Version: 14
4.3 – Non secret material court, administrative or arbitration proceedings
The Company and its subsidiaries have court, administrative and arbitration proceedings as follows:
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4.3
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Non
LOCALIZA RENT A CAR S/A
- - secret material court, administrative or arbitration proceedings 2012 Values, assets Likelihood of Linked Subject File Date or rights losing the Impact in the event of losing the Case Number Court Current Instance Plaintiff Defendant Main Facts Provisioned amount deposit Matter involved case lawsuit -
LOCALIZA RENT SA A CAR Deficiency notice received; Localiza’s objection filed; There were decisions São Paulo holding valid the deficiency notice; ICMS on sales of goods from the fixed Case No. 3066571-1; 3069711- Tax Court 2nd Localiza Rent a 03/27/2007 State of São Paulo There are Ordinary Appeal filed by Localiza. Remote 4,696,985.60 There is none - assets 6; 3069574-0; 3069717-7 administrative Car S.A. none Awaiting appellate court decision. instance
Federal District Objection to Deficiency Notice was filed; ICMS on sales of goods from the fixed 1st State Treasury of the Localiza Rent a Deficiency Notice No.º 5560/09 State Depart. of 08/11/2009 There are Awaiting final administrative Remote 739,844.30 There is none - assets administrative Federal District Car S.A. Taxation and none decision. instance Finance 11/26/10 –Notification of Record of Penalty for non-compliance with São Paulo Tax Deficiency Notice received ; accessory obligations relative to Court 1st Localiza Rent a Deficiency Notice No.º 3142138-6 11/26/2010 State of São Paulo There are 12/28/10 – Administrative Remote 670,222.60 There is none - ICMS (sales of goods from fixed administrative Car S.A. none defense filed. assets) instance Awaiting decision.
03/30/11 - Deficiency notice received; 04/28/11 - Objection filed; Pará State Depart. 04/25/11 – Administrative decision set ICMS on sales of goods from the fixed 1st Localiza Rent a Deficiency Notice No.º 920115100000580 of Taxation and 03/30/2011 State of Pará There are forth the revision of the Deficiency Remote 9,036,779.29 There is none - assets administrative Car S.A. Notice; Finance none instance 10/25/11 – New Deficiency Notice recorded and new defense filed. Awaiting decision.
Tax Authority Objections to the Deficiency Notice were ICMS on sales of goods from the fixed Deficiency Notice No.º 2011.000002621204- Pernambuco in 1st State of Pernambuco Localiza Rent a 09/14/2011 There are filed; Remote 11,794,513.00 There is none - assets 13 and 2011.000002617370-26 Recife administrative Car S.A. none Awaiting final administrative decision. instance
São Paulo State IPVA (tax on vehicles) – Depart. of 1st and 2nd Localiza Rent a Awaiting definitive decision in the Administrative processes - State of 4018 administrative processes several State of São Paulo There are Remote 4,889,013.78 There are none - Taxation and administrative Car S.A. administrative sphere. São Paulo none Finance instance
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4.3 LOCALIZA RENT A CAR S/A
Current Values, assets or Impact in the Non Subject Likelihood of losing Linked deposit Case Number Court Instance File Date Plaintiff Defendant Main Facts event of losing Provisioned amount Matter rights involved the case the lawsuit
- 05/26/98 – suit filed; 31/07/98 – answer filed by Federal material court, administrative arbitrationsecret or proceedings Instância Government; 02/07/00 – expert report entered in the atual record; 1 0/20/00 – judgment published held the suit valid Action for Annulment No. Deposit in court in the Not applicable. Debt -
in part; 12/06/00 – appeals presented by Localiza and by the
1998.38.00.023129-6 amounts of BRL221,723.69 2012 8th Federal Court of included in amnesty Administrative process No. Localiza Rent a and BRL3,351.90, made on Federal Government; PIS, IRPJ and IRRF the Minas Gerais Appellate Court 05/26/1998 Federal Government st granted by Law No. 155,420.49 155,420.49 592,889.02 10680-009.821/90-47 Car S.A. 05.29.1998 and 03/29/01 – suit assigned to the Eighth Panel of the 1 Judiciary Section Federal Regional Court; 11/30/09 – Pleading filed informing 11941/09. 10680-009.822/90-18 09.13.2002
inclusion of debt in the Tax Recovery Program (REFIS) and -
10680-009.823/90-72 requesting discontinuance of suit; Awaiting judicial LOCALIZARENTA CAR SA authorization for conversion into income and withdrawal of deposit in court.
11/26/99 – suit filed; 02/14/00 – answer filed by Federal Government; 02/04/09 – expert report entered in the record; 12/18/09 – judgment held claims valid in part; Action for Annulment No. Appellate Court Not applicable. Debt Full debt deposit, in the 1999.34.00.035825-2 6th Federal Court of 3/1/2010 – appeal presented; included in amnesty IRPJ, CSLL, IRRF/ILL, PIS Localiza Rent a amount of 3/1/2010 - Pleading filed informing inclusion of part of the Administrative processes No. the Federal District 11/26/1999 Federal Government granted by Law No. 1,056,878.32 1,056,878.32 4,088,008.67 and FINSOCIAL Car S.A. BRL1,505,213.25, on debt in the Tax Recovery Program (REFIS) and requesting 11941/09 10680-023.835/99-20 Judiciary Section 11.26.1999 partial discontinuance of suit; Awaiting judicial authorization 10680-010.747/97-60 for conversion into income and withdrawal of deposit in court.. 02/04/00 – Tax Forclosure filed; 02/23/01 - Deposit in court in full amount of tax credit; 06/14/00 – motion to stay execution filed; 1 0/07/04 –
published judgment holding motion to stay execution valid; 10/20/04 – appeal by appellant when compared to fees; 05/18/05 - appeal by National Treasury; 01/23/09 – Published judgment granting National Treasury’s Appellate Court Not applicable. Debt Tax forclosure No. Deposit in court made on appeal, holding Localiza’s appeal become moot; 01/27/09 – - 1st Region included in amnesty 2000.38.00.002987-1 27th Federal Cour of Localiza Rent a Car 02/23/01, in the amount Motion for Clarification filed by Localiza; Finsocial Federal 2/4/2000 Federal Government granted by Law No. 1,295,185.00 1,295,185.00 4,928,075.45 Motion to Stay Execution No. Belo Horizonte - MG S.A. of BRL1,959,395.43 11/20/09 – Pleading filed informing inclusion of debt in the 11941/09. Regional Court 2000.38.00.017433-6 Tax Recovery Program (REFIS IV) (Law No. 11941/09) and requesting discontinuance of suit; 01/26/12 - Conversion into income of deposit in courts for the Federal Government, with full payment of debts, according to reductions of Law No.11941/09; 03/19/12 – Withdrawal of remaining balance of deposit in court by Localiza. Suit ended in March 2012. 06/25/01 – Tax Forclosure filed; 07/03/01 - Published judgment denying injunction; 12/13/01 – Judgment Localiza Rent a Barueri Municipality Writ of Mandamus nº 5th Court of Barueri extinguishing suit, without merit consideration; 03/01/01 ISS on Rent Appellate Court 06/25/2001 Car S.A. and Total Tax Collection There none Remote 187,033.87 187,033.87 - 1299/2001 –Filed appeal; Fleet S.A. Authority 03/01/02 – Receipt of double effect appeal; 03/26/10 – Awaiting appeal judgment. Fortaleza 07/26/01 – Suit filed; 07/27/01 – granted injunction in Writ of Mandamus 5th Public Tax Court of Localiza Rent a Municipality ISS Deposit in court in the part; 04/20/10 – Judgment granted writ of mandamus. ISS on Rent First Instance 07/26/2001 Remote 595,568.19 595,568.19 595,568.19 2000.0115.9753-5 Fortaleza Car S.A. Tax Division amount of Awaiting appeal decision. Court Authority BRL 595,568.19.
10/05/01 – Suit filed; 02/15/02 – Judgment denying claimed interlocutory relief; Lawsuit No. 5st Public Tax Court of Localiza Rent a Deposit in court in the 10/05/02 – deposit in court made; 04/27/04 - ISS on Rent Appellate Court 10/05/2001 Recife Municipality Remote 482,213.12 482,213.12 482,213.12 001.2001.030360-0 Recife Car S.A. amount of BRL 482,213.12. Unfavorable judgment; 07/06/04 – appeal filed; 12/23/10 – Awaiting appeal judgment.
07/15/02 – Suit filed; 08/08/02 – Denied interlocutory relief; 08/30/04 – Judgment denied claims; 1 0/09/04 – Lawsuit No. 7th Federal Court of Localiza Rent a appeal filed; PAGE: 25281PAGE: of PIS -billing Appellate Court 07/15/2002 Federal Government Deposit in court Likely 820,518.53 820,518.53 820,518.53 2002.34.00.021384-6 Brasilia Car S/A 12/03/04 – Case sent to Appellate Court TRF; 09/03/09 – Case held by Judge Rapporteur under advisement. Awaiting judgment of appeal
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4.3 LOCALIZA RENT A CAR S/A
Non Current Values, assets or Impact in the Subject Likelihood of losing Linked deposit Case Number Court Instance File Date Plaintiff Defendant Main Facts event of losing Provisioned amount Matter rights involved the case the lawsuit
04/15/03 – Suit filed; 04/30/03 – Effects of interlocutory -
secret material court, administrat secret Instância relief partially granted so that the Defendant refrains from atual demanding from Plaintiff ISS on car rental; 04/22/04 –
Judgment holding claims partially valid; -
Lawsuit No. 6th Civil Court of Jundiaí Localiza Rent a 2012 ISS on Rentals Appellate Court 04/15/2003 Jundiaí Municipality There are none 05/07/04 – Appeal filed by Localiza; 06/24/05 – Case sent Remote 27,257.92 27,257.92 - Jurisdiction 1291/2003 Car S.A. to São Paulo Court of Appeals; 07/20/11 – Appeal granted and mandatory appeal denied. Awaiting judgment
of motion for clarification. -
LOCALIZARENTA CAR SA
06/11/03 – Tax Disclosure filed; 06/16/03 – Deposit in court made in guarantee; 07/14/03 – Motion to stay execution filed; 02/02/04 – Judgment holding Motion partially valid; 03/1/04 – Appeal by Localiza filed; 09/18/09 – Published appellate Tax Forclosure No. Deposit in court on 2003.83.00.013396-7; 11th Federal Court in Localiza Rent a Car decision denying grant of appeal; 10/23/09 – Motion for Land Occupation Fee Appellate Court 06/11/2003 Federal Government 06/16/03, Likely 99,400.00 9,.400.00 99,400.00 Motion nº Recife S.A. Clarification filed; 12/04/09 – Published appellate decision in the amount of BRL 2003.83.00.015499-5 rejecting Motion; 12/28/09 – 99,400.00 Special Appeal filed ; 06/26/10 – Awaiting Special Appeal Decision.
Public –interest civil action Judgment of first instance favorable; Ordinary appeal filed Superior Labor for quota of disabled 3rd Region13th Labor Labor Prosecutors Appeal deposit in the by MPT; MPT appeal granted by Regional Appellate Labor Court – appeal Localiza Rent a Car Remote, provided employees or beneficiaries 01373-2003-009-03-00-0 Court of Belo Horizonte 09/12/2003 Office of Minas amount of BRL8,338.66 on Court; Appeal to Superior Labor Court- TST; Awaiting 500,000.00 Não há -
ive or arbitrationive or proceedings
of social security phase S/A quota complied with Gerais (MPT) 06/27/2004. judgment of Motion by TST. Awaiting judgment of rehabilitated extraordinary appeal. extraordinário.
05/4/04 – Writ of Mandamus files; 05/4/04 - Judgment granting injunction; 12/15/04 – Published judgment granting writ of mandamus; 02/14/05 – Appeal by State of Minas Gerais; 08/11/05 – State of Minas Gerais 4th Tax Court of Belo Appellate decision granting appeal from the State of Minas Finance Department Deposit in court in the Writ of Mandamus No. Horizonte Jurisdiction Localiza Rent a Gerais and overuling decision; 08/11/05 – Deposit in court Fire Fee Higher Court 5/4/2004 TaxCredit amount of BRL 5,565.67 on Likely 5,565.67 5,565.67 5,565.67 0024.04.332004-3 Car S/A made; 08/16/05 – Special and Extraordinary appeals filed; Superintendent. 08/11/05 07/14/06 – Judgment: appeals not entertained; 07/26/06 –Interlocutory Appeals filed at STJ and STF; 03/25/08 - STJ judgment: interlocutory appeal not granted ; Awaiting judgment of interlocutory appeal Federal Supreme STF.
12/17/04 – Tax Forclosure filed; 01/09/05 – Pleading offering bank suretyships as guarantee filed; 02/09/05 – Social Security SAT (labor NFLD 35.476.528-0 Bank guarantee letter Motion to stay execution filed; 09/21/09 - Published accident insurance) on: (Tax Forclosure No. offered on12/17/04, in the 25th Federal Court of Localiza Rent a Car holding motion partially valid; 04/06/10 – Appeal by Employees Life Insurance; 2004.38.00.054709-9 Appellate Court 17/12/2004 Federal amount of BRL 460,000.00 Likely 508,195.20 37,632.02 210,227.58 Belo Horizonte - MG S.A. National Treasury filed. 03/09/11 – Awaiting judgment of Motion Government (full amount of tax credit) Private Retirement Plan; and Appeal. profit sharing. 2005.38.00.004347-3)
12/07/04 - Tax Forclosure filed; 11/07/05 - Pleading bank suretyships offer as guarantee filed;; Social Security penalty in 11/31/05 - Motion to stay execution filed; view of GFIP inconsistency, Tax Forclosure No. Bank guarantee letter No. 01/09/06 – Objection filed by Appellee; 09/04/07 – Granted Contribution related to 2004.38.00.054708-5; production of expert report; 02/05/10 - Expert report filed; 24th Federal Court of Localiza Rent a Car ML 4.04/13 - Banco Itaú – employer on: amounts paid Motion nº 1st Instance 12/17/2004 Federal 04/28/10 - 08/31/10 – Published judgment holding motion Likely 347,299.31 89,515.90 74,215.30 Belo Horizonte S.A. on 11/07/05 – for the purpose of Premium, 2005.38.00.004348-7 Court Government partially valid; 11/11/10 – Appeals filed; 03/23/11 – Case BRL 447,579.49 Profit sharing , Porters’ (NFLD 35.476532-9) sent to Regional Federal Court. Awaiting judgment of commission and life insurance. Appeals.
12/17/04 - Tax Forclosure filed; 01/09/05 - Pleading bank Social Security Social security suretyships offer as guarantee filed; 02/09/05 - Motion to PAGE: 26281PAGE: of contribution when compared NFLD 35.476.533-7 Bank Guarantee Letter stay execution filed; 09/21/09 - Published judgment holding to employer and insured, (Tax Forclosure No. offered on 12/17/04, in the 25th Federal Court of Localiza Rent a Car motion partially valid; 04/06/10 – Appeals filed by National education salary and INCRA 2004.38.00.054709-9 Appellate Court 12/17/2004 Federal amount of BRL1,160,000.00 Likely 1,334,406.77 1,030,230.47 Bank Guarantee Belo Horizonte - MG S.A. Treasury. 03/09/11 - Awaiting judgment of Appeals. on: free lancer Motion No. Government (full amount of tax credit) Letter
Version: compensation: Labor claims. 2005.38.00.004347-3)
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4.3 LOCALIZA RENT A CAR S/A
Non Current Values,assets or rights Impact in the Subject Likelihood of losing Linked deposit Case Number Court Instance File Date Plaintiff Defendant Main Facts event of losing Provisioned amount Matter involved the case the lawsuit
12/17/04 – Tax forclosure filed; 01/09/05 - Pleading bank -
secret material court, administrative arbitrationsecret or proceedings NFLD 35.476.529-9 Bank Guarantee Letter offered suretyships offer as guarantee filed; 02/09/05 - Motion to Social Security – SAT (labor Instância (Tax Foreclosure No. on 12/17/04, in the amount of stay execution filed; 09/21/09 - Published judgment accident insurance) 25th Federal Court of atual Localiza Rent a Car 2004.38.00.054709-9 Appellate Court 12/17/2004 Federal Government BRL 245,000.00 (full amount Likely 294,927.55 There 136.546,47
holding motion partially valid;; 04/06/10 - Appeals filed by - on: Profit sharing - Belo Horizonte - MG S.A. none employees. Motion No. of tax credit) National Treasury. Awaiting judgment of Appeals. 2012 2005.38.00.004347-3)
-
Social Security Employer 01/10/05 - Tax forclosure filed; 12/07/05 - Pleading LOCALIZARENTA CAR SA Union Contribution, bank suretyships offer as guarantee filed; 02/10/05 - Tax Foreclosure No education salary and INCRA Bank Guarantee Letter No. ML Motion to stay execution filed; Likely 2005.38.00.000643-0; 26th Federal Court of Localiza Rent a Car 4.04/15 - Banco Itaú - on on : Life Insurance, Private First Instance 01/10/2005 Federal Government 09/06/06 – Objection by appellee filed; 03/29/10 – 3,772,543.13 1.740.630,09 788,989.78 Motion No Belo Horizonte - MG Retirement Plan and Profit Court S.A. 17/12/04 - BRL Judgment rendered - 2005.38.00.004349-0 Sharing. 3,430,000.,00 Suit dismissed without merit consideration; 11/25/10 – (NFLD 35.349682-0) Appeal filed. Awaiting judgment of appeal.
05/29/06 – Relief from Judgment filed; 0 9/29/06 – interlocutory relief denied; 1 0/06/06 – Interlocutory Relief from Judgment No. 1st Civil Chamber of Deposit in court in Writ of Appeal filed; 06/6/07 – Appellate decision denying 226.001.293-1 (Writ of Localiza Rent a ISS on rentals Alagoas Court of Appeals 05/29/2006 Maceió Municipality Mandamus in the amount of grant of appeal; 12/03/07 – Special Appeal filed; Likely 232,065.80 232,065.80 212,482.90 Mandamus No. 13979- Car S.A. BRL 77,878.20 08/10/09 – Order from the Appellate Court President: 7/2001) Appellate Court To Judge rapporteur for measures.Perform. Awaiting judgment.
07//01/06 – Action for Annulment filed; 07/07/06 – Pleading presenting judicial deposits slips; 10/01/07 – Production of expert report accepted ; 03/06/09 – Deposit in court made Social Security SEST/SENAT Expert report filed; 12/16/09 - Judgment – claim held Not applicable. Debt on Social Transportation Service and NFLD No. 35.476.536-1 partially valid; 11/30/09 – Debt include in the included in amnesty 6th Federal Court of Localiza Rent a 07/07/2006 in the amount of National Transportation Service (Action for Annulment No. 7/1/2006 Federal Government granted by Law No. 15,891.86 15,891.86 20,665.13 Belo Horizonte Car S.A. amnesty provided for by Law 11941/09. Pleading filed Apprentice on: Free Lancers BRL 20,665.,13 (full amount 11941/09. 2006.38.00.022399-4) partially discontinuing and abandoning the suit. Awaiting Remuneration and amounts of tax credit) Appellate Court judicial authorization for conversion into income and paid in labor agreements. withdrawal of deposit in court.
07//01/06 - Action for Annulment filed; 07/07/06 - Pleading entering judicial deposits slips; 10/01/07 - Deposit in courts made Social Security SEST/SENAT on: Production of expert report accepted; 03/06/09 - on Expert report filed; 12/16/09 - Judgment – claim held Free Lancers Remuneration NFLD No. 35.349.684-7 6th Federal Court of Localiza Rent a 07/07/2006 in the amount of and amounts paid in labor (Action for Annulment No. Appellate Court 7/1/2006 Federal Government partially valid; 01/15/10 – Motion for Clarification Likely 179,923.51 41,698.03 342,717.22 Belo Horizonte Car S.A. BRL161,015.55 (full amount filed; 04/05/10 - Motion for Clarification denied; agreements. 2006.38.00.022399-4) of tax credit) 04/27/10 – Cross appeal filed by Localiza. Awaiting judgment of appeals.
07//01/06 – Action for Annulment filed; 07/07/06 - Pleading entering judicial deposits slips; 10/101/07 - Deposit in courts made Social Security SEST/SENAT on: Production of expert report accepted; 03/06/09 - on Expert report filed; 12/16/09 - Judgment – claim held Free Lancers Remuneration NFLD No 35.349.685-5 6th Federal Court of Localiza Rent a 07/07/2006 in the amount of partially valid; 01/15/10 - Motion for Clarification and amounts paid in labor (Action for Annulment No. Appellate Court 7/1/2006 Federal Government Likely 401,842.39 122,365.15 732,170.45 Belo Horizonte Car S.A. BRL365.853,10 (full amount filed; 04/05/10 - Motion for Clarification denied; agreements. 2006.38.00.022399-4) of tax credit)) 04/27/10 - Cross appeal filed by Localiza. Awaiting judgment of appeals.
05/18/07 - Tax forclosure filed;; 07/12/07 – Bank surety as guarantee filed; 07/26/07 – Deposit in court made Social Security Employer Bank Guarantee Letter - Banco Tax Forclosure No. complementing bank guarantee; 07/31/07 – Motion to Union Contribution, Bradesco - BRL 2007.38.00.013372-9; stay execution filed; 12/03/07 – Objection by Federal PAGE: 27281PAGE: of education salary and INCRA 23 rd Federal Court of Localiza Rent a Car 3,094,697.44 on Motion No. First Instance 05/18/2007 Federal Government Government filed; 10/14/2010 – permission for parties to Likely 3,559,384.39 168,225.21 1,296,216.39 on : Life Insurance and Profit Belo Horizonte - MG Court S.A. 06/28/07; Deposit in court 2007.38.00.024160-5 specify evidences. Awaiting expert evidence performancel. Sharing. BRL 22,500.00 on (NFLD 35.349683-9) Awaiting judgment in 1st instance. 07/26/07.
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4.3 LOCALIZA RENT A CAR S/A
Current Values, assets or Impact in the Non Subject Likelihood of losing Linked deposit Case Number Court Instance File Date Plaintiff Defendant Main Facts event of losing Provisioned amount Matter rights involved the case the lawsuit
01/25/2010 –Writ of Mandamus filed; -
secret material court, administrative arbitrationsecret or proceedings Instância 03/02/11 – Injunction denied; 03/25/11 – Appeal filed; atual 06/15/10 – Published judgment which granted, in
limine, the interlocutory relief; 02/7/11 – Published -
Writ of Mandamus 19th Federal Court of Localiza Rent a 2012 FAP Court of 1st 01/26/2010 Federal Government There are none judgment rejecting the writ of mandamus; 02/10/11 – Likely 889,163.35 889,163.35 - 2010.38.00.002032-0 Belo Horizonte Instance Car S.A. Appeal filed by Localiza; 03/16/11 –Granted supersedeas effect of appeal so that the injunction effects remain.
Awaiting judgment. -
LOCALIZARENTA CA
State Tax Court of the National Treasury Deposit in court in the Escrow deposit of full amount made Localiza Rent a Car IPVA (Tax on vehicles) – Tax 42 Tax Forclosures Capital Jurisdiction Court of 1st 05/27/2010 State of São Paulo full amount of tax 11/03/10. Motion against Tax Foreclosures filed. Awaiting Remote 94,148.94 There are none 94.148,94 S.A. Forclosures Instance credit judgment.
Action for Annulment filed. On 06/21/2010 Injunction 2nd Public Tax Court of National Treasury of IPVA - Action for Annulment of Tax Action for Annulment Localiza Rent a Deposit in court in the granted conditioned to debt amount deposit. On the State of São Paulo Court of 1st 06/15/2010 the State of São Paulo Remote 3,112.92 There are none 3.112,92 Debt 0019424- Car S.A. Instance amount of BRL 3,112.92 06/29/2010 Entering of deposit slip. Awaiting judgment. 20.2010.826.0053
R SA Açtion for Annulment No. 10th Public Tax Court of National Treasury of Action for Annulment filed. On 04/27/2011 Injunction IPVA - Action for Annulment of Tax Localiza Rent a 0011040- the State of São Paulo Court of 1st 4/5/2011 the State of São Paulo There are none granted suspending enforceability of debts. Awaiting Remote 328,123.94 There are none - Debt Car S.A.
34.2011.826.0053 Instance judgment. Action for Annulment filed. On 05/09/2011 Interlocutory relief not granted. Awaiting judgment. Açtion for Annulment No 11th Public Tax Court of National Treasury of Bank Guarantee Letter in IPVA - Action for Annulment of Tax Localiza Rent a 0015180- the State of São Paulo Court of 1st 5/4/2011 the State of São Paulo the full amount of tax Remote 503,295.69 There are none - Debt Car S.A. 14.2011.826.0053 Instance credit
Tax Forclosure No. Tax Forclosure filed. On 06/16/2011 bank 0023525- 1st State Tax Court of National Treasury Bank Guarantee Letter in ICMS (Tax on circulation of Localiza Rent a Car guarantee letter and guarantee filed. On 14.2010.8.17.0001. Recife Court of 1st 06/16/2011 of the State of the full amount of tax Remote 1,214,,623.74 There are none - goods) on sales of goods of S.A. 08/11/2011 motion to stay execution filed. Awaiting judgment Motion No. 0045455- Instance Pernambuco credit the fixed assets of motion. 57.2011.8.17.0001
General Manager of the On 07/04/2011 Writ of Mandamus filed. Injunction denied Proportional Tax Revenue Office of and Appeal filed. The court denied granting of Appeal IPVA shall be the State of ,additionally it recognized lack of right of action (lack of collected upon 8th Public Tax Court of Pernambuco; Manager standing to sue ) and dismissed the lawsuit without examining IPVA proportional – 0035712- Localiza and Total sales of vehicles Recife Jurisdiction Appellate Court 7/4/2011 of the Management of Escrow deposit the merits of the case, under article 267, item V c/c §3, of Remote There are none 137.235,11 Pernambuco 20.2011.8.17.0001 Fleet in the State of the Tax Revenue Office the Code of Civil Procedure. On 03/01/2012 We filed Pernambuco of the State of Special Appeal against the decision.
Pernambuco - GERT
Action for Annulment filed. On 12/13/2011 Injunction 8th Public Tax Court of National Treasury of IPVA – Action for Annulment of Action for Annulment Localiza Rent a Deposit in court in the granted conditioned to debt amount deposit. On the State of São Paulo Court of 1st 11/09/2011 the State of São Paulo Remote 25,947.57 There are none 25.947,57 Tax Debt 0042573- Car S.A. amount of BRL 25,947.57 16/12/2011 Entering deposit slip. Awaiting judgment. Instance 11.2011.8.26.0053
Tax Forclosures No. 2008/001.352325-3; Bank Guarantee Letters Tax foreclosures filed; Pleading suretyship offer as 11th Public Tax Court of ICMS(Tax on circulation of 2008/001.352262-5; Court of 1st State of Rio de Localiza Rent a Car in the full amounts of guarantee file; Motion to stay execution filed. Awaiting the State of Rio de Sundry Remote 4.094.243,70 There are none - goods) on sales of goods of the 2001/001.006105-0; Instance and Janeiro S.A. the tax credits judgment of motion in the 1st instance court. Janeiro fixed assets 2008/001.344042-6; Higher Court 2008/001.365858-4. PAGE: 28281PAGE: of ICMS and penalty for non- Bank Guarantee Letter and compliance with accessory Tax Forclosures No. 1st and 3rd Public Tax National Treasury Localiza Rent a Car deposit in court in the full Motion to stay execution filed; Awaiting judgment of obligation relative to transfer of 140.98.652435-7 and Courts of Salvador Court of 1st Sundry of the State of Remote 2.168.299,30 There are none 27.684,50 S.A. amounts of the tax credits motion. Version: goods of the fixed assets 140.98.651584-3 Instance Bahia
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4.3 TOTAL FLEET S/A
-
Impact in the event of losing Values, assets or Non File Date Likelihood of the lawsuit Linked Subject Case Number Court Current Instance Plaintiff Defendant rights involved Main Facts Provisioned amount Matter losing the case deposit
- secret material court, administrative or arbitration proceedings 11/26/10 Recording of Tax Deficiency Penalty for non-compliance with Tax Judgment
- Notice received;
accessory obligations relative to Tax Deficiency Notice No. Department of 1st State of São Localiza Rent a 2012 11/26/2010 There are none 12/28/10 – Administrative answer filed. Remote 3142138-6 São Paulo administrative Paulo Car S.A. ICMS (sales of goods of the Awaiting judgment. instance fixed assets) 51,602.18 There are none 420.86
-
LOCALIZARENTA CAR SA
01/25/10 –Writ of Mandamus filed; 03/15/10 - Injunction dismissed; 03/25/10 - Appeal filed; 08/30/10 – published judgment which granted
Court of 1st Instance suspensory effect of the Interlocutory 8th Federal Court of Appeal, allowing the payment of FAP Writ of Mandamus 01/25/2010 Total Fleet S.A. Federal Government There are none Likely Belo Horizonte SAT/RAT without FAP rate; 11/25/10 - Case ready for judgment. 10/04/11 - Judgment overruled order; 10/09/11 - Appeal filed. Awaiting judgment of 47,939.26 47,939.26 - appeal.
Tax Department IPVA – administrative cases – 2586 of the State of 1st and 2nd State of São Awaiting final judgment at State of São Paulo Sundry Total Fleet S.A. There are none Remote administrative São Paulo administrative Paulo administrative sphere proceedings instance 5,227,961.16 There are none -
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4.3 Prime Prestadora de Serviços S/A
- Likelihood of Impact in the event of losing Linked Subject Matter Values,assets or rights Provisioned amount
Non File Date losing the case the lawsuit deposit Case Number Court Current Plaintif Defendant involved Main Facts ISS - DEPOSITED (Aims at the Instance PRIME Deposit in court in the annulment of debts relative to the - 7th Court of the 03/17/2009 –Action for Annulment filed. CDA’s No. 0120288125, PRESTADORA DE amount of secret material court, administrative or arbitration proceedings 2009.01.1.035810-2 National Treasury of Court of 1st 3/17/2009 Federal District Awaiting judgment at Court of 1st Remote 434,756.96 434,756.96 47,710.70 0120288133, 0120559650, SERVIÇOS S.A. BRL24,645.55, made on - the Federal District Instance Instance. 0120559668 and 0126158746) 04/20/2009 2012 and other
-
LOCALIZARENTA CAR SA
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4.3
LOCALIZA FRANCHISING BRASIL S/A
-
Non Subject Likelihood of losing Impact in the event of losing Linked Values, assets or rights Matter File Date the case the lawsuit deposit Case Number Court Current Instance Plaintiff Defendant involved Main Facts Provisioned amount
-
Writ of Mandamus filed; 11/18/04 – secret material court, administrativ
published judgment: writ of -
mandamus dismissed; 12/30/04 – 2012 Appeal filed by petitioner; 09/6/07 – Judgment denying appeal;
-
09/16/07 –Special and Extraordinary LOCALIZARENTA CAR SA appeals filed; 08/22/08 – appeal not entertained ISSQN (tax on 4th Tax Court of Director of the Monthly deposit in courts 09/03/08 – Interlocutory Appeal to STJ service of any Writ of Mandamus Belo Horizonte Localiza Department of with the purpose of and STF filed; nature) on No. Municipality Higher Court 6/21/2004 Franchising Chattel Revenues of suspending enforceability 05/12/09 – judgment of appellate judge Likely 1,369,046.88 1,369,046.88 1,369,046.88 revenue 0024.04.383530-5 Brasil S.A. Belo Horizonte of ISSQN tax credit. rapporteur granting the appeal to send resulting from the special appeal to higher court. franchising Awaiting judgment of special appeal; 08/03/10 – Judgment of Appellate activity Judge rapporteur: Special Appeal not entertained. Awaiting judgment of Extraordinary Appeal by STF(Supreme Federal Court).
e or arbitration proceedingse or
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4.4 – Non-secret court, administrative or arbitration proceedings in which opposing parties are officers, former officers, controlling shareholders, former controlling shareholders or investors
Neither the Company nor its subsidiaries are aware of any material court, administrative or arbitration proceedings in which opposing parties are officers, former officers, controlling shareholders, former controlling shareholders or investors of the Company or its subsidiaries.
PAGE 32 of 281 Version : 14 Reference Form - 2012 - LOCALIZA RENT A CAR SA
4.5 – Secret material proceedings
The Company and its subsidiaries are not aware of any secret material proceedings to which they are parties and which have not been disclosed in the previous items.
PAGE 33 of 281 Version : 14 Reference Form - 2012 - LOCALIZA RENT A CAR SA
4.6 – Jointly non-secret and material repetitive or connected court, administrative or arbitration proceedings
The Company and its subsidiaries are parties to repetitive or connected court, administrative and arbitrary proceedings based on similar facts and legal matters that are not under secrecy and which are jointly material, as follows:
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e relevantes em conjuntoe relevantes em proceedings 4.6 LOCALIZA RENT A CAR S/A
Likelihood of Impact in the event of Linked Subject Matter Case Number Values, assets or rights - losing the case losing the lawsuit deposit
File Date Jointly non Court Current Instance Plaintiff Defendant involved Main Facts Provisioned amount
Federal Revenue Social Security - Social Office – Social security contribution. Federal Revenue Localiza Rent a Sundry Sundry 12/31/2003 Security Office There are none Sundry Sundry 46,068.55 46,068.55 1,350,798.44 Office Car S.A. - (Other deposits)
2012
Sundry Tax Contingencies Sundry Sundry Sundry Sundry
- Localiza Rent a -
secret and material repetitive or connected court, administrative or arbitratio Sundry Sundry Sundry Tax Contingencies Sundry 575,303.57 575,305.57 722,416.85 LOCALIZARENTA CAR SA Car S.A. Sundry Sundry Sundry Sundry 78 suits involving collection ISSQN (tax on
service of any nature) on chattel rents, fuel reimbursement and other payments relative
to rents. Localiza is discussing the
referred to collections at administrative ISS on rent – Deficiency Localiza Rent a Sundry Sundry and court level considering the Supreme Remote 10,360,194.86 There are none 515,103.44 Notice Car S.A. Federal Court’ s settled opinion, through Precedent No.31, relative to non levy of ISS on chattel rent.
Sundry Sundry Sundry Sundry 843 suits which represent the Localiza Rent a Company’s total contingent liabilities Civil Litigation Sundry Sundry Likely 46,984,156.97 5,223,771.91 1,757,481.25 Car S.A. of civil nature.
Sundry Sundry Sundry Sundry 247 suits which represent the Company’s Localiza Rent a total contingent liabilities of labor nature. Labor Litigation Sundry Sundry Likely 33,630,137.83 10,000,988.94 2,564,575.35 Car S.A.
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proceedings 4.6 TOTAL FLEET S/A
-
Jointly non Likelihood of losing the Impact in the event of losing Linked Subject File Date Values, assets or rights involved case the lawsuit deposit Matter Case Number Court Current Instance Plaintiff Defendant Main Facts Provisioned amount
Sundry Sundry Sundry Sundry Sundry Sundry Sundry -
109 cases which represent 2012
the Company’s total Civil Litigation contingent liabilities Likely 2,879,907.58 505,232.16 42,599.11
- -
liability of civil nature. secret and material repetitive or connected court, administrative or arbitration
LOCALIZARENTA CAR SA
Sundry Sundry Sundry Sundry Sundry Sundry Sundry Sundry Tax Sundry Tax Contingencies Sundry 317,882.69 317,882.69 - Contingencies Sundry Sundry Sundry
6 suits which represent the Company’s total contingent Labor Sundry 6 Plaintiffs Total Fleet S/A Sundry liability of labor nature. Likely 4,154,034.68 278,776.34 78,721.63 Litigation
128 cases with IPVA - Revenue Office 1st and 2nd definitive unfavorable There are none administrative 2586 of the State of State of São administrative Sundry Total Fleet S.A. There are none judgment. 2458 Likely 5,793,427.52 - cases – State of administrative Paulo instances Cases pending. São Paulo cases
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e relevantes em conjuntoe relevantes em proceedings 4.6 Prime Prestadora de Serviços S/A
-
Subject Likelihood of losing the Impact in the event of Linked Jointly non Case Number Matter Current File Date Values, assets or rights involved case losing the lawsuit deposit Court Plaintiff Defendant Main Facts Provisioned amount Instance Sundry Sundry Sundry Sundry Sundry 34 cases which represent the
Prime - Company’s total contingent
2012
Labor Litigation Prestadora 34 Plaintiffs liability of labor nature. Likely 11,602,216.37 1,843,750.71 841,459.08 de Serviços S/A -
-
secret and material repetitive or connected court, administrative or arbitration
LOCALIZARENTA CAR SA Sundry Sundry Sundry Sundry Sundry Prime Sundry Tax Tax Contingencies Prestadora de Sundry Sundry 293,918.94 293,918.94 - Contingencies Sundry Serviços S/A
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4.6 - Jointly non-secret and material repetitive or connected court, administrative or arbitration proceedings
-
9
14,987.8
Linked Deposit Linked
-
0
50,000.0
Provisioned amount
3 5
.
535,689
the lawsuit Impact in the event of losing
losing the the losing case
Likelihood of of Likelihood
Sundry
ncies
Main Facts
Sundry Tax Continge Tax Sundry
ved
l
o
v
n
i
or rights
Values, assets
Sundry Sundry
Defend ant
Sundry Sundry
Plaintiff
Sundry Sundry
File Date File
Sundry Sundry
Current Instance
Sundry Sundry
Court
Sundry Sundry
A
/
S
L
I
S
A
BR
s
G
o
N
t
I
Case Number Case
u
S
Sundry Sundry
I
A
NCH
A
FR
A
Z
I
L
A
Matter
Subject
LOC
Civil Litigation Civil deposits Sundry
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4.7 - Other material contingencies
The Company is not aware of any material contingencies other than those previously disclosed.
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4.8 - Rules of the country of origin and country in which securities are being held in custody
a) restrictions imposed on the exercise of political and economic rights
Not applicable, since Localiza is a Brazilian company with registered office in the City of Belo Horizonte, State of Minas Gerais, Brazil, and its securities are in custody in its country of origin.
b) restrictions on the circulation and transfer of securities
Not applicable, see sub-item (a) above.
c) cases for cancellation of registration
Not applicable, see sub-item (a) above.
d) other issues of interest to investors
Not applicable, see sub-item (a) above.
PAGE 40 of 281 Reference Form - 2012 - LOCALIZA RENT A CAR SA Version : 14
5.1 - Description of main market risks
In the normal course of its operations, the Company is exposed to the following: market risks (interest rate and exchange rate risks), credit risk and liquidity risk.
Market risk is the risk that the fair value or future cash flows of a certain financial instrument may fluctuate due to changes in interest rates. Management of market risk is conducted in order to ensure that the Company is only exposed to levels of risk that are considered acceptable in the context of its operations.
• Interest rate risk ‐ interest rate risk is the risk that the fair value or future cash flows of certain financial instrument may fluctuate due to the variations of market interest rates.
The Company uses its funds resulting from operational activities to manage its operations and ensure the renewal of its fleet and part of its growth. In order to complement its cash need for growth, the Company obtains loans and financing with the leading finance institutions in the Country, as well as issuing debt instruments (debentures and promissory notes), which are substantially indexed at the variation of C.D.I. (Certificate of Interbank Deposit). The inherent risk arises from the possibility of material increase in C.D.I.
Additionally, almost the totality of the balance of cash and cash equivalents is also indexed at the variation of C.D.I.
As required by ICVM 475/08, the Company carried out sensitivity tests for adverse scenarios (deterioration of the CDI rate at 25% or 50% higher than the probable scenario), considering the following assumption:
• As at December 31, 2011, the Company's net debt amounted to BRL1,363,423;
• Market expectations, according to data obtained from the Focus Bulletin issued by the Brazilian Central Bank (BACEN) for the base date December 31, 2011 indicated an estimated effective average CDI rate of 9.69% as being the scenario considered probable for 2012, compared with the effective rate of 11.60% for 2011.
Consolidated (IFRS and BR GAAP) BRL thousand
Scenario I ‐ Scenario I I‐ Scenario deterioration deterioration Description Probable of 25% of 50%
Net debt on 12/31/11 1,363,423 1,363,423 1,363,423 CDI effective rate in 2011 11.60% 11.60% 11.60% CDI annual estimated rate, according to stress scenarios 9.69% 12.11% 14.54%
Effect on financial expenses: ‐ according to effective rate (158,157) (158,157) (158,157) ‐ according to scenarios (132,116) (165,111) (198,242) (Increase)/Reduction in annual financial expenses 26,041 (6,954) (40,085)
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5.1 - Description of main market risks
• Exchange rate risk – the Company contracted swap operations linked to loans in foreign currency.
Aiming to reduce costs of its fund raising and expand the amortization terms, the Company contract loans in foreign currency. As strategy for managing exchange rate risk simultaneously to these operations, mandatorily swap operations (plain vanilla) are contracted with identical value, term and rate conditions, replacing the exposure to the exchange variation by CDI variation. The contracted swap operations have an exclusive nature of hedge to the risk of exposure to the foreign currency.
As of 31 December 2011, the Company had two loan agreements in foreign currency:
As of 29 June 2010, Localiza took out a loan of USD95,506 thousand, with maturity date of the principal and interest on 25 May 2016. This value was converted into BRL at the rate of BRL1.78 for every USD1.00, resulting in a raising of BRL170,000 thousand. Simultaneously, a swap operation (plain vanilla) was contracted aiming to eliminate the risk of exposure in foreign currency, replacing the exchange rate change plus spread by CDI variation of 114.7%.
As at 24 August 2011, Localiza executed with Bank of America a loan agreement in the amount of USD75.0 million, equivalent to BRL123.0 million, under Law 4131/62, for final amortization in 6 years, and the funds made available to Localiza in November 2011. Simultaneously, and becoming effective on the same date of the funds’ release, the swap operation (plain vanilla) was contracted in identical conditions of value, term and rate, replacing the exposure to exchange rate change plus interest (LIBOR of 3 months + 1.6% per year) by 102.5% of CDI.
Instability in exchange rate could adversely affect Company’s business, its financial situation, operational results and its perspectives.
Real have been presenting periodic devaluation when compared to dollar and other currencies. Periodically, significant fluctuations happened in exchange rate among real, dollar and other currencies. As an example, real devaluated 18.7% and 52.3% when compared to dollar, in 2001 and 2002 respectivelly, and valorized 18.2%, 8.1%, 11.8%, 8.7% and 17.2% when compared to dollar in 2003, 2004, 2005, 2006 and 2007, respectively. In 2008, mainly due to the international financial crise, real presented a devaluation of 31.9% when compared to dollar, resulting in a BRL billion’ withdrawn from BM&FVOVEPSA by foreign investors. In 2009 an 2010, real return to valorize when compared to dollar, stated at R$1.74 and R$1.67 for each dollar, respectively.
Throughout 2011, Braziliian government adopted measures in order to comprise the appreciation of real when compared to dollar. During the year, real/dollar exchange rate presented a minimum price of R$1.53 for each dollar. As of December 31, 2011, real/dollar exchange rate closed at R$1.88, presenting devaluation of 12.6% as a result from measures adopted, when compared to the quotation as of December 31, 2010.
Devaluation of real when compared to dollar could create additional inflationary pressures in Brasil leading to an increase in the exchange rate, realty rental rate, products and services prices, that could negatively affect our operational results. On the other hand, real valorization when compared to dollar could affect current account in Brazil and balance of payments, as well as reducting gross domestic product – GDP due to the increase in imports. Devaluation or appreciation of real can affect positively and negatively the growth of Brazillian economics and Company’s businesses, its financial situation, operational results and its perspectives.
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5.1 - Description of main market risks
Consequences and risk perception in other countries, especially in United States and other countries from emergent market, could negatively affect Company’s businesses and the market price of Brazillian securities.
Market value of Brazilian issuers’ securities is affected by economic and market conditions from other countries, including United States, European Union and emerging markets. Despite the fact that economic conditions in other countries are significantly different from the ones found in Brazil, investors’ reactions to consequences in these other countries could negatively affect the market value of securities of Brazillian issuers. Financial crises in United States, European Union or in other emerging countries could decrease the interest form investors in securities from Brazillian issuers, including the Company. This could hamper Company’s access to capital markets and to its bussiness’ financing in acceptable terms in future, when obtained.
The global financial crise, which began in 2008, had significant negative consequences, including in Brazil, such as volatility in credit and stock market, credit unavailability, increase on interest rate, economic deceleration in general, exchange rate volatility and inflationary pressure, among others. In 2011, debt crisis that affects euro zone stopped the growth of the main global economies, including Brazillian. National GDP growth in December was 2.7%, corresponding of 4.8 p.p reduction when compared to 2010 figures. These facts could, directly or indirectly, negatively affect Company’s market value of Brazilian’s securities and its bussines.
• Credit Risk – the credit risk is the risk of the other party not complying with the agreement obligations, driving the Company to incur in financial losses. The credit risk in the Company is attributed, in short, to credits receivable of clients and in cash and cash equivalents deposited in banks and financial institutions.
On 31 December 2011, the maximum exposure to the credit risk of the Company, according to residual value of the respective financial assets, is as follows:
BRL thousand
12/31/11 Loans and receivables: Cash and cash equivalent 711,002 Accounts receivable 353,440 1,064,442
a) Cash and cash equivalent ‐ the risk of credit of balances with banks and financial institutions managed by the Company’s Financial Management, according to policies set forth by the Board of Directors, aiming to minimize the concentration of risks and thus, the reduction of eventual financial loss in the event of potential bankruptcy of the other party.
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5.1 - Description of main market risks
b) Credits receivable ‐ the management of credit risk related to the accounts receivable is constantly monitored by the Company, which has control policies established.
• Liquidity risk – the liquidity risk is the risk of scarcity of funds to pay obligations. The management of the liquidity risk is carried out aiming to ensure that the Company has the necessary resources for paying its financial liabilities on their maturity date.
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5.2 - Description of market risk management policy
a) Risk for which hedges are sought:
The market risks for which the Company seeks hedges are:
Risk in derivative transactions (swap for loans obtained in foreign currency – risk of change in exchange rate); Risk of changes in interest rates; Risk of cash and cash equivalent and accounts receivable credit; Liquidity risk resources.
b) Asset hedge strategy
The practices of managing market risk adopted by the Company are as follows:
• Policies and qualities for contracting loans, financing, issues of securities and derivative transactions.
At a meeting of the Board of Directors held on April 28, 2011 approval was granted for the following, pursuant to the terms of the Articles of Incorporation:
i) It is the responsibility of the Executive Officers to contract loans, financing and operation and financial leases in Brazil and abroad intended for the Company's operation activities in the normal course of business, so as to deal with investments in fleet, other property and equipment and/or working capital, provided that the consolidated net indebtedness calculated in the last quarterly consolidated disclosure in accordance with IFRS is not greater than 3 (three) times the accumulated consolidated EBITDA for the past 4 (four) quarters disclosed in accordance with IFRS. Funding obtained in foreign currency must be hedged against exchange rate change risk. Issues of credit instruments with capital markets in Brazil and abroad must be carried out by means of prior approval of the Board of Directors.
ii) It is the responsibility of the Executive Officers to contract any transactions involving the purchase and sale of options, swaps and other complex financial transactions based on trading prices or quotations in future market by means of prior approval of the Board of Directors, except those carried out for purposes of hedge for loans and investments in foreign currency or for swap transactions, in BRL, exchanging the predefined rates for the post-fixed ones, or vice versa.
Practices adopted by the Company for hedging against the exchange rate changes.
The operations for raising funds in foreign currency are linked hedged operations which formally consist of, each one of them, a loan agreement and a swap operation agreement, with the same maturity date, with the same other party and which shall be liquidated simultaneously, equal to one sole net value. Accordingly, the Management understands that, in the essence, both operations are considered to be loan in local currency accrued of established interest rates. Therefore, the accounting treatment and the respective disclosures reflect the essence of the operation.
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5.2 - Description of market risk management policy
The specific characteristics of each swap operation, as well as their respective notional value, are as follows:
Individual (BR GAAP) and Consolidated (IFRS and BR GAAP) 12/31/2011 Reference value Amount Rates (notional) (payable)/receivable
Swap operation Contracted on Maturity Other Party Asset Liability BRL thousand USD thousand BRL thousand
Dollar Exch.rate change 114.7% of x BRL 06/29/10 05/25/16 Itaú BBA S.A. of dollar + cupom CDI change 17,000 95,506 (7,733) of 6.44% p.a.
Dollar 11/16/11 08/16/17 Bank of America Exch. rate change 102.5% of 123,000 75,000 16,359 x BRL of dollar + cupom of CDI Change 1.60% p.a + LIBOR 3M
Considering the previous presented, the Company and its subsidiaries are not subject to the risk of changes in the exchange rates. Accordingly, there are no risks of changes in the exchange rates to be measured by the sensibility analysis, as the indebtedness is exclusively exposed to the national currency.
The Company does not have any derivative instrument, except for the swap operation above described, which has exclusive purpose of hedge for the loan raised in foreign currency. The Company does not carry out transactions involving financial instruments which have speculative character.
• Practices adopted by the Company for hedging against interest rates changes
As a strategy of management of interest rate risk, the Management continuously monitors the CDI, with the purpose of, if necessary, adjusting the rental rates in order to mitigate these floats.
The practices adopted for hedging of changes in CDI rate, for the signed agreements are:
Car rentals. Officers manage the risk by constantly monitoring the CDI rate in order, if needed, to adjust its car rental rates. After 10 years without any change in its car rental rates, the rates were adjusted in November 2008 as a result of the financial crisis.
Fleet rentals. Total Fleet presents characteristics that are different from Localiza, since it has long-term contracts with pre-defined clauses for adjusting rental rates, with a great part of these contracts using the General Market Price Index (IGP-M), the Consumer Price Index (IPC), the National Consumer Price Index (INPC) and the Comprehensive Consumer Price Index (IPC- A) as indexes for adjusting prices.
The practice adopted to hedge against changes in the CDI rate for contracts still to be signed consists of assessment of prices by a team made up of managers and executive officers of the Company's strategic areas. This team meets each month to assess the main price components of the car and fleet rental divisions and define the changes that will be made in the pricing of the future rental contracts.
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5.2 - Description of market risk management policy
Furthermore, almost all of the balance of the Company's cash and cash equivalents is also indexed to the variation in the CDI rate, which is the index for virtually all the debt contracted.
• Practices adopted by the Company for hedging against the risks of credit of cash and cash equivalents and accounts receivable
The Company reduces its risk of credit as it operates with credit cards in a significant manner in car rentals, mainly in operations with individuals. On 31 December, 2011, one of the three greatest credit card companies represented 16.9% of the balance of accounts receivable of the Company. The risk of credit in the operations with legal entities in car rentals, as well as in the rental of fleets, is reduced by means of concession policy of credit limits, based on the analysis of the financial situation and past experience with these clients. The financial position of the clients is continuously monitored, with the purpose of assessing and adjusting, if necessary, the credit limit previously conceded. The risk of credit in the sales of decommissioned cars is reduced by means of using finance companies and/or leasing companies of renown financial capacity and liquidity.
Additionally, the management of the risk of credit includes an analysis of recoverability of the credits receivable, in which the necessity of constituting provision for doubtful credits is assessed, with the purpose of adjusting them to the values likely to be realized. This analysis, which aims to attribute certain classification of risk to the client according to the internal criteria defined by the Management, takes into consideration the current financial situation of the client, the past experience and the position of the overdue obligations. In this sense, according to the risk classification of the client, the credits are adjusted to the probable values of the realization, by means of constituting provision for doubtful credits, this can be applied both to overdue obligations and the ones due, depending on the classification of risk attributed to the client. Further information on the provision for doubtful credits and overdue accounts receivable may be found in Note 5 of the financial statements of 31 December 2011.
The concentration of risk of credit is limited because the clients’ base is wide ranging. All the operations and significant clients are located in Brazil, there are no clients who, individually represent more than 10% of the sales, except through credit card companies.
• Practices adopted by the Company for hedging against risks of liquidity
The management of risk of liquidity is carried out by the Finance Officers and monitored by the Board of Directors. The management of the risk of liquidity is prepared having in mind the necessities of raising funds and the management of liquidity in the short, medium and long terms. The Company manages the risk of liquidity by maintaining the adequate financial funds available in cash and cash equivalents and by means of credit lines for obtaining loans, based on the continuous monitoring of forecast and actual cash flows, and by means of combining the profiles of the maturity of the financial assets and liabilities.
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5.2 - Description of market risk management policy
Additionally, the Management considers that the access to third parties’ credit is facilitated, considering the rating of investment grade of Localiza’s corporate credit of with the main market rating agencies, as seen below:
National scale Rating agency Global scale (Brazil)
Fitch Ratings BBB‐ / Stable AA+(bra) / Stable Moody’s Baa3 / Stable Aa1.br / Stable Standard & Poors’ BBB‐ / Stable brAAA / Stable
c) Instruments used for asset hedge purposes
As already detailed in item (b) above, for asset hedge purposes the Company uses the following instruments:
Hedges against interest rate float: Adjustments to car and fleet rental rates; Allocation of funds to investments pegged to the CDI change.
Hedge against exchange rate change: • Contracting of swap transactions.
d) Parameter used for management of such risks
See sub-item (b) above.
e) State whether the issuer works with financial instruments for objectives other than hedge purposes and what such objectives are
The Company uses financial instruments for the objective of hedging against the risk of exchange rater change, by means of making investments pegged to the change in the CDI rate, and against the risk of exchange rate float by means of contracting swap transactions [see sub- items (b) and (c) above].
f) Organizational structure for risk management control
The Board of Directors shall indicate a permanent Audit Committee, consisting of at least three members, without decision or management powers, with a view of assisting it in the exercise of its functions. The Audit Committee shall have the following attributions:
(i) give its opinion on the contracting and destination of the independent auditor for the preparation of external independent audit or for any other service;
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(ii) follow up the internal audit results of the Company and its subsidiaries, proposing to the Board of Directors measures which are necessary to improve them;
(iii) analyze the management report and financial statements of the Company, proposing recommendations deemed necessary to the Board of Directors;
(iv) analyze quarterly information and financial statements periodically prepared by the Company;
(v) assess the effectiveness and sufficiency of the internal control structure and internal and independent audit processes of the Company and its subsidiaries, presenting recommendations of improvement of policies, practices and procedures deemed necessary;
(vi) assess the effectiveness and sufficiency of control systems and risk management covering legal, tax and labor and employment risks;
(vii) communicate, previously to the Board, in respect to the annual report on the internal control system and corporate risk management of the Company;
(viii) give its opinion, at the request of the Board of Directors, on the proposals of the administration bodies, to be submitted to the Shareholders’ General Meeting, when applicable, relative to the amendment of the capital, issuance of debentures or subscription warrant, capital budget, distribution of dividends, conversion, merger, consolidation or spin- off;
(ix) give its opinion on issues submitted to it by the Board of Directors, as well as on issues deemed relevant by it;
(x) supervise the activities:
a) of the independent auditors, aiming at assessing: its independence, the quality of the rendered services; and the adequacy of the rendered services to the Company’s needs; b) of the internal control area of the Company; c) of the internal audit area of the Company; d) of the financial statements preparation area of the Company; and e) of Governance in IT.
(xi) monitor the integrity and quality of the information and measurements disclosed based on accounting data adjusted and on non-accounting data which may add elements not foreseen in the structure of the common reports of the financial statements;
xii) assess and monitor the Company’s exposures to risk, it may also request detailed information of policies and procedures related to: Management’s remuneration; use of Company’s assets; and expenses incurred on behalf of the Company;
(xiii) assess and monitor, jointly with the Management the adequacy of the transactions with related parties executed by the company and respective disclosure;
(xiv) meet with the Board of Directors, whenever it is necessary, but at least in quarterly basis, and attend the Annual General Meeting;
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(xv) the Committee’s meetings must be recorded in minutes. The minutes shall be written in a clear manner, they shall register all the decisions and shall be submitted to formal approval by the Board of Directors;
(xvi) the members of the Committee shall have impartial and skeptical attitude in the performance of its activities and, above all, when compared to estimates present in the financial statements and to the Company’s management;
(xvii) the Committee shall have means to receive information, via internal audit, including confidential ones, internal and external to the Company, in issues related to the scope of its activities;
(xviii) have its own internal regulations, approved by the Board of Directors, which thoroughly foresees its functions activities, as well as its operation procedures;
(xix) have a coordinator, whose activities shall be defined in the internal regulations;
(xx) formally communicate to the Management any evidence of: ‐ non-compliance with the legal and regulatory norms which may jeopardize the Company’s continuity; and
‐ relevant frauds committed by the Company’s employees or third parties when compared to goods or activities of the Company.
(xxi) the Audit and Risk Management Committee shall execute the activity of Fiscal Council while it is not established.
On May 20102 the Board of Directors approved the Internal Control and Risk Management Policy prepared in compliance with ABRASCA Code of Self-regulation.
The referred to Policy aims to establish controls and procedures for monitoring, so as to prevent the occurrence of errors and/or frauds or minimize their impacts as well as for procedures and responsibilities in risk management, specially when compared to the identification and analysis of risks which may affect the Company.
The complete Policy is available in the Company’s website.
g) Adequacy of the operation structure and internal controls for verifying the effectiveness of the adopted policy
Deloitte Touche Tohmatsu Auditores Independentes (Independent Auditors) was hired to assist in the diagnosis of some processes and internal controls, of Localiza and its subsidiaries. The result of this job, concluded in 2011, was the mapping of the main internal processes (as below described) and their respective controls, as well as improvement suggestions.
The main internal processes are:
1. Localiza Rent a Car Revenue 2. Seminovos Revenue 3. Total Fleet Revenue
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5.2 - Description of market risk management policy
4. Franchising Revenue 5. Fixed Asset (cars, accessories and other fixed assets) 6. Human Resources 7. IT general controls 8. Tax (IRPJ and CSLL) 9. Accounting Closure 10. Civil, Tax and Labor 11. Entity Level Controls 12. Cash Flow
In 2012 the Company has been working on approaching the identified points of control, as well as mapping of the purchase process, which is in review phase.
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5.3 – Significant changes in the main market risks
No significant changes have occurred in the main market risks, as well as in the risk monitoring adopted by the Company.
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5.4 – Other relevant information
All relevant information pertaining to this topic has already been disclosed in the previous items.
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6.1 / 6.2 / 6.4 - Establishment of issuer, period of duration and date of registration with the Brazilian Securities Commission (CVM)
Date of Establishment of Issuer Form of 09/28/1973
Establishment of Issuer Country of Established as publicly-held company
Brazil Establishment of Issuer
Indefinite Duration
05/06/2005 Date of Registration with CVM
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6.3 – Brief history
The Company was established in 1973 as a small car rental agency in downtown Belo Horizonte, State of Minas Gerais, Brazil. It started up its activities with 6 used and financed "fuscas" (Volkswagen beetles).
At the end of the 1970's, the Company began its expansion, opening up its first branch in Vitória, in the State of Espírito Santo, Brazil. A little while later it was present in Rio de Janeiro, Salvador, São Luiz and Fortaleza. Contrary to competition, which elected to concentrate its activities in the South and Southeast regions of the country, the Company decided initially to concentrate on expanding in the Northeast and in less than 3 years it was present in the majority of the capital cities of such region.
Already by 1981, the Company took over leadership in the car rental market in Brazil, as measured by number of branches. In 1983, in order to further expand its network, the Company began its franchising activities in Brazil, with the licensing of the first 6 franchises, through its subsidiary Localiza Franchising, which previously operated under the name Localiza System Ltda. At the beginning of the 1990's, the Company began its franchising activities in other countries with the opening of franchised branches in Argentina.
Also at the beginning of the 1990's, the Company began sales directly to final customers of the used cars in the process of fleet renewal of the Car and Fleet Rental Divisions.
In 1997, seeking to improve its potential for access to international capital markets, the founding partners sold an equity interest of 33.33% in the Company to DLJ Merchant Banking, a manager of foreign investment funds. Also in 1997, the Company accessed international capital markets through the issuance of 8-year-term senior notes registered at the US Securities and Exchange Commission. In order to operate in the fleet rental business segment, in that same year the Company set up its subsidiary Total Fleet to work with long-term contracts.
On December 10, 2004 the Company set up a new wholly- owned subsidiary, Localiza Car Rental S.A., which operates part of the car rental business.
In order to manage its foreign financial investments, on March 9, 2005 the Company set up Rental International LLC, a wholly-owned subsidiary with registered offices in the State of Delaware, United States of America, which is presently non-operating.
On May 6, 2005 the Brazilian Securities Commission (CVM) granted Localiza registration as a publicly-traded company, such that it can engage in public trading of the securities it issues. Localiza made an initial public offering (IPO) of common shares when shareholder DLJ sold its entire equity interest in the Company. Trading of shares began on May 23, 2005 with the offer of 21,477,500 common shares, representing approximately 34.40% of the capital.
The Company concluded a primary distribution of 3,825,000 shares on April 20, 2006, obtaining funding of BRL156.8 million. In this same public offer, secondary distribution was made of 5,785,714 shares owned by the founding partners.
On January 12, 2009 the Company set up Car Assistance and TF Assistance, wholly-owned subsidiaries belonging to the Company and its subsidiary Total Fleet, respectively. The corporate purpose of these subsidiaries is to provide claim management services for insurance companies. At present, only Car Assistance is operating.
On 15 December, 2011, the Board of Directors approved the launching of the Program American Depositary Receipts – ADRs Level I of the Company (“ADRs Program”), without issuing new shares.
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6.3 – Brief history
As at December 31, 2011 the Localiza system of franchises is administered in Brazil by the subsidiary Localiza Franchising Brasil S.A. which runs 202 franchised branches. In other 7 South American countries (Argentina, Bolivia, Colombia, Ecuador, Paraguay, Peru and Uruguay), it operates 47 franchised branches.
As from 2 January, 2012 Localiza’s shares (RENT 3) began to compose the Bovespa Index’s (Ibovespa) and IBrX-50 theoretical portfolio. The entrance of the Company in the indexes showed trust and recognition that Localiza obtained with the national and international investors and enabled the increase of the liquidity of RENT3 security.
Localiza in Brazil is part of a select group of companies which received the Investment Grade for the three agencies:
Rating agency Global scale National scale (Brazil) Fitch Ratings BBB‐ / Stable AA+(bra) /Stable Moody’s Baa3 / Stable Aa1.br /Stable Standard & Poors’ BBB‐ / Stable brAAA / Stable
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6.5 – Main corporate events occurred at the issuer’s, subsidiaries’ or associates’
The main corporate events occurred are already described in other sections of this Reference Form, as per below:
a)event b)main business conditions c)companies involved d)effects resulting from operation in the shareholding structure, especially on the equity interest of the Company's controlling shareholder, of shareholders holding an equity interest of more than 5% (five per cent) of the capital and of issuer’s officers e)ownership structure before and after the operation
. Shares split, see item 17.3 . Treasury shares, see item 19.1 . Acquisition of equity interest of minority shareholder in subsidiaries, see item 8.3 . Merger of subsidiaries, see item 8.3 . Sale/acquisition of material equity interest from member of the control group and officers of the Company, see item 15.6
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6.6 - Information on claim for bankruptcy grounded on material amount or court or out of court recovery
There have been no claims filed for bankruptcy or court or out of court recovery with respect to the Company or any of its subsidiaries.
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6.7 - Other relevant information
The Company highlights below other information that it considers relevant:
During 2011 the Company received various awards and recognitions, among which special mention should be made of the following:
Awards and recognition Promoter institution
Corporate reputation
XVI Top of Mind award Common market
XIII Minas Desempenho Empresarial award Common market
O Melhor da Viagem award Viagem magazine – Editora Abril
Best CEO Institutional Investor
Franchising Excellence award Brazilian Franchising Association
The Best Franchise in Brazil Pequenas Empresas & Grandes Negócios
4th in Profitability Melhores e Maiores 2011 – Exame magazine
4th in Transportation Melhores e Maiores 2011 – Exame magazine
2nd in Growth Melhores e Maiores 2011 – Exame magazine
78th in Market Value Melhores e Maiores 2011 – Exame magazine
Finance and Investor Relations
Best CFO Institutional Investor
Best IR area – Latin America Institutional Investor
Best IR Institutional Investor
Best IR Executive in Brazil IR Magazine Awards Brazil 2011
XV Troféu Transparência award ANEFAC – FIPECAFI – SERASA EXPERIAN
4th in Corporate Governance The Best of Dinheiro magazine
People Management
Life Quality – IDH 2011 Gestão & RH Magazine
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7.1 - Description of the activities of the issuer and its subsidiaries
The Company believes it is the largest car rental network in all of South America, based on number of branches, operating its own network of car rental branches, besides franchising its trademark and operations to its franchisees. As at December 31, 2011 the fleet of Localiza’s network comprised 109,275 cars including the fleet of franchisees (96,317 own cars), and the network of branches comprised 496 car rental branches distributed throughout 8 countries, of which 247 are operated by Localiza and 249 by franchisees in Brazil and abroad. The car rental operations are located in Brazil, Argentina, Bolivia, Colombia, Ecuador, Paraguay, Peru and Uruguay.
A description of the main activities developed by the Company and its subsidiaries as follows:
Car rental: The Company rents cars in branches located in airports and other locations. Rentals are carried out by companies and individuals on business or leisure trips, in order to meet their car rental needs outside of the cities where they maintain their residences, as well by for insurance companies and automakers which offer reserve cars to their customers in the case of accidents or mechanical breakdowns during the term of the insurance policy or warranty, respectively. The fleet of the car rental division consists mainly of flex fuel compact cars in line with the demand and the output of automakers in Brazil. Twelve months after use for rental the cars are made available for sales for fleet renewal. Most of the used cars are sold directly to final consumers at places intended for such sales. Upon avoiding go-between costs in the sale of cars, the Company is able to reduce costs and maximize the recovery value of such assets, since costs of sales are normally lower than the discounts required by the intermediary companies.
Fleet rental: Through the subsidiary Total Fleet, the Localiza fleet rental division rents cars on the basis of long-term contracts to companies (periods of up to 48 months). The fleet of this division is adequate to the needs and requests of its customers, thus being more diversified in terms of models, colors and brands than the fleet of the car rental division. At the end of the contracts signed with the customers, Total Fleet sells most of the used cars in the fleet rental division directly to final consumers, as in the case of the car rental division.
Franchising: The franchising division is responsible for managing and granting franchises for the right to use the Localiza trademark, including transfer of the technical knowledge required to make the business operational. The franchising business in Brazil is administered by the subsidiary Localiza Franchising Brasil S.A. and, in other countries, by the subsidiary Localiza Franchising Internacional S.A. until 2009 and as from this date by Localiza itself.
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7.1 - Description of the activities of the issuer and its subsidiaries
Competitive advantages
The Company believes that it has competitive advantages at each link of the rental process, which begins with obtaining funding, followed by the purchase of the cars that are allocated to the car rental or fleet rental divisions and ends up with the sale of the decommissioned cars after their use in rental activities for fleet renewal purposes.
Synergic business model. The Company's business model, encompassing car rental, fleet rental and car rental franchising provides competitive advantages because these businesses complement each other, involve synergies, increase scale and share the same support structure.
• The Company’s ratings are the best ones of the sector, enabling the raising of funds in the best conditions, both in terms and costs.
The scale of business operations enhances bargaining power in the purchase of cars. The purchase of huge lots of cars to meet the needs of the car and fleet rental divisions and the needs of franchisees accounted for approximately 2.3% of the sales of the three largest automakers in Brazil in the year ended December 31, 2011;
• The reduction of administrative costs by means of respective dilution based on a single management structure applied to all business divisions;
Cross selling taking advantage of the relationship each division has with their customers. Moreover, the Company intends to use each division's information base, mainly the customer database, to leverage revenues at low cost. Through cross selling, the Company seeks to bolster revenues through mutual use of the different sales teams; and
Common use of the structure for sale of decommissioned cars for fleet renewal, whereby the cars are mostly sold directly to final consumers. In the year ended December 31, 2011, approximately 74.6% of the Localiza cars decommissioned for fleet renewal were sold directly to final consumers, whereas its competitors generally
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7.1 - Description of the activities of the issuer and its subsidiaries
sell their cars by means of auctions or through dealers, with greater discounts. Furthermore, this sales structure provides knowhow to estimate the residual value of the cars with greater assertiveness in the pricing of the rental of cars and fleets.
Leadership - strong and widely recognized trademark. The strength of the Localiza trademark, allied to the high levels of quality and transparency, reinforces its competitiveness and marketing efforts. In terms of number of branches, the Company is the Brazilian market leader. Focus on its core business and segmented and specialized organizational structure are the factors that have mainly contributed to maintenance of such leadership, conquered in the 1980's. The Company's employees undergo rigorous training that allows them to provide differentiated service for customers with flexibility, cordiality, efficiency and friendliness. The Company seeks to achieve a level of excellence in branches and the call center, with professionals who are available to offer car rental solutions for customers. The call center operates 24 hours a day, seven days a week and 365 days a year. The Company offers the Localiza Loyalty Program that gives faithful customers free per diems. The Company considers the Localiza Loyalty Program, which has approximately 3.0 million participants, not as just a valuable tool to get closer to customers, but also as an essential device for expanding its customer base, preserving the loyalty of customers and increasing rental revenues.
Network of branches with broad geographic coverage and strategic locations. With wide- ranging distribution all over Brazil and also in other 7 South American countries, as at December 31, 2011 the Localiza System, including franchisees in Brazil and abroad, comprised 496 branches in 314 Brazilian cities and 47 branches in 27 cities in 7 South American countries. The Company has the biggest car rental network in Brazil, in terms of number of branches. Its branches are located at strategic spots, are visibly recognized and readily accessible. The franchising segment, which began in 1983, made it possible to expand operating activities to smaller cities in Brazil and in seven South American countries. As at December 31, 2011, according to an internal survey on the number of branches listed on the website of each competitor, the Company's network of branches proved to be larger than even the sum total of the second, third and fourth ranked car rental companies.
Scale of business. As at December 31, 2011, the fleet of the car rental and fleet rental divisions comprised 96,317 cars, totally renewed, and made up of standardized vehicles to meet customer needs. The Company adheres to strict quality standards with respect to its cars, which undergo detailed review processes so as to ensure customer safety and ease of mind. The fleets are periodically renewed to offer customers new cars. The Company is one of the largest buyers of cars produced by the main Brazilian automakers. In 2011 it purchased 59,950 cars from the leading automakers in Brazil, which represented almost 2.3% of all new car sales of these automakers. Total purchases made between 2005 and 2011 amounted to BRL9.0 billion. Furthermore, a fixed percentage of the revenues from airport branches is used for payment of the rental of boxes, which in general are higher than the guaranteed minimum. In non-airport branches, the scale contributes to dilution of the fixed costs, which are naturally high in retail activities that require distribution networks.
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7.1 - Description of the activities of the issuer and its subsidiaries
Cash generation and financial stability. The Company is convinced that it has capacity to generate cash on a regular basis, which coupled with its conservative treasury management policy, contributes to maintenance of financial stability. The Company's strategies include maintenance of an adequate level of cash and cash equivalents to meet short-term liquidity needs as well as short-term opportunities for growth. As at December 31, 2011, the Company's net debt corresponded to 51% of the value of the fleet (book value of the fleet), and net finance expenses equivalent to nearly 22% of EBITDA generated in 2011. Liquidity and flexibility of assets (fully paid cars) likewise provide a competitive advantage, inasmuch as such cars are easily sold, bringing the fleets into line with the demand for rental. During recession periods, such as the one prevailing during the world financial crisis of 2009 when Brazil's GDP dipped 0.6%, the Company's flexible business model allowed it to increase cash generation through the sale of the decommissioned cars of the car rental activities in volumes higher than new car purchases.
Even when macroeconomic conditions are favorable, it is necessary to administer the occupancy rate of the fleets, reducing the purchases of cars for the car rental division after the demand peak, which generally occurs in the first months of each year after the summer vacation period. Cash generated from the sale of used cars at the end of their useful lives represents an important source of funds to meet fleet renewal need. Different from the market, in which the majority sign financing contracts for their fleets and normally the fleets themselves serve as collateral for such agreements, which reduces the flexibility for adaptation to market changes, Localiza's cars by contrast are released for sales.
The Company also seeks to maintain a long-term indebtedness profile so that the debt service for each year does not represent a risk to be honored. As at December 31, 2011 the debt payment term is up to eight years.
Leading-edge technology and innovative system. The Company makes substantial investments in information-technology for development and maintenance of a proprietary system of the operation of the car and fleet rental divisions. The Company's telecommunications network permits voice and data voice traffic featuring the latest in technology, providing swift and nimble on-line management of quality information. This represents better controls and security in decision-making. There are more than 3,500 work stations, about 250 servers, own call center with state-of-the art technology and fully integrated systems. Moreover, the Company offers access via web and smartphone, where customers can make reservations and consult the entire history of their relationship with Localiza. The Company sites receive over 8.4 million visits per year and 60.3% of reservations are made through the Internet and the Global Distribution System (GDS).
Personnel management and compensation systems. The Company handles the management of personnel by focusing on valuing individual initiative and rewarding better performance. With its roster of officers endowed with broad experience in the segments in which they are engaged and low turnover at the managerial level, the Company believes that it has a motivated team as a result of the adoption of good practices in terms of personnel management, such as the following: fixed and variable compensation system, profit sharing and stock option plan encompassing substantially all its officers, with a view to aligning interests for generation of value for the Company.
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7.1 - Description of the activities of the issuer and its subsidiaries
Strategies
The Company's strategies are aimed at increasing its share of the car rental business keeping high returns. In the fleet rental business, it seeks to add value for shareholders by taking advantage of synergies with the car rental business. The Company intends to turn its targets into concrete realities through implementation of the following main strategies:
Organic expansion to take advantage of market potential
• The Company seeks to increase its revenue in each market where it operates, taking advantage of the expected GDP growth and the consequent consumption expansion:
Air traffic passengers - million A and B classes - million 195* 179 9.0% 31* 154 16.2% 128 20.3% 20 55.0% 13 53.8% 71 80.3%
2003 2009 2014e 2003 2009 2010 2011 2012
* estimated
Strong domestic drivers leads to higher volumes.
Source: Infraero, Gol, TAM, Abecs and Exame (Dec/2011)
• Investments in infrastructure, oil and gas exploration and production, the FIFA World Cup in 2014, the 2016 Olympic Games, the increase in the fairs and events industry and the Federal Government's Accelerated Growth Program (PAC) should increase demand for car rentals and as a result, will bolster the revenue growth in all business divisions:
Car rental drivers: investments
Investments in Brazil Investments by sector (Billion)
154 12.3% 137 20.8% 106 R$85.8 bn R$150.4 bn
38 18.7% 7 6 5 3 R$16.8 bn 19.5%
Oil/gas Arenas Others Housing Electricity R$174.6 bn Transportation Water/sewage
Telecommunication 18.4%
R$28.7 bn Invested To be invested
R$456 bn to be invested. Source: EXAME yearbook, 2011-2012
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7.1 - Description of the activities of the issuer and its subsidiaries
it aims to increment car rental revenues by taking advantage of the growing Brazilian middle class, with the rise in air traffic, car replacement and credit cards, as well as in the sale of decommissioned cars for fleet renewal;
• it will maintain its policy of spreading all credit card receivables out into up to 10 (ten) monthly interest free installments, thus aiming to leverage the number of car rental per day. Thus, the Company will try to maintain a variety of promotional offers intended to satisfy the different needs of its customers;
it intends to stick to its strategy of consolidating the car rental business in Brazil, keeping rates competitive but at the same time guaranteeing profitability thanks to its scale, in the search for increasing its market share;
by means of its loyalty program, with more than 3 million registered customers, the Company expects to continue to encourage its customers to rent cars more frequently and keep them faithful to its trademark. The Localiza Loyalty Program, which rewards customers with free per day, is an important tool that permits expansion of the customer base and maintenance of their loyalty to the Localiza trademark. It is also the Company's intention to expand its network of branches to offer customers the convenient possibility of renting a car;
it will continue using media such as national newspapers and magazines, in-flight magazines, radio and TV, as well as sponsorship of events, theatrical productions and shows. By maintaining this communication strategy, the Company expects to encourage the demand for car rentals in Brazil; and
the growing trend toward fleeting outsourcing (resulting from companies that seek to maintain greater focus on the essential lines of their businesses/ increase productions and to reduce non-essential assets) gives us the opportunity to expand the fleet rental division.
Outsourced fleet penetration
Brazilian Market World (%)
58.3 Corporate fleet: 46.9 37.4 4,200,000 24.5 13.3 16.5 Targeted fleet: 5.4 8.9 500,000
UK Brazil France Spain Rented fleet: Poland Holland Germany 232,000 Czech Republic
31,629
Source: ABLA and Datamonitor
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7.1 - Description of the activities of the issuer and its subsidiaries
Geographic expansion by means of broadening the network of branches. The Company has the largest car rental network in Brazil, in terms of number of branches, and plans to expand even more the network of its own branches and franchised ones, based on its knowhow and the strength of its trademark. Owing to expectations for growth of agribusiness in Brazil, the establishment of new factories in the country's inland and a rise in the number of Brazilian cities to be served by airline companies, the Company plans to expand its services in Brazil, strengthening its presence all over the country. In addition, the Company intends to use the franchise system to boost the number of car rental branches inside and outside of Brazil. Its current strategy is to grow organically, rather than to grow through mergers and acquisitions. Furthermore, the projects for construction of branches are flexible and easy to adopt, with emphasis on high levels of functioning and low costs. Its branches are generally located in strategic spots and are visibly recognized and readily accessible. The Company believes that expectations for Brazilian economic growth justify its geographic expansion strategy.
Maintenance of a solid capital structure and a conservative cash management policy.
The Company intends to grow with profitability and operating cash generation, as well as to maintain an adequate indebtedness profile level, obtaining long-term funding in capital markets in order to meet its needs for growth. The Company will maintain its investments in cash- generating fixed assets, which are basically cars for rental that are readily monetizable to adjust operating assets to demand in order to maximize productivity. It will also continue to hedge against the risks of currency fluctuations, by placing priority on safety and liquidity when compared to profitability.
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7.2 – Information on operation segments
a) Commercialized products and services:
Business platform. As described in item 7.1, the Company's business platform is made up of the car rental, fleet rental and franchising divisions. As a consequence of its car and fleet rental businesses, the Company has a network of points of sale direct to final consumers of cars decommissioned for fleet renewal purposes. The Company believes that its competitive differentials in each link of the rental process, which begins with obtaining funding, followed by the purchase and rental of the cars and ends up with the sale of the cars after their use in car and fleet rental activities, will allow it to maintain its competitiveness and advance towards its strategic objectives.
b) Segment revenues and share of issuer's net revenues
The table below indicates the net revenues from the activities developed by the Company, as well as their related share in consolidated revenues during the fiscal years indicated:
In B R$ thousand Year ended as at December 31
2011 % 2010 % 2009 % Net Revenue of Rentals and Sales 76.1 76.2 67.7 Car Rental Division 2,221,850 1,903,384 1,233,092 Fleet Rental Division 682,027 23.4 581,748 23.3 577.695 31.7 Franchising Division 14,253 0.5 12,062 0.5 10.126 0.6
Total net revenue 2,918,130 100.0 2,497,194 100.0 1,820,913 100.0
c) Segment profit or loss and share of issuer's profit
The following table indicates the net profit from the operation segment of the Company, as well as the related share in consolidated net profit during the years indicated:
In BRL thousand Year ended on 31 December 2011 % 2010 % 2009 % Net Profit Car rental division 180,307 61.8 166,603 65.1 68,158 62.4 Fleet rental division 104,270 35.8 84,101 32.9 37,077 33.9 Franchising Division 7,065 2.4 5,5,188188 2.0 3,3,991991 3.7 Total net profit 291,642 100.0 2255,89255,892 100.0 1109,22609,226 100.0
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7.3 – Information on products and services relative to operation segments
a) Characteristics of the production process b) Characteristics of the distribution process
Car Rental
Localiza manages its car rental activities through branches located in airports or in strategic non- airport locations. Rentals are carried out by companies and individuals on business or leisure trips, in order to meet their car rental needs outside of the cities where they maintain their residences, as well as by insurance companies and automakers which offer reserve cars to customers in the case of accidents or mechanical breakdowns during the term of the insurance policy or warranty, respectively. The fleet of the car rental division consists mainly of flex fuel compact cars in line with the demand and the output of automakers in Brazil. Based on the number of branches, the Company believes it is the largest car rental network in South America.
The Company has built up strong recognition for its trademark and the loyalty of its customers in Brazil in its car rental operations, offering new and high quality cars, as well as efficiency in customer service. In addition, the Company believes that is nationwide network of rental branches provides it with competitive advantages on the markets in which it operates.
Network of strategically located branches with broad geographic coverage. A marked nationwide presence increases recognition of the Localiza trademark. Through its network of branches, the Company operates in 314 cities in Brazil, including the main airports, as well as at other locations strategically located close to commercial centers and intense movement of traffic. The Company's network of branches is made up of 496 branches distributed throughout Brazil and other 7 South American countries. Of Localiza's own 247 branches, 63 are located in airports. Of the 249 franchised branches, 202 are located in Brazil, 37 of them in airports. As at December 31, 2010, revenues generated in airport branches represent 32.0% of total car rental revenues. The non-airport network of branches is comprised of 349 branches located in central regions of the Brazilian cities in which the Company is present. Localiza's own branches located in airports are run by the Company through concession agreements granted by the federal government's airport infrastructure company INFRAERO and by state and municipal airport authorities.
The following graph shows the evolution in the quantity of the Company's own car rental branches in recent years:
# of branches 234 247 199 214 178 145 117
2005 2006 2007 2008 2009 2010 2011
Does not include franchisees
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7.3 – Information on products and services relative to operation segments
Fleet. Localiza believes that its car rental fleet is the largest in Brazil. As at December 31, 2011 its rental fleet comprised 64,688 cars, representing a rise of 5.3% compared with 61,445 cars as at December 31, 2010. In the following graph, the Company shows the evolution of car quantity of its fleet in recent years:
End of period fleet (quantity)
61,445 64,688 47,517 39,112 31,373 35,686 24,103
2005 2006 2007 2008 2009 2010 2011
In line with consumer demand and in order to make attractive rates feasible, the Company's fleet mainly consists of compact cars manufactured in the Country, economic models, bio-fuel, with smaller cylinder capacity, as well as other models in different sizes and different purposes.
As a result of the Constant need of fleet renewal The car rental division fleet is generally renewed after a period of 12 months. As at December 31, 2011, 2010 e 2009, the average age of the fleet of the car rental division was approximately 6.8 months, 6.3 months and 9.5 months respectively. The increase in the average fleet age in 2009 resulted from the Company's strategy of focusing on cash generation during the international financial crisis that year.
In 2011, the Company invested in the Car Rental Division BRL86.9 million (net of the revenues from the sales of decommissioned cars) in renewal and growth, in comparison with BRL390.0 million in 2010. In 2009, the net investment amounted to BRL264.1 million. The Company takes the risk of effective depreciation of its fleet, since it purchases cars directly from automakers in Brazil and, after using them in rental activities, sells them mostly directly to final consumers. On account of this, the Company's policy is to have a fleet made up of cars with the best market price, taking into consideration accessories and equipment that help to reduce depreciation the Company. As at 31 December, 2011, the Company had a network of 66 points of sales of cars decommissioned from car and fleet rental operations. For the most part these cars are sold directly to final consumers, in order to reduce depreciation costs when compared with the alternatives for selling through intermediaries or in auctions.
Maintenance. The maintenance of the car rental fleet is outsourced using a network of technically trained suppliers throughout Brazil that are accredited beforehand by the Company.
Price management system. The Company adopts a system for management of revenues and pricing known as yield management to enhance competitiveness and improve profitability. This system allows management of the rates charged by the Company based on the day of the week, month of the year, city, event, volume per customer, rental period, group of cars and monitoring of the competition. This price management tool is used by the car rental division and requires integrated systems and on-line information in all the branches.
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Car rental rates. The car rental rates charged generally include unlimited mileage. Sometimes the Company promotes advertising campaigns offering special discounts and rates during certain periods, such as on weekends, since most of the rentals are for business purposes and are therefore concentrated on weekdays.
The Company regularly conducts market surveys and adjusts its rate with a view to increasing its competitiveness. The Company sets its rates based, among other factors, on the competitive environment and it differs from the competition through its capacity to offer nationwide coverage and superior quality. The Company has a price policy that takes into consideration the effective depreciation of each car model, as well as the financial, maintenance, administration and service costs, taxes, utilization rate and profit margin. The rates charged by franchisees follow the Company's rate policy.
Insurance. The Company offers its customers the option of taking out insurance for the same period as the rental, offered by an insurance company. This optional insurance is contracted by customers when they sign the car rental agreement and can be of two types: (i) property coverage for collision damages caused to the car itself and (ii) "RCF-V" insurance, which is a liability insurance. The amounts related to the premiums received are passed on to the insurer, which covers the risk resulting from eventual losses and thefts.
Sales, advertising and promotions. The Company develops its sales, advertising and promotion strategies in order to create recognition of the Localiza trademark in Brazil and other countries in South America. The presence of the network of branches in the main Brazilian airports and in certain airports in South America, besides commercial centers and major confluences of traffic in central regions of cities, as well as its advertising in specialized media have all contributed to strengthening trademark recognition. The stress on color and standardized uniform and branches are part of the Company's overall marketing strategy.
The Company has a sales team that serves cooperative customers and also offers rentals through travel agencies which serve as Company sales channels. The Company invests in advertising and uses newspapers and magazines with large national circulations, as well as in- flight magazines and special segment publications to reach its target public. In smaller markets, it advertises on radio, television, outdoor billboards, newspapers and magazines, and it further sponsors events throughout Brazil.
Through the Localiza Loyalty Program, presently with over 3.0 million participants, the Company expects to encourage customers to rent cars more frequently and keep them faithful to the trademark, rewarding them with free per diems and, as a result, retain such customers and increase sales. As at December 31, 2011, approximately 500,000 per diems had been distributed free of charge to participants of the Localiza Loyalty Program. The Company provides customers with the convenience of renting cars in the main tourist and business destinations in Brazil.
Service and fleet quality and operation effectiveness. The Company believes that the superior quality of its service and operation effectiveness are competitive factors that contribute to customer loyalty.
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At present, customer satisfaction surveys in the car rental division, named "Easy Communication" ("Fale Fácil"), reveal customer satisfaction rate of 96.5% (from very good to excellent). Car rental division attendants are regularly guided through intensive training programs to maintain high standards of quality and efficiency and to perform swift, friendly and standardized service in all of its own branches and franchised ones as well. The reservation and customer assistance call center operates uninterruptedly.
Sales of decommissioned cars. As a consequence of its car rental businesses and based on the fleet renewal, the subsidiary Prime intermediates sales of the car rental division's decommissioned cars at the end of their period for use. The Company sells most of the decommissioned cars from the car rental operations directly to the final consumer through 66 points of sales located in 37 cities as at December 31, 2011. For the year ended December 31, 2011, approximately 78.7% of the cars decommissioned from the car rental operations were sold directly to final consumers. The rest of the decommissioned cars are sold to intermediaries.
As at December 31, 2011 the average age of the Company's cars sold was around 13.7 months. Replacement of these cars after the end of the period for their use at a material residual value is a specific characteristic of the car rental business, differently from other industries that normally use their machinery and equipment until they become obsolete or with anti-economic recovery cost.
The Company pioneered in the Brazilian car rental market in adopting the concept of direct sales of decommissioned cars to final consumers in 1992 and believes it has developed a solid reputation on the market for the reliability of its trademark and transparency with buyers. Based on the rate of return of customers, the Company believes that the market considers it an attractive and reliable alternative for the purchase of decommissioned cars in its points of sales. According to data disclosed by the Brazilian National Automotive Vehicle Distribution Federation (Febranave) in 2011, the used car market was 2.6 times bigger than the new car market. In 2011, 2010 and 2009 approximately 8.9 million, 8.4 million and 7.0 million used cars were sold, respectively. Sales of decommissioned cars of the car and fleet rental divisions accounted for about 0.57%, 0.56%, and 0.49% of the total of used cars sold in 2011, 2010 and 2009, respectively.
Sales of decommissioned cars can be carried out paying cash or through credit cards or bank financing. The Company does not finance the purchases made by its customers and thus does not run credit risks with respect to the cars sold. Although it does not directly finance customers, the Company indicates to its customers banks to finance them and receives commissions for such indications. Prime, the subsidiary that intermediates sales of decommissioned cars, has signed an agreement for cooperation with Banco do Brasil, granting the latter first refusal rights for 25 minutes in the financing of decommissioned cars sold at its points of sales and, additionally, to offer other related products. In June 2010, Banco do Brasil, with the approval of Prime, signed and transferred all its rights and obligations under the respective agreement to BV Financeira S.A.
The Company’s net revenue relative to the sales of decommissioned cars is recorded together with the net revenue from the car rental division.
Fleet rental
The Company offers fleet rental to its corporate customers through its Total Fleet subsidiary.
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7.3 – Information on products and services relative to operation segments
As at 31 December, 2011, Total Fleet had approximately 687 corporate customers with a fleet of 31,629 own cars and 234 administered cars. The term of the agreement with Total Fleet clients is of up to 4 years. At the end of the agreement term, the cars are sold.
The fleet rental agreements can be terminated upon advance notice of 30 days and contractual fines are up to 40% of the rentals due. Rental may include corrective and preventive maintenance, as well as replacement of the rented cars at a fixed monthly amount or reimbursement of the expenditures incurred plus management fees.
The Company believes that there is a growing trend of outsourcing fleets by companies due to the need of greater focus on the core business and to the reduction of assets base by the companies, which represents an opportunity for expanding the fleet rental division. In developed countries, the outsourcing of fleets is already a common practice. In Brazil, this practice began in large-sized companies and, more recently, in medium and even small-sized companies. The assistance rendered to the clients is coordinated by means of Total Fleet call center, which indicates the most convenient and closest service renderers to the car user, tow truck services, etc., in all national territory. This program makes it possible the growth of fleet rental business with reduced investment in the administration structure. The fleet rental business is attractive because it gives the Company a long-term demand, increasing the scale gain and the sharing of the administration structure of the Company.
Total Fleet customizes the fleet rental agreements in order to meet the specific needs of each customer, which in general, include:
• assistance in choosing cars;
• purchase of cars;
• licensing;
• fleet distribution;
• maintenance management;
• losses management;
• car replacement;
• car decommissioning; and
• 24-hour service for users.
Fleet. The car fleet run by Total Fleet features a wider range of car models than the fleet of the car rental division, as it is made up according to the specific needs of its customers. As at December 31, 2011, 2010 and 2009, the average age of the fleet was approximately 15.8 months, 15.9 months and 14.5 months, respectively. The Company negotiates the terms for purchase of cars in order to meet the needs for rental of cars and fleets. The cars are purchased as the contracts with customers are executed, in the quantity and models requested.
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7.3 – Information on products and services relative to operation segments
In the following graph, the Company shows the evolution of the quantity of cars in its fleet in the past years:
End of period fleet
(quantidade)
31,629 26,615 23,403 22,778 17,790
2007 2008 2009 2010 2011
In 2009, 2010 and 2011, investments in fleet renewal and growth, net of the sales of decommissioned cars, amounted to BRL17.7 million, BRL198.5 million and BRL221.4 million, respectively.
Fleet rental prices. The prices charged by Total Fleet for fleet rentals are negotiated with each customer and, as a general rule, take into consideration the depreciation of each car model, type of use and the fleet size and profile. Customers pay monthly for fleet rental.
Sales. The sales team works in a proactive manner, providing the customer with an economic and financial study showing the benefits to be obtained by executing fleet rental agreements with Total Fleet.
Maintenance. Maintenance of Total Fleet’s car fleet is outsourced. Total Fleet has a network of technically trained suppliers throughout Brazil that are accredited beforehand to meet user needs.
Association with Global Fleet Services. Total Fleet is part of Global Fleet Services, an international alliance of car fleet management companies operating in North America, South America, Africa, Asia, Australia and Europe. Through this alliance, Total Fleet enjoys access to the state-of-the-art in the world in terms of fleet rental and management, passing on this international knowhow to its customers. Moreover, such association with world market leaders ensures that service to customers with fleets distributed all over the world is handled in a uniform manner and with the same standards of quality.
Sales of decommissioned cars. As a consequence of the fleet rental business and based on renewal of its fleet, the subsidiary Prime intermediates sales of cars decommissioned from the fleet rental operation at the end of the period of use in each division. Whereas most of its competitors sell the cars used in rental activities through intermediaries or in auctions, the Company sells most of the decommissioned cars from rental operations directly to final consumers through 66 points of sales located in 37 cities as at December 31, 2011. For the year ended December 31, 2011, approximately 52.6% of the cars decommissioned from fleet rental operations were sold directly to final consumers. The rest of the cars decommissioned from rental operations is sold directly to intermediaries.
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7.3 – Information on products and services relative to operation segments
As at December 31, 2011 the average age of the Total Fleet cars sold was around 32.8 months. The replacement of cars after end of their period of use at a material residual value is a specific characteristic of the fleet rental business, different from other industries that normally use their machinery and equipment until the fixed assets become obsolete or with anti-economic recovery cost.
The Company pioneered in the Brazilian fleet rental market in adopting the concept of direct sales of decommissioned cars to final consumers in 1992 and believes it has developed a solid reputation on the market for the reliability of its trademark and transparency with buyers. Based on the rate of return of customers, the Company believes that the market considers it an attractive and reliable alternative for the purchase of decommissioned cars in its points of sales. According to data disclosed by the Brazilian National Automotive Vehicle Distribution Federation (Fenabrave) in 2011, the used car market was 2.6 times bigger than the new car market. In 2011, 2010 and 2009 approximately 8.9 million, 8.4 million, and 7.0 million used cars were sold, respectively. Sales of decommissioned cars by the Company and Total Fleet represented roughly 0.57%, 0.56%, and 0.49% of this market in 2011, 2010 and 2009, respectively.
Sales of decommissioned cars can be carried out paying cash or through credit cards or bank financing. The Company does not finance the purchases made by its customers and thus does not run credit risks with respect to the cars sold. Even though the Company does not directly finance customers, it indicates to its customers the names of banks to finance them and receives commissions for such indications. Prime, a subsidiary that intermediates sales of decommissioned cars, has signed an agreement for cooperation with Banco do Brasil, granting the latter first refusal rights for 25 minutes in the financing of decommissioned cars sold in points of sales and, additionally, to offer other related products. In June, 2010, Banco do Brasil, with the approval of Prime, signed and transferred all its rights and obligations under the respective agreement to BV Financeira S.A.
The net revenues of the subsidiary Total Fleet relating to the sales of decommissioned cars are recorded together with net revenues of the fleet rental divisions.
Franchising
In 1983 the Company began its expansion through the franchising system, taking the Localiza car rental trademark inland in the car rental in Brazil. In order to expand its network in other countries, the Company started up the internationalization process through franchising in 1992 with the opening of seven branches in Argentina.
The Company developed a franchising system that allowed it to expand the coverage of its network in Brazil and abroad without incurring the costs of opening up new branches in smaller markets. With consolidation of franchising knowhow in Brazil, the Company elected to go international through franchising in South American countries based on geographic proximity and economic synergy.
In 2012, the Company starts to be present again in Chile, already with 7 branches, which are still in structuring phase, in five Chilean (Santiago, Calama, Copiapo, Serena and Antofagasta).
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7.3 – Information on products and services relative to operation segments
The following table shows the number of the Company's franchised branches per country.
Number of Year Ended December 31 agencies Country: 2011 2010 2009 Brazil 202 181 167 Argentina 19 31 32 Bolívia 1 1 1 Chile - - 9 Columbia 12 12 10 Ecuador 6 6 6 Paraguay 5 5 5 Peru 1 3 5 Uruguay 3 3 3 Total 249 242 238
As at December 31, 2011 the Company's network comprised 47 franchised branches in 27 cities outside of Brazil. With its presence in seven South American countries besides Brazil, the Company believes that its international expansion by means of franchising is highly valuable, since such franchises generate additional revenues and reinforce the Company's image as a player in the continent. The choice of the South American market was due to cultural similarities, proximity and growth of business deals between the countries of this region, facilitating the Company's operations.
Fleet. The fleets run by the franchisees do not belong to the Company, although for the franchisees in Brazil negotiation of car can be carried out in a centralized manner by the Company, thus benefiting the franchisees with the Company's bargaining power upon purchase of cars for renewal and growth of the fleets of cars in the car and fleet rental division. The total fleet of the franchisees was 12,958; 10,652 and 8,791 cars in December 2011, 2010 and 2009, respectively. The Company does not play any part when compared to sales of used cars by its franchisees.
Franchise structure. The franchise is granted on the basis of non-renewable 5-year agreements whereby the Company grants its franchisees the rights to use the Localiza trademark and get the knowhow required to make the business operational. The franchise agreement also includes exclusivity over certain geographic areas, outside of which the franchisee may not do business. In general, franchisees can terminate the franchise agreements with 90 days advance notice. After termination of the agreements, the Company may sign a new agreement with the same franchisee or take over its operations if they are economically viable. The Company also retains first refusal rights in the acquisition of the agency and the corresponding facilities. The Business Franchise Agreements signed by the Company feature an exclusivity clause that does not allow franchisees to sell their operations to third parties or Company's competitors. In addition, the agreements include a confidentiality clause that remains in effect for five years after termination of the franchise and the obligation on the franchisee's part not to compete with Localiza during the effective term of the agreement and up to two years after its termination or rescission.
Upon signing the first agreement and every five years thereafter Brazilian franchisees pay Localiza Franchising Brasil an adhesion fee in an amount proportional to the franchisee's market potential as of the signing date, plus monthly royalties for rental of the trademark and transfer of knowhow, as well as monthly rates for marketing campaigns conducted by Localiza Franchising Brasil, based on rental revenues.
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7.3 – Information on products and services relative to operation segments
Foreign franchisees pay the adhesion fee and monthly royalties based on variable rates that depend on the market conditions in each country. For the years ended December 31, 2009, 2010 and 2011, total net royalties paid by Brazilian franchisees amounted to BRL10.7 million, BRL12.7 million and BRL15.1 million, respectively. Total royalties paid by foreign franchisees for the years ended December 31, 2009, 2010 and 2011 amounted to BRL1.2 million, BRL0.4 million and BRL 0.4 million, respectively.
The Company has strict qualification procedures in selecting franchisees and controls the quality of its network by means of:
modern information technology with Localiza's exclusive Business Management System;
training, instruction material, communication and information;
development calls on the franchisee;
customer satisfaction surveys;
managerial reports and information;
advisory service in marketing and communication strategies; and
advisory board of franchisees
c) characteristics of operation markets
i.share in each market
Evolution of total revenue of the sector (BRL billions)
CAGR:13.9%
5.67 5.11 4.37
2009 2010 2011
Source: ABLA (Brazilian Association of Car Rental Companies ) Yearbook 2011
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7.3 – Information on products and services relative to operation segments
Rental revenue of Localiza and Franchisees (BRL billions)
CAGR:27.6%
1.720,9 1.400,2 1.057,6
2009 2010 2011 Source: Localiza
According to information compiled by the Company, the Company's rental revenues rose 5.8 times the Brazilian GDP growth rate between the years 2005 and 2011, while the car rental industry overall grew 2.9 times, according to information disclosed by ABLA and the Brazilian Statistics Bureau (IBGE).
The Company has a network of 449 branches in Brazil, which is larger than the combined networks of the three closest competitors. As at December 31, 2011, the 2nd, 3rd and 4th ranked competitors had 117, 99 and 54 branches, respectively, according to the website of each competitor. In terms of nationwide activity in Brazil, Localiza is present in 314 cities, while the 2nd, 3rd and 4th ranked competitors are present in 80, 75 and 40 cities, respectively.
Based on billing, in 2011 the Company had a market share of 30.4% (27.4% in 2010). In relation to fleet, in 2011 the Company had a market share of 24.1% (23.5% in 2010), with the share of the car rental market standing at 36.5% (37.5% in 2010) and fleet rental market share of 13.9% (12.5% in 2010).
In 2009, 2010 and 2011, the fleet of car and fleet rental companies grew 14.0% ,14.0%, and 7.5% respectively. The total fleet jumped from 414.3 thousand cars in 2010 to 445.5 thousand cars in 2011. The industry's billing reached a total of BRL5.67 billion in 2011, a growth of 11.0% when compared to BRL5.11 billion in 2010.
The evolution of the national fleet also ratifies the importance of car and fleet rental companies in the context of the automobile industry.
Evolution of the fleet of the industry (thousands)
CAGR:10.7%
445.5 414.3 363.5
2009 2010 2011
Source: ABLA Yearbook 2012
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7.3 – Information on products and services relative to operation segments
ABLA share in the automobile industry (BRL millions)
9.40%
9.02%
8.70%
2009 2010 2011
Source: ABLA Yearbook 2012
ii. competition conditions in the markets
The Company faces the competition of rental companies in Brazil and abroad that vary in size, and also small-sized regional rental companies. Besides competing with the same competitors as in the car rental division, the fleet rental division faces the competition of companies dedicated exclusively to this business line. As at December 31, 2011 there were approximately 2,000 car and fleet rental companies operating in Brazil. Nevertheless, the Company believes it is the biggest car rental network in South America as measured by number of branches.
d) Seasonal factors
The leisure tourism segment of the car rental market features seasonal aspects, with peak demand occurring in the second half of December and in the months of January and July, owing to school vacations, as well as prolonged holidays like Christmas, New Year's, Carnival and Easter Break (Holy Week). Cars in the process of being decommissioned can meet car rental needs during such peak demand periods.
The Company's other business lines do not undergo the same type of fluctuations in their operations.
e) Main inputs and raw material
i) description of the relationship with suppliers, including whether they are subject to governmental control or regulation, with indication of the agencies involved and the respective applicable legislation
The Company's main suppliers are automakers. The Company believes that it is one of the main buyers of cars from Brazil's largest automakers and believes that the volume of the operations carried out with such automakers allows the Company to get good conditions for purchase. In 2011, the Company purchased 59,950 cars in Brazil, representing about 2.3% of new car sales from the four leading automakers (Fiat, GM, Volkswagen and Renault). At the average purchase price of BRL 29.13 thousand in 2011, the volume of cars purchased between the years 2005 and 2011 exceeds BRL 9.0 billion.
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7.3 – Information on products and services relative to operation segments
Spare parts and maintenance services for the cars are basically acquired from the dealers’ network of the automakers themselves.
ii) eventual dependence on few suppliers and iii) eventual volatility in their prices
The Company believes that it does not have problems with respect to any dependence on any automaker, as well as not being subject to great volatility of prices due to the fact that the acquired volume is well below the quantity produced and installed capacity. The Company does not execute supply contracts with automakers, but rather conducts ongoing negotiations with them, thus enjoying flexibility in maintaining models in its fleets that are adequate to the demand.
The Company and its subsidiary Total Fleet do not have tax benefits in these operations.
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7.4 – Customers accounting for more than 10% of total net revenue
a) total amount of revenues from customers
As at 31 December, 2011, one of the 3 biggest credit card companies represented 16.9% of balances receivable of the Company.
b) operation segments affected by revenues from customer
Car Rental segment.
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7.5 - Material effects of local government regulations on activities
a) Need for government authorizations to engage in the activities and history of relationship with the public administration in order to obtain such authorizations
Performance of the activities of the Company and its subsidiaries is not subject to obtaining governmental authorizations, except for the corporate taxpayer number (CNPJ) with the Brazilian Federal Revenue Service (RFB) and operation licenses with the municipal authorities in the cities where the Company has branches.
b) Environmental policy of issuer and costs incurred for compliance with environmental regulations and, if applicable, other environmental practices, including adherence to international environmental protection standards:
Car and fleet rental activities do not generate significant environmental impacts.
The Company's fleet is new and features technology that reduces the generation of car pollution. Most of the fleet consists of biofuel models that permit use of ethanol, representing a clean and renewable energy option.
c) Dependence on patents, trademarks, licenses, concessions, franchises, and material royalty contracts for development of activities
• Patents, trademarks and licenses
The Company has registered various trademarks in Brazil, among which "LOCALIZA" and "LOCALIZA RENT A CAR" stand out in for its activities. It has also filed for registration of various other trademarks - among them the trademarks "LOCALIZA FLEET" and "LOCALIZA - TOTAL FLEET" are highlighted - with the appropriate authorities for registration of trademarks in Brazil (with the Brazilian patent office - INPI) and in several other countries, such as Argentina, Chile, Mexico, the United States and countries of the European Community. See the list of the Company's trademarks and patents in item 9.1 (b).
The Company is also the holder of the domain names: www.localiza.com, www.localiza.com.br, www.fidelidadelocaliza.com.br, www.seminovoslocaliza.com.br e www.totalfleet.com.br.
• Concessions
The Company operates its own branches in airports by means of concession agreements granted by INFRAERO and state and municipal airport authorities. As at December 31, 2011, of the Company's 81 concessions (some branches involve more than one concession), 60 were granted by INFRAERO, 16 by state airport authorities and 4 by municipal airport authorities. The Company also carries out operations in 1 private airport. In general, the concession agreements executed with INFRAERO and state and municipal airport authorities are subject to new bidding procedures upon termination. Historically, the Company has been successful in its efforts to renew concessions.
The concession agreements generally have terms varying from 12 to 60 months. Among other obligations, the Company pays rent each month for use of the space and participates in the apportionment of the charges levied thereon. In addition, the Company has to take out insurance coverage consistent with its activity, keep the
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7.5 - Material effects of local government regulations on activities
concession space in perfect working order, comply with legal requirements applicable to its activity and keep the space with all equipment required for its activity and those required for fire safety.
The monthly amount to be paid for the concession generally complies with three criteria (i) a fixed price set in BRL (ii) a minimum guarantee assigned at a certain amount in BRL, which will be the minimum value to be paid together with the fixed price and (iii) variable price, assigned by a percentage of the gross revenue from activity carried out in the space. Normally the percentage is 5% of gross revenue.
These concession agreements may be terminated by INFRAERO in cases of: (i) failure to comply with the foreseen conditions; (ii) assignment or transfer of the space, even if only in part, to third parties; (iii) use of the space for purposes other than those agreed upon; (iv) modifications in the space without authorization from INFRAERO; (v) decommissioning or modification of the airport that does not permit continuity of the Company's activities, (vi) dissolution of the company, liquidation proceedings or adjudication of bankruptcy; (vii) omission of information on the company' gross revenue; and (viii) delay in payment for a period of more than 30 days.
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7.6 – Material revenues from overseas operations
a) Revenues from customers attributed to the country where issuer's registered offices are located and their share in issuer's total net revenues
Revenue earned by the Company in Brazil amounted to BRL2,917,752 thousand in 2011, representing 99.99%, of the Company's total net revenues.
b) Revenue from customers attributed to each foreign country and their share in issuer's total net revenues
Not applicable
c) Total revenues from foreign countries and their share in issuer's total net revenues
Revenue earned by the Company from royalties abroad were not material, amounting to BRL378 thousand in 2011, representing 0.01of the Company's total net revenue.
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7.7 – Effects of foreign regulations on activities
The Company operates in foreign countries through franchisees. The legislation in effect in such countries affects such franchisees, which are companies set up in those countries. The Company does not hold any equity interests in such franchisees.
The rights and obligations involving the Company and the franchisees are determined in a business franchise agreement signed between the parties, with the City of Belo Horizonte, Minas Gerais, Brazil, being the venue for resolution of any conflict between them. Accordingly, the Company is not subject to the effects of any foreign regulations on its activities.
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7.8 – Material long-term relationships
relevantes i. Agreement for cooperation with Banco do Brasil / BV Financeira S.A.
On September 29, 2006, subsidiary Prime executed an agreement for cooperation with Banco do Brasil
Under this agreement, Prime granted to Banco do Brasil first refusal rights for 25 minutes in the financing of decommissioned cars sold in its points of sales and also the possibility to offer other related products.
The agreement is valid through February 28, 2017 and also provides for Banco do Brasil access to the network of points of sales in order to promote the partnership, promotional activities and jointly in events intended for sales of cars decommissioned from the fleets of Localiza and its subsidiary Total Fleet.
For granting such exclusivity in directing the financing of the decommissioned cars, Prime is entitled to a net compensation of BRL22.0 million, which was received in 2006 and recorded in the realizable revenue account, net of taxes, in the amount of BRL13.1 million. As at December 31, 2011 the consolidated balance of realizable revenue related to this transaction, net of deferred taxes, was BRL6.3 million. In addition, Banco do Brasil will make monthly payments, under the terms of the agreement, for the intermediation of the financing and other related products.
On June 17, 2010, Banco do Brasil, with the approval of Prime, assigned and transferred all the rights and obligations under the respective agreement to BV Financeira S.A.
On March 14, 2005, Localiza, Total Fleet and Prime executed a contract by means of which they assigned and transferred to Locapar, which subsequently assigned the rights to the founder members, all the rights resulting from lawsuits of tax and social security nature in which they are plaintiffs, involving the original amount of BRL216,446 (non-audited), net of the already extinct lawsuits. Conversely, the founder members accepted all the pecuniary obligations levied on the lawsuits. Localiza, Total Fleet and Prime committed themselves to continue the lawsuits and use the credits earned in the lawsuits for the purpose of offsetting tax obligations and, later, pass on to the founder members the amounts corresponding to the benefit obtained in the offset, deducing an administration fee of 3% of the value of the rights earned in the lawsuits which have been effectively received or used by means of offseting tax obligations.
ii. Social Programs
The Company takes part in social programs, demonstrating its concern with the community, through projects which focus on culture, social actions and education, having invested BRL2.4 million in 2011. Highlighting the following:
Junior Achievement ‐ Minas Gerais: educational project whose main aim is to take entrepreneurship to state schools. The Company is the supporter of Junior Achievement, whose president of the Advisory Council of Minas Gerais is Eugênio Mattar, Deputy CEO of the Company.
Leader Formation Institute (Instituto de Formação de Líderes): a project which aims at forming entrepreneurial leaderships which are committed with the social and political organization model for Brazil, based on the democratic ideals of individual freedom in the principles of market economy, free initiative and respect for the Rule of Law.
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7.8 – Material long-term relationships relevantes Endeavor: an organization which identifies and makes it feasible the sustained continuity of high impact entrepreneurs’ businesses. They select, inspire and qualify high impact entrepreneurs also to act as great managers, inserting the entrepreneurial culture of high impact in the education. They work with the government to minimize the hindrances in the entrepreneurial activity
Millenium Institute: a study, research, disclosure and formation center in public matters of the government, politics, economy, society and culture, which promotes the values and principles of a free society – individual freedom, property right, market economy, efficient state, representative democracy , rule of law and institutional limits to the government action.
Minas for Peace (Minas para a Paz): a project which aims at the promotion of social justice, peace, culture, citizenship and human rights, by means of the accomplishment of actions for the prevention of violence and criminality, as well as the implementation and incentive of cultural and social projects which aim at these objectives.
Green Light for the Culture (Sinal Verde para a Cultura): a project which provides for the support to culture all over Brazil and which, for more than twenty years, has been using its own resources or resources from income tax, as established by Rouanet Law.
Social Fund for the Child and the Adolescent (Fundo Social da Criança e Adolescente): allocations of resources from income tax by the Company to institutions previously selected, which are qualified and have good historical background and highly respected reputation.
Green Seed (Semente Verde): a social project which provides for the support to institutions by means of volunteers. In this program food, hygiene products and pedagogical material are collected in order to assist two previously selected institutions.
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7.8 – Material long-term relationships
relevantes iii. Social Balance Sheet
2010 2011
Calculation basis of social indicators - R$ thousand Net Revenue (NR) 2,497,194 2,918,130 Earnings before taxes (EBT) 360,188 416,667 Gross Payroll (GP) 221,136 256,874
Internal Social Indicators % Amount % over % over Amount over % over R$/thousand GP NR R$/thousand GP NR
Meals 11,172 5% 1% 16,793 7% 1% Pension Plan - 0% 0% 766 0% 0% Compulsory social charges 44,434 20% 2% 54,324 21% 2% Health 6,918 3% 0% 13,02 5% 0% Training and professional development 5,762 3% 0% 7,365 3% 0% Day – care or day – care allowance 232 0% 0% 283 0% 0% Profit Sharing 39,761 18% 2% 30,848 12% 1% Other 4,343 2% 0% 5,647 2% 0% Total – Internal Social Indicators 112,622 51% 5% 129,046 50% 4%
External Social Indicators % on % on % on % on Valor R$/mil EBT NR Valor R$/mil EBT NR
Education - 0% 0% 409 0% 0% Culture 147 0% 0% 1,632 1% 0% Other 74 0% 0% 409 0% 0% Total contributions to society 221 0% 0% 2,45 1% 0%
Taxes (net of social charges) 211,178 59% 8% 234,681 56% 8% Total – External Social Indicators 211,399 59% 8% 237,131 57% 8%
Employees Indicators 2010 2011
Number of employees at the end of the year 4,533 5,304 Number of admissions during the period 1,809 1,948 Number of outsourced employees 109 125 Number of interns 24 1 Number of employees over 45 years old 289 359 Number of women working at the company 2,096 2,452 % of management positions held by women 51.03% 47.45% Number of afro-descendants working at the company 2,464 3,37 % of management positions held by afro-descendants 34.54% 41.44% Number of physically-impaired people or people with special needs 62 51
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7.8 – Material long-term relationships
relevantes Significant information regarding corporate citizenship 2011 Goals 2012
Highest/lowest compensations ratio 80 80 (*) Total number of occupational accidents 33 -
- The social and environmental projects developed by the Company were ( ) directors ( ) directors and (x) all employees ( ) directors ( ) directors and (x) all employees established by managers managers - The safety and health standads in the workplace were established by ( ) directors and ( ) all employees (x) all + CIPA ( ) directors and ( ) all employees (x) all + CIPA managers managers - Regarding union freedom, right to collective bargaining and internal workers ( ) is not involved (x) follows the ( ) encourages and ( ) will not be (x) will follow the ( ) will encourage and representation, the Company standards of the follows the standards involved standards of the ILO follow the standards of International Labor of the ILO the ILO Organization (ILO) - The profit sharing plan covers ( ) directors ( ) directors and (x) all employees ( ) directors ( ) directors and (x) all employees managers managers
- in selecting suppliers, the same ethical, social responsibility and environmental (x) are not ( ) are suggested ( ) are required (x) will not be ( ) will be suggested ( ) will be required standards adopted by the Company considered considered
- As to the participation of employees in volunteer work programs, the Company ( ) is not involved ( ) supports (x) organizes and ( ) will not be ( ) will support (x) will organize and encourages involved encourage - Total number of complaints and criticisms from consumers In the Company In Procon In court In the Company In Procon In court (**) 89 781 (**) NA NA
- % of complaints and criticisms from consumers handled or solved In the Company In Procon In court In the Company In Procon In court (**) 16.9% 14.3% (**) NA NA
(*) For the calculation between the highest and lowest remuneration in the Company the head office salaries were used (Belo Horizonte).
(**) The customer assistance area answers calls relative to mechanical problems, accidents, doubts when compared to invoices, as well as praises and complaints. The Company does not have the exact the quantity of calls which refer exclusively to complaints.
iv. Sustainability Report
The Company does not disclose sustainability report since the car rental and fleet rental activities do not generate significant environmental impacts.
The Company’s fleet is new and relies on technology which reduces generation of pollutants by the cars. Most of the fleet consists of bio-fuel models, which enables the use of alcohol as fuel, consisting of a clean, renewable and sustainable.
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7.9 – Other relevant information relevantes
All relevant information pertaining to this topic has already been provided in the previous items.
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8.1 – Description of the Group Econômico a) Direct and Indirect controlling shareholders
The Company's capital is comprised exclusively of common shares. The following table lists the shareholders holding more than 5% (five per cent) of the Company's shares on May 09, 2013 and their respective equity interests in the capital:
Quantity of shares % José Salim Mattar Júnior (*) 18,105,774 8.5488 Antônio Cláudio Brandão Resende 19,061,406 9.0000 Eugênio Pacelli Mattar (**) 15,107,482 7.1331 Flávio Brandão Resende 12,816,031 6.0512 BlackRock Inc (***) 10,605,826 5.0076 Shares in treasury 3,962,559 1.8710 Other shareholders 132,134,322 62.3883 Total 211,793,400 100% (*) Contemplates 938,730 shares available for rent. (**) Contemplates 71,757 shares available for rent (***) According to the notice received by the Company as of September 17, 2012, and released to the market through to a notice to the market as of September 18, 2012, BlackRock Inc, asset manager headquartered in USA, informed that it reached relevant shareholder position representing more than 5% of ordinary shares issued by Localiza, as of September 13, 2012. The amount of shares was adjusted with the stock dividend.
Shareholders’ Agreement
There is no agreement signed by the Company's shareholders.
b) Subsidiaries and Associates
As of May 09, 2013, the Company had the following subsidiaries:
Total Fleet S.A.: a privately-held corporation engaged in the fleet rental business.
Localiza Car Rental S.A.: also a privately-held corporation that engages in car and fleet rental activities and in the licensing of trademarks and franchises in Brazil.
Localiza Franchising Brasil S.A.: a privately-held corporation that conducts franchise operations in Brazil and is further authorized to hold equity interests in other companies and engage in car rental activities.
Localiza Franchising Internacil SRL "LFI SRL": a limited liability company with registered offices in Argentina, although at present it is non-operating. It was previously a wholly-owned subsidiary of Franchising Internacional and, after the merger of Franchising Internacional into Localiza on December 28, 2009, it became a wholly-owned subsidiary of the Company. On September 21, 2012, Localiza made a capital payment in Total Fleet S.A. with 5% of the investment in LFI SRL.
Localiza Serviços Prime S.A. (“Prime”) (former Prime Prestadora de Serviços S.A.): a privately- held corporation that serves as an intermediary in sales of decommissioned cars previously used by Localiza and Total Fleet in their rental operations. It has the following objetives: (i) intermediation in business and services in general, (ii) preparation of projects, technical support, consultancy and systems development, (iii) lease of skilled labor and (iv) services and negotiation with workshops and other suppliers, verification of claims, approval of budgets and approval of services performed, management of information and supporting documentation of claims.
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Car Assistance Serviços de Administração de Sinistros S.A.: a privately-held corporation that
administers car insurance losses for insurance companies, accredits mechanical workshops and other suppliers and negotiates with them, regulates losses, approves budgets and services performed, manages information and provides documentary proof of losses and also manages damages.
TF Assistance Serviços de Administração de Sinistros S.A.: a wholly-owned subsidiary of Localiza Franchishing Brasil S.A. (as approved in the Board of Director´s meeting held on October 25, 2012 which approved the sale of TF Assistance Serviços de Admistração de Sinistros S.A. by Total Fleet to Localiza Franchising Brasil S.A), currently in pre-operational phase and is engaged in the administration claims for car insurance, accreditation and negotiating with machine shops and other suppliers, loss adjustment, approval of budgets and services performed, management information and supporting documentation of claims and claims management.
Rental International LLC: a wholly-owned subsidiary of the Company set up to carry out financial activities abroad. Currentlis not engaged in any operating activities.
Rental Brasil Administração e Participação S.A: a privately-held corporation whose purpose is the administration and participation as unitholder or shareholder in other corporations.
c) Company interest in companies of the group
As at May 09, 2013 the percentage of interest held by the Company in its direct and indirect subsidiaries is as follows:
Corporate Name % interest
Direct subsidiaries: Total Fleet 100,0% Localiza Car Rental 100,0% Localiza Franchising Brasil 100,0% LFI SRL 95,0% Prime Prestadora de Serviços 100,0% Car Assistance 100,0% Rental International 100,0% Rental Brasil 100,0%
Indirect Subsidiary: TF Assistance 100,0%
Indirect Participation: LFI SRL 5,0%
d) Interest of companies of the group in the issuer
There are no companies of the group that has interest in the Company
e) Companies under common control
There are no companies of the group under common control
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8.2 – Organization chart of the Group
As at May 09, 2013, the organization chart of the group is as follow:
Controlling Shareholders
Antônio Cláudio Eugênio Pacelli Flávio Brandão Salim Mattar BlackRock Inc Free Float Shares in treasury Brandão Resende Mattar Resende
8,55% 9,00% 7,13% 6,05% 5,01% 62,39% 1,87% 18.105.774 (*) 19.061.406 15.107.482 (**) 12.816.031 10.605.826 (***) 132.134.322 3.962.559
LOCALIZA
95% 100% 100% 100% 100% 100% 100% 100% LFI Localiza Franchising Brasil Total Fleet Car Rental Car Assistance Rental International Rental Brasil (Argentina) Serviços Prime
100% 5% LFI TF Assistance (Argentina)
(*) Contemplates 938,730 shares available for rent. (**) Contemplates 71,757 shares available for rent (***) According to the notice received by the Company as of September 17, 2012, and released to the market through to a notice to the market as of September 18, 2012, BlackRock Inc, asset manager headquartered in USA, informed that it reached relevant shareholder position representing more than 5% of ordinary shares issued by Localiza, as of September 13, 2012. The amount of shares was adjusted with the stock dividend.
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8.3 – Restructuring operations
Date of the operation 28/12/2009 Corporate event Merger
Description of the operation At the Extraordinary General Meeting (EGM) held on December 28, 2009, the shareholders approved the merger of the wholly-owned subsidiary, Localiza Franchising Internacional S.A., with transfer of all the assets, liabilities and equity to the Company. Such merger was justified by the fact that it met common interests and the strategic guidelines of the Company for administrative and financial simplification and streamlining, as well as for direct development of franchising activities involving its trademark outside Brazil. As the operation involved a wholly-owned subsidiary of Localiza, this event did not impact either the Company’s consolidated financial statements or its ownership structure.
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8.4 – Other relevant information
All relevant information pertaining to this topic has already been provided in the previous items.
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9.1 – Material non-current assets - other
The non-current assets that are material for the development of the Company's activities are described in sub-item 9.1.a.
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9.1 – Material non-current assets / 9.1.a – Fixed assets
Description of the fixed asset Country State Municipality Type of property Cars Brazil MG Several Own Land Brazil BA Barreiras Own Land Brazil BA Camaçari Own Land Brazil PE Recife Own Land Brazil MG Poços de Caldas Own Land Brazil MG Belo Horizonte Own Leasehold improvements Brazil AL Maceió Rent Leasehold improvements Brazil AP Macapá Rent Leasehold improvements Brazil BA Several Rent Leasehold improvements Brazil CE Fortaleza Rent Leasehold improvements Brazil DF Several Rent Leasehold improvements Brazil ES Several Rent Leasehold improvements Brazil GO Goiânia Rent Leasehold improvements Brazil MA Several Rent Leasehold improvements Brazil MG Several Rent Leasehold improvements Brazil MS Several Rent Leasehold improvements Brazil PA Several Rent Leasehold improvements Brazil PB João Pessoa Rent Leasehold improvements Brazil PE Recife Rent Leasehold improvements Brazil PI Teresina Rent Leasehold improvements Brazil PR Several Rent Leasehold improvements Brazil RJ Several Rent Leasehold improvements Brazil RN Several Rent Leasehold improvements Brazil RS Several Rent Leasehold improvements Brazil SC Several Rent Leasehold improvements Brazil SP Several Rent Land Brazil BA Salvador Own Land Brazil BA Itaparica Own Cars Brazil MG Several Leased
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9.1 - Material non-current assets / 9.1.b - Patents, trademarks, licenses, concessions, franchises and technology transfer agreements
Type of asset Description of the Covered Territory Duration Events which may cause loss of rights Consequence of loss of rights asset Trademarks Localiza Rent a Latin America Until 2016 Non-payment of extension at maturity Loss of trademark registration and intangible asset Car (abroad Chile) Trademarks Localiza rent a car Latin America Until 2018 Non-payment of extension at maturity Loss of trademark registration and intangible asset (abroad Colombia) Trademarks Localiza rent a car Latin America Until 2018 Non-payment of extension at maturity Loss of trademark registration and intangible asset (abroad Costa Rica)
Trademarks Localiza rent a car Latin America Until 2019 Non-payment of extension at maturity Loss of trademark registration and intangible asset (abroad Ecuador) Trademarks Localiza rent a car Latin America Until 2017 Non-payment of extension at maturity Loss of trademark registration and intangible asset (abroad Nicaragua)
Trademarks Localiza rent a car Latin America Until 2016 Non-payment of extension at maturity Loss of trademark registration and intangible asset (abroad Panama) Trademarks Localiza rent a car Latin America Until 2016 Non-payment of extension at maturity Loss of trademark registration and intangible asset (abroad Paraguay) Trademarks Localiza rent a car Latin America Until 2014 Non-payment of extension at maturity Loss of trademark registration and intangible asset (abroad Peru) Trademarks Localiza rent a car Europe Until 2016 Non-payment of extension at maturity Loss of trademark registration and intangible asset (abroad Portugal) Trademarks Localiza Rent a Latin America Until 2016 Non-payment of extension at maturity Loss of trademark registration and intangible asset Car (abroad Suriname) Trademarks Localiza Rent a Latin America Until 2017 Non-payment of extension at maturity Loss of trademark registration and intangible asset Car (abroad Uruguay) Trademarks Localiza Rent a Latin America Until 2017 Non-payment of extension at maturity Loss of trademark registration and intangible asset Car (abroad Venezuela)
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9.1 - Material non-current assets / 9.1.b - Patents, trademarks, licenses, concessions, franchises and technology transfer agreements
Type of asset Description of the Covered Territory Duration Events which may cause loss of rights Consequence of loss of rights asset Trademarks Localiza.com.br Brazil Until 2017 Non-payment of extension at maturity Loss of trademark registration and intangible asset
Trademarks Seminovos Brazil Until 2017 Non-payment of extension at maturity Loss of trademark registration and intangible asset Localiza Trademarks Seminovos Localiza Brazil Until 2019 Non-payment of extension at maturity Loss of trademark registration and intangible asset Carros de Confiança
Trademarks Seminovos Brazil Until 2017 Non-payment of extension at maturity Loss of trademark registration and intangible asset Localiza.com.br Trademarks Localiza Rent a Latin America Until 2013 Non-payment of extension at Loss of trademark registration and Car (abroad maturity. intangible asset Guiana) Trademarks Localiza (abroad Latin America Until 2013 Non-payment of extension at maturity Loss of trademark registration and Guiana) intangible asset Trademarks Green Line Brazil Until 2011 Non-payment of extension at Loss of trademark registration and maturity. intangible asset Trademarks Green Sign Brazil Until 2020 Non-payment of extension at Loss of trademark registration and maturity. intangible asset Trademarks Localiza Green Brazil Until 2017 Non-payment of extension at Loss of trademark registration and maturity. intangible asset Trademarks Localiza Verde Brazil Until 2017 Non-payment of extension at Loss of trademark registration and intangible asset maturity. Trademarks Verde Fato Brazil Until 2017 Non-payment of extension at Loss of trademark registration and maturity. intangible asset Concessions Concession of right Brazil 12 to 60 months See topic 7.5 letter "c" of this See topic 7.5 letter "c" of this granted by Reference Form Reference Form Infraero and state and municipal airport authorities
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9.1 - Material non-current assets / 9.1.b - Patents, trademarks, licenses, concessions, franchises and technology transfer agreements Type of asset Description of the asset Covered Territory Duration Events which may cause loss of rights Consequence of loss of rights
Franchises Franchises and Brazil 60 months The Company grants its franchisees After the termination of the agreements royalty agreements the right to use trademark and the a the Company may execute a new necessary knowledge to operate the agreement with the franchisee or take Business as well as exclusivity over on the franchisee’s operations if they certain geographic area outside which economically feasible, having first refusal The franchisee may not operate. rights in the acquisition of agency and facilities. In general, the franchisees may rescind the franchise agreements upon a 90-day notice. The Business Franchise Agreements executed by the Company have exclusivity clause which does not allow the franchisees to sell its operations to third-parties or the Company’s competitors. The agreements also present a confidentiality clause in force for a five –year period and a non- competition obligation after the termination or rescission of the agreement for a two-year period. Trademarks Localiza Brazil Until 2017 Non-payment of extension at maturity Loss of trademark registration and intangible asset
Trademarks Localiza (abroad Latin America Until 2017 Non-payment of extension at maturity Loss of trademark registration and intangible asset Argentina) Trademarks Localiza (abroad Latin America Until 2016 Non-payment of extension at maturity Loss of trademark registration and intangible asset Aruba) Trademarks Localiza (abroad Latin America Until 2017 Non-payment of extension at maturity Loss of trademark registration and intangible asset Bolivia) Trademarks Localiza (abroad Latin America Until 2016 Non-payment of extension at maturity Loss of trademark registration and intangible asset Chile) Trademarks Localiza (abroad Latin America Until 2016 Non-payment of extension at maturity Loss of trademark registration and intangible asset Colombia)
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9.1 - Material non-current assets / 9.1.b - Patents, trademarks, licenses, concessions, franchises and technology transfer agreements
Type of asset Description of the asset Covered Territory Duration Events which may cause loss of rights Consequence of loss of rights
Trademarks Localiza (abroad Europe Until 2013 Non-payment of extension at maturity Loss of trademark registration and intangible asset European Comm.) Trademarks Localiza (abroad Latin America Until 2019 Non-payment of extension at maturity Loss of trademark registration and intangible asset Costa Rica) Trademarks Localiza (abroad Latin America Until 2016 Non-payment of extension at maturity Loss of trademark registration and intangible asset Ecuador) Trademarks Localiza (French Latin America Until 2017 Non-payment of extension at maturity Loss of trademark registration and intangible asset Guiana) Trademarks Localiza (abroad Latin America Until 2017 Non-payment of extension at maturity Loss of trademark registration and intangible asset Mexico) Trademarks Localiza (abroad Latin America Until 2017 Non-payment of extension at maturity Loss of trademark registration and intangible asset Nicaragua) Trademarks Localiza (abroad Latin America Until 2016 Non-payment of extension at maturity Loss of trademark registration and intangible asset Panama) Trademarks Localiza (abroad Latin America Until 2016 Non-payment of extension at maturity Loss of trademark registration and intangible asset Paraguay) Trademarks Localiza (abroad Latin America Until 2016 Non-payment of extension at maturity Loss of trademark registration and intangible asset Peru) Trademarks Localiza (abroad Latin America Until 2016 Non-payment of extension at maturity Loss of trademark registration and intangible asset Suriname) Trademarks Localiza (abroad Latin America Until 2016 Non-payment of extension at maturity Loss of trademark registration and intangible asset Uruguai) Trademarks Localiza (abroad United States Until 2018 Non-payment of extension at maturity Loss of trademark registration and intangible asset USA) Trademarks Localiza Aluguel de Brazil Until 2017 Non-payment of extension at maturity Loss of trademark registration and intangible asset Carros Trademarks Localiza Frotas Brasil Until 2017 Non-payment of extension at maturity Loss of trademark registration and intangible asset
Trademarks Localiza Rent a Brasil Until 2018 Non-payment of extension at maturity Loss of trademark registration and intangible asset Car Trademarks Localiza Rent a Latin America Until 2016 Non-payment of extension at maturity Loss of trademark registration and intangible asset Car (in Aruba) Trademarks Localiza Rent a Latin America Until 2017 Non-payment of extension at maturity Loss of trademark registration and intangible asset Car (in Bolivia)
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9.1 - Material non-current assets / 9.1.c – Interest in companies
Corporate name CNPJ CVM code Type company Country State Municipality Description of activities Issuer Interest (%)
Fiscal Year Book value - change % Market value - Amount of dividends Date Value (BRL) change % received (BRL) Car Assistance 10.863.913/0001-95 - Subsidiary Brazil MG Belo Horizonte Closely held company which manages car 100.000000 Serviços de losses for insurance companies, accredits Administração de mechanical workshops and other suppliers Sinistros S.A. and negotiates with them, regulates losses, approves budgets and services performed, manages information and provide documentary proof of losses and also manages damages. Market value
31/12/2011 1335.000000 0.000000 4,271,007.22 Book value 31/12/2011 3,444,000.00
31/12/2010 0.000000 0.000000 2,334,000.00
31/12/2009 0.000000 0.000000 1,249,000.00
Reasons for acquisition and maintenance of such interest Company responsible for managing losses occurred with the Company’s fleet cars.
Localiza Car Rental 07.150.288/0001-20 - Subsidiary Brazil MG Belo Horizonte Closely held company that operates 100.000000 S.A. car and fleet rental activities also licensing trademarks and franchises in Brazil.
Market value
31/12/2011 88.091237 0.000000 4,890,515.25 Book value 31/12/2011 7,834,000.00
31/12/2010 0.000000 0.000000 7,115,000.00
31/12/2009 0.000000 0.000000 4,618,000.00
Reasons for acquisition and maintenance of such interest
Company which also operates car rental activities parallel to the Company.
Localiza Franchising 06.291.437/0001-08 - Subsidiary Brazil MG Belo Horizonte Closely held company which operates 100.000000 Brasil S.A. franchising businesses in Brazil. Additionally, it is authorized to have interest in other companies and operate car rental activities. Market value
31/12/2011 1349. 834437 0.000000 10,869,212.76 Book value 31/12/2011 8,757,000.00
31/12/2010 8.828829 0.000000 7,845,000.00
31/12/2009 -1.595745 0.000000 5,859,000.00
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9.1 - Material non-current assets / 9.1.c – Interest in companies
Corporate name CNPJ CVM code Type company Country State Municipality Description of activities Issuer Interest (%)
Fiscal Year Book value - change % Market value - Amount of dividends Date Value (BRL) change % received (BRL) Reasons for acquisition and maintenance of such interest
Company responsible for operating franchising of Localiza trademark business in Brazil.
Localiza Franchising 00.000.000/0000-00 - Subsidiary Argentina Buenos Aires Limited liability company, in Argentina, 100.000000 International SRL presently non-operating. It used to be a wholly- owned subsidiary of Franchising Internacional and, after the merger of Franchising Internacional with Localiza on December 28, 2009, it became a wholly-owned subsidiary of the Company.
Market value
31/12/2011 -3.000000 0.000000 0.00 Book value 31/12/2011 97,000.00 31/12/2010 -18.032787 0.000000 0.00 31/12/2009 0.000000 0.000000 0.00 Reasons for acquisition and maintenance of such interest
Company presently non-operating.
Prime Prestadora de 02.887.100/0001-07 - Subsidiary Brazil MG Belo Horizonte Closely held company conducting 100.000000 Serviços S.A. intermediation in the sales of decommissioned cars previously used by Localiza and Total Fleet in their rental operations. Market value
31/12/2011 0.000000 0.000000 0.00 Book value 31/12/2011 0.00
31/12/2010 0.000000 0.000000 0.00
31/12/2009 0.000000 0.000000 0.00
Reasons for acquisition and maintenance of such interest
Company responsible for intermediating sales of cars previously used in car and fleet rental business.
Rental International 00.000.000/0000-00 - Subsidiary United States Wholly-owned subsidiary of the 100.000000 LLC Company established for conducting financial activities abroad. Currently Non-operating. Market value 31/12/2009 0.00 31/12/2011 0.000000 0.000000 0.00 Book value 31/12/2010 0.00 31/12/2010 0.000000 0.000000 0.00
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9.1 - Material non-current assets / 9.1.c – Interest in companies
Corporate name CNPJ CVM code Type company Country State Municipality Description of activities Issuer Interest (%)
Fiscal Year Book value - change % Market value - Amount of dividends Date Value (BRL) change % received (BRL) 31/12/2009 0.000000 0.000000 0.00 Reasons for acquisition and maintenance of such interest
Company responsible for conducting financial operations abroad, presently non-operating .
TF Assistance Serviços 10.866.914/0001-93 - Subsidiary Brazil MG Belo Horizonte Wholly-owned subsidiary by Total Fleet, 100,000000 de Administração de presently in pre-operation phase and whose
Sinistros S.A. purpose is the management of losses of cars for insurance companies, accrediting of mechanical workshops and other suppliers and negotiating with them, regulation of losses approval of budgets and services performed, management of information and proof documents of the losses and management of damages.
Market value
31/12/2011 0.000000 0.000000 0.00 Book value 31/12/2011 150,000.00 31/12/2010 0.000000 0.000000 0.00 31/12/2009 0.000000 0.000000 0.00 Reasons for acquisition and maintenance of such interest
Company in pre-operation phase managing losses occurred with Total Fleet fleet cars.
Total Fleet S.A. 02.286.479/0001-08 - Subsidiary Brazil MG Belo Horizonte Closely held company which conducts fleet 100.000000 rental business.
Market value 31/12/2011 71.928536 0.000000 40,425,550.96 Book value 31/12/2011 449,502,000.00 31/12/2010 -2.675750 0.000000 93,576,000.00 31/12/2009 -34.519674 0.000000 244,867,000.00 Reasons for acquisition and maintenance of such interest
Company responsible for conducting fleet rental business.
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Version: 14 Reference Form - 2012 - LOCALIZA RENT A CAR SA
9.2 – Other relevant information
The Company believes that the most material non-current assets are the cars in its fleets, in the amount of BRL2,681.680 thousand as at December 31, 2011, representing 93.7% of its total non- current assets. This amount includes BRL 28,992 thousand related to cars available for sales recorded under "Cars being decommissioned for fleet renewal" under current assets.
All the cars are acquired by the parent company and licensed in Belo Horizonte, and consequently they are classified in the state of Minas Gerais.
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Reference Form - 2012 - LOCALIZA RENT A CAR SA Version: 14
10.1 – Financial and equity general conditions
a) Financial and equity general conditions
The integrated business platform of Localiza provides flexibility and superior performance.
Our own asset management model, the business scale and the adoption of a meritocracy system, strengthen our leadership and make us more competitive and prepared for a continuous growth.
We have been adopting the correct strategies in the different economic scenarios and competitive environment.
Since the IPO in 2005, the Car Rental Division’s revenue has grown 3.8x and the Fleet Rental Division’s revenue has grown 3.2x. Our fleet moved from 28,699 cars at the end of 2004 to 96,317 cars in the past 7 years. Adding the 12,958 cars of the franchisees in Brazil and in other South American countries, Localiza’s fleet reached 109,275 cars as at December 31, 2011.
The BRL415.5 million of free cash flow generated in 2011, before fleet growth and interest, was 7.1x greater than the one in 2005, IPO year. In 2011, the return on capital invested was 17.1%. Even with higher interest rates, the spread over the cost of debt after taxes was 8.5 p.a..
In 2011, we strengthened the cash position, maintained the debt amortization extension process, with installments maturity until 2018. Additionally, we received the investment grade by Moody’s and Fitch, and in 2012, by Standard and Poor’s which strengthens our competitive advantage in raising money.
Localiza adopts the highest governance standards; it has a professional and active board of directors with qualified members in diversified areas. It was elected in 2008 and 2009 as the best company in Corporate Governance by Revista Capital Aberto and in 2011 it was among the 4 best companies according to “As Melhores da Dinheiro” and it also was one of the winners of the Prêmio Troféu Transparência (Transparency Trophy Award) for the quality of its Financial Statements.
Our relationship has been of complete transparence with our investors and stakeholders.
The market expectation is of a growing GDP track during 2012. The macroeconomic conditions foreseen by the market are favorable, and Brazilian Central Bank announced the prediction of a one digit interest rate. The Company’s growth elasticity in the past years was of 5.8x the GDP from 2005 to 2011.
In 2012 we became part of the Bovespa index. Our average daily trading volume has been increasing and it has movedfrom BRL23.2 million in 2011 to around BRL30.0 million in January 2012.
RENT3 was one of the 2 Brazilian companies indicated amongst the 50 best stocks in the world by Morgan Stanley’s in the report “50 for 2015”. Citibank also placed RENT3 as one of the 5 Brazilian stocks for 2012 in the report BRIC Breakout. And the Exame magazine of January 2012, in the news article “Where to invest in 2012”, appointed Localiza as one of the 5 best companies in the consummer sector.
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Reference Form - 2012 - LOCALIZA RENT A CAR SA Version: 14
10.1 – Financial and equity general conditions
Our commitment with the investors only increases with these and other 12 buy recommendations from the sell-side analysts.
We are optimistic and committed to keep growing with profitability. Aiming to assess the financial and equity situation of the Company, Management uses some indicators, among which we highlight the following:
• The Company’s Management uses EBITDA to measure its own performance, and some investors, rating agencies and financial analysts use it as an indicator of operational performance and cash flow of the Company. EBITDA is the net profit before income tax and social contribution, net financial expenses and depreciation and amortization expenses.
The table below presents the reconciliation between EBITDA and the net profit disclosed in the Annual Consolidated Financial Statements relative to years 2011, 2010 and 2009:
In BRL thous. Change (%) Change(%) 2011 x 2010 x 2011 2010 2010 2009 2009 Net Profit 291,642 255,892 109,226 Depreciation of cars (a) 201,493 161,875 211,938 Depreciation of other fixed assets (b) 24,094 21,145 21,015 Net, financial costs (c) 179,040 130,093 112,901 Income tax and social contribution 125,025 104,296 43,152 EBITDA 821,294 673,301 22.0% 498,232 35.1%
Consolidated net revenue 2,918,130 2,497,194 16.9% 1,820,913 37.1%
% EBITDA on consolidated net revenue 28,1% 27,0% 27,4%
(a) The expenses of depreciation of cars are recorded under “Costs” in the income statement of the Annual Consolidated Financial Statements; (b) The depreciation expenses of other fixed assets and the expenses of intangible assets (software) are recorded under “Expenses”, “Expenses with publicity and sales” and “General and administrative expenses”, according to the nature and allocation of each item, in the income statement of the Annual Consolidated Financial Statements; (c) They contemplate the expenses of interest on loans, financing and debentures and other interest expenses, net of financial revenues from cash and cash equivalents and other financial revenues, as well as the inflation adjustment of assets and liabilities.
EBITDA presented a growth of 22.0%, moving from BRL673.3 million in 2010 to BRL821.3 million in 2011, in line with the growth of rental net revenue, which grew 23.4%, moving from BRL1,175.3 million in 2010 to BRL1,450.0 million in 2011. As percentage of the consolidated net revenue, EBITDA presented an increase of 1.1p.p., moving from 27.0% in 2010 to 28.1% in 2011.
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Reference Form - 2012 - LOCALIZA RENT A CAR SA Version: 14
10.1 – Financial and equity general conditions
• Company’s Management considers the consolidated net debt as the indicator which best represents the actual indebtedness of the Company. Net debt corresponds to the short and long term indebtedness deduced of the cash and cash equivalents. Based on net debt, Company’s Management calculates certain indexes which demonstrate the Company’s financial situation, as follows:
In BRLthous. 2011 2010 2009 Short and long term indebtedness 2,074,425 1,696,755 1,538,193 Cash and cash equivalents (711,002) (415,681) (459,619) Net debt 1,363,423 1,281,074 1,078,574 Equity (EQ) 1,120,583 898,742 708,564 Net debt / EQ 1.22 1.43 1.52 EBITDA 821,294 673,301 498,232 Net debt / EBITDA 1.66 1.90 2.16 Fleet value 2,681,680 2,447,456 1,900,006 Net debt / Fleet value 0.51 0.52 0.57
The ratio Net debt over Equity; EBITDA and Fleet Value has been presenting a reduction along the past three years, due to strong cash generation.The Company’s Management considers its indebtedness ratios as conservative and comfortable for its business cycle.
b) Capital structure and possibility of shares or membership units redemption
• Capital structure:
Equity:
The subscribed and paid in capital consists of 201,708,000 registered common shares, without par value, and this amount can be increased, upon the Board of Directors’ decision in up to 43,962,000 common shares. As at December 31, 2011 and 2010, the subscribed and paid in capital was BRL601,708 thousand (BRL400,000 thousand as at December 31, 2009).
At the Extraordinary General Meeting held on October 15, 2010, it was approved theincrease in the Company's capital without issuance of new shares, through the transfer of part of the balance of the Earnings Reserve, of which BRL 23,000 thousand from the Earnings Retention Reserve, BRL 37,629 thousand from the Legal Reserve and BRL 141,079 thousand from the Statutory Reserve. The capital was therefore increased from BRL 400,000 thousand to BRL 601,708 thousand on that date.
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10.1 – Financial and equity general conditions
The capital consisted of the following, in the respective dates:
31/12/2011 31/12/2010 31/12/2009 Common Common Common shares shares shares Shareholders (quantity) % (quantity) % (quantity) %
Founders 68,129,621 33.78 69,153,520 34.28 85,256,001 42.27 Outstanding shares 129,337,074 64.12 128,313,175 63.61 112,199,594 55.62 Shares in treasury 4,183,180 2.07 4,226,300 2.10 4,226,300 2.10 Board of Directors 58,125 0.03 15,005 0.01 26,105 0.01 Total 201,708,000 100.00 201,708,000 100.00 201,708,000 100.00
(‐) Shares in treasury (4,183,180) (4,226,300) (4,226,300)
Outstanding shares at the end of fiscal year 197,524,820 197,481,700 197,481,700
As at December 31, 2011, 2010 and 2009 the Company's equity is broken down as follows:
BRL/thousand
31/12/2011 31/12/2010 31/12/2009
Capital 601,708 601,708 400,000 Capital Reserves 62,210 55,610 51,137 Shares in treasury (43,181) (43,626) (43,626) Profit reserves 499,730 273,939 260,540 Equity valuation adjustments 116 11,111 40,513 Total equity 1,120,583 898,742 708,564
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10.1 - Financial and equity general conditions
Third-party capital
The following table shows Company's consolidated net debt1 as at December 31, 2011, 2010 and 2009: BRL/thousand Fiscal year ended as at 31 December
2011 2010 2009 Short and long term indebtedness 2,074,425 1,696,755 1,538,193 (‐) Cash and cash equivalents (711,002) (415,681) (459,619) Net debt 1,363,423 1,281,074 1,078,574
The main events occurred during 2011 related to third-party capital are as follows:
Principal (in R$ Data Empresa Operação Modalidade thous.) May Localiza Fund raising Debentures ‐ 5th issuance 500.0 June Total Fleet Amortization Bank Credit Bill (86.0) June Localiza Amortization Promissory Notes (200.0) September Localiza Fund raising Bank Credit Bill 30.0 November Localiza Fund raising Foreign Currency 123.0 December Total Fleet Fund raising Trade Credit Notes 130.0 December Total Fleet Amortization Debentures ‐ 1st issuance (100.0)
We present Company's debt ratios as follows:
FISCAL YEAR-END BALANCES 2011 2010 2009
Net Debt / Fleet value 0.51 0.52 0.57
Net Debt / EBITDA 1.7x 1.9x 2.2x
Net Debt / Equity 1.2x 1.4x 1.5x
It should be highlighted that the Company´s fleet, which represents approximately 66.9 % of Localiza's total assets as at December 31, 2011, features easy liquidity and the Company has its own network to sell its cars to final consumers.
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1 The Company defines net debt as total financial indebtedness less cash and cash equivalents.
Reference Form - 2012 - LOCALIZA RENT A CAR SA Version: 14
10.1 - Financial and equity general conditions
As at December 31, 2011 debt profile, represented by the principal amounts in the following chart, is stretched and does not feature concentration of maturity:
562.0 432.0 312.8 303.4 232.5 94.8 26.0 52.0
2011 2012 2013 2014 2015 2016 2017 2018 2019
Cash 711.0
The current capital structure and debt amortization term are comfortable when compared with the Company's cash generation, as per the indicators shown above.
i) Redemption of shares
There is no outstanding program to carry out shares’ redemption.
As at 31 December, 2011, the quantity of shares in treasury is 4,183,180 shares (4,226,300 as at 31 December 2010 and 2009) acquired in the scope of the repurchase program approved in a Board meeting held on 18 December, 2007. The acquisition cost of these shares, including negotiation costs, was BRL 43,626 thousand, and the average unit cost was BRL10.32 (minimum BRL 5.15 and maximum BRL16.55). As at 31 December, 2011, the market value of the 4,183,180 shares is BRL107,089 thousand (BRL25.60 per share).
At the Board of Directors’ meeting held on 22 August, 2011, the acquisition of up to 5,316,400 shares of Localiza’s own issuance was authorized, in the scope of the Third Share Repurchase Program, to be kept in treasure and later disposition or use in stock option programs, without capital reduction. The maximum period for the execution of the operation is 365 days. Until 31 December, 2011, no share was acquired by the Company relative to this program.
ii) Calculation formula for redemption value
Not applicable
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Reference Form - 2012 - LOCALIZA RENT A CAR SA Version: 14
10.1 - Financial and equity general conditions
C) Payment capacity in relation to financial commitments assumed
As at December 31, 2011, the financial commitments assumed by the Company, net of the financial resources in cash or cash equivalent, were represented by the net debt, showed bellow:
In BRLthous. 2011 2010 2009 Short and long term indebtedness 2,074,425 1,696,755 1,538,193 Cash and cash equivalents (711,002) (415,681) (459,619) Net debt 1,363,423 1,281,074 1,078,574
Company defines net debt as short‐ and long‐term indebtedness less cash and cash equivalents. Management believes that the net debt represents the Company’s actual indebtedness.
Management understands that the indicators Net Debt x Fleet and Net Debt x EBITDA are the ratios that better represent Company’s payment capacity on regards to the financial commitments assumed.
As at December 31, 2011 Company’s net debt represented only 51% of its whole fleet, as showed by the chart below that presents the evolution of net debt and fleet:
BALANCE AT END OF PERIOD 2005 2006 2007 2008 2009 2010 2011
Net debt/ Fleet 60% 36% 51% 72% 57% 52% 51%
Since basically none of its fleet is granted as debt collateral, Company may increase its liquidity selling part of its fleet during a downturn in car rental demand. Such flexibility was proven during the world's 2008 financial crisis, when the Company suspended its car purchases for 6 months, substantially increasing its cash position, which allowed the pre-payment of debt. To strengthen its fleet renewal capacity, Company has its own used car sale network.
On regards to the Net Debt x EBITDA ratio, the Board of Directors authorized the Executive Board to contract loans and financing up to a limit of 3.0 times the accumulated EBITDA of the last four quarters, in IFRS. The Board of Directors may review this ratio, seeking not to jeopardize the Company's ratings.
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Reference Form - 2012 - LOCALIZA RENT A CAR SA Version: 14
10.1 - Financial and equity general conditions
The ratio as at December 31, 2011 is much lower than the limit of net indebtedeness of 3.0 times EBITDA, as follows:
BALANCE AT END OF PERIOD 2005 2006 2007 2008 2009 2010 2011
Net Debt/ EBITDA 1,9x 1,4x 1,9x 2,5x 2,3x 2,0x 1,7x
In addition, the Company manages liquidity risk by maintaining adequate funds in cash and cash equivalents, based on continuous monitoring of budgeted and actual cash flows and by combination of maturity profiles for financial assets and liabilities.
Management believes it has good credit access conditions of terms and costs in view of the economic-financial solidity and conservative leverage of the Company, confirmed by its corporate credit rating. The Company's risk assessments by the three main rating branches are as follows:
National Scale Global Scale Rating Agencies (Brasil)
Fitch Ratings* BBB‐ / Stable AA+(bra) / Stable Moody's* Baa3 / Stable Aa1.br / Stable Standard & Poors'* BBB‐ / Stable brAAA / Stable
* Localiza investment grade rating according by these agencies.
Considering its debt profile; Net Debt x Fleet and Net Debt x EBITDA ratios; cash generation capacity; flexibility in managing the cars in its fleet and the good conditions in accessing credit in terms of costs and maturities, the Company has means of honoring its financial commitments towards its creditors.
d) Sources of financing used for working capital and investments in non-current assets
The Company uses the funds generated by its operating activities to meet its needs, as well as to guarantee the fleet renewal and growth up to one digit. The Company accesses the capital markets by means of issuing debentures and promissory notes, and also obtains loans and financing with Brazil's leading financial institutions in order to complement its cash needs to invest on fleet growth and/or to improve the maturity profile of its debt.
The funding obtained from the capital markets or loans are generally indexed to the change in the CDI (Interbank deposit certificate) plus spread. In addition, taking market opportunity and aiming to reduce funding costs, the Company takes out loans in foreign currency. Simultaneously to these operations the Company contracts plain vanilla swap transactions in identical conditions with respect to amounts, terms and rates, swapping the exposure to foreign exchange variation to the variation in the CDI rate as a strategy for not incurring in risk of foreign exchange rate fluctuations. The swap transactions contracted have exclusively hedging purposes.
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Reference Form - 2012 - LOCALIZA RENT A CAR SA Version: 14
10.1 - Financial and equity general conditions
The main public offers executed in 2009, 2010 e 2011 and the respective fund allocations were as follows:
Amount raised Issuance Settlement ‐ BRL BRL Balance on 12/31/2011, date thousand thousand Including interest Use of funds
Localiza:
200.000 in 4th Promissory Notes Offer Working capital and investment in 12/29/2009 06/14/2010 200.000 - fleet (in advance)
Working capital and investment in 4th Debentures Offer 05/11/2010 - 370.000 375.747 fleet
200.000 in 5th Promissory Notes Offer Working capital and investment in 12/29/2010 06/10/2011 200.000 - fleet (in advance)
Extension of debt, working capital 5th Debentures Offer 05/30/2011 - 500.000 501.415 and investment in fleet
Total Fleet: 100.000 em Working capital and extension of 1st Debentures Offer 09/20/2009 12/29/2011 400.000 308.664 consolidated debt (in advance)
e) Sources of financing for working capital and investments in non-current assets which it intends to use for covering liquidity deficiencies.
The main sources of financing are the capital generated by its operations and financing through the issuance of debentures and other debt instruments. The funding obtained through debentures has been invested in expansion of the fleet and in pre-payment of short-term debt, extending the Company's debt amortization.
Management intends to continue using the same structure of own funds and third party funds as presently employed by the Company.
Sources of funds
The free cash flow beforeinvestments in fleet expansion and interest is an important indicator of the Company’s cash generation. The cash flow statement indicates that the net disbursements for fleet renewal are supported, almost entirely, by revenues from decommissioned cars sales. The most representative investment is for fleet growth.
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10.1 - Financial and equity general conditions
The table below shows the Company's free cash flow for the fiscal years ended December 31, 2011, 2010 and 2009:
BRL million Fiscal year ended on 31 December Free cash flow 2011 2010 2009 EBITDA 821.3 673.3 498.2 Revenue from cars disposed of for fleet renewal (1,468.1) (1,321.9) (922.4) Cost of cars alienated for fleet renewal 1,328.6 1,174.1 824.9 (‐) Income tax and Social contribution (83.0) (57.8) (49.0) Working capital variation (83.9) 73.5 (12.7) Cash generated before capex 514.9 541.2 339.0 Revenue from car sales 1,468.1 1,321.9 922.4 Capex of cars for renewal (1.504,5) (1.370,1) (963,1) Change in car suppliers account (capex) ‐ ‐ 15.2 Net Capex for fleet renewal (36.4) (48.2) (25.5) Capex other fixed assets (except cars) (63.0) (51.2) (20.9) Free cash flow before growth 415.5 441.8 292.6 Capex of cars for growth (272.0) (540.3) (241.1) Change in car suppliers account (capex) 32.7 111.3 241.1 Free cash flow 176.2 12.8 292.6
Our main sources of funds were:
• the free cash flow generated by the car and fleet rental activities, prior to investments, in the amount of BRL514.9 million in 2011, BRL541.2 million in 2010 and BRL339.0 million in 2009;
• the free cash flow generated by the sale of cars used in rental activities, disposed for fleet renewal, in the amount of BRL1,468.1 million in 2011, BRL1,321.9 million in 2010 and BRL922.4 million in 2009;
• the payment term of car purchases, seeking to make compatible the cash payments for investment in the fleet with the term required to carry out the sales of deactivated cars for fleet renewal.
In addition, in order to complement capital need for investment, the Company obtains funding in the capital markets and with financial institutions in Brazil and abroad.
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Analysis of the main changes occurred between 2011, 2010 and 2009
The main changes occurred in cash and cash equivalents were:
BRL/thousand Fiscal year ended on 31 December
2011 2010 2009
CASH AND CASH EQUIVALENT AT THE BEGINNING OF FISCAL YEAR 415,681 459,619 121,684 CASH FLOW OF OPERATING ACTIVITIES: Cash generation 1,797,995 1,674,549 1,235,417 Vehicle Acquisition ‐ Fleet Renewal and Expansion (1,743,739) (1,799,166) (947,929)
Net cash generated by (invested in) operating activities 54,256 (124,617) 287,488
CASH FLOW OF INVESTMENT ACTIVITIES: Bonds and Securities ‐ redemption ‐ ‐ 8,283 Other insvetments (non-cars capex ) (62,993) (51,202) (20,917)
Net cash invested in investment activities (62,993) (51,202) (12,634)
CASH FLOW OF FINANCING ACTIVITIES: Net cash generated by financing activities 304,058 131,881 63,081
CASH FLOW GENERATED (INVESTED) IN THE FISCAL YEAR 295,321 (43,938) 337,935
CASH AND CASH EQUIVALENTS AT THE END OF FISCAL YEAR 711,002 415,681 459,619
Cash from operating activities:
2011 x 2010: the cash from the Company´s operating activities changed from an investment of BRL124.6 million in 2010 to a generation of BRL54.3 million in 2011. The variation of BRL178.9 million was due to the increase of BRL123.4 million in cash generation and to the reduction of BRL55.4 million in the amount invested in purchasing cars. 2010 x 2009: the cash from the Company´s operating activities changed from the generation of BRL287.5 million in 2009 to an investment of BRL124.6 million in 2010. The variation of BRL412.1 million was due to rise of BRL851.2 million in purchasing of cars, partially offset by the increase of BRL439.1 million in cash generation.
Cash from investment activities:
2011 x 2010: The cash used in investment activities changed from BRL51.2 million in 2010 to BRL62.9 million in 2011. The increase of BRL11.7 million resulted mainly from investments in IT systems. 2010 x 2009: the cash used in investment activities changed from BRL12.6 million in 2009 to BRL51.2 million in 2010. The increase of BRL38.6 million resulted mainly from greater investments in other fixed assets (other than cars), for the opening of 20 new car rental agencies and 6 new points of sales of decommissioned cars for fleet renewal, besides investments in IT sytems.
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cconditionstrimoniais gerais Cash from financing activities:
2011 x 2010: the cash generated from financing activities increased to BRL304.1 million in 2011 compared to BRL131.9 million in 2010, mainly due to fund raising of BRL383.7 million in 2011 (net of amortizations of the principal), compared to BRL166.8 million in 2010. 2010 x 2009: the cash generated from financing activities increased to BRL131.9 million in 2010 compared to BRL63.1 million in 2009, mainly due to fund raising of BRL166.8 million in 2010 (net of amortizations of the principal), compared to BRL102.6 million in 2009.
2 Capital Investment
The following table shows the Company's capital investments for the fiscal years ended December 31, 2011, 2010 and 2009:
BRL thousand Fiscal year ended on December 31
2011 2010 2009 Capital investment Fleet renewal: Acquisition of cars 1,478,773 1,353,554 948,333 Acquisition of accessories 25,739 16,527 14,778 (-) Net revenue from car sales for fleet renewal (1,434,221) (1,289,163) (905,816) (‐) Additional revenues from car sales for fleet renewal (33,900) (32,741) (16,627) Net investment for renewal 36,391 48,177 40,668
Fleet expansion:
Acquisition of cars 267,316 533,836 237,420 Acquisition of accessories 4,653 6,518 3,700 Total investment for fleet growth 271,969 540,354 241,120 Total investment in fleet 308,360 588,531 281,788
Investment in other fixed assets 62,993 51,202 20,917
Total investiment of capital 371,353 639,733 302,705
Quantity of purchased cars: For fleet renewal 50,772 47,285 34,519 For fleet growth 9,178 18,649 8,642 Total 59,950 65,934 43,161
2 The Company defines capital investments as the value of acquisition of cars and accessories and other goods for the fixed assets less the value of the net revenue of cars alienated for fleet renewal.
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cconditionstrimoniais gerais In 2011, the Company featured investments of BRL371.4 million, an amount 42.0% below the one recorded in 2010. This reduction resulted mainly from smaller growth in the fleet in 2011 (9,178 cars), when compared to 2010 (18,649 cars). The Company presented investments of BRL639.7 million in 2010, an amount 111,3% greater than the one recorded in 2009, mainly due to the growth of 18,649 cars in the fleet in 2010, compared to the growth of 8,642 cars in the fleet in 2009.
f) Levels of indebtedness and characteristics of the debts
i) Loan agreements, financings and consolidated debentures are as follows:
BRL Thousand Effective 31/12/2011 31/12/2011 31/12/2009 Maturity Interest Rate (TIR)
In local currency (BRL):
Debentures ‐ 1st issue ‐ ‐ 226,941 ‐ ‐ 02/07/12 to Debentures ‐ 2nd issuance(item iv (a)) 211,457 210,309 208,352 02/07/14 CDI + 0.59% p.a. 05/05/12 to 113.9% e 114.3% do Debentures ‐ 4th issuance(item iv (a)) 375,747 375,479 ‐ 5/5/2017 CDI 30/05/16 e Debentures ‐ 5th issuance(item (iv) (a)) 501,415 ‐ ‐ 30/05/17 114.5% of CDI 30/09/13 to st Debentures ‐ 1 issuance‐ Total Fleet (item iv (a)) 308,664 411,191 409,079 30/9/2015 CDI + 2.02% p.a. Promissory Notes ‐ 4th issue ‐ ‐ 199,826 ‐ ‐ Promissory Notes ‐ 5th issuance(item iv ((b)) ‐ 199,727 ‐ ‐ ‐ 14/10/13 to Bank Credit Bills (item iv (c)) 29,506 116,685 303,597 14/9/2015 CDI + 1.79% p.a.+ IOF 18/06/13 to 111.1% to 111.8% of Trade Credit Notes (item iv (d)) 310,589 197,177 188,230 15/12/2019 CDI + IOF 02/01/12 to CDI + 1.70% p.a. to CDI Commercial lease (item iv (e)) 7,476 4,586 ‐ 30/12/2013 + 2.33% p.a. BNDES 375 1,271 2,168 15/5/2012 TJLP + 3.8% p.a. In foreign currency: 17/08/15 to 108.4% and 114.7% of Loan in foreign currency ‐ Dollar item iv (f)) 329,196 180,330 ‐ 16/8/2017 CDI I 2,074,425 1,696,755 1,538,193
Current 130,945 233,672 446,602 Non-current 1,943,480 1,463,083 1,091,591
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10.1 – Financial and equity general conditions cconditionstrimoniais gerais ii) Other long-term relations with financial institutions
Cooperation agreement with Banco do Brasil / BV Financeira S.A.
As of September 29, 2006 the Company's subsidiary Prime signed a Cooperation Agreement with Banco do Brasil S.A., under which Prime granted to Banco do Brasil priority rights in financing the cars decommissioned of Localiza and its subsidiaries’ fleet, as well as in the offer of other related products. The agreement took effect as of the signing date and remains in effect until February 28, 2017. In exchange for the exclusive rights in financings of the cars (for 25 minutes), Prime is entitled to a remuneration, net of agency commissions, in the amount of BRL 22.008 thousand, which was received in 2006. In addition, Banco do Brasil makes the monthly payments, in the manner provided by the agreement, through intermediation of the financings and other related products. As of June 17, 2010 Banco do Brasil, with the consent of Prime, assigned and transferred all the rights and obligations of the agreement in question to BV Financeira S.A.
iii) Degree of subordination among debts
In the event of any contest of creditors, the subordination among obligations recorded in the Liabilities shall be (presented in preference order for liquidation):
‐ Social and labor obligations ‐ Taxes to be paid ‐ Commercial lease ‐ Debentures (floating warranty) ‐ Other loans and financings ‐ Suppliers ‐ Other liabilities ‐ Dividends and interest on own capital
iv) Restrictions imposed on the Company and summary of main characteristics.
The following are the characteristics and restrictions imposed on the main loans, financings and debentures outstanding as of December 31, 2011:
(a) Debentures
As at December 31, 2011, Localiza had three debentures issued and the subsidiary Total Fleet had one issued debentures, all of which are convertible into shares.
The issuances made by Localiza and the issuance made by Total Fleet feature certain events of acceleration of maturity, which contemplate: (i) petition or adjudication of bankruptcy by the issuer or third parties for debts not settled within the legal deadline; (ii) issues related to default in an individual or aggregate amount equal to or higher than BRL 25,000 thousand; (iii) capital reduction of Localiza and/or repurchase of its own shares for cancellation, unless previously authorized by the debenture-holders; (iv) merger, consolidation or spin-off of Localiza (as regards its own 2nd and 4th issuances) or of Total Fleet (1st issuance), except as provided by article 231 of the Brazilian Law of Corporations; (v) downgrading of the issuer's rating by Standard & Poor's by two or more ranking grades in terms of risk on a Brazilian scale, when compared to the rating granted on the respective dates of issuance: a) for the 2nd issuancewhen compared to brAA- rating (BR, double A, negative); b) for the 4th issuance when compared to brAA- rating (BR, double A, negative); and c) for the 5th issuance when compared to the conceded brAA rating (BR, double A), by virtue of any alteration in the corporate structure that may result in the loss, transfer or disposal of “controlling power over the Company” by the present controlling shareholders (in the case of the 2nd 4th and 5th own issuances); and (vi) non- maintenance of the financial indexes assessed on a quarterly basis, based on the Company's consolidated financial statements, as follows: PAGE 118 of 281
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cconditionstrimoniais gerais Net Debt/ EBITDA3/Net 3 Issue EBITDA financial costs (maximum limit) (minimum limit) 2nd issuance 3.25 2.00 4th and 5th issuances 4.00 1.50 1st issuance of Total Fleet 4.00 1.50
Quorums for making decision provided for each indenture issued by the Company and Total Fleet that outstanding as at December 31, 2011:
Localiza Total Fleet Quorums for decision ‐ debentures 2nd issue 4th issue 5th issue 1st issue Waiver on non-compliance with covenants 75% 75% 2/3 75% Changes in rules of remuneration, type or amortization 90% 75% 90% 75% Substitution of index in case of "CDI"extinction 75% 2/3 2/3 2/3 Other changes in the indenture conditions 51% 2/3 2/3 51%
The expenses incurred due to the issuance of debentures by Localiza and Total Fleet, including fees, commissions and other costs, amounted to BRL 7,641 thousand and they are classified in the adequate account for the respective loans and are appropriated over the total period of the debt. As at December 31, 2011 the amount to be appropriated was BRL 5,811 thousand, presented on a net basis with respect to each debenture.
The other particular characteristics of each issuanceare described as follows:
• 2nd issuance of Localiza Rent a Car S.A.
On July 10, 2007, Localiza recorded the issuance of 20,000 debentures with the CVM, with financial settlement of BRL 200,000 thousand on July 12, 2007. The funds were allocated for extending the debt. The debentures are simple, not convertible into shares, registered and book-entry type, featuring single series, with unit par value of BRL 10 thousand as of the issuancedate, July 2, 2007. The term of these debentures is 7 years, with amortization in the 5th, 6th and 7th years and semi-annual interest payments. These debentures are subject to total or partial early redemption, as from the 36th month of the issuancedate, with payment of the 1% premium proportional to the period between the redemption date and the final maturity, calculated according to the formula stipulated in the indenture.
• 4th issuance of Localiza Rent a Car S.A.
Localiza issued 370 debentures, with financial settlement of BRL 370,000 thousand on May 11, 2010. The funds are used for investment in the fleet and to reinforce the working capital of Localiza. The debentures are simple, registered and book-entry type, not convertible into shares, with floating warranty. They were issued in two series, the 1st series in the amount of BRL 240,000 thousand and the 2nd series in the amount of BRL 130,000 thousand, with unit face value of BRL 1,000 thousand as at the issuance date, May 5, 2010. The term of these debentures is 7 years, with amortization in six installments for the 1st series and four installments for the 2nd series. The debentures entitle their holders to remuneration in the form of interest paid on a semi annual basis. This debenture issuance does not have guarantee and/or accommodation.
3 The EBITDA corresponds to the net profit or loss of the Issuer, in consolidated basis, relative to the past 12 months, before (i) net financial costs (revenues); (ii) income tax and social contribution; (iii) depreciation and amortization costs. For the 2nd and 4th issues the EBITDA is also adjusted, (i) by the net, non-operating costs (revenues), and (ii) by minority interest. For the 5th issue, the EBITDA is also adjusted (i) by the costs with stock options, (ii) by non recurring costs.
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cconditionstrimoniais gerais This issuance is subject to optional early redemption, at the exclusive discretion of Localiza, at any time as from the issuancedate, provided that redemption occurs on a date that coincides with the date for payment of the remuneration or on a date for payment of the principal. Early redemption is subject to payment of the bond premium of 1.20% calculated on the Unit Par Value of the debentures, duly accrued of the remuneration of the 1st or 2nd series, calculated on a pro rata basis, as from the last payment date of the remuneration through the date of the effective redemption.
• 5th issuance of Localiza Rent a Car S.A.
On May 30, 2011, Localiza issued 50,000 debentures with unit par value of BRL 10 thousand, amounting to BRL500,000 thousand, with financial settlement on June 10, 2011. Approximately BRL300,000 thousand of the funds raised were used for the early payment of the debt with maturity in 2011 and part of the debts with maturity in 2012 and 2013. The remaining funds are allocated for investment in the fleet and reinforcing the working capital. The debentures are simple, not convertible into shares, registered and book-entry type, in single series, unsecured type. The maturity term of 6 years, with amortizations in two equal installments, the 1st installment on May 30, 2016 and the 2nd installment on May 30, 2017. The debentures entitle their holders to conventional interest of 114.5% of the CDI (effective interest rate) paid on a semi-annual basis. This debenture issuance does not have guarantee and/or accommodation.
This issuance is subject to optional early redemption, totally or partially, as from May 29, 2013, at Localiza’s exclusive discretion, upon payment of the par value, accrued of the remuneration due until the date of the effective redemption and of the bond premium of 0.30% adjusted by the remaining period, levied on the adjusted debit balance of the debentures.
• 1st issuance of Total Fleet S.A.
The subsidiary Total Fleet issued 40,000 debentures with net financial settlement of BRL 400,000 thousand on September 30, 2009. These funds were used to reinforce working capital, distribute dividends and settle outstanding balances resulting from transactions with Localiza. The debentures are simple, not convertible into shares, registered and book-entry type, in single series, with unit par value of BRL10 thousand as at the date of its issue, being the first installment on September 30, 2009. The term is 6 years, with amortizations in four equal and successive installments, being the first installment on September 30, 2012, the last on September 30,2015 and interest payment on a semi-annual basis. The issuance of the debentures is garanted by Localiza. This issuance is subject to optional early redemption, at Total Fleet’s exclusive discretion, as from the 36th month of the issuance date, on dates which coincide with the remuneration payment date or the payment of the principal.
On December 29, 2011, Total Fleet paid in advance the 1st installment of this issuance, in the amount of principal of BRL100,000 thousand.
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cconditionstrimoniais gerais (b) Promissory Notes
On June 10, 2011, Localiza paid in advance all the Promissory Notes of the its 5 th issuance in the amount of principal of BRL200,000 thousand, issued on December 29, 2010 and with original maturity on June 27, 2011. This operation does not have guarantee and/or endorsement.
(c) Bank Credit Bill ‐ CCB
On June 22, 2011, the subsidiary Total Fleet paid in advance the working capital loan in the amount of principal of BRL86,000 thousand and original maturity in two installments, the first one in April 2012 and the second one in April 2013. This operation has Localiza’s accommodation.
On September 14, 2011, Localiza made a working capital type of loan in the amount of BRL30,000 thousand, with term of 48 months and final maturity on September 14, 2015. In the first 24 months, interest payments shall made on a quarterly basis. The amortization of the principal shall take place in 24 months after the vesting period with monthly payments of principal and interest. This loan contract has Total Fleet’s endorsement and there are certain cases of acceleration of maturity similar to the ones foreseen in the 5th issuance of debentures, with the exception of financial indexes, which are not applicable in this operation.
(d) Trade Credit Notes ‐ NCC
On December 15, 2009, Localiza contracted the amount of BRL 150,000 thousand under this type of working capital loan, with final maturity on November 23, 2015. Amortization of the principal will occur in 4 installments, with the following maturities and par values: on November 23, 2012, BRL 15,000 thousand; on November 23, 2013, BRL 30,000 thousand; on November 23, 2014, BRL 45,000 thousand; and on November 23, 2015, BRL 60,000 thousand. The interest is paid semi-annually, upon maturity and upon settlement of the debt. This operation has Total Fleet’s accommodation. On December 29, 2011, Localiza paid in advance the first installment of this loan in the amount of principal BRL 15,000 thousand, without bond premium payment.
On June 21, 2010 the Company contracted BRL 50,000 thousand under the same type of working capital loan, with final maturity on June 18, 2016. Amortization of the principal will be carried out in 4 installments with the following maturities and par values: on June 18, 2013, BRL 5,000 thousand; on June 18, 2014, BRL 10,000 thousand; on June 18, 2015, BRL15,000 thousand; and on June 18, 2016, BRL 20,000 thousand. The interest is paid semi-annually, upon maturity and upon settlement of the debt. This loan is guaranteed by Total Fleet.
On December 29, 2011, Total Fleet contracted BRL 130,000 thousand under the same type of working capital loan, with final maturity on December 15, 2019. Amortization of the principal will be carried out in 6 installments with the following maturities and par values: on December 15, 2014, BRL13,000 thousand; on December 15, 2015, BRL13,000 thousand; on December 15, 2016, BRL7,000 thousand; on December 15, 2017, BRL19,000 thousand; on December 15, 2018, BRL26,000 thousand; and on December 15, 2019, BRL52,000 thousand. The interest is paid semi-annually, upon maturity and upon settlement of the debt. This loan is guaranteed by Localiza.
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cconditionstrimoniais gerais The three operations above involve certain events of acceleration of maturity similar to cases (i) and (ii) of the issuances of Localiza's and Total Fleet’s debentures.
(e) Financial Lease
As at 31 December, 2011, the Company thas the following financial lease:
(i) Aircraft
Localiza has a financial lease relative to a Cessna model 550 aircraft (Citation Bravo), used exclusively by the Company's Management, as defined at a meeting of the Board of Directors. This aircraft was recorded as part of the property and equipment of Localiza (lessee) and its estimated useful life is 10 years. The agreement entered into with Bradesco Leasing S.A - Arrendamento Mercantil, has duration of 36 months, as from delivery of the asset, which took place in July 2010, an option for purchase clause at the expiration of the agreement and readjustment according to the CDI rate plus a spread of 2.33% p.a. The guaranteed residual value was paid in advance upon receipt of the aircraft.
(ii) Cars
The subsidiary Total Fleet has 136 cars of its fleet acquired by means of financial lease. These cars were recorded as part of its fixed assets and have depreciation average rate of 11.7% per year. The agreements were executed in 2011 with Santander Leasing S.A ‐ Arrendamento Mercantil, with duration of 24 months as from the delivery of the good, option for purchase clause at the expiration of the agreement and readjustment by CDI accrued of spread from 1.70% p.a. to 1.89% p.a.. The guaranteed residual amount shall be paid after the expiration of the agreements.
The residual values, by asset category, acquired by means of financial lease are as follows:
BRL thousand Individual Consolidated (BR GAAP) (IFRS and BRGAAP) 12/31/11 12/31/10 12/31/11 12/31/10
Fixed assets: Cars ‐ ‐ 4,165 ‐ Aircraft 5,114 5,710 5,114 5,710 5,114 5,710 9,279 5,710
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cconditionstrimoniais gerais The reconciliation between the total of the future minimum payments of the lease purchase agreements and their present amounts, calculated using the rates defined in the agreements is as follows:
BRL thousand Individual Consolidated (BR GAAP) (IFRS and BRGAAP) 12/31/11 12/31/10 12/31/11 12/31/10
Minimum payments: Future value 3,515 4,652 8,434 4,652 Interest to be recorded (340) (66) (958) (66) Present value 3,175 4,586 7,476 4,586
As at 31 December, 2011, the scheduling of maturity of future minimum payments of the lease purchase agreements and their present values are as follows:
BRL thousand Individual Consolidated (BR GAAP) (IFRS and BR GAAP ) Future Present Future Present Payments Value Payments Value
Period after balance sheet date Up to 12 months 2,153 2,190 4,464 4,304 Between 13 and 24 months 1,362 985 3,970 3,172 Total 3,515 3,175 8,434 7,476
Contingent payments are not foreseen, and there is no sublease operation for the operations mentioned above.
Certain events of acceleration of maturity are used for these agreements, similar to those prescribed for the 4th issuance of debentures, except for financial indexes, which are not applicable in these operations.
(f) Loan in foreign currency
In order to cut down on the costs of its funding and extend the amortization terms, the Company has also taken out loans in foreign currency. As a strategy for managing the exchange rate risk, simultaneously to these transactions it also contracts, mandatorily, plain vanilla swaps with identical conditions of amounts, terms and rates, replacing exposure to exchange variation by the CDI variation rate. The swap transactions carried out by the Company have the exclusive purpose of hedging.
As at December 31, 2011, the Company had two loan agreements in foreign currency:
On June 29, 2010 Localiza took out a loan from Itaú BBA of USD 95,506 thousand, with maturity of the principal and interest on May 25, 2016. This amount was converted into Reais at the rate of BRL 1.78 per USD 1.00, resulting in funding of BRL 170,000 thousand. At the same time, a plain vanilla swap transaction was contracted aiming to eliminate the exposure risk in foreign currency, replacing the exchange variation plus spread by CDI variation of 114.7%.
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cconditionstrimoniais gerais • On August 24, 2011, Localiza entered into a loan agreement with Bank of America in the amount of USD75.0 million, equivalent to BRL123,0 million, pursuant to Law 4131/62, for final amortization in 6 years, and the funds made available to Localiza in November 2011. Simultaneously, and in force on the same date as the fund availability, a plain vanilla swap operation was contracted with identical conditions of amount, term and rate, replacing the exposure to exchange variation plus interest (LIBOR 3 months + 1.6% per year) by 102.5% of CDI.
Both are back-to-back operations which formally consist of a loan agreement and a swap contract, with the same maturity and with the same counterparty, and which should be settled at the same time, equivalent to a single net amount. Accordingly, Management believes that in essence this transaction is a loan in local currency plus established interest rates. Therefore, the accounting treatment and respective disclosures reflect the essence of the transaction.
In view of the above, Localiza and its subsidiaries are not subject to risks of changes in the exchange rates. Thus, there are no risks of changes in the exchange rates to be assessed by the sensibility analysis, since its indebtedness is exclusively exposed to CDI variation.
In these operations Total Fleet’s endorsement were granted and certain events of acceleration of maturity are employed. The loan agreements of June 29, 2010 and August 24, 2011 contain certain events of acceleration of maturity in conditions similar to 4th and 5th issues of debentures of Localiza, respectively.
The specific characteristics of each swap operation, as well as their respective notional values, are as follows:
Individual (BR GAAP) and Consolidated (BR GAAP and IFRS) 12/31/2011 Reference value Amount Rates (notional) (payable)/ receivable Swap Contract Date Maturity Counterparty Assets Liabilities BRL thousand USD thousand BRL thousand
114.7% of Dollar Dollar exchange variation x 06/29/10 05/25/16 Itaú BBA S.A. variation + cupom 170,000 95,506 (7,733) of Reais of CDI 6.44% p.a.
Dollar 102.5% of Bank of Dollar exchange x 11/16/11 08/16/17 variation 123,000 75,000 America variation + cupom 16,359 Reais of of 1.60% p.a. + CDI LIBOR 3M
The Company does not perform operations involving financial instruments which have speculative nature. Other than these two swap operations the Company does not have other financial derivative instruments.
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cconditionstrimoniais gerais (g) Compliance with restrictive clauses
As at 31 December, 2011, the Company's Management believes that it is complying with all the restrictive covenants applicable to loans, financing and debentures.
g) Limits of use of the already contracted financings
Not applicable since we do not have financings already contracted for receiving/use in installments/tranches.
h) Significant changes in each item of the financial statements
See item 10.2.
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10.2 – Operating and Financial Results operacional e financeiro
a) Result of Company’s operations
i) Description of important revenue components ii) Factors which materially affect operating resultss
CONSOLIDATED INCOME STATEMENT
Income Statement relative to the fiscal year ended at December 31, 2011, compared to fiscal year ended December 31, 2010:
Fiscal year ended as at December 31 Variation 2010 2011 2010 x 2011
% of % of In BRL Net Re- In BRL Net Revenue (million) venue (million) % Net Revenues: Car rental 1,903.4 76.2 2.221,8 76.1 16.7 Fleet rental 581.7 23.3 682,0 23.4 17.2 Franchising 12.1 0.5 14,3 0.5 18.2 Total net revenues 2,497.2 100.0 2.918,1 100.0 16.9 Costs: Car rental (1,375.7) ‐55.1 (1,578.2) ‐54.1 14.7 Fleet rental (372.2) ‐14.9 (430.1) ‐14.7 15.6 Franchising (5.5) ‐0.2 (6.9) ‐0.3 25.5 Total costs (1,753.4) ‐70.2 (2,015.2) ‐69.1 14.9 Gross profit 743.8 29.8 902.9 30.9 21.4 Operating expenses (SG&A): Publicity and sales (174.2) ‐7.0 (224.4) ‐7.7 28.8 Overhead, administrative expenses and others (79.3) ‐3.2 (82.8) ‐2.8 4.4 Total operating expenses (SG&A): (253.5) ‐10.2 (307.2) ‐10.5 21.2 Result before revenues and financial expenses 490.3 19.6 595.7 20.4 21.5 Net, financial expenses (130.1) ‐5.2 (179.0) ‐6.1 37.6 Profit before income tax and social contribution 360.2 14.4 416.7 14.3 15.7 Income tax and social contribution (104.3) ‐4.2 (125.1) ‐4.3 19.9 Fiscal year net profit 255.9 10.2 291.6 10.0 14.0
The analyses of the variations occurred in the main items of the Company's results between December 31, 2010 and 2011 are as follows:
Net Revenues:
The total net revenue of the Company is comprised of the revenues from the following divisions: car rental, (ii) fleet rental and (iii) franchising. As part of its fleet renewal programs, the car and fleet rental divisions sell their decommissioned cars. The net revenue earned from the sales of such used cars comprises the balance of net revenue of these divisions, as per the above table.
The Company’s consolidated net revenues increased 16.9% equivalent to a growth of BRL420.9 million, changing from BRL2,497.2 million in 2010 to BRL2,918.1 million in 2011. The main factors which contributed to the growth of the net revenue are presented as follows:
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10.2 – Operating and Financial Results operacional e financeiro • Car Rental: increase of 16.7% in the net revenues of the Car Rental Division, motivated by the growths of: i) 22.3% in the rental revenues, which changed from BRL802.2 million in 2010 to BRL980.7 million in 2011, due to the increase of 19.2% in the rental volume and 2.1% in the average rental rate; and ii) increase of 12.7% in the revenues from sales of decommissioned cars for fleet renewal, which moved from BRL1,101.2 million in 2010 to BRL1,241.1 million in 2011, due to the increase of 8.0% in the quantity of cars sold for fleet renewal and 1.9% in the average price of the cars sold.
• Fleet rental: increase of 17.2% in the net revenues of the Fleet Rental Division, motivated by the growths of: i) 26.0% in the rental revenues, which changed from BRL361.1 million in 2010 to BRL455.0 million in 2011, due to the increase of 19.4% in the rental volume and 5.5% in the average rental rate; and ii)2.8% in the revenues from sales of decommissioned cars for fleet renewal, which moved from BRL220.6 million in 2010 to BRL227.0 million in 2011, due to the increase of 4.0% in the quantity of cars sold for fleet renewal and 1.9% in the average price of the cars sold.
Costs:
The consolidated costs of the Company increased 14.9% moving from BRL1,753.4 million in 2010 to BRL2,015.2 million in 2011. When compared to percentage of consolidated net evenues, the costs presented reduction of 1.1 percentage points, moving from 70.2% in 2010 to 69.1% in 2011.
The variation of 14.9% of the consolidated costs occurred basically due to:
• Car rental: increase of 14.7% in costs of this Division, mainly as a result of:
i) Growth of 19.5% in the average operating fleet, which changed from 42,903 cars in 2010 to 51,285 in 2011;
ii) Growth in the car rental location network operated by Localiza which changed from 234 in 2010 to 247 in 2011, besides the rent readjustment of the which rose well above inflation;
iii) Growth of staff number which changed from 4,533 employees in 2010 to 5,304 in 2011, besides salary readjustment of approximately 7% in 2011; and
iv) Increase of 8% in the quantity of cars sold for fleet renewal, which changed from 39,658 cars in 2010 to 42,843 cars in 2011.
In relation to percentage of car rental revenue, the costs reduced from 72.3% in 2010 to 71.0% in 2011.
• Fleet rental: increase of 15.6% in the costs of this Division, mainly resulting from:
i) Growth of 21.6% in the average operating fleet;
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10.2 – Operating and Financial Results operacional e financeiro
ii) Growth of 13.6% in the average depreciation per car;
iii) Growth of 2.7% in the costs of cars sold for fleet renewal, due to increase of 4.0% in the quantity of cars sold, from 7,627 cars in 2010 to 7,929 cars in 2011.
In relation to fleet rental revenue percentage, the costs reduced from 64.0% in 2010 to 63.1% in 2011.
Operating Expenses (SG&A):
The consolidated operating expenses (SG&A) increased 21.2%, changing from BRL253.5 million in 2010 to BRL307.2 million in 2011. This increase resulted from growths of : i) 28.8% in the operating expenses with publicity and sales, which changed from BRL174.2 million in 2010 to BRL224.4 million in 2011, due to more expenses incurred with sales of decommissioned cars for fleet renewal and the new branches rents, which have been increasing well above inflation; and; and ii) 4.4% in the operating overhead costs, adtrative costs and other costs, which changed from BRL79.3 million in 2010 to BRL82.8 million in 2011.
In relation to net revenues percentage, the consolidated operating costs remained practically stable, representing 10.2% in 2010 and 10.5% in 2011.
Net, financial expenses:
The net financial expenses presented increase of 37.6%, mainly due to:
i) increase of 21.8% in the average net debt; and ii) increase of 1.9 percentage points in the basic interest rate, from 9.7% in 2010 to 11.6% in 2011.
Income tax and social contribution:
The income tax and social contribution expense rose 19.9%, mainly due to the rise of 15.7% in the net profit before income tax and social contribution. The effective rate of the income tax and social contribution presented a slight increase, from 29.0% in 2010 to 30.0% in 2011.
Net Profit:
The increase of 14.0% in the consolidated net profit corresponding to BRL35.7 million, from BRL255.9 million in 2010 to BRL291.6 million in 2011 was below the revenue increase, which was 16.9%, basically due to the increase of net financial expenses, as detailed above.
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10.2 – Operating and Financial Results operacional e financeiro EBITDA:
The reconciliation of the net profit with EBITDA is as follows:
2011 BRL million Net Profit 291.6 Depreciation of cars and other 225.6 Net. financial expenses 179.0 Income tax and social contribution 125.1 EBITDA 821.3
Income Statement relative to fiscal year ended as at December 31, 2010 compared to fiscal year ended on 31 December, 2009:
Fiscal Year ended as at December 31 Variação 2009 2010 2009 x 2010 In BRL % of net In BRL (million) % of net revenue (million) revenue % Net revenues: Car rental 1,233.1 67.,7 1,903.4 76.2 54.4 Fleet rental 577.7 31.7 581.7 23.3 0.7 Franchising 10.1 0.6 12.1 0.5 19.8 Total net revenues 1,820.9 100.0 2,497.2 100.0 37.1 Costs:
Car rental Fleet rental
Franchising (939.6) ‐51.6 (1.375.7) ‐55.1 46.4 Total costs (432.9) ‐23.8 (372.2) ‐14.9 ‐14.0 Gross Profit (4.6) ‐0.3 (5.5) ‐0.2 19.6 Operating expenses (SG&A): (1,377.1) ‐75.6 (1,753.4) ‐70.2 27.3
Publicity and sales Overhead, administrative 443.8 24.4 743.8 29.8 67.6 expenses and other
Total operating expenses (SG&A): Result before revenues and financial expenses
Net, financial expenses
(130.9) ‐7.2 (174.2) ‐7.0 33.1 Profit before income tax and social contribution Income tax and social contribution (47.6) ‐2.6 (79.3) ‐3.2 66.6 Net profit of fiscal year (178.5) ‐9.8 (253.5) ‐10.2 42.0 Car rental 265.3 14.6 490.3 19.6 84.8
Fleet rental Franchising (112.9) ‐6.2 (130.1) ‐5.2 15.2
Total net revenues
Costs: 152.4 8.4 360.2 14.4 136.4 Car rental
Fleet rental Franchising (43.2) ‐2.4 (104.3) ‐4.2 141.4
Total costs Gross Profit 109.2 6.0 255.9 10.2 134.3
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The analyses of the variations occurred in the main items of the Company's results between December 31, 2009 and 2010 are as follows:
Net Revenues:
The total net revenue of the Company is comprised of the revenues from the following divisions: (i)car rentals, (ii) fleet rentals and (iii) franchising. As part of its fleet renewal programs, the car and fleet rental divisions sell their decommissioned cars. The net revenue earned from the sales of such used cars comprises the balance of net revenue of these divisions, as per the above table.
The total consolidated net revenue of the Company rose 37.1% or BRL676.3 million, from BRL1,820.9 million in 2009 to BRL2,497.2 million in 2010, mainly due to increase 54.4% of car rental and cars sold for fleet renewal revenue, from BRL1,233.1 million in 2009 to BRL1,903.4 million in 2010. This increase occurred basically due to increase of 33.1% in the rental volume (BRL217.0 million) and the increase of 60.7% in the volume of cars sold (BRL453.2 million). The increase of 14,985 cars sold in 2010 resulted from postponement of fleet renewal in the first semester of 2009, due to the financial crisis which impacted Brazil in that semester. With the fleet renewal of the car rental division, the average car age fell from 9.5 months as at December 31, 2009 to 6.3 months as at December 31, 2010. The revenue from fleet rental and used cars sold for fleet renewal increased 0.7% or BRL4.1 million. This increase occurred basically due to the increase of BRL57.9 million (13.3%) in the revenue of fleet rental, due to the increase of 17.9% in the rental volume, offset by the reduction of BRL53.8 million in the revenue from the decommissioned used car sales. This reduction of 22.5% in fleet renewal resulted from the increase of 12 months in the terms of the new rental agreements, which in average changed to 24 or 36 months.
The franchising revenue increased 19.8% or BRL2.0 million. Costs: the total consolidated cost increased 27.3%, from BRL1,377.1 million in 2009 to BRL1,753.4.
million in 2010. However, when compared to the total revenue percentage, the costs reduced from75.6% in 2009 to 70.2% in 2010. The increase of 27.3% occurred, basically due to:
i) Car Rental: Increase of 46.4% in car rental and used cars sold for fleet renewal costs, from BRL939.6 million in 2009 to BRL1,375.7 million in 2010.
The increase of 24.1% in rental operating costs was below the increase of 33.1% in the day rate of car rentals, due to the reduction of the costs with maintenance resulting from the average fleet age, which had increased in 2009. Increase of 70.3% in the cost of cars sold in line with the quantity of cars sold. These increases were partially offset by the reduction of 22.0% in the depreciation in the period, due to the reduction of the average fleet age.
In relation to the percentage of car rental revenue, the costs reduced from 76.2% in 2009 to 72.3% in 2010, in line with the reduction in the depreciation costs.
ii) Fleet Rental: Reduction of 14.0% in the costs of fleet rental and used cars sold for fleet renewal, due to the reduction in the cost of cars sold and depreciation costs. This reduction was partially offset by the increase of 23.6% in the operating costs, which corresponded to an increase of BRL18.4 million. This increase is in line with the increase of 13.3% in the volume of day rates of fleet rental. The cost of car sold reduced due to the reduction in the quantity of cars sold.
In relation to the percentage of fleet rental revenue, the costs reduced from 74.9% in 2009 to 64.0% in 2010.
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iii) Franchising: Increase of 19.5% in franchising costs, in line with the increase of 19.8% of franchising revenue.
Operating Expenses (SG&A):
The total consolidated operating expenses (SG&A) increased 42.0%, from BRL178.5 million in 2009 to BRL253.5 million in 2010, above the increase of 37.1% of total consolidated revenues, basically due to:
i) Increase in publicity and sales expenses, from BRL130.9 million in 2009 to BRL174.2 million in 2010. When compared to the percentage of the net revenue, the publicity and sales expenses remained stable around 7.0%; and
ii) Increase of overhead, administrative expenses and other, which changed from BRL47.6 million in 2009 to BRL79.3 million in 2010. This increase resulted mainly from wages and salaries items. When compared to the percentage of the net revenue, the general, administrative expenses changed from 2.6% in 2009 to 3.2% in 2010.
Net, financial expenses:
The net financial expenses increase 15.2%, from BRL112.9 million in 2009 to BRL130.1 million in 2010, mainly due to the increase of 18.8% of the net debt.
Income tax and social contribution:
The income tax and social contribution expense rose 141.4%, increasing from BRL 43.2 million in 2009 to BRL 104.3 million in 2010, mainly due to the upswing of 136.4% in net profit before income tax and social contribution. The effective combined rate for the income tax and social contribution rose slightly, from 28.3% in 2009 to 29.0% in 2010, mainly owing to the drop in interest on capital when compared to profit before income tax and social contribution from 2009 to 2010.
Net profit:
The rise of 134.3% in the net profit, corresponding to an increase of BRL 146.7 million (from BRL 109.2 million in 2009 to BRL 255.9 million in 2010), resulted from the upswing in the volumes of car and fleet rental business, as well as the reduction in maintenance and depreciation costs of the Car Rental Division, owed to the reduction in the average age of the fleet.
EBITDA:
The increase of 35.1% in EBITDA, corresponding to the increase BRL175.1 million (from BRL498.2 million in 2009 to BRL673.3 million in 2010) results mainly from the increase of 37.1% of the total net revenues.
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CONSOLIDATED BALANCE SHEET ANALYSIS
Balance Sheet relative to December 31, 2011 compared to December 31, 2010.
As at December 31 Variation 2010 2011 2010 x 2011
In BRL % of Total In BRL % of Total (million) Assets (million) Assets % ASSETS Current Assets Cash and cash equivalents 415.7 12.4 711.0 17.7 71.0 Accounts receivable of clients 274.8 8.2 353.4 8.8 28.6 Other current assets 40.8 1.2 54.2 1.4 32.8 731.3 21.8 1.118.6 27.9 53.0 Cars decommissioned for fleet renewal 20.1 0.6 29.0 0.7 44.3 Total current assets 751.4 22.4 1.147.6 28.6 52.7 Non current assets Long-term receivables 48.9 1.5 44.9 1.1 (8.2) Fixed assets Cars 2,427.3 72.4 2,652.7 66.2 9.3 Other fixed assets 114.9 3.4 141.6 3.5 23.2 Intangible assets 12.2 0.3 22.8 0.6 86.9 Total non current assets 2,603.3 77.6 2,862.0 71.4 9.9
TOTAL ASSETS 3,354.7 100.0 4,009.6 100.0 19.5
As at December 31 Variation 2010 2011 2010 x 2011 In BRL % of Total In BRL % of Total (million) Liabilities (million) Liabilities %
LIABILITIES AND EQUITY Current Liabilities Suppliers 443.0 13.2 488.7 12.2 10.3 Social and Labor Obligations 58.0 1.7 58.7 1.4 1.2 Loans, financings and debentures 233.7 7.0 130.9 3.3 (44.0) Other 99.0 3.0 115.5 2.9 16.7 Total Current Liabilities 833.7 24.9 793.8 19.8 (4.8) Non current Liabilities Loans, financings and debentures 1,463.1 43.6 1,943.5 48.5 32.8 Other non current liabilities 159.2 4.7 151.7 3.8 (4.7) Total non current liabilities 1,622.3 48.4 2,095.2 52.3 29.1 Total Liabilities 2,456.0 73.2 2,889.0 72.1 17.6 Equity 898.7 26.8 1,120.6 27.9 24.7 TOTAL LIABILITIES AND EQUITY 3,354.7 100.0 4,009.6 100.0 19.5
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10.2 – Operating and Financial Result
As follows we highlight the equity accounts which presented material variations:
Assets:
Cash and cash equivalents: the cash and cash equivalents amounted to BRL711.0 million as at December 31, 2011, representing 17.7% of the total of assets and showing an increase of 71.0% when compared to the balance of BRL415.7 million as at December 31, 2010, which represented 12.4% of the total assets that year.
Cash was reinforced at the end of the year for eventual adverse scenario in 2012.
(R$ million)
Cash generation
1,798.0
Proceeds, net Change in accounts payable to cars Cash and cash Cash and cash 383.7 suppliers equivalents as at equivalents as at 12/31/2010 32.7 12/31/2011
711.0 415.7 (63.0) (79.6) (272.0) Investment Dividends Acquisition of in other property and IOC 9,178 cars for and equipment fleet growth (*) and intangible
(1,504.5) Acquisition of 50,772
cars for fleet renewal (*)
Operational activities Investment Financing activities
activities
(*) Renewal: cars purchased to replace cars decommissioned and sold; and Growth: cars purchased in quantity above number of cars sold.
Accounts receivable: The balance of the accounts receivable presented an increase of 28.6 % in 2011, when compared to 2010, basically due to: i) increase of 20.5% in Car Rental Division revenue in 2011 when compared to 2010 this increase was generated by the increase in the car rental demand, increasing in 22.8% the balance receivable of this division as at December 31, 2011 when compared to 2010; and ii) the maturity of invoices of Fleet Rental Division are concentrated on the 30th day of each month. Since the 30th of December, 2011 was a bank holiday, the banking payment of the invoices that were due on that date only took place in January 2012, thus justifying the increase in the accounts receivable balances of this Division as at December 31, 2011 when compared to 2010.
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In relation to the total assets, the balance as at December 31, 2011 presented a slight increase of 0.6 percentage points, changing from 8.2% in 2010 to 8.8% in 2011. As at December 31, 2011 and 2010, the balance receivable is as follows:
BRL/million Consolidated 2010 2011 Car Rental 236.2 290.1 Fleet Rental 40.5 68.2 Franchising 7.7 7.4 284.4 365.7 Allowance for doubtful accounts (9.6) (12.3) Total 274.8 353.4
In relation to the percentage of accounts receivable, the balance of Allowance for doubtful accounts remained stable in approximately 3.4%. In 2011, the Allowance for doubtful accounts represented 0.2% of net revenue.
Fixed assets ‐ cars: the value of the fleet, including the decommissioned cars for renewal, amounted to BRL2,681.7 million as at December 31, 2011, corresponding to 66.9% of total assets, an increase of 9.6% when compared to the balance of BRL2,447.4 million as at December 31, 2011, which represented 73.0% of total assets that year. The increase resulted basically from the growth of 9.4% in the end of the period fleet , from 88,060 cars on 31 December, 2010 to 96,317 cars as at December 31, 2011.
Liabilities and Equity:
Loans, financings and debentures: the loans, financings and debentures (current and non current) amounted to BRL2,074.4 million as at December 31, 2011, representing 51.7% of the total liabilities and equity, showing an increase of 22.3% when compared to the balance of BRL 1,696.8 million as at December 31, 2010, which represented 50.6% of the total liabilities and equity that year. The increase of BRL377.6 million in loans, financings and debêntures is due to net funds raised in 2011 in the amount of BRL383,7 million which were allocated to reinforce Company’s cash for eventual adverse external scenario.
Suppliers: the balance of suppliers amounted to BRL488.7 million as at December 31, 2011, representing 12.2% of total liabilities and equity, presenting an increase of 10.3% when compared to the amount of BRL443.0 million as at December 31, 2010, which represented 13.2% of total liabilities and equity that year. This increase is mainly due to the increase of balance payable to car manufacturers, from BRL372.6 million as at December 31, 2010 to BRL405.3 million as at December 31, 2011.
Equity: in relationto total liabilities and equity, the equity increased from 26.8% in 2010 to 27.9% in 2011. The increase of BRL221.9 million resulted basically from the profit obtained in 2011, in the amount of BRL291.6 million, partially offset by the distribution of BRL76.8 million in dividends and interest on capital to shareholders.
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Balance Sheet referring to December 31, 2010 compared to December 31, 2009.
As at December 31 Variation 2009 2010 2009 x 2010 In BRL % of Total In BRL % of Total (million) Assets (million) Assets %
ASSETS 459.6 16.8 415.7 12.4 (9.6) Current Assets 212.1 7.7 274.8 8.2 29.6 Cash and cash equivalents 26.3 1.0 40.8 1.2 55.1 Accounts receivable of clients 698.0 25.5 731.3 21.8 4.8 Other current assets 20.3 0.7 20.1 0.6 (1.0) 718.3 26.2 751.4 22.4 4.6 Cars decommissioned for fleet renewal Total current assets 45.4 1.7 48.9 1.5 7.7 Non current assets Long-term receivables 1,879.7 68.6 2,427.3 72.4 29.1 FixedCars assets 85.5 3.1 114.9 3.4 34.4 Other fixed assets 11.6 0.4 12.2 0.3 5.2 Intangible assets 2,022.2 73.8 2,603.3 77.6 28.7
TOTAL ASSETS 2,740.5 100.0 3,354.7 100.0 22.4
Em 31 de dezembro de Variação 2009 2010 2009 x 2010 Em BRL % do Passivo Em % do Passivo BRL (million) Total (million) Total % LIABILITIES AND EQUITY Current Liabilities SuppliersSocial and Labor Obligations 292.5 10.7 443.0 13.2 51.5 Loans, financings and debentures 30.1 1.1 58.0 1.7 92.7 Other 446.6 16.3 233.7 7.0 (47.7) Total Current Liabilities 59.9 2.2 99.0 3.0 65.3 Noncurrent Liabilities 829.1 30.3 833.7 24.9 0.6 Loans, financings and debentures
1,091.6 39.8 1,463.1 43.6 34.0 Other noncurrent liabilities 111.3 4.1 159.2 4.7 43.0 Total noncurrent liabilities 1,202.9 43.9 1,622.3 48.4 34.9 Total Liabilities 2,032.0 74.1 2,456.0 73.2 20.9 Equity 708.5 25.9 898.7 26.8 26.8 TOTAL LIABILITIES AND EQUITY 2,740.5 100.0 3,354.7 100.0 22.4
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10.2 – Operating and Financial Result
The analyses of the variations occurred in the main lines of Company’s assets and liabilities between December 31, 2010 and 2009 are as follows:
Assets:
Cash and cash equivalents: cash and cash equivalents amounted to BRL415.7 million as at December 31, 2010, representing 12.4% of total assets, demonstrating a reduction of 9.6% when compared to the balance of BRL459.6 million as at December 31, 2009, which represented 16.8% of total assets that year. Such reduction of BRL43.9 million in the balance of cash and cash equivalents was due to investments of BRL1,910.4 million for the acquisition of 65,934 cars, partially offset by cash generation of BRL1,674.5 million of Company’s operations and other net cash receipts in the amount of BRL192.0 million. The operations of the balances of cash and equivalents in 2010 are shown as follows:
(R$ million)
Cash generated 1,674.5
Net proceeds Cash and cash Cash and cash 166.8 equivalents as 25.2 equivalents as of 12/31/2009 of 12/31/2010
Other transactions, net 459.6 415.7 (540.3) Acquisition of 18,649 cars to fleet growth (*) (1,370.1) Acquisition of 47,285 cars to fleet renewal (*)
(*) Renewal: cars purchased to replace cars decommissioned and sold; Growth: cars purchased in quantity above number of cars sold.
Accounts receivable: The balance of accounts receivable amounted to BRL274.8 million as at December 31, 2010, representing 8.2% of total assets, an increase of 29.5% when compared to balance of BRL212.1 million as at December 31, 2009, which represented 7.7% of total assets that year. The increase resulted mainly from growth of revenues of car rental division, which presented an increase of 37.1% between 2009 and 2010. As at December 31, 2010 and 2009, the balance receivable consists of the following:
BRL/million Consolidated 2010 2009 Car Rental 236.2 179.1 Fleet Rental 40.5 39.7 Franchising 7.7 2.3 284.4 221.1 Allowance for doutful accounts (9.6) (9.0) Total 274.8 212.1
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10.2 – Operating and Financial Result
Fixed assets: The balance of fixed assets and decommissioned cars for fleet renewal amounted to BRL2,562.3 million as at December 31, 2010, corresponding to 76.4% of total assets, an increase of 29.1% when compared to the balance of BRL1,985.5 million as at December 31, 2009, which represented 72.4% of total assets that year. The increase resulted basically from the fleet growths of 25.3% at the end of the period, from 70,295 cars on December, 31 2009 to 88,060 cars as at December 31, 2010.
Liabilities and Equity:
Loans, financings and debentures: Loans, financings and debentures (current and non current) amounted BRL1,696.8 million as at December 31, 2010, representing 50.6% of total liabilities and equity, demonstrating an increase of 10.3% when compared to the balance of BRL1,538.2 million as at December 31, 2009, which represented 56.1% of total liabilities and equity that year. The increase of BRL158.6 million in loans, financings and debentures is due to funds raised in the amount of BRL797,9 million in 2010, partially offset by amortizations of BRL631.1 million. The Company’s net debt rose 18.8% between 2009 and 2010.
Suppliers: The balance of suppliers amounted to BRL443.0 million as at December 31, 2010, representing 13.2% of total liabilities and equity, demonstrating an increase of 51.5% when compared to the amount of BRL292.5 million as at December 31, 2009, which represented 10.7% of total liabilities and equity that year. This increase is substantially due to the growth of balance payable to car manufacturers, from BRL261.3 million as at December 31, 2009 to BRL372.6 million as at December 31, 2010 and this increase motivated by a greater quantity of cars purchased in November and December, 2010, when compared to the same period in the previous year.
Social and Labor Obligations: The balance of salaries and charges amounted to BRL58.0 million as at December 31, 2010, representing 1.7% of total liabilities and equity, an increase of 92.7% when compared to the amount of BRL30.1 million as at December 31, 2009, which represented 1.1% of total liabilities and equity that year. This increase resulted mainly from growth of 25.8% staff number in the Company, from 3,065 employees as at December 31, 2009 to 4,533 employees as at December 31, 2010, and the increase in Company’s result, thus impacting the provision for employees’ profit sharing.
Equity: When compared to total liabilities and equity, the equity increased from 25.9% in 2009 to 26.8% in 2010. The increase of BRL190.2 million resulted basically from profit obtained in 2010, in the amount of BRL255.9 million, partially offset by distribution of BRL68.1 million in dividends to shareholders.
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b) Revenue variations attributable to changes in prices, exchange rates, inflation, volume alterations and introduction of new products and services
The tables below present some operating data of the Company for fiscal years ended at December 31, 2011 and 2010:
Fiscal year ended on December 31 2010 2011 Var 2011 x 2010
Car Rental
Average Operating Fleet (*) 42,903 51,285 19.5% Average Age of Operating Fleet (months) 6.3 6.8 7.9% Fleet at end of period 61,445 64,688 5.3% Average Rented Fleet 29,646 35,348 19.2% Utilization rate 69.1% 68.9% ‐0.2p.p. Number of Cars Purchased 54,320 46,746 ‐13.9% Number of Cars Sold 39,658 42,843 8.0% Average Age of Cars Sold 15.0 13.7 ‐8.7% Average Daily Rate (BRL) 78.07 79.68 2.1%
Fiscal year ended on December 31 2010 2011 Var 2011 x 2010
Fleet Rental
Average Operating Fleet (*) 22.916 27.858 21,6% Average Age of Operating Fleet (months) 15,9 15,8 ‐0,6% Fleet at end of period 26.615 31.629 18,8% Fleets of third parties managed 331 234 ‐29,3% Average Rented Fleet 22.343 26.676 19,4% Utilization Rate 97,5% 95,8% ‐1,7p.p. Number of Cars Purchased 11.614 13.204 13,7% Number of Cars Sold 7.627 7.929 4,0% Average Age of Cars Sold 28,4 32,8 15,5% Average Daily Rate (BRL) 46,27 48,83 5,5%
Fiscal year ended on December 31 2010 2011 Var 2011 x 2010
Operating Data – Consolidated
Average Operating Fleet (*) 65,819 79,143 20.2% Average Age of Operating Fleet (months) 9.6 9.9 3.1% Fleet at end of period 88,060 96,317 9.4% Average Rented Fleet 51,989 62,024 19.3% Number of Cars Purchased 65,934 59,950 ‐9.1% Average Price ‐ Cars Purchased (BRL thousand) 28.63 29.13 1.7% Number of Cars Sold 47,285 50,772 7.4% Average Price ‐ Cars Sold (BRL thousand) 25.80 26.30 1.9% Average Age of Cars Sold 17.1 16.6 ‐2.9% (*) Average Operating Fleet: cars available for rent, not including cars with licensing pending and those no longer available for rent.
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10.2 – Operating and Financial Result
The average daily rate of the car rental increased 2.1%, from BRL78.07 in 2010 to BRL79.68 in 2011, basically due to better deals in rental agreements in all segments.
The prices of Fleet Rental are adjusted annually by the rates foreseen in the agreements so as to reflect inflation. In view of this adjustment, the average rate increased 5.5%, from BRL46.27 in 2010 to BRL48.83 in 2011, and the new agreements began to reflect the expectation of interest increase.
The consolidated average price of cars purchased in 2011 presented a slight variation of 1.7% higher when compared to 2010.
It is important to point out that, both the price of the cars purchased and sold of Company’s fleet cars and the average daily rate of Car Rental, have not suffered any effect resulting from interest rate variation.
During the periods analyzed the Company did not launch any new product or service in the market.
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10.2 – Operating and Financial Result
The tables below present some Company operating data for fiscal years ended at December 31, 2010 and 2009:
Fiscal year ended as at December 31 2009 2010 Var 2010 x 2009
Car Rental
Average Operating Fleet (*) 32,301 42,903 32.8% Average Age of Operating Fleet (months) 9.5 6.3 ‐33.7% Fleet at end of period 47,517 61,445 29.3% Average Rented Fleet 22,210 29,646 33.5% Utilization Rate 68.8% 69.1% 0.3p.p. Number of Cars Purchased 33,851 54,320 60.5% Number of Cars Sold 24,673 39,658 60.7% Average Age of Cars Sold 16.6 15.0 ‐9.6% Average Daily Rate (BRL) 75.39 78.07 3.6%
Fiscal year ended as at December 31 2009 2010 Var 2010 x 2009
Fleet Rental
Average Operating Fleet (*) 20,379 22,916 12.4% Average Age of Operating Fleet (months) 14.5 15.9 9.7% Fleet at end of period 22,778 26,615 16.8% Fleets of third parties managed 120 331 175.8% Average Rented Fleet 19,720 22,343 13.3% Utilization Rate 96.8% 97.5% 0.7p.p. Number of Cars Purchased 9,310 11,614 24.7% Number of Cars Sold 9,846 7,627 ‐22.5% Average Age of Cars Sold 25.4 28.4 11.8% Average Daily Rate (BRL) 43.84 46.27 5.5%
Fiscal year ended as at December 31
2009 2010 Var 2010 x 2009 Operating Data – Consolidated Average Operating Fleet (*) 52,680 65,819 24.9% Average Age of Operating Fleet (months) 11.4 9.6 ‐15.8% Fleet at end of period 70,295 88,060 25.3% Average Rented Fleet 41,930 51,989 24.0% Number of Cars Purchased 43,161 65,934 52.8% Average Price ‐ Cars Purchased (BRL thousand) 27.47 28.63 4.2% Number of Cars Sold 34,519 47,285 37.0% Average Price ‐ Cars Sold (BRL thousand) 24.61 25.80 4.8% Average Age of Cars Sold 19.1 17.1 ‐10.5%
(*)Average Operating Fleet: cars available for rent, not including cars with licensing pending and those no longer available for rent.
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10.2 – Operating and Financial Result
The average daily rate of the car rental increase 3.6%, from BRL75.39 in 2009 to BRL78.07 in 2010, basically due to better deals in rental agreements in all segments.
The prices of Fleet Rental are adjusted annually by the rates foreseen in the agreements so as to reflect inflation. In view of this adjustment, the average rate increased 5.5%, from BRL43.84 in 2009 to BRL46.27 in 2010, and the new agreements began to reflect the expectation of interest increase.
The consolidated average price of cars purchased in 2010 increased 4.2% when compared to 2009, in view of the return of 7 percentage points in the IPI rate (Tax on Manufactured Products) on new cars which had been reduced at the end of 2008 so as to incentivate the automobile industry during the world financial crisis scenario. Whereas the average price of decommissioned cars sold in 2010 increased around 4.8% when compared to 2009, in line with the increase of price of new cars. The price of purchase and sales of Company’s fleet cars were not impacted by inflation effects during this period.
It is important to point out that, both the price of the cars purchased and sold of Company’s fleet cars and the average daily rate of Car Rental, have not suffered any effect resulting from interest rate variation.
During the periods analyzed the Company did not launch any new product or service in the market.
c) Impact of inflation, variation in the prices of the main inputs and products, in exchange and interest rates on the issuer's operating results and financial income
• Inflation, GDP, interest rate and exchange rate
The 2011 macroeconomic scenario was marked by economic downturn resulting from restrictive policies as a way to control inflation, including macro-prudential measures, interest rate rise and restrictions of public investments. Added to this, the deterioration of the global economic scenario highlighting the reduction of growth expectations in the main global economies, mainly when compared to i) the downturn of Chinese economy; ii) the reduced growth of American economy; and iii) the economic-financial fragility of Europe
Within this scenario in Brazil, in 2011 the following was observed:
a) increase in the exchange rate until August to hold back inflation and, as of September, a gradual reduction to stimulate the economy;
b) requirement of a greater down payment for car financing approval, by means of macro- prudential measures which were cancelled only at the end of the year;
c) as a consequence, we observed a fall in the level of economy activity along the year, reducing the initial expectation of Brazilian GDP growth from 4.5% to below 2.7%; and
d) inflation at high level, with a trend to fall at the end of the year, closing at the maximum target limit of 6.5%.
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10.2 – Operating and Financial Result
Brazil in 2012:
Agents from the market bet on the government’s indication of maintenance of a GDP above 3%, mainly supported by domestic demand and by the foreseen level of investment to be performed. The economic activity reaction is expected for the second semester, according to graph below:
GDP evolution forecast Accumulated in 4 quarters
3.70%
3.30%
3.00% 2.90%
2.60% 2.50%
1Q 1Q 12 2Q 12 3Q 12 4Q 12 1Q 13
4Q 11
Source: BR Central Bank – Market forecast system as at 02/10/2012 and Focus Bulletin
Additionally, the reversal of 2011 restrictive economic policy is expected, with new interest rate cuts, minimum salary increase and incentives to industry, these intentions declared by the government as a way to accelerate investments. However, even with the revocation of macro- prudential measures, the current conditions of greater strictness in new or used cars financings will be maintained by the banks, despite the drop in default rates. Conversely, we have observed improvement, at the beginning of the year, of CCI/FGV (Consumer Confidence Index – Fundação Getúlio Vargas), boosted by optimism when compared to the economic situation and consumer satisfaction with financial situation of the families.
The graph below shows the expectation of interest rate evolution for 2012:
Interest rate evolution forecast 11.00%
10.00% 10.00% 9.75% 9.50% 9.50%
1Q 1Q 12 2Q 12 3Q 12 4Q 12 1Q 13 4Q 11 Source: BR Central Bank – Market forecast system as at 01/20/2012 and Focus Bulletin
The Company uses funds generated from operating activities in order to manage its operations and to guarantee the renewal of its fleet and part of its expansion. In order to complement its necessity of cash for growth, the Company obtains loans and financings with the main financial institutions in Brazil, it also issues bonds (debentures and promissory notes), which are substantially indexed for CDI variation. The Company continuously monitors CDI, with the purpose of, if necessary, adjusting the rental rates in order to mitigate these fluctuations. Additionally, almost all Company balance of cash and cash
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Management considers that access to third party credit is facilitated, in view of Localiza’s credit rating with the main market rating agencies, as follows:
Rating Agencies Global Scale National Scale (Brazil) Fitch Ratings (*) BBB‐ / Stable AA+(bra) / Stable Moody’s (*) Baa3 / Stable Aa1.br / Stable Standard & Poors’ (*) BBB‐ / Stable brAAA / Stable
(*)Localiza has investment grade rating according to agencies
According to what is demonstrated as follows, Company performed sensibility tests for adverse scenarios (deterioration of CDI rate at 25% or 50% above likely scenario), considering the following assumptions:
• As at December 31, 2011, Company’s net debt amounted to BRL1,363,423;
• Market expectation, according to data from Boletim Focus, issued by Brazilian Central Bank, with effective date as at December 31, 2011, indicated a CDI effective average rate estimated at 9.69%, a scenario considered likely for 2012, in view of the effective rate of 11.60% observed in 2011.
Scenario I ‐ Scenario II ‐ Likely deterioration of deterioration Description Scenario 25% of 50%
Net debt as at 12/31/11 1,363,423 1,363,423 1,363,423 CDI effective rate in 2011 11.60% 11.60% 11.60% CDI annual estimated rate, according to stress scenarios 9.69% 12.11% 14.54%
Effect on financial expenses: ‐ according to effective rate (158,157) (158,157) (158,157) ‐ according to scenarios (132,116) (165,111) (198,242) (Increase)/Reduction in annual financial expenses 26,041 (6,954) (40,085)
Aiming to reduce costs of its fund raising and extend amortization deadlines, the Company takes out loans in foreign currency. As strategy of risk management of exchange rate, simultaneously to these operations, mandatorily plain vanilla swap operations are contracted with identical conditions of amount, term and rate, replacing exposure to exchange variation by CDI variation. The contracted swap operations have exclusively hedge nature.
As at December 31, 2011, the Company had two loan agreements in foreign currency:
• As at June 29, 2010 Localiza took out a loan of USD 95,506 thousand, with maturity of the principal and interest as at May 25, 2016. This amount was converted into BRL at the rate of BRL 1.78 per USD 1.00, resulting in funding of BRL 170,000 thousand. At the same time, a plain vanilla swap transaction was contracted aiming to eliminate the exposure risk in foreign currency, replacing the exchange variation plus spread by CDI variation of 114.7%.
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10.2 – Operating and Financial Result
• As at 24 August 2011, Localiza executed with Bank of America a loan agreement in the amount of USD75.0 million, equivalent to BRL123.0 million, under Law 4131/62, for final amortization in 6 years, and the funds made available to Localiza in November 2011. Simultaneously, and becoming effective on the same date of the funds’ release, the swap operation (plain vanilla) was contracted in identical conditions of value, term and rate, replacing the exposure to exchange rate change plus interest (LIBOR of 3 months + 1.6% per year) by 102.5% of CDI.
Both are back-to-back operations which formally consist of a loan agreement and a swap contract, with the same maturity and with the same counterparty, and which should be settled at the same time, equivalent to a single net amount. Accordingly, Management believes that in essence both operations are a loan in local currency plus established interest rates. Therefore, the Company is not subject to risk of changes in the Exchange rates, once its indebtedness is exposed exclusively to CDI variation.
The characteristics of both swap (plain vanilla) operations in force, which have exclusive hedge purpose for the respective loans taken out in foreign currency are as follows:
Individual (BR GAAP) and Consolidated (IFRS and BR GAAP) 12/31/2011 Reference value Value Rates (notional) (payable)/recei- Swap vable operation Contracted on Maturity Counterparty Assets Liabilities BRL thousand USDthousand BRL thousand
114.7% of Dollar Exchange CDI x 06/29/10 05/25/16 Itaú BBA S.A. variation of dollar variation 170,000 95,506 (7,733) Reais + cupom of
6.44% p.a.
Dollar Exchange x 11/16/11 08/16/17 Bank of 102.5% of variation of dollar 123,000 75,000 Reais America CDI 16,359 + cupom of variation 1.60% p.a. + LIBOR 3M
The amounts payable/receivable are presented together with the balances of the respective loans. The Company does not perform operations involving financial instruments which have speculative nature. Other than these two swap operations, the Company does not have other derivative financial instruments.
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10.2 – Operating and Financial Result
The following table shows the background of certain data relating to inflation, real GDP growth and interest rates in recent years:
Fiscal years ended as at December 31 2009 2010 2011 GDP growth (0,3)% 7,5% 2,7% *Inflation(IGP‐M)1 (1,7)% 11,3% 5,1% **Inflation (IPCA)2 4,3% 5,9% 6,5% ***TJLP average3 6,1% 6,0% 6,0% CDI Rate4 9,9% 9,7% 11,6% BRL/ USD5 1,74 1,67 1,88
Sources: 1 ‐ Fundação Getúlio Vargas; 2 ‐ IBGE ; 3 ‐ BNDES; 4 ‐ CETIP; 5 ‐ Average rate for the year, according to data by Brazilian Central Bank.
For 2012 the market (Focus Market Report of 02/10/2012 of Brazilian Central Bank) foresees:
• GDP Growth of 3.3%; • Average base interest rate of 9.7%; • Inflation of 5.3% (IPCA); and • Interest rate at end of 2012 of 9.5%
Price variation of main inputs and products
Company costs and expenses are in BRL. Company tries to offset the increases of costs resulting from inflation and actual increases, mainly by means of internal improvement actions of productivity/economies of scale. In fleet rental agreements, we try to offset these increases by means of agreement clauses which provide for adjustments based on IGP-M (Market General Price Index) or other inflation rates. Not always does the Company pass on the cost increase to prices in car rental business, in view of economies of scale, provided it does not jeopardize profitability, aiming to consolidate the market.
When compared to average purchase price of cars, main good of Company’s assets, Management believes that the trend will be that of keeping nominal prices in 2012, similar to car manufacturers’ policy since the return of IPI (Tax on Manufactured Products) in 2009. Management also believes that maintenance of prices also results i) from increase in installed capacity of main car manufacturers, generating more competitiviness in car sector, and ii) new car manufacturers being established in Brazil. Therefore, Company Management does not expect that there will be material operating and finacial impacts in purchase price of cars.
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10.3 - Events with relevant effects, occurred and expected, in the financial statements
a) Operating segment introduction or alienation
In 2011, 2010 and 2009 no new operating segment was introduced or alienated.
b) Equity interest constitution, acquisition or alienation
Merger of wholly-owned subsidiary At an Extraordinary General Meeting held on December 28, 2009, Localiza's shareholders approved the merger of the Company's wholly-owned subsidiary Localiza Franchising Internacional S.A., with absorption of total assets, liabilities and equity into Localiza. Such merger was justified by the fact that the Company sought to meet the common interests and strategic guidelines for administrative and financial simplification and streamlining, as well as to directly develop the activities related to the franchising of the Localiza brand name outside Brazil. A summary of the absorbed balances is as follows:
BRL/thousand Assets Liabilities
Current 1,365 Current 1,177 Non current 159 Equity 347 Total assets 1,524 Total liabilities and equity 1,524
Establishment of wholly-owned subsidiary
i) On January 12, 2009, approval was granted for the creation of the wholly-owned subsidiary Car Assistance, with registration with the Minas Gerais State Registry of Commerce (JUCEMG) on May 22, 2009. Car Assistance began operating in 2009, and its purpose is to manage claims filed with respect to the insured cars of the Company's fleet. The revenues and expenses generated by Car Assistance are shown in the consolidated financial statements as part of the Car Rental Division and, therefore, do not constitute a new business segment. The net impacts on consolidated results for 2010 and 2009 are not material, with the net revenues of Car Assistance standing at BRL 3,132 thousand for 2010 (BRL 1,680 thousand in 2009).
ii) On January 12, 2009, approval was granted for the creation of the wholly-owned subsidiary TF Assistance, with registration with JUCEMG on June 1, 2009. TF Assistance is presently in the preoperation phase.
c) Unusual events and operations
Due to the global financial crisis that impacted Brazil in the last quarter of 2008, the Company suspended the purchases of cars for fleet renewal in the Car Rental Division as from the last quarter of 2008, but kept the sales of the decommissioned cars. The Company only resumed the purchases of cars for fleet renewal of that division in the second half of 2009.
The fleet reduction during the crisis period strengthened the Company's cash position and permitted early payment of short-term debts.
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10.3 - Events with relevant effects, occurred and expected, in the financial statements
On the other hand, the postponement of Car Rental Division fleet renewal made the average age of the operating fleet rise from 6.3 months in 2008 to 9.5 months in 2009, and consequently caused a rise in fleet maintenance cost and depreciation.
In 2010, the Company began to present growth rates in the car rental business and fleet expansion similar to levels before the financial crisis. The average age of the fleet reduced and consequently this reduced costs of maintenance and depreciation that year.
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10.4 – Significant changes in accounting practices – restriction notes and emphases in auditor’s opinion
a) Material changes in accounting practices occurred on 01/01/2009
Effects in the result and balance sheet resulting from full adoption of IFRS and new accounting practices adopted in Brazil on 01/01/2009
The effects in the result and balance sheet resulting from full adoption of IFRS and new accounting practices adopted in Brazil basically resulting from adoption of deemed cost and review of the cars useful life. Such effects have direct impact on the adjustment of accounting items of equity evaluation – “AAP”, of depreciation, of written-off car costs, of fixed assets and deferred income tax and social contribution, with reflection on equity method when compared to Total Fleet, in the proposed dividends and Statutory Reserves.
Localiza and Total Fleet’s fleet cars and accessories on January 1, 2009, date of transfer to IFRS and adoption of CPC 27, were assessed by their fair value, based on the adoption of deemed cost. Additionally, review of the useful life and of the residual value of these assets was performed.
The assessment report, approved at Board of Directors’ meeting on February 25, 2011, took into consideration the following assumptions: i) assessment of fair value of cars and accessories, as well as determining residual value were performed by Company internal team of experts, who have professional experience, objectivity and technical knowledge of the assessed goods; ii) assessment of fair value was performed based on used car market researches or FIPE (Economic Research Institute Foundation) table, similar to the fleet’s cars, taking into consideration the economic scenario and existent car fleet on the date of transition to international accounting practices, on January 1, 2009; iii) residual value of cars was established based on car market researches and FIPE table, similar to Localiza and Total Fleet’s, on the date of transition to IFRS, considering for this reason the estimate of useful life of the cars in these companies’ fleets; and iv) useful life of Localiza’s cars, estimated as 1 year, and Total Fleet’s, estimated from 1 to 4 years, took into consideration Management’s expectation in their use in the car rental business, and in the case of fleet rental cars, the duration of rental agreements with their customers.
b) Significant effects of changes in accounting practices
The effect in the consolidated opening balance sheet of the fiscal year in which deemed cost was recorded (01/01/2009), in the items of Fixed Assets, deferred liabilities Income Tax (IR) and Social Contribution (CS) and equity valuation Adjustment was as follows:
Consolidated (IFRS and BR GAAP) Assets Liabilities Equity Deferred Equity Valuation Fixed Assets IR and CS Adjustment
Balance on December 31, 2008, as previously published 1,612,273 12,875 ‐ Adjustments by deemed cost adoption 143,110 48,657 94,453 Balance on January 1, 2009 1,755,383 61,532 94,453
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10.4 – Significant changes in accounting practices – restriction notes and emphases in auditor’s opinion
The operation for performing the adjustment of equity valuation in the Company’s equity, between January 1, 2009 and December 31, 2011, was as follows:
Consolidated (IFRS and BR GAAP)
Adjustments by deemed cost adoption 94,453 Adjustment of equity valuation (*) (53,940) Balance on December 31, 2009 40,513 Adjustment of equity valuation (*) (29,402) Balance on December 31, 2010 11,111 Adjustment of equity valuation (*) (10,995) Balance on December 31, 2011 116
(*) The recording of the adjustment in the item line adjustment of equity valuation in the Company’s equity occurred due to the depreciation and cars and accessories write-off which were assessed by their fair values on January 1, 2009.
c) Restriction notes and emphases in auditor’s opinion
• Fiscal year ended on December 31, 2011
Opinion by Deloitte Touche Tohmatsu Auditores Independentes issued without restriction notes, however with the following emphasis paragraph:
“As per described in explanatory note 2, the individual financial statements were prepared according to the accounting practices adopted in Brazil. In Localiza Rent a Car S.A.’s case these practices differ from IFRS, applicable to separate financial statements, only when referring to assessment of investments in subsidiaries by equity method, whereas for IFRS purposes it should be by cost or fair value.”
Considering that i) accounting practices adopted in Brazil include those included in Brazilian company legislation and in the Pronouncements, Guidelines and Interpretations issued by the Accounting Pronouncement Committee – CPC and approved by Brazilian Securities Commission – CVM; ii) the individual financial statements present the assessment of investments in subsidiaries by equity method, according to Brazilian legislation in force. These individual financial statements are not considered as being in compliance with IFRSs, which require assessment of these investments in the subsidiary’s separate financial statements by fair value or cost, Company Management agrees with the opinions expressed in the independent auditors’ opinion report on the Financial Statements relating to fiscal year ended on December 31, 2011.
• Fiscal year ended on December 31, 2010
Opinion by Deloitte Touche Tohmatsu Auditores Independentes issued without restriction notes, however with the following emphasis paragraph:
“As per described in explanatory note 2, the individual financial statements were prepared according to the accounting practices adopted in Brazil. In Localiza Rent a Car S.A.’s case these practices differ from IFRS, applicable to separate financial statements, only when referring to assessment of investments in subsidiaries by equity method, whereas for IFRS purposes it should be by cost or fair value.”
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10.4 – Significant changes in accounting practices – restriction notes and emphases in auditor’s opinion
Considering that i) accounting practices adopted in Brazil include those included in Brazilian company legislation and in the Pronouncements, Guidelines and Interpretations issued by the Accounting Pronouncement Committee – CPC and approved by Brazilian Securities Commission – CVM; ii) the individual financial statements present the assessment of investments in subsidiaries by equity method, according to Brazilian legislation in force. These individual financial statements are not considered as being in compliance with IFRSs, which require assessment of these investments in the subsidiary’s separate financial statements by fair value or cost, Company Management agrees with the opinions expressed in the independent auditors’ opinion report on the Financial Statements relating to fiscal year ended on December 31, 2011.
• Fiscal year ended on December 31, 2009
Opinion by Deloitte Touche Tohmatsu Auditores Independentes issued without restriction notes or emphases paragraphs.
Executive Board agrees with opinions expressed in independent auditors’ opinion report on Financial Statements relating to fiscal year ended on December 31, 2009.
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10.5 – Critical Accounting Policies
The Executive Officers understand that the principal accounting practices adopted were as follows:
Revenue Assessment – Management adopts the practice of assessing net revenue by the value of consideration received or receivable, deducing discounts, sales allowance and taxes on sales, and recorded insofar as the generation of economic benefits for the Company is likely and when it may be assessed in a reliable manner. The reasons for adopting the referred to practices are detailed as follows:
i. Car Rental: revenues are recorded on a daily basis according to rental agreements with customers. Revenues from management of losses of rented cars, recorded upon service rendering, as well as revenues of intermediation for insurance contracting with the insurance company, at our clients’ choice upon car rental, recorded on a monthly basis, are presented together in the item line of car rental revenues;
ii. Fleet Rental: revenues are recorded on a monthly basis for the rental agreement period; iii. Sales of decommission ned cars: revenues resulting from sales of decommissioned cars for fleet renewal are recorded when significant risks and benefits inherent to the car property are transfered to the purchaser and when the Company does not have continuous involvement in car management at a level normally associated to ownership neither effective control over them anymore; iv. Franchising: revenues from franchising are based on percentage on franchisees’ car rental revenue recorded on a monthly basis. They also include an “integration rate” which corresponds to amounts paid by the franchisees upon contracting the right to operate an Agency through Localiza Franchise Business, at certain areas of activity, for pre- established periods. The integration rate is recorded in the result proportionally to the agreement period; and v. Interest: revenue from interest of financial assets is recorded based on period of time and effective interest rate on the principal amount outstanding on the balance sheet dates.
Management adopts the practice of recording costs and expenses in the result when incurred following accrual basis accounting.
Adjustment at present value ‐ Management adopts the practice of calculating and adjusting the short and long-term monetary assets and liabilities by their present value only when the effect is considered material when compared to the consolidated financial statements taken as a whole. For registration purposes and relevance determination, the adjustment at present value is calculated taking into consideration the contractual cash flows and the effective average cost of Company’s debt. As at December 31, 2011, 2010 and 2009, Company concluded that its long- term assets and liabilities are not liable to adjustment and the balances of short-term assets and liabilities did not present material effects when brought back to present value.
Impairment of non-financial assets ‐ Company adopts the practice of verifying, at least annually, if there is any indication of impairment of (i) fixed assets; and (ii)intangible assets – software. In the event of such indication, the recoverable amount of the asset is estimated with the purpose of measuring the amount of this loss. In 2011, 2010 and 2009 no adjustment for impairment was recorded.
Additionally, Localiza tests, at least annually, goodwill on acquisition of investment for impairment. The test for goodwill impairment consists of measuring the recoverable amount of the cash-generating unit where the goodwill was recorded. If the recoverable amount of the cash-generating unit is less than the book value, the loss due to impairment would firstly be allocated to reduce the book value of any goodwill allocated to the unit and, later, to other assets of the unit, proportionally to the book value of each one of its assets.
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Any loss due to goodwill impairment would be recorded directly in the fiscal year revenue, not transferred to the subsequent fiscal years. In 2011 and 2010 it was unnecessary to record losses due to impairment, once our tests did not indicate loss.
Financial instruments ‐ Management adopts the practice of recording financial assets and liabilities when Localiza and/or its subsidiaries are parties to contractual provisions of the instrument.
The reasons Management decided to adopt this practice are as follows: Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issuance of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value in the result) are added to or deducted from the fair value difference of the financial assets or financial liabilities, if applicable, after initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recorded in the profit or loss.
Financial assets and liabilities are offset and net value is recorded in the balance sheet when there is a right legally applicable to offset the recognized values and there is the intention of settling them on a net basis or realize the assets and satisfy the liabilities simultaneously.
Financial assets ‐ Management adopts the practice of classifying financial assets on initial recognition, when the Company becomes a party to the contractual provisions of the instrument, in one of the following four categories according to their nature and purpose: i) financial assets at fair value through profit or loss, which include instruments classified as “kept for negotiation” or “assigned at fair value at initial recognition; ii) loans and receivables; iii) held to maturity investments; and iv) available-for-sale financial assets. The subsequent measurement of financial assets is done according to the classification into one of the four categories.
Following is a summary and the reasons for the adoption of the main accounting policies adopted in the recognition and presentation of the Company's financial assets, as well as the categories according to their nature and purposes:
Cash and cash equivalents ‐ include cash on hand, accounts in banks and short-term, highly liquid investments with original maturities in less than 90 days from the investment date, which are readily convertible to a known amount of cash and which are not subject to relevant risk of value change. Cash and cash equivalents are recorded in the category “loans and receivables”, and stated, after initial recognition, at cost, plus revenues earned until the balance date, whenever applicable, which do not exceed their market value or realization value.
Accounts receivable ‐ the accounts receivable are recorded under the category “loans and receivable” initially recorded at fair value and subsequently calculated by amortized cost through effective interest method, deduced from provision for impairment.
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10.5 – Critical Accounting Policies
Financial Liabilities ‐ Financial liabilities are classified on initial recognition, when the Company becomes a party to the contractual provisions of the instrument, into one of the following two categories: i) financial liabilities at fair value through profit or loss; and ii) other financial liabilities. The subsequent calculation of financial liabilities is performed according to their classification in one of these two categories.
Company’s financial liabilities are classified under “other financial liabilities”, they are calculated at amortized cost and include loans, financing and debentures and accounts payable to suppliers.
Company does not have financial liabilities calculated at fair value through profit and loss.
Decommissioned cars for fleet renewal ‐ Are stated at the smallest value between fair value less sales costs and its residual value, which include the acquisition cost net of accumulated depreciation until the date on which they are classified as "decommissioned cars for fleet renewal". The cars whose book values will recovered through sales, instead of continuous use are classified as “decommissioned cars for fleet renewal”. This condition is met when: i) the cars are available for immediate sales in their current conditions and their sales highly likely; ii) Management is committed to the sales of decommissioned cars of the fixed assets; iii) the cars are effectively put up for sale at reasonable price when compared to its current fair value; and iv) it is expected that the sale is qualified as concluded within up to a year as from the recording date.
All cars of Car Rental Division are considered by Management as cars available for rental, even if they have already been transferred for renewal, they may be rented during demand peaks. The cars which have purchase proposal executed with the client were considered for the purpose of classification as “decommissioned cars for fleet renewal” in the Car Rental Division. For the Fleet Rental Division, all cars returned by clients are classified as “decommissioned cars for fleet renewal”, since Management does not have the expectation of renting them again.
Investments ‐ Investments resulting from interest in subsidiaries are assessed by equity method in the individual financial statements.
Fixed assets ‐ Cars, land, buildings, leasehold improvement, construction in progress, furniture and fixtures and equipment are stated at cost value, less accumulated depreciation and loss due to impairment, when applicable. On the date of transition to IFRS, on January 1, 2009, cars in the fleet at that time were stated at fair value, based on deemed cost.
The depreciable value is the positive difference between the acquisition cost and the estimated residual value. The depreciation is calculated provided the estimated residual value of the asset does not exceed its book value. The depreciation is recorded during estimated useful life period of each asset on straight-line basis. In the Fleet Rental Division, the cars are depreciated by the sum of the years digits method, or exponential method, on a quarterly basis, which provides depreciation quotas greater at the beginning and smaller at the end of the useful life, giving Total Fleet more uniformity in the costs, which grow during the contract period due to increment in costs in car maintenance, in line with the long-term characteristic of fleet
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10.5 – Critical Accounting Policies
rental contracts. The depreciation is recognized in a way that the cost value less its residual value (estimated sales price less estimated sales costs), after its useful life, is fully written-off. In the event that the depreciable value of the cars is underestimated, the residual value of the cars would be above market value, which would lead to recording of loss upon sale of the cars or extraordinary adjustments during its useful life. Overestimating the value depreciable of the cars, on the other hand, could lead to an increase in the value of rental to customers above the competitors’ values, which would reduce Company’s competitiveness.
Buildings and improvement in third parties’ real estates are amortized during rental agreement duration. Assets acquired by means of financial lease are depreciated by expected useful life on the same basis as their own assets. Land and constructions in progress are not depreciated.
Localiza and Total Fleet perform, at least on quarterly basis, reviews of estimated useful life term, residual value and depreciation methods of fleet cars. For other goods in Localiza and its subsidiaries’ fixed assets, these reviews are performed at least annually. The effect of any changes in the estimates are prospectively recorded.
A fixed asset item is written-off after alienation or when there are no future economic benefits resulting from the asset’s continuous use. Any gains or losses from the sale or write-off of an item of the fixed assets are established by the difference between the values received from sale and the asset book value and they are recorded in profit and loss.
The annual weighted average depreciation rates for goods in the fixed assets, are as follows:
2011 2010 Cars: Car Rental Division 4,9% 5,2% Fleet Rental Division 11,7% 10,3%
Other Fixed Assets: Leasehold improvements 19,6% 16,7% Furniture and fixtures 10% 10% IT Equipment 20% 20% Other 4% - 10% 4% - 10%
The cars in operation, whether in car or fleet rentals are classified under fixed assets. The decommissioned cars, after their use in car and fleet rental activities are presented as “decommissioned cars for fleet renewal”
The tangible assets offered as guarantees for liabilities are the goods acquired by means of finance lease.
Goodwill ‐ Goodwill resulting from a business mix, classified as indefinite useful life, is stated at cost on the date of business mix, net of accumulated impairment losses, if any. Pursuant to guidance in ICPC 09, goodwill was classified as intangible asset in the consolidated balance sheet and as investment in the Company's balance sheet.
Intangible assets ‐ Software ‐ Intangible assets with finite useful life that are acquired separately are recorded at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over the estimated useful life of 5 years. The estimated useful life and amortization method are reviewed at the end of each fiscal year, with the effect of any changes in estimate being accounted for on a prospective basis. Company does not have internally-generated intangible assets.
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10.5 – Critical Accounting Policies
Assets and liabilities subject to adjustment for inflation ‐ Management adopts the practice of adjusting for inflation the assets and liabilities in BRL and subject to contractual or legal indexation on balance dates by using corresponding index. Gains and losses resulting from adjustment for inflation are recorded in income statement of the fiscal year according to accrual basis.
Indemnifications and losses ‐ Localiza offers customers the option of contracting insurance for the rented cars. Premiums received are recorded in liabilities in line item "other current liabilities" and, subsequently, when the policies are issued by the insurance company, are reclassified to line item "suppliers" and later transferred to the insurance company, which is responsible for risk resulting from possible losses and thefts. The expenses incurred by Localiza with losses and indemnifications as well as with cars stolen are recorded in assets, in line item “other current assets".
Provisions ‐ Management adopts the practice of recording provisions for current obligations (legal or presumed) arising from past events, for which it is possible to estimate values in a reliable manner and whose settlement is likely. The value recorded as provision is the best estimate of the considerations required to settle the obligation at the end of each fiscal year, considering the risks and uncertainties related to the obligation. The effective settlement of the provisions may result in values which differ from the ones recorded in the financial statements. Localiza and Total Fleet record provision for eventual damages to third parties, in values which exceed the limits contracted through insurance company, resulting from accidents caused by rented cars, based on legal advisors’ opinion.
Stock option plan - the Company has a share-based compensation plan, according to which it receives services from some employees in exchange for equity instruments (share purchase options) of Localiza. The Company recognizes compensation costs on a straight-line basis during the vesting period, from the grant date to the date on which the employee is vested with the right to exercise the option, with a corresponding increase in equity, under item “options granted recognized”, included in “Capital Reserves”. Compensation costs are measured at fair value on the date share purchase options are granted and have been estimated based on the option valuation model named Black & Scholes. Compensation costs are allocated to item “Cost”, “Publicity and sales expenses” and “Generals and administrative expenses”, in the fiscal year income statement, according to function allocation of the respective employees.
Income tax and Social Contribution ‐ income tax and social contribution expenses represent the sum of the current and deferred.
Current taxes ‐ provision for income tax and social contribution is based on taxable profit for the fiscal year. Taxable profit differs from profit as reported in the income statement because it excludes revenues and expenses taxable or deductible in other fiscal years, besides items that are never taxable or deductible. The provision for income tax and social contribution is calculated individually for each company by taxable profit or presumptive profit regimes based on rates in effect. For the subsidiaries which calculate income tax and social contribution by the presumptive profit these are not considered tax credits.
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10.5 – Critical Accounting Policies
Deferred taxes ‐ Management adopts the practice of recording deferred income tax and social contribution on temporary differences at the end of each fiscal year between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the calculation of taxable profit, including the balance of tax losses, when applicable. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that the Company will present future taxable profit at an amount sufficient for those deductible temporary differences to be used. The recovery of deferred tax assets is reviewed at the end of each reporting period and when it is no longer probable that future taxable profits are available to allow all or part of the asset to be recovered, the asset balance is adjusted by the amount which is expected to be recovered.
Interest on Company capital ‐ interest credited to shareholders, calculated pursuant to Law 9249/95, is recorded in the income statement in line item "finance expenses", as required by tax legislation. However, for the purpose of disclosure of financial statements, interest on capital is presented as a charge to retained earnings, the same treatment given to dividends. The amounts paid to shareholders as interest on capital, net of withholding income tax, are deducted from the minimum mandatory dividend, pursuant to article 9, paragraph 7, of Law 9249/95 and based on paragraph 5 of article 24 of Localiza's Articles of Incorporation.
Treasury shares ‐ own equity instruments repurchased by Localiza, recognized at cost and deducted from equity. Transaction costs incurred in the acquisition of shares issued by Localiza are added to the acquisition cost of these shares. No gain or loss is recognized in the income statement upon purchase or sale of such shares. Treasury shares are acquired to remain in treasury and later alienated, without capital reduction. Company may also use treasury shares to settle stock options, when they are exercised.
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10.6 – Internal controls related to preparation of the financial statements – Degree of effectiveness and deficiency and recommendations included in auditor’s report
a) Degree of effectiveness of such controls, indicating eventual imperfections and measures adopted to correct them
The Company's Executive Officers believe that the degree of efficiency of the internal controls adopted to ensure the preparation of the financial statements is satisfactory.
Deloitte Touche Tohmatsu Auditores Independentes were hired to assist in the diagnosis of some processes and internal controls, aiming to improve Localiza and its subsidiaries’ risk management. The result of this job, concluded in 2011, was the mapping of the main internal processes and their respective controls, as well as improvement recommendations.
b) Deficiencies and recommendations on internal controls included in independent auditor’s report
The objective of the auditors' work is to issue an opinion on the financial statements and not on the internal controls systems. As a complement to the audit of the Company's financial statements, our auditors issued a "Management Letter - Memorandum containing suggestions on accounting and internal control procedures". The recommendations dealt with accounting aspects and information processing systems, and constructive suggestions were submitted to Company Management.
The recommendations considered as more relevant by the Executive Board on internal controls suggested by the independent auditors during their audit work in the fiscal year ended on December 31, 2011, are as follows:
(i) accompaniment of car fleet count by independent personnel and different from those who execute control of the cars
a) Comments of independent auditor- other deficiencies: at the execution of Company inventories, counting is not performed by people independent from unit’s own personnel.
b) Recommendation of independent auditor: the auditors recommend that Company change its inventory policies, so that people responsible for the counting should be independent from inventoried units.
c) Measures adopted by Management: Management assigned personnel independent from the selected units for the accompaniment of the inventories.
(ii) insecurity in filing facilities of transfer documents (CRV`S)
a) Comments of independent auditor- other deficiencies: auditors verified that Company files car transfer documents in a not very safe manner.
b) Recommendation of independent auditor: auditors recommend that Company adopt access control to the place where the CRV’s are stored and that the place should have a secure locking system, like a locked box.
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10.6 – Internal controls related to preparation of the financial statements – Degree of effectiveness and deficiency and recommendations included in auditor’s report
c) Measures adopted by Management: Management provided a new type of modular file where all documents are filed in an exclusive place. In this new file, each module has a door with specific lock. Additionally, the entrance control in the place will be exclusively for employees and managers of the area, through codified ID badge.
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Version: 14 Reference Form - 2012 - LOCALIZA RENT A CAR SA
10.7 – Allocation of funds of public offerings and eventual deviations
a) How the funds resulting from the IPO were used
To complement the cash needs in order to make capital investments, the Company obtains funding in the capital markets (IPO of shares or issuance of debentures and promissory notes) and with Brazilian financial institutions.
The main IPOs carried out in 2009, 2010 and 2011 and the respective uses of the funds were as follows:
Date of Settlement ‐ BRL Value raised Balance on 12/31/2011, issue thousand BRL thousand Including interest Use of funds
Localiza: Working capital and investment in 12/29/2009 200,000 on 200,000 car fleet 4th Offer of promissory 06/14/2010 notes (in advance)
Working capital and investment in 4th debenture offer 05/11/2010 ‐ 370,000 375,747 car fleet
th 5 Offer of promissory Working capital and investment in 200,000 on 200,000 ‐ notes car fleet 12/29/2010 06/10/2011 (in advance)
Extension of debt, reinforcement 5th debenture offer 05/30/2011 ‐ 500,000 501,415 of working capital and
investment in fleet Total Fleet: 100,000 on st working capital and extension of 1 debenture offer 09/30/2009 12/29/2011 400,000 308,664 consolidated debt (in advance)
b) Whether there were any material deviations between effective use of the funds and the proposed uses disclosed in the prospectuses for the respective distribution
Management informs that funds raised were used according to “use of funds” informed in the prospectuses of each respective distribution.
c) In the event of deviations, reasons for such deviations
Since the funds raised were used according to “use of funds” informed in the prospectuses of each respective distribution, this item is not applicable.
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10.8 - Material items not evidenced in the financial statements
a) The assets and liabilities held by the Company, either directly or indirectly, off balance sheet items, such as:
i) operating lease purchase agreements, assets and liabilities
(a) Property rental agreement
It is Company policy to rent the real estate properties it needs. It owns just five properties. The Company has various agreements for lease of properties for its car rental business (central and airport branches) and points of sales of cars for fleet renewal. In addition, the Company's head offices occupy seven rented real estate properties in Belo Horizonte, in the State of Minas Gerais.
(b) Guaranteed minimum revenue of fleet rental
The Fleet Rental Division, which is handled by the Company's subsidiary Total Fleet, rents fleets for long-term agreements (normally of 24 and 36 months). The agreements can be terminated by notice given 90 days in advance and contractual fines that range up to 40% of the payments falling due, depending on the terms of the lease and renewal clauses. As at December 31, 2011 there are several long-term agreements for fleet lease signed by Total Fleet, whose vehicles were in the possession of its customers.
ii) portfolios of receivables written off with respect to which the entity has risks and liabilities, indicating the respective liabilities
There are no portfolios of receivables written off with respect to which the entity has risks and liabilities, indicating the respective liabilities.
iii) future sales agreement of products and services
There are no future sales agreement of products or services.
iv) uncompleted construction agreements, and
There are no uncompleted construction agreement.
v) agreements for future receipts of financing
There are no agreements for future receipts of financing
b) other items not evidenced in the financial statements
Company does not maintain any form of relationship with unconsolidated or special purpose entities that have been established in order to facilitate the carrying out of off-balance-sheet agreements or other specific or limited purposes. Moreover, the Company has not taken out any undisclosed loans, and nor has it signed any contracts for derivative financial instruments that are not disclosed in its financial statements.
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10.9 - Comments on items not evidenced in the financial statements
a) How such items alter or might alter revenues, expenses, operating results, financial expenses or other items of the Company's financial statements
i) Rental agreements
As described in item 10.8 of this document, the Company has lease property agreements related to its car rental branches located at airports, as well as off-airport branches (central branches), stores and parking lots.
The lease agreements for rental branches at airports and shopping malls feature its value comprised of fixed and variable installments, the latter being linked to the agency's revenues. The other lease agreements for rental branches and parking lots do not feature contingent payment clauses.
The expenses with renting these properties, during the fiscal year ended as at December 31, 2011, amounted to BRL73,794 thousand (BRL53,513 thousand on December 31, 2010 and BRL42,138 thousand on December 31, 2009).
The minimum amounts to be paid for the remaining term of the leased properties through December 31, 2011 are as follows:
BRL thousand Concessions at Agencies, stores Years airports and parking lots Total 2012 17,631 33,743 51,374 2013 14,550 30,073 44,623 2014 10,631 22,852 33,483 2015 8,051 14,915 22,966 2016 2,841 11,001 13,842 2017 and after 127 37,392 37,519 Total 53,831 149,976 203,807
ii) Minimum guaranteed revenue from fleet rental
As at December 31, the minimum guaranteed values of rental payments receivable by the subsidiary Total Fleet, as described in item 10.8 are distributed as follows:
BRL thousand Years Revenues
2012 406,462 2013 247,590 2014 60,802 2015 1,622 Total 716,476
b) nature and purpose of the operation
The property leases are carried out for the purpose of being used for the Company's operating activities;
The revenues from fleet rental are in compliance with the subsidiary Total Fleet’s business purpose.
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10.9 - Comments on items not evidenced in the financial statements
c) nature and amount of the obligations taken on and of the rights generated on behalf of the issuer as a result of the transaction
See letter (a)above.
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10.10 – Business Plan
a) Investments
i) quantitative and qualitative description of investments in progress and foreseen investments,
Investment in fleet
As at December 31, 2011, Localiza’s consolidated fleet consisted of 96,317 own cars, including 31,629 of the car rental division. After their use in rental activities, the cars are sold mainly to final consumer through 66 points of sale of decommissioned cars, located in 37 cities in Brazil.
Company and its subsidiaries have the following divisions: Car Rental, Fleet Rental and Franchising. As part of their fleet renewal program, the Company and its subsidiary Total Fleet S.A. sell their used cars and buy new cars to be put into operation in the fleet. The major investments scheduled are for the purchase of cars for fleet growth, in line with rental market demand.
We present the comparative table of investments in fleet made in 2009, 2010 and 2011 as follows:
Fleet increase * (quantity) Net investment (R$ million)
18,649 588.5 308.4 9,178 65,934 1,910.4 59,950 1,776.5 50,772 47,285 1,321.9 1,468.1
2010 2011 2010 2011 Purchased cars Sold cars Purchases (includes accessories) Used car sales revenues
* It does not include theft / crashed cars.
In 2011 Company increased the fleet by 9,178 cars, which corresponds to a net investment of BRL308.4 million.
The policy of investing in Localiza’s fleet provides for an annual negotiation with car manufacturers with an intention of purchase for a period of one year and a half, so as to give more flexibility. In August, 2011, Localiza announced its intention to purchase 100,000 cars, mainly for fleet renewal, during the normal course of its operations in the second half of 2011 and 2012. Of the cars to be purchased, 90,000 would be allocated to Localiza and Total Fleet and 10,000 to the franchisees.
In the second semester of 2011, 31,283 cars were purchased and the remaining 58,700 cars to be purchased in 2012.
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10.10 – Business Plan
In 2012, in the normal course of its business, Company Management expects to renew 67,000 cars of the fleet aiming to maintain the quality standards required by the customers. Of these 67,000 cars, 9,000 cars would go to the Fleet Rental Division (around 30% of the fleet) and 58,000 cars (around 90% of the fleet) to the Car Rental Division on 12/31/11.
The annual negotiation with car manufacturers will define the purchase intention for the second semester of 2012 and 2013.
Other investments
The investments made in 2011, 2010 and 2009 in other fixed assets and intangible assets (software) amounted to BRL 62,993 thousand and BRL51,202 thousand and BRL 20,919 thousand, respectively.
For 2012, Company intends to expand its distribution with the opening of car rental agencies.
Company ended 1Q12 with 67 points of sale of decommissioned cars for fleet renewal, with increase of one point of sale. During 2012, Management expects to add 14 points of sale to its network aiming to support Company’s growth.
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10.10 – Business Plan
ii) sources of investment financing
Company uses funds generated by operating activities to manage its operations, to guarantee fleet renewal and part of its growth. To complement its cash need for expansion, Company obtains loans and financings with market and main financial institutions in Brazil, substantially indexed for CDI variation.
iii) material desinvestment in progress and scheduled desinvestment
The cars sold for fleet renewal were dealt with in item (a) above, considering that the cash generated by car sales is allocated for the acquisition of new cars for the fleet.
b) Acquisitions of plants, equipment, patents or other assets already disclosed and which may materially influence Company’s productive capacity
There were no acquisitions of plants, equipment, patents or other assets which may materially influence Company’s productive capacity
c) New products and services
No investments in new products and services are foreseen.
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10.11 – Other factors with material influence
All relevant information pertaining to this topic has already been provided in the previous items.
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11.1 – Disclosed projections and assumptions
a. purpose of forecast
• Fleet renewal • Opening of new points of sale of decommissioned cars
b. forecast period and validity
Period of 12 months ending on December 31, 2012
c. forecast assumptions, with the indication of which may be influenced by issuer’s management and which escape its control
Fleet renewal (*)
In 2012, the normal course of its business, Company Management expects to renew 67,000 cars aiming to maintain quality standards required by customers. As of October 25 2012, the Management revised the estimate in the total volume of decomissioned car sales of the fleet in 2012 for around 60 thousand cars (50 thousand in Car Rental Division).
(*) See item 11,2 to see the details of the revised projection.
Opening of 14 new points of sales of decommissioned cars
Company ended 1Q12 with 67 points of sale of decommissioned cars for fleet renewal, with the increase of one point of sale. During the year, Management expects to open 14 new points of sale to its network aiming to support Company’s expansion.
Macroeconomic factors beyond Management’s control
The car market is mainly affected by the following factors: income level, credit availability and consumer confidence index. These and other factors are beyond Company’s control. In the event of a drop in the demand for cars, Company may adjust its fleet renewal strategy.
d. values of the indicators which are the purpose of the forecast
• Renewal of 67,000 cars • Opening of 14 new points of sale of decommissioned cars from car and fleet rental business.
In the previous years forecasts were not performed by Company.
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11.2 – Follow-up and changes of disclosed projections
a. Inform which forecasts are being replaced by new forecasts included in the form and which of them are being repeated in the form
Fleet renewal
The projection about the Fleet Renewal was replaced by a new projection (see item “c”).
Opening of new points of sales for deactivated cars
The projection about the opening of new points of sales and used car sales was the same, because it has not changed.
b. in relation to forecasts related to periods which have already elapsed, compare forecast data with the effective performance of the indicators, clearly indicating reasons that led to deviations in the forecasts.
Fleet renewal
The Company has reported the expectation to renew 67,000 cars that would be deactivated in 2012 aiming to offer quality, safety and comfort to costumers.
Until Spetember 30, 2012 the Company renewed 42,880 cars in its fleet which represents 64% of the initial expectation of renewal and 71% of the reviewed expectation (see item “c”).
Opening of new points of sales for deactivated cars
The Company has disclosed the expectation to open 14 new stores, in 2012, for the sale of the cars deactivated by the car and fleet rental activities.
Until Septmber 30, 2012 were opened 11 stores , 79% of the expectation for the whole year. By the other side, were closed 4 stores of small scale.
c. in relationto forecasts related to periods still in progress, inform whether forecasts remain valid on delivery date of the form and, when applicable, explain why they have been abandoned or replaced
Fleet renewal
The Company reviewed as of October 25 the expectation of the volume of the cars in the Car Rental Division which will be renewed in 2012.
At the beginning of this year, the car market had a low performance taking the Government to adopt measures to stimulate the sector, among them, the IPI reduction for new cars in up to 7p.p..
The market has reacted positively to these stimulus and the inventories of the automakers have reduced substantially, which generated delays in delivery of new cars taking the Car Rental Division to decomissioned less cars to be renewed.
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11.2 – Follow-up and changes of disclosed projections
Consequently, the Management revised the estimate of the total volume of sales of deacomissioned cars of the fleet in 2012 to around 60 thousand cars (50 thousand from Car Rental Division), assuming that the deliveries by automakers will be normalized until the end of this year.
The postponement of the renewal of 7 thousand carsfor the beginning of 2013, does not affect the quality of the cars that will be rented and should not impact the costs of maintenance.
Opening of new points of sales for deactivated cars
The projection about the opening of new points of sales and used car sales has not changed.
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12.1 – Description of management structure administrativa
a) functions of each body and committee
Board of Directors
According to the Company's Articles of Incorporation, approved on April 13, 2012, the Board of Directors shall consist of at least 6 (six) members and at the most 8 (eight) member, elected for a unified term of office of two (2) years by the General Meeting, reelection being admitted. At the General Meeting whose purpose is to vote on the election of the Directors, the shareholders shall firstly establish the effective number of members of the Board of Directors. Among the members elected, the same General Meeting shall designate those who shall take office as Chairman and Vice-Chairman. Upon expiration of the term of office, the members of the Board of Directors shall remain in their positions until the taking of office of the new members elected. In case of vacancy of Director position, the substitute will be appointed by the other directors and will be valid until the next General Meeting.
The member of the Board of Directors must have irreproachable reputation, and may not be elected, unless permitted by General Meeting resolution, one who: (i) acts as manager, advisor, consultant, lawyer, auditor, executive, employee, official or service renderer in companies which are involved in the business of car rental, car fleet rental, car or car fleet leasing, car trade, car manufacturing or any other business which may be considered as Company’ competitors; or (ii) has or represent conflict interest with the Company. The member of the Board of Directors may not exercise the voting right, subsequently to the election, in the event the same impairment factors take place.
The members of the Board of Directors shall be vested with their positions by means of the signing of the oath of office registered in appropriate book, observing legal limitations, exempting any management guarantee. The taking office will be conditioned to previous subscription of the Statement of Consent of Directors, set forth in the New Market Regulation as well as to meeting the applicable legal requirements.
At least, twenty per cent (20%) of the Board of Directors' members shall be Independent Directors, according to definition in the eighth paragraph below, expressly stated as such in the minutes of the General Meeting which elect them, and they are also deemed as elected independent director(s) through the competence provided for by article 141, paragraphs 4 and 5 of Law 6,404/76 .
Also Further according to the Company's Articles of Incorporation, approved on April 13, 2012, the Board of Directors is assigned the following attributions:
(a) establish the general business policy of the Company; (b) elect and remove the Executive Officers of the Company; (c) resolve on the call for a General Meeting, when it deems convenient, or in the case of article 132 of Law 6404/76; (d) inspect the Officers' management, analyzing, at any time, the records and documents of the Company and requesting information about agreements executed or to be executed; (e) create Committees and establish the respective regulations and authority; (f) revise, at least 3 (three) times per year, the Car Purchase Program for Expansion and the Car Purchase Program for Renewal, presented by the Management; (g) select and dismiss the independent auditors; (h) call the independent auditors to render clarifications they deem necessary;
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12.1 – Description of management structure administrativa (i) examine the Management Report and the accounts of the Executive Board, and resolve on their submission to the General Meeting; (j) approve the Strategic Plan, the Goal Plan, the Budget, the expansion projects, the investment programs, the Car Purchase Program for Expansion and the Car Purchase Program for Renewal, as well to follow its execution; (k) approve the alienation or encumbrance of goods of permanent assets, according to the Management Proposal, except for the car purchases made on the terms of the Car Purchase Program for Expansion and the Car Purchase Program for Renewal; (l) approve the constitution of subsidiaries, as well as any change on their by-laws, he subscription and payment of capital increases in subsidiaries and the Company's interest in the capital of other companies, in Brazil and abroad; (m) establish the powers of the Management to issuancecredit instruments in Brazil, including, but not limited to, senior bonds and commercial papers to raise funds in the capital market, also resolving on their conditions of issuanceand redemption, being necessary, in cases yet to be defined, the previous authorization of the Board of Directors as a condition to validate the issuance; (n) establish the powers of the Management to issuanceany credit instruments to raise funds abroad, whether they are bonds, notes, commercial papers or other instruments, also resolving on their conditions of issuanceand redemption, being necessary, in cases yet to be defined, the previous authorization of the Board of Directors as a condition to validate the issue; (o) establish the powers of the Management to contract any operations of options, swap and other complex financial operations based on negotiations of price or quotation in the future market being necessary, in cases yet to be defined, the previous authorization of the Board of Directors as a condition to validate the issue; (p) authorize the Company and its subsidiaries to guarantee obligations on behalf of third-parties, dismissed the authorization of warranty to affiliate; (q) establish the remuneration of the Management and approve the Management Proposal regarding the remuneration policies, the global amount of the profit sharing to employees, as well as to approve the staff of the Company and its affiliated; (r) approve changes on the organizational structure of the Company necessary to the operation of the business and to the execution of the strategies defined, as well as to determine the Company's vote or the grant of the vote instruction in all shareholders meeting of its subsidiaries; (s) decide on the acquisition, by the Company, of shares issued thereby to be held in treasury and/or for subsequent cancellation or disposal; (t) grant stock options to executives and employees of the Company and its affiliated, without preemptive right for the shareholders, in the terms of the Plans approved at General Meeting; (u) prepare the three-name list of institutions or companies specialized in the economic appraisal of companies, for the preparation of an appraisal report of the Company's shares, in case of deregistering as a publicly-held company or delisting from the New Market or Takeover Bid by Achievement of Relevant Interest, as provided for in Chapter X of the Articles of Incorporation; and (v) Express itself favorably or unfavorably when compared to any tender offer whose purpose are shares of Company’s issuance, by means of previous well- grounded opinion, disclosed in up to 15 (fifteen) days from the publishing of tender offer bid notice, which shall approach, at least (i) the convenience and opportunity of the tender offer when compared to the interest of shareholders and when compared to the liquidity of the securities of its ownership; (ii) the repercussions of the tender offer on the Company’ interests; (iii) the strategic plans disclosed by the offerer in relation to the Company; and (iv) other points that the Board of Directors consider pertinent, as well as information required by the applicable rules set forth by CVM – (Brazilian Securities Commission); (w) provide for, pursuant to the rules of these Articles of Incorporation and laws in force, the order of its works and adopt or issuancerules for its operation.
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administrativa
Internal Committees
In 2007 the Board of Directors approved the creation of the following Internal Committees:
a) Audit and Risk Management Committee; b) Personnel Management Committee; c) Disclosure Committee; and d) Ethics Committee.
On April 25, 2012, the Special Shareholders’ Meeting, held at second call, approved the Company’s Articles of Incorporation, including paragraph 5 of Article 13, which sets forth the creation of a permanent audit committee, as follows:
Article 13. (...)
§ 5. The Board of Directors shall appoint a permanent Audit Committee, consisting of at least three members, without decision or management powers, to assist the Board in the exercise of its functions. The Audit Committee shall exercise the attributions established in its internal regulation, to be approved by the Board of Directors.
The principles of all the Company's Committees are as follows:
1. ensure respect for the Company's values and for their continuing dissemination; 2. conduct work according to the principles of good Corporate Governance; 3. decide matters in the best interests of the Company as a whole, irrespective of the specific interests of shareholders or group of shareholders; and 4. ensure that the ethical premises and values of the Company are complied with.
The attributions and the members of each one of such Committees, appointed at the meeting of the Board of Directors held on April 25, 2013, are as follows:
Audit and Risk Management Committee: Comprised of 3 members, 2 of whom are independent, the Audit Committee is responsible for inspecting the work of the independent auditors, issuing its opinion on their selection, assessing their performance, the quality of audit opinions and financial reports, as well as accounting principles used, and also assessing the effectiveness and sufficiency of the internal control structure.
Members: Oscar de Paula Bernardes Neto (Coordinator and Independent Committee Member), Stefano Bonfiglio (Independent Committee Member), Flávio Brandão Resende and Walmir Bolgheroni (Independent Advisor). Secretary: Edmar Vidigal Paiva.
Personnel Management Committee: Made up of 3 members, 2 of whom are independent, the Personnel Management Committee is responsible for proposing to the Board of Directors the
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administrativa Company's policies for compensation, performance evaluation, profit sharing program and stock option program, as well as the general Personnel Management policies.
Members: José Galló (Coordinator and Independent Committee Member), Maria Leticia de Freitas Costa (Independent Committee Member) and Antônio Cláudio Brandão Resende (Vice Chariman). Secretary: Daltro Barbosa Leite Júnior.
Disclosure Committee: Comprised of 12 members, the Disclosure Committee is responsible for reviewing drafts of documents and information of an economic and financial nature that have to be submitted to the Brazilian Securities Commission (CVM) on a mandatory basis, in order to ensure that the financial information disclosed to the market by the Company is correct, complete and timely.
Members: Roberto Antônio Mendes (Coordinator), Antônio Hiroyuki Hyodo, Bruno Moreira de Andrade, Cláudio José Zattar, Daltro Barbosa Leite Júnior, Edmar Vidigal Paiva, Eugênia Maria Rafael de Oliveira, João Alberto Mazoni Andrade, Marco Antônio Martins Guimarães, Priscilla Soares Duarte Vitória, Raquel Elen Barcelos and Nora Mascarenhas Lanari. Secretary: Edmar Vidigal Paiva.
Ethics Committee: Made up of 6 members, the Ethics Committee is responsible for defining the Company's ethical premises and values and ensuring that they are strictly complied with and deciding on ethical problems always in the best interests of the Company as a whole, regardless of specific interests.
Members: Eugênio Pacelli Mattar (Coordinator), Daltro Barbosa Leite Júnior, Eugênia Maria Rafael de Oliveira, Marco Antônio Martins Guimarães, Priscilla Soares Duarte Vitória and Raquel Elen Barcelos. Secretary: , Priscilla Soares Duarte Vitória.
Stock Option Plan Management Committee: Members: Daltro Leite (Coordinator and Human Resources Director), Roberto Antonio Mendes and Rachel Elen Barcelos. Secretary: Fábio Alexandre Dias dos Santos.
Executive Board
According to the Company's Bylaws, The Executive Board shall be comprised of, at least, 4 (four) and no more than 6 (six) Executive Officers, shareholders or not, all resident in Brazil, elected by the Board of Directors. Among the Executive Officers, one shall be appointed Chief Executive Officer, one shall be appointed Chief Financial and Investor Relations Officer, one may be appointed Vice Chief Executive Officer, and the others shall be appointed Executive Officers.
The Executive shall hold their position until the first Board of Directors’ meeting which is held one year after their election. When the term ends, the members of the Executive Board shall remain in their positions until the investiture of the new elected members. The members of the Board of Directors shall be vested with their positions by means of the signing of the oath of office registered in appropriate book, observing legal limitations, dismissing any management guarantee. The taking office will be conditioned to previous subscription of the Statement of Consent of Directors, set forth in the New Market Regulation as well as to meeting the applicable legal requirements.
It is the Executive Board’s responsibility the administration of the Company business in general and to practice, for such purpose, all acts which are deemed to be required or convenient, except those that, according to the law or to the present By-laws, are of the competence of the General Meeting or of the Board of Directors. Its powers include the following:
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administrativa (a) administer, manage and oversee the Company's businesses; (b) prepare and implement the budget; (c) annually prepare the Car Purchase Program to Expansion and the Car Purchase Program to Renewal, according to the budget, submitting both to Board of Directors' approval; (d) purchase cars, in the conditions and within the limits of the Car Purchase Program for Expansion and the Car Purchase Program for Renewal approved by the Board of Directors; (e) contract loans and financing within the limits and conditions granted by the Board of Directors; (f) make investments and redeem such investments, grant guarantees to subsidiaries, within the limits and conditions granted by the Board of Directors; (g) ensure compliance with the law and with these Articles of Incorporation, as well as with the decisions taken at General Meetings, at the meetings of the Board of Directors and at its own meetings; and (h) issuanceand approve instructions and internal regulations deemed to be useful or required.
b) date for installing fiscal council, in case this is not a permanent body, and creation of committees
The Company does not have a Supervisory Board installed.
The Company's 4 Internal Committees were created by the Board of Directors in 2007.
At the Board of Directors meeting held on April 25, 2013, were named new members to the Stock Option Plan Management Committee. This committee will aim to manage the Stock Option Plan of Localiza.
c) mechanisms for evaluating performance of each body or committee
Members of the Board of Directors : formal evaluation of the board members is conducted annually.
Executive Officers: The Company conducts individual evaluations of the executive officers based on their attaining targets and their individual performance evaluations.
Members of Committees: the Company has not defined the rules for evaluating the committees.
d) in relation to the executive officers, their individual attributions and powers
Chief Executive Office The Chief Executive Officer is responsible for the following:
Carry out the general supervision of all business of the Company; Supervise the preparation and the implementation of the budget; Coordinate and direct the activities of the other Executive Officers, in their respective areas of competence; Designate any of the Executive Officers for special activities and tasks, irrespective of those they are ordinarily in charge of; and summon, install and preside the meetings of the Executive Board.
Vice Chief Executive Officer
At the Board of Directors meeting held on April 25, 2013, none of the directors received the designation of vice chief executive officer.
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Chief Financial Officer and Investor Relations Officer
The Chief Financial and Investor Relations Officer is responsible for the following:
(a) Coordinate, administer, direct and supervise the Accounting, Financial and Tributary areas of the Company; (b) Be responsible for the consolidation of the budget; (c) Coordinate, administrate, direct and supervise the relations with the capital market; (d) Represent the Company before shareholders, investors, market analysts, the Securities Commission, the Stock Exchanges, the Central Bank of Brazil and other bodies related to the activities conducted in the capital market, in Brazil and abroad; and (e) assist the Chief Executive Officer in the supervision, coordination, direction and administration of the activities and business of the Company, as well as in all tasks the latter assigns to him.
The Company's Investor Relations Department is located in the City of Belo Horizonte, State of Minas Gerais, at Avenida Bernardo Monteiro, 1563. The Executive Officer in charge of this department is Mr. Roberto Antônio Mendes. The department's phone number is (55-31) 3247- 7039 and the e-mail address is [email protected]. The Company's site on the Internet is www.localiza.com
Executive Officers
The Executive Officers are responsible for the following:
(a) Assisting the Chief Executive Office or Vice-President in supervising, coordinating, directing and managing the Company's activities and business, as well as all the tasks entrusted to them.
Representation of the Company in court or before any government departments or federal, state or municipal authorities, as well as autonomous agencies, mixed capital companies and quasigovernmental entities, is the separate responsibility of any Executive Officer.
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administrativa e) mechanisms for evaluating performance of the members of the Board of Directors and Committees and Executive Officers
Members of the Board of Directors: formal evaluation of the board members is conducted annually.
Executive Officers: The Company conducts individual evaluations of the executive officers based on their attaining targets and their individual performance evaluations.
Members of Committees: the Company has not defined the rules for evaluating the committees.
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12.2 - Rules, policies and practices related to general meetings of shareholders
a) Deadlines for call of meeting
According to the Company's Articles of Incorporation, General Meetings of Shareholders will be Annual (ASM) and Special (SGM). ASMs will be held by the fourth month following the end of the fiscal year and EGMs whenever the need for them arises.
General Meetings will be called by the Chairman of the Board of Directors, in the manner and within the terms prescribed by law, and chaired by the Board's Chairman or, in his absence, by the Board's Vice-Chairman or, in his absence, by a shareholder chosen by majority of votes of the shareholders present. The President of the General Meeting is responsible for choosing the shareholder to serve as Secretary to the meeting.
All the documents pertaining to the meeting agenda to be analyzed or discussed at General Meeting will be made available to the Company's shareholders at the Brazilian Mercantile & Future Exchange and São Paulo Stock Exchange (BM&FBovespa S.A.), as well as in the Company's registered offices as from the date of publication of the first call to meeting.
Article 124, paragraph 1, item II, of Law 6404/76, and subsequent amendments, requires that the General Meetings be called with advance notice of at least 15 (fifteen) consecutive days on first call and 8 (eight) consecutive days on second call.
b) powers
According to Company’ Articles of Incorporation, the General Meeting has powers to:
(a) elect and remove the members of the Board of Directors; (b) fix the aggregate compensation of the members of the Board of Directors and of the Executive Board, as well as the compensation of the members of the Fiscal Council, if installed; (c) grant stock dividends and decide on possible grouping and splitting of shares; (d) decide, according to a proposal submitted by the administration, on the destination of the profit of the period and on the distribution of dividends; (e) elect the officer, as well as the Fiscal Council that shall operate in the period of liquidation; (f) select the specialized company responsible for the preparation of the appraisal report of the shares of the Company, in case of cancellation of the registration as a publicly-held company or withdrawal from the New Market, as provided for in Chapter X of these Articles of Incorporation, among the companies indicated by the Board of Directors; and (g) all other duties provided by law.
c) addresses (physical or electronic) at which the documents related to the General Meeting will be available to the shareholders for analysis
The documents related to general meetings can be found at the following electronic addresses: www.localiza.com/ri; www.cvm.gov.br; www.bmfbovespa.com.br
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Alternatively, such documents can be found at the Company's registered offices, as follows:
Avenida Bernardo Monteiro, 1563, Bairro Funcionários, Belo Horizonte, Minas Gerais.
d) identification and administration of conflicts of interests
Company’s Articles of Incorporation provides for the manner in which conflict of interests among shareholders is managed as follows:
Company and its Shareholders, Officers and members of the Fiscal Council undertake to resolve through arbitration with the Market Arbitration Chamber any and all disputes or controversies that may arise between them related to or, especially, arising from the application, validity, effectiveness, interpretation, violation and the effects thereof, of the provisions contained in Law 6404/76, in the Company's Articles of Incorporation, in the rules published by the Brazilian Monetary Council (CMN), Central Bank (BACEN) and Securities Commission (CVM), as well as in the other rules applicable to the functioning of the Brazilian capital markets in general, besides those contained in the New Market Regulation, Arbitration Rules, Listing Regulations and Agreement for Participation in the New Market.
The Brazilian laws will be the only ones applicable to the merits of any and all controversies, as well as to the enforcement, interpretation and validity of this arbitration clause. The arbitration proceedings will take place in the City of São Paulo, State of São Paulo, place where the arbitration award will be rendered. The arbitration proceedings will be administered by the Market Arbitration Chamber itself, and conducted and decided in accordance with the pertinent provisions of the Arbitration Regulations.
The Board of Directors approved in May 2012 the policy of operations with Related Parties, aiming to establish the procedures to be followed by the Company and its subsidiaries, in transactions with related parties and in situations with potential conflict of interests and with the objective of ensuring Company’s interests, in accordance with Corporate Governance best practice.
e) request of proxies for the exercise of voting by management
The Company allows votes to be cast at shareholders' meetings on a proxy basis, provided that the representative is validly constituted and the proxy is accompanied by voting instructions. The proxy holder will have powers limited to participating in the Meeting and voting in accordance with the respective voting instructions.
f) formalities required for acceptance of proxies granted by shareholders, indicating whether the party issuing them allows such documents to be granted by shareholders by electronic means.
The formalities required for acceptance of proxies by the Company are the same ones defined in Law 6404/76 - Article 126, as follows:
"Article 126. Those who are present at the meeting shall prove their capacity as shareholders, according to norms:
I – the owners of registered shares shall present, when required, their legal identity document;
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II - besides their identify document, the owners of book entry shares or shares held in custody according to Article 41 shall, if the articles of incorporation so require, present or deposit in the company's registered offices documentary proof issued by the depository financial institution. (Wording provided by Law 9457 of 1997) III – owners of bearer shares shall present the respective certificates or deposit document according to number II; IV - the owners of book entry shares or shares held in custody according to Article 41 shall, besides the identity document, present or deposit in the Company, if the articles of incorporation so require, documentary proof issued by the depository financial institution.
Paragraph 1 - A shareholder may be represented at the general meeting by a proxy appointed less than 1 (one) year beforehand who is a shareholder, company's officer or attorney; in the case of a publicly-held company, the proxy may also be a financial institution, with the administrator of investment funds being responsible for representing the joint owners thereof.
Paragraph 2 - Without prejudice to such regulations as the Brazilian Securities Commission may lay down, a request for proxy vote made by means of mail or published announcement shall meet the following requirements:
a) contain all the informative elements required for exercising the proxy vote requested; b) allow the shareholder the exercise of a dissenting vote with indication of another proxy to exercise such vote; c) be addressed to all the shareholders whose addresses are on record at the company. (Wording provided by Law 9457 of 1997)
Paragraph 3 - It is permitted for any shareholder that holds shares with or without voting rights representing at least half of one per cent of the capital to request a list of addresses of shareholders for the purposes set out in paragraph 1 above, always provided that the requirements of the preceding paragraph are met. (Wording provided by Law 9457 of 1997)
Paragraph 4 - The legal representatives of shareholders have the capacity to attend the general meeting."
The proxies, original or copies shall be delivered at the Company’s registered office at the beginning of the General Meetings. Proxies granted through electronic means are not accepted.
In order to facilitate the participation, the Company shall receive a simple copy of the instruments up to 72 hours before the beginning of the General Meetings, through fax, e-mail or mail.
g) maintenance of forums and pages in the internet intended for receiving and sharing comments from shareholders on the General Meetings’ agenda.
Even though the Company does not have forums intended for receiving and sharing shareholders' comments on general meeting agendas, it has a website (www.localiza.com/ri) to receive and share comments by shareholders on any matters.
h) live video and/or audio transmission of General Meetings
The Company does not transmit the General Meetings via live video/audio.
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i) mechanisms aimed at permitting inclusion of proposals made by shareholders on meeting agendas
The Company has not yet adopted a policy or mechanism to permit inclusion of proposals made by shareholders on the agenda of its General Meetings.
(*) The Company does not adopt differentiated practices when compared to deadlines for call of meeting; general meeting powers and mechanisms aimed at allowing the inclusion, in the agenda, of proposals prepared by shareholders, relative to what is provided for in company legislation.
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12.3 - Dates and publication newspapers of information required by Law 6404/76
Fiscal Year Publication Newspaper - State Dates
12/31/2011 Financial Statements Estado de Minas - DO MG - Diario do Comércio MG 03/13/2012 - MG Estado de São Paulo e Valor Economico - SP 03/13/2012
Notice to Shareholders Communicating Availability of Financial Statements DO Minas Gerais - Diário do Comércio - MG 03/15/2012
Valor Econômico - SP 03/15/2012
st Call of Annual General Meeting (AGM) which Assessed Financial Statements DO Minas Gerais - Diário do Comércio – 1 call - MG 03/15/2012
nd DO Minas Gerais - Diário do Comércio – 2 call - MG 03/30/2012
rd DO Minas Gerais - Diário do Comércio – 3 call - MG 04/04/2012
Valor Econômico – 1st call - SP 03/15/2012 Valor Econômico – 2nd call - SP 03/30/2012 Valor Econômico – 3rd call - SP 04/04/2012 Minutes of AGM which Assessed Financial Statements DO Minas Gerais - Diário do Comércio de MG - MG 04/20/2012 Valor Econômico - SP 04/20/2012
12/31/2010 Financial Statements Estado de Minas - DO MG - Diário do Comércio MG 03/04/2011 - MG Valor Econômico - SP 03/04/2011 Notice to Shareholders Communicating Availability of Financial Statements DO Minas Gerais - Diário do Comércio - MG 04/08/2011
Valor Econômico - SP 04/08/2011
st Call of Annual General Meeting (AGM) which Assessed Financial Statements DO Minas Gerais - Diário do Comércio – 1 call - MG 04/08/2011
nd DO Minas Gerais - Diário do Comércio – 2 call - MG 04/14/2011
rd DO Minas Gerais - Diário do Comércio – 3 call - MG 04/19/2011
Valor Econômico – 1st call - SP 04/08/2011 Valor Econômico – 2nd call - SP 04/14/2011 Valor Econômico – 3rd call - SP 04/19/2011 Minutes of AGM which Assessed Financial Statements DO Minas Gerais - Diário do Comércio - MG 04/29/2011 Valor Econômico - SP 04/29/2011
12/31/2009 Financial Statements DO de MG - Diário do Comércio - Estado de Minas 03/03/2010 - MG Valor Econômico - SP 03/03/2010 Notice to Shareholders Communicating Availability of Financial Statements DO Minas Gerais - Diário do Comércio - MG 03/31/2010
Valor Econômico - SP 03/31/2010
st Call of Annual General Meeting (AGM) which Assessed Financial Statements DO Minas Gerais - Diário do Comércio – 1 call - MG 03/31/2010
nd DO Minas Gerais - Diário do Comércio – 2 call - MG 04/15/2010
rd DO Minas Gerais - Diário do Comércio – 3 call - MG 04/21/2010
Valor Econômico – 1st call - SP 03/31/2010 Valor Econômico – 2nd call - SP 04/15/2010 Valor Econômico – 3rd call - SP 04/22/2010 Minutes of AGM which Assessed Financial Statements Diário do Comércio - MG 04/30/2010 Diário Oficial de Minas Gerais - MG 05/04/2010 Valor Econômico - SP 04/30/2010
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12.4 - Rules, policies and practices related to the Board of Directors
a) frequency of the meetings
According to the Company's Articles of Incorporation, the Board of Directors normally meets every 3 (three) months and, on a special basis, whenever necessary, either at the Company's registered offices or at any other location chosen.
For 2012, at least one monthly meeting is scheduled (except in the months of January, February and December).
Directors may participate at meetings by means of conference call or video conference and submit their votes by telex, telegram, facsimile, e-mail or any other written means of communication.
In 2011, 2010 and 2009 the meetings of the Company's Board of Directors were held on the dates indicated below:
2011 2010 2009 02/25/2011 02/26/2010 02/11/2009 03/24/2011 03/25/2010 03/12/2009 04/05/2011 04/27/2010 05/14/2009 04/28/2011 05/20/2010 06/29/2009 05/09/2011 06/24/2010 07/16/2009 05/19/2011 07/22/2010 09/15/2009 06/30/2011 08/19/2010 09/21/2009 07/21/2011 09/03/2010 10/06/2009 08/18/2011 09/23/2010 11/12/2009 08/22/2011 10/21/2010 12/07/2009 09/22/2011 11/25/2010 12/14/2009 10/24/2011 12/22/2010 10/27/2011 11/24/2011 12/15/2011
b) if there are any, provisions of the shareholders' agreement that establish restrictions or links to the exercise of voting rights on the part of board members.
At present there is no shareholders' agreement in effect with respect to the Company.
c) rules for identification and handling of conflicts of interests
Upon identification of potential situations that may constitute conflict of interests, such matters are debated internally by the Company's Board of Directors.
Under the New Market Regulations and Article 40 of its Articles of Incorporation, the Company and its Shareholders, Officers and members of the Audit Committee undertake to resolve through arbitration any and all disputes or controversies that may arise between them related to or, especially, arising from the application, validity, effectiveness, interpretation, violation and the effects thereof, of the provisions contained in Law 6404/76, in the Company's Articles of Incorporation, in the norms published by the Brazilian Monetary Council (CMN), Central Bank (BACEN) and Securities Commission (CVM), as well as in the other norms applicable to the functioning of the Brazilian capital markets in general, besides those contained in the New Market Regulations, Arbitration Regulation Agreement, Penalty Regulations and Agreement for Participation in the New Market.
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12.5 – Description of arbitration clause for resolution of conflicts
Article 40 of its Articles of Incorporation sets forth that the Company itself, its Shareholders, Officers and members of the Audit Committee undertake to resolve through arbitration any and all disputes or controversies that may arise between them related to or, especially, arising from the application, validity, effectiveness, interpretation, violation and the effects thereof, of the provisions contained in Law 6404/76, in the Company's Articles of Incorporation, in the norms published by the Brazilian Monetary Council (CMN), Central Bank (BACEN) and Securities Commission (CVM), as well as in the other norms applicable to the functioning of the Brazilian capital markets in general, besides those contained in the New Market Regulations, Arbitration Regulation Agreement, Penalty Regulations and Agreement for Participation in the New Market.
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12.6 / 8 - Structure and professional experience of management and Audit Committee
Name Age Management Body Date of election Term period CPF Profession Appointed Position Held Took office on Control. Shareholder choice
Other positions held and functions performed at issuer Edmar Vidigal Paiva 38 Belongs only to the Executive Board 04/29/2013 1 year 024.604.426-88 Accountant Executive Officer 05/02/2013 Member of Disclosure Committee Eugênia Maria Rafael de Oliveira 55 Belongs only to the Executive Board 04/29/2013 1 year 385.155.806-59 Administrator Executive Officer 05/02/2013 Member of Ethics and Disclosure Committees Marco Antônio Martins Guimarães 62 Belongs only to the Executive Board 04/29/2013 1 year 079.962.846-87 Administrator Executive Officer 05/02/2013 Member of Ethics and Disclosure Committees Roberto Antônio Mendes 59 Belongs only to the Executive Board 04/29/2013 1 year 137.768.946-87 Administrator and Accountant 12 – Officer of Relations with Investors 05/02/2013
CFO, Coordinator of Disclosure Committee and Member of the Stock Option Plan Management Committee Bruno Moreira de Andrade 52 Belongs only to the Executive Board 04/29/2013 1 year 371.804.286-04 Engineer Executive Officer 05/02/2013 Member of Disclosure Committee Antônio Cláudio Brandão Resende 66 Belongs only to Board of Directors 04/29/2013 2 years 076.364.666-00 Administrator 21 – Vice-President of Board of Directors 04/29/2013 No Member of People Management Committee Flávio Brandão Resende 59 Belongs only to Board of Directors 04/29/2013 2 years 186.119.316-53 Engineer 22 – Board of Directors (Sitting member) 04/29/2013 No Member of Audit and Risk Management Committee José Galló 61 Belongs only to Board of Directors 04/29/2013 2 years 032.767.670-15 Business Administrator 27 – Independent member of Board(Sitting member) 04/29/2013 No Member of People Management Committee Maria Letícia de Freitas Costa 53 Belongs only to Board of Directors 04/29/2013 2 years 050.932.788-58 Engineer 27 – Independent member of Board(Sitting member) 04/29/2013 No Member of People Management Committee Oscar de Paula Bernardes Neto 66 Belongs only to Board of Directors 04/29/2013 2 years 037.057.307-20 Chemist 27 – Independent member of Board(Sitting member) 04/29/2013 No Member of Audit and Risk Management Committee PAGE 184 of 281
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12.6 / 8 - Structure and professional experience of management and Audit Committee Name Age Management Body Date of election Term period
CPF Profession Appointed Position Held Took office on Control. Shareholder choice Other positions held and functions performed at issuer
Stefano Bonfiglio 49 Belongs only to Board of Directors 04/29/2013 2 years
000.000.000-00 Economist 27 - Independent member of Board(Sitting member) 04/29/2013 No Member of Audit and Risk Management Committee Eugênio Pacelli Mattar 60 Belongs to Executive Board and Board of Directors 04/29/2013 2 years 130.057.586-72 Engineer 34 – Director (Sitting member) and Chief Executive Officer 04/29/2013 No
Coodinator Etichs Committee José Salim Mattar Júnior 64 Belongs only to Board of Directors 04/29/2013 2 years 071.823.766-87 Administrator 30 – Chairman 04/29/2013 No
Professional Experience / Declaration of any convictions Edmar Vidigal Paiva - 024.604.426-88 Edmar Paiva is the head of Localiza Rent a Car S.A.’s Controllership department, which also includes the accounting and tax area. He obtained a degree in accounting from the Pontifícia Universidade Católica de Minas Gerais in 1998 and later completed the Corporate Executive MBA program from Fundação Dom Cabral. He also completed the Executive Development program at Fundação Dom Cabral and a graduate program in finance from IBMEC. He has worked as manager in the controllership department at Líder Aviação and as audit manager at Deloitte Touche Tohmatsu. Eugênia Maria Rafael de Oliveira - 385.155.806-59 Ms. Oliveira is an Executive Officer at the Company, which she first joined in 1980. She graduated in business administration from Minas Gerais Pontifical Catholic University (PUC/MG) in 1981 and concluded her postgraduate course in Marketing at UNA in 1985. Ms. Oliveira participated in a management program at Kellogg in 2003.
Marco Antônio Martins Guimarães - 079.962.846-87 Mr. Guimaraes is an Executive Officer at the Company, which he first joined in1990. He graduated in business administration from FUMEC in 1978 and concluded his pos-graduate course in management at Keramik Holding Laufen in Gstaad, Switzerland. in 1988, obtaining a Portable MBA in management in Brazil through Santilli, Schlouchauer & Jucá in 1994. Mr. Guimarães served as officer at Cidamar Industria de Louças S.A. from 1980 to 1986 and at Incepa - Indústria Cerâmica Paraná S.A. from 1986 to 1990. He participated in a management program at Kellogg in 2002. ______Roberto Antônio Mendes - 137.768.946-87 Mr. Mendes is the Chief Financial Officer (CFO) and Investor Relations Officer at the Company, which he first joined in 1985. He graduated in business administration and accounting from Minas Gerais Federal University (UFMG) and began his career at PricewaterhouseCoopers. Later he held the position of controller in companies of the groups Vale do Rio Doce (April 1976 to October 1979) and Mendes Júnior (October 1979 to October 1985).______Bruno Moreira de Andrade - 371.804.286-04 Mr. Andrade is the Company's Executive Officer for Franchising, the division he first joined in 1985. He has a bachelor's degree in Civil Engineering from the Kennedy Engineering School (1983) and further has taken post-graduate courses in Economic Engineering at the Dom Cabral Foundation, Marketing at the UNA University Center and Advanced Franchising Studies at St. Thomas University (Minneapolis, MN - USA). Mr. Andrade began his career at the Company in the area of Relations with Travel Agencies and also served as Branch Manager, Manager for Development of Products and Sales of Semi-New Cars, and International Franchising Manager, and was later appointed as Executive Officer for Franchising, position which he has held since June 2008.
Antônio Cláudio Brandão Resende - 076.364.666-00 Non executive member of the Board In 1973, at the age of 27, Mr. Resende was one of the founders of the Company. Today he is the Board Vice-Chairman, having previously served as the administrative vice-president of the Company and its subsidiaries until July 30, 2008. He graduated in business administration from UNA (1977). When he was 18, he founded Leva e Traz, a delivery firm in Belo Horizonte, Minas Gerais, Brazil.______
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Flávio Brandão Resende - 186.119.316-53 Non executive member of the Board At the age of 20, in 1973, Mr. Resende was one of the Company's founders and today holds 7.10% of its capital. Currently he serves on the Company's Board. He has a degree in civil engineering from the Kennedy Engineering School (1980) ______José Galló - 032.767.670-15 Mr. Gallo is an independent member of the Board. He has a degree in business administration from the Getúlio Vargas Foundation's School of Business Administration (1974), as well as other specialization courses, with emphasis on marketing both in Brazil and overseas. He has served as Chief Executive Officer of Lojas Renner S.A. since March 1999 and member of its board of directors since 1998, having held the position of board chairman between 1999 and 2005 in this chain department store specializing in clothing. He was also a member of the board of directors of Calçados Azaléia S.A. and SLC Agrícola S.A. and of the advisory board of ABN AMRO (Banco Real S.A.).
Maria Letícia de Freitas Costa - 050.932.788-58 Ms. Costa is an independent member of the Company's Board. She has a degree in production engineering from the University of São Paulo's Polytechnic School and received her MBA from Johnson School at Cornell University in the State of New York, USA. She began her professional career as a systems analyst at Indústrias Villares. In 1986 she joined the consulting firm Booz Allen Hamilton, presently Booz & Company, where she served as Vice President in charge of the Industry and Operations area. Ms. Costa is presently a partner of Prada Assessoria, a business consulting firm, and coordinator of the Insper Strategy Center in São Paulo. She is also a member of the advisory board of the private equity FAMA and of the board of directors of Sadia.______Oscar de Paula Bernardes Neto - 037.057.307-20 Mr. Bernardes has been an independent member of the Company's Board since 2007. He previously served as chairman of the advisory board of Telesystem International Wireless (TIW) in Brazil (1999 to 2003) and as CEO of Bunge International (1996 to 1999). Before joining the Bunge Group, he was managing partner of Booz-Allen & Hamilton. He has also been a member of the board of directors of Satipel S.A., RBS Group and Delphi Corporation (USA). At present he is a member of the board of directors in several companies in Brazil and abroad, such as, Companhia Suzano de Papel e Celulose, Gerdau S.A., Metalúrgica Gerdau, Marcopolo, DASA, Praxair Inc. Also a member of Advisory Board of Bunge Brasil, Alcoa Brasil, Amyris (United States), Vanguarda S.A, Davos Participações Ltda and Johnson Electric (Hong-Kong). Stefano Bonfiglio - 000.000.000-00 Mr. Bonfiglio has been an independent member of the Company's Board since 2000. He graduated from Georgetown University (Washington D.C.) in 1985 and pursued an MBA at The Wharton School of the University of Pennsylvania in 1992. From 1985 to 1990, as well as from 1992 to 1994, he worked at Bankers Trust Company, where he undertook activities such as Structured/Acquisition Finance, Mergers & Acquisitions and Private Equity. From 1995 to 2000 he began working for DLJ Merchant Banking, the private equity subsidiary of Donaldson, Lufkin & Jenrette, based in New York and London. Currently, Mr. Bonfiglio lives in London and is founding partner of Stirling Square Capital Partners, a private equity firm specializing in European buy- outs. ______Eugênio Pacelli Mattar - 130.057.586-72 Executive Director. Mr. Mattar is one of the Company's founders and currently holds 7.12% of the capital. He is a member of the Board of Directors and is the Executive Vice-President of the Company and its subsidiaries and has a civil engineering degree from UFMG, where he also completed his pos-graduate course in Economic Engineering in 1976. He further studied General and Financial Administration at the Dom Cabral Foundation.
José Salim Mattar Júnior - 071.823.766-87 Executive Director. In 1973, aged 24, Mr. Mattar was one of the Company's founders and now has a 9.03% stake. He serves as Chairman of the Board of Directors and as CEO of the Company and all its subsidiaries. He graduated in Business Administration from the Minas Gerais Education & Culture Foundation (1976). He was manager of a mining company from 1967 to 1971 and of a supermarket chain from 1971 to 1973, both in Belo Horizonte, Minas Gerais, Brazil.
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12.7 - Structure of statutory committees and of audit and finance committees, and compensation of members
Name Type of committee Position held Profession Date of election Term period
CPF Description of other committees Description of other positions held Age Took office on Other positions held/functions performed at issuer Professional Experience / Declaration of any Convictions Antônio Hiroyuki Hyodo Other Committees Member of Committee (Sitting member) Administrator 04/25/2013 1 year 001.130.098-10 Disclosure Committee 54 04/25/2013 Finance Officer
04/25/2013 Bruno Moreira de Andrade Other Committees Member of Committee (Sitting member) Engineer 1 year 371.804.286-04 Disclosure Committee 52 04/25/2013 Executive Officer
04/25/2013 Daltro Barbosa Leite Júnior Other Committees Member of Committee (Sitting member) Engineer 1 year 103.939.866-91 Ethics Committee, Disclosure Committee and 63 04/25/2013 Stock Option Plan Management Committee Human Resources Officer
Other Committees 04/25/2013 Edmar Vidigal Paiva Member of Committee (Sitting member) Accountant 1 year 024.604.426-88 Disclosure Committee 38 04/25/2013 Executive Officer
04/25/2013 Eugênia Maria Rafael de Oliveira Other Committees Member of Committee (Sitting member) Administrator 1 year 385.155.806-59 Ethics Committee and Disclosure Committee 55 04/25/2013 Executive Officer
04/25/2013 Eugenio Pacelli Mattar Other Committees Member of Committee (Sitting member) Engineer 1 year
130.057.586-72 Ethics Committee and Disclosure Committee 60 04/25/2013
Director and CEO
04/25/2013 João Alberto Manzoni Andrade Other Committees Member of Committee (Sitting member) Administrator 1 year
838.254.106-25 Disclosure Committee 45 04/25/2013 Fleet Rental Division Officer
04/25/2013 José Galló Other Committees Member of Committee (Sitting member) Administrator 1 year
032.767.670-15 People Management Committee 61 04/25/2013
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12.7 - Structure of statutory committees and of audit, finance and compensation committees
Name Type of committee Position held Profession Date of election Term period
CPF Description of other committees Description of other positions held Age Took office on Other positions held/functions performed at issuer Professional Experience / Declaration of any Convictions Independent Director
04/25/2013 Marco Antônio Martins Guimarães Other Committees Member of Committee (Sitting member) Administrator 1 year 079.962.846-87 Ethics Committee and Disclosure Committee 62 04/25/2013 Executive Officer
04/25/2013 Maria Letícia de Freitas Costa Other Committees Member of Committee (Sitting member) Engineer 1 year 050.932.788-58 People Management Committee 53 04/25/2013 Independent Director
04/25/2013 Oscar de Paula Bernardes Neto Other Committees Member of Committee (Sitting member) Chemist 1 year 037.057.307-20 Audit and Risk Management Committee 66 04/25/2013 Independent Director
04/25/2013 Príscilla Soares Duarte Vitória Other Committees Member of Committee (Sitting member) Major in Advertising 1 year 000.800.666-07 Ethics Committee and Disclosure Committee 39 04/25/2013 Communication Manager
04/25/2013 Raquel Elen Barcelos Other Committees Member of Committee (Sitting member) Lawyer 1 year 028.392.806-98 Ethics Committee, Disclosure Committee and 37 04/25/2013 Stock Option Plan Management Committee Legal Counsel
Roberto Antônio Mendes Other Committees Other Administrator and 04/25/2013 1 year Accountant
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12.7 - Structure of statutory committees and of audit, finance and compensation committees
Name Type of committee Position held Profession Date of election Term period CPF Description of other committees Description of other positions held Age Took office on Other positions held/functions performed at issuer Professional Experience / Declaration of any Convictions 137.768.946-87 Ethics Committee , Disclosure Committee 59 04/25/2013 and Stock Option Plan Management Committee Member of Committee (Sitting member)
CFO and Relations with Investors Officer
Nora Mascarenhas Lanari Other Committees Member of Committee (Sitting member) Lawyer 04/25/2013 1 year 011.769.056-27 Disclosure Committee 33 04/25/2013 Investor Relations Manager
Stefano Bonfiglio Other Committees Member of Committee (Sitting member) Economist 04/25/2013 1 year 000.000.000-00 Audit and Risk Management Committee 49 04/25/2013 Independent Director
Cláudio José Zattar Other Committees Member of Committee (Sitting member) Engineer 04/25/2013 1 year 667.552.637-53 Disclosure Committee 52 04/25/2013 Executive Officer
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12.9 - Marital relationships, common-law marriage or kinships up to 2nd degree of officers of issuer, subsidiaries and controlling shareholders
Company name of issuer, subsidiary or controlling Type of kinship with officer of issuer or subsidiary Name CPF shareholder CNPJ Position Officer of issuer or subsidiary José Salim Mattar Júnior 071.823.766-87 Localiza Rent a Car S.A. 16.670.085/0001-55 Brother or sister (1st Degree consanguinity)
Chairman of the Board of Directors.
Related person Eugênio Pacelli Mattar 130.057.586-72 Localiza Rent a Car S.A. 16.670.085/0001-55 CEO of the Company and its subsidiaries
Observation Both are Company founders.
Officer of issuer or subsidiary Antônio Cláudio Brandão Resende 076.364.666-00 Localiza Rent a Car S.A. 16.670.085/0001-55 Brother or sister (1st Degree consanguinity)
Vice-Chairman of the Board of Directors.
Related person Flávio Brandão Resende 186.119.316-53 Localiza Rent a Car S.A. 16.670.085/0001-55 Member of the Board of Directors.
Observation Both are Company founders.
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12.10 - Reporting, service rendering or control relationships among officers and subsidiaries, controlling shareholders and others
Justification for not filling out table:
The Company has had no reporting, service rendering or control relationships in the past 3 fiscal years between its officers and i) any subsidiary direct or indirectly; ii) direct or indirect controlling shareholder, and iii) supplier, customers, debtor or creditor of the Company, its controlling shareholder or subsidiaries of any of such parties.
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12.11 - Agreements, including insurance policies, for payment or reimbursement of expenses borne by officers
As of August 2012, the Company hired “Civil Responsabilities” insurance for its directors and/or officers. The insurance predictes the payment and/or reimbursement of the amounts due or paid to the third parties, by the insurance holders, by the title of damage repair related to the management acts commited by them in the exercise of their responsabilities in the administration of the Company. The current policy provides a coverage of up to R$ 20.0 million and a net premium of total R$ 51.6 thousand.
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Reference Form - 2012 - LOCALIZA RENT A CAR SA Version: 14 12.12 – Other Relevant Information
(i) ABRASCA Code for Self-Regulation and Good Practices for Publicly-Held Companies
In line with best corporate governance practices, Localiza Rent a Car S.A. (the "Company") hereby declares that: (i) on May 30, 2011 it signed on to the Code for Self-Regulation and Good Practices for Publicly-Traded Companies promulgated by the Brazilian Association of Publicly- Held Companies (ABRASCA) - "Código de Autorregulação da ABRASCA" (ABRASCA Self- Regulation Code); and (ii) it is applying the principles and rules established in the ABRASCA Self- Regulation Code.
As determined by the ABRASCA Self-Regulation Code, the Company hereby explains to its shareholders, investors and the market in general the reasons for non-application of certain rules present in the ABRASCA Self-Regulation Code:
Item 2.3.5 of the ABRASCA Self-Regulation Code: the members of the Company's Board of Directors should have sufficient time available for diligent and proactive performance of their powers and duties, it being advisable for them not to serve on more than 5 (five) Boards, excluding, for purposes of calculation of the number of Boards on which members of the Board serve, their participation on the boards of the Company's subsidiaries, associates, parent companies or jointly-controlled entities.
Comments and justifications of the Company's Management: the Company informs that one of its independent members of the Board presently serves as a member of more than 5 (five) boards besides the Company's Board of Directors. The Company understands that this situation does not impact the capacity for analysis, judgment and monitoring of the Company's operations by the member of the Board in question.
Item 8.3 ABRASCA Self-Regulation Code: the disclosure committee shall have, among its attributions: (a) manage Company’s disclosure policy; (b) discuss and recommend disclosure or maintenance of confidentiality of relevant acts and facts and information notices to the market.
Comments and justifications of the Company’ Management: the Company informs that currently, the Internal Regulation of the Disclosure Committee is in a review phase and it shall include as attribution management of Company’s disclosure policy and discuss and and recommend disclosure ou maintenance of confidentiality of relevant acts and facts, and information notices to the market. These activities are presently under Company’s Controllership’s responsibility.
In relation to chapter 5 and 6 of ABRASCA Self-Regulation Code, Company informs:
Chapter 5 of ABRASCA Self-Regulation Code: the Board of Directors approved in May, 2012 internal control and risk management policy and on this date the policy was made available in its website.
Chapter 5 of ABRASCA Self-Regulation Code: the Board of Directors approved in May, 2012 operation policy with Related Parties and on this date the policy was made available in its website. .
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(ii) New Market Listing Regulations
Pursuant to item 4.5 of the New Market Regulations of BM&FBovespa, the following is the list of positions held by the members of the Board of Directors of Localiza Rent a Car S.A. in the: (i) Board of Directors, (ii) Fiscal Council, (iii) Internal Committees and (iv) Management bodies of other companies or entities:
• José Salim Mattar Júnior:
Besides serving as Chairman of the Board of Directors of Localiza Rent a Car S.A., Mr. Salim is also:
o Executive Officer of Locapar Participações e Administração Ltda. o Managing Member of Haras Sahara Ltda. o Managing Member of SM Participações e Administração Ltda. Managing o Member of the Board of Directors of Omni Taxi Aéreo S.A. o Member of BI 2605, SGPS, , single-member company ,LDA, in Lisbon, Portugal
• Antônio Cláudio Brandão Resende
In addition to holding the position of Vice-Chairman of the Board of Directors of Localiza Rent a Car S.A., Mr. Resende also serves as:
o Executive Officer of Locapar Participações e Administração Ltda. o Managing Member of ACBR Participações e Administração Ltda. o Managing Member of Resende Piscicultura e Pecuária Ltda.
• Eugênio Pacelli Mattar
Besides being a member of the Board of Directors and CEO of Localiza Rent a Car S.A. and its subsidiaries, Mr. Mattar is also:
o Executive Officer of Locapar Participações e Administração Ltda. o Chairman of Advisory Council of Junior Achievement de Minas Gerais o Managing Member of EM Participações e Administração Ltda. o Member of the Board of Directors Omni Taxi Aéreo S.A. o Member of BI 2605, SGPS, , single-member company ,LDA, in Lisbon, Portugal
• Flávio Brandão Resende
In addition to serving as a member of the Board of Directors of Localiza Rent a Car S.A., Mr. Resende also holds the following positions:
o Executive Officer of Locapar Participações e Administração Ltda. o Managing Member of FBR Participações e Administração Ltda.
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12.12 – Other Relevant Information
• Maria Letícia de Freitas Costa
Besides being an independent member of the Board of Directors of Localiza Rent a Car S.A., Ms. Costa is also:
o Member of Prada Assessoria o Coordinator of Strategy Research Center of Insper in São Paulo o Member of the Board of Directors of Gafisa o Member of the Board of Directors of Technip (ethics, governance and strategy committee) o Member of the Board of Directors of Marcopolo (strategy committee) o Director of post-graduation lato sensu course of Insper in São Paulo o Executive Officer of Associação dos Engenheiros Automotivos (AEA)
• José Galló
In addition to serving as an independent member of the Board of Directors of Localiza Rent a Car S.A., Mr. Galló is also:
o CEO of Lojas Renner S.A. o Member of the Board of Directors of Lojas Renner S.A. o Member of the Board of Directors of SLC Agrícola S.A.
• Oscar de Paula Bernardes Neto
Besides being an independent member of the Board of Directors of Localiza Rent a Car S.A., Mr. Neto also serves as:
o Member of the Board of Directors and of People Management and Corporate Governance Committees of Gerdau S.A. o Member of the Board of Directors of Metalúrgica Gerdau S.A. o Vice President of Board of Directors and member of Strategy and Human Resources Committees of Marcopolo S.A. o Member of the Board of Directors Audit Committe of Cia. Suzano Papel e Celulose o Member of the Board of Directors and of Finance and Governance Committees of Praxair Inc., in the United States o Member of the Board of Directors and Coordinator of Human Resources Committee of DASA o Member of the Advisory Board of Bunge Brasil o Member of the Advisory Board of Johnson Electric o Member of the Advisory Board of Davos Participações Ltda. o Member of the Advisory Board of Alcoa Brasil o Member of Advisory Council of Amyris, nos Estados Unidos o Member of Strategy Committee of Vanguarda S.A. o Member of the Board of Directors of Omni Taxi Aéreo S.A.
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12.12 – Other Relevant Information
• Stefano Bonfiglio
Besides being an independent member of the Board of Directors of Localiza Rent a Car S.A., Mr. Bonfiglio also serves as:
o CEO and shareholder of Stirling Square Capital Partners, in London
(iii) General Meetings
(AGM = Annual General Meeting; SSM = Special Shareholders’ Meeting)
The meetings held in the past 3 years were:
Fiscal year ended on 12.31.2011 Description Held on Held on 2nd call Quorum AGM/S 04/13 - 61.35% SSM 04/25 Yes 63.00%
Fiscal year ended on 12.31.2010 Description Held on Held on 2nd call Quorum AGM/S 04/29 - 67.39% SSM 10/15 Yes 67.00%
Fiscal year ended on 12.31.2009 Description Held on Held on 2nd call Quorum AGM/S 04/06 - 63.60% SSM 05/05 Sim 66.21% SSM 12/18 - 63.44%
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13.1 - Description of compensation policy or practice, including outside executive board
a) Objectives of compensation policy and practice
The overall compensation of the members of the Company's Board of Directors and Executive Board is set by the General Meeting of Shareholders, with the Board of Directors being responsible for setting the individual amounts of such compensation, as provided for in the Company's Articles of Incorporation. Board members who accumulate positions as executive officers do not receive compensation as Board members.
The Company's compensation practice is aimed at recognizing the performance of executives and adding value for shareholders. The practice adopted for annual compensation is in line with the Brazilian executive market. Salary studies are carried out periodically in order to evaluate the competitiveness of the Company's compensation when compared to the market.
The benefits offered by the Company are the conventional ones and are compatible with market practices, as per the survey conducted by the Hay Group, a specialized consulting firm that is well regarded in the market.
b) Structure of compensation
i) Description of compensation elements and their objectives:
Board of Directors:
Fixed compensation: Compensation paid monthly (12 installments per year). The definition of the amounts is in line with market practices and the objective is to pay for the services performed by each member within the scope of responsibility attributed to the Company's Board of Directors.
Positions of the Executive Board in the Articles of Incorporation :
Compensation for work: Fixed compensation paid monthly (12 installments per year), defined based on market practices and adjusted annually based on results obtained in salary surveys so as to maintain external competitiveness. The objective of such fixed compensation is to pay for the services of officers within the scope of the responsibility attributed to each one of them in the management of the Company.
Variable Compensation: The objective of the variable compensation paid to Executive Board is to recognize the officer’s contribution to the Company's result for the year. The annual amount payable is defined by the combination of the Company's results and individual performance, measured based on indicators and measurable goals derived from the management contract and annual budget approved by the Board of Directors.
Long-term compensation: The Company offers its officers a stock option program in order to retain them and create long-term vision in the decision-making process, as well as to add value to the Company by aligning interests between the Company, investors and officers.
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Benefits: The benefit package includes medical and dental coverage plan, health check-ups and subsidized meals. Each officer is also entitled to use a car with fuel included designated by Company.
Private Pension Plan: In August, 2001, Company began to sponsor complementary retirement plan, through a complementary pension plan managed by a large-sized independent pension management company.
The complementary pension plan was established as “defined contribution”, thus there being no actuarial and investment risk to be taken on by Company as sponsor. Consequently, there is no need for actuarial risk assessments and there is no possibility of actuarial gain or loss. According to this plan’s regulation, the costing is equally shared, the Company’s portion is equivalent to the officer’s, which is 5% of their compensation.
Position of Executive Board (CLT – Consolidation of Labor Laws in Brazil):
Fixed compensation: The values monthly paid are aligned with the market practice. Position and salary structure reflects Company’s positioning when compared to the compensation in the market in order to maintain external competitivity. The fixed compensation aims to compensate officers for their services within the scope of responsibility attributed to each one of them in Company’s management.
Variable compensation: Company has a profit sharing program according to Law 10101/2000 and aims to recognize officer’s contribution in the generation of Company’s result in the year. The annual amount payable is defined by the combination of the Company's results and individual performance, measured based on indicators and measurable goals derived from the management contract and annual budget approved by the Board of Directors.
Long-term compensation: The Company offers its officers a stock option program in order to retain them and create long-term vision in the decision-making process, as well as to add value to the Company by aligning interests between the Company and investors.
Benefits: The benefit package includes medical and dental coverage plan, health check-ups and subsidized meals. Each officer is also entitled to use a car with fuel included designated by Company.
Private Pension Plan: In August, 2001, Company began to sponsor complementary retirement plan, through a complementary pension plan managed by a large-sized independent pension management company.
The complementary pension plan was established as “defined contribution”, thus there being no actuarial and investment risk to be taken on by Company as sponsor. Consequently, there is no need for actuarial risk assessments and there is no possibility of actuarial gain or loss. According to this plan’s regulation, the costing is equally-shared, the Company’s portion is equivalent to the officer’s, which is 5% of their compensation.
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Committees:
Non-executive directors who participate in the committees as members or coordinators receive additional amounts of 25% and 50%, respectively, of their basic monthly compensation.
ii) Proportion of each element in total compensation:
In 2011, the proportion of each element in total compensation was:
Body Board of Officers in the Officers outside Directors Executive Board the Executive Board Fixed compensation: Salaries - - 55% Fees 100% 39% - Benefits 0% 3% 5% Variable compensation - 58% 40% Total 100% 100% 100%
iii) Methodology of calculation and adjustments of the elements of compensation:
Each year the Company evaluates the growth of the executive compensation market, as surveyed by an independent consulting firm that operates internationally and specializes in compensation. The adjustment index adopted reflects the assessed percentage growth by means of a study named “Top Executive Compensation” performed by HayGroup.
The overall amount of the fees to be paid to the members of the Board of Directors and Officers in the Executive Board is defined by the General Meeting of Shareholders.
iv) Reasons that justify structure of compensation:
The structure of the compensation is aligned with the Company's strategy of compensating its executives according to the responsibilities of their position and market practices, rewarding them for attaining or exceeding the goals and objectives defined, thus ensuring the retention of the executives responsible for the Company's results and growth.
c) Main performance indicators that are taken into consideration in determining each element of the compensation
The main performance indicators considered in determining the compensation of the Company's executives are financial aspects (profit and EBIT) and the growth of consolidated business.
d) Structure of the compensation to reflect the evolution of the performance indicators
Company has a culture focused on the attaining or exceeding goals and objectives defined in the annual planning, so as to permit its sustainable growth and profitability. Company adopts systematic monitoring of the budget and annual target plan and the compensation reflects consistency between individual results generated by officers and employees and those achieved by Company.
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e) Relation between compensation policy or practice and Company’s short, medium and long- term interests.
The compensation practice adopted by Company, which is conditioned to the achievement of the goals and objectives defined in the budget and annual target plan, is aligned with Company's short, medium and long-term interests of retaining executives, ensuring an assertive decision- making process when compared to business and also valuation, growth and perpetuity of Company with return for shareholders.
f) Compensation supported by subsidiaries or direct or indirect controlling shareholders There is no payment of compensation that is supported by subsidiaries as at December 31, 2011, 2010 and 2009.
g) Compensation or benefits linked to the occurence of corporate events
There is no compensation and there are no benefits linked to the occurrence of corporate events as at December 31, 2011, 2010 and 2009.
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13.2 – Total compensation of the board of directors, executive officers and audit committee
Total compensation provided for the current Fiscal Year 12/31/2012 – Annual Values Board of Directors Executive Board Fiscal Council Total No. of members 8.00 6.00 14.00 Annual Fixed Compensation Salary or compensation for work 2,529,068.50 7,067,409.55 9,596,478.05 Direct and indirect benefits 0,00 3.033.736,50 3,033,736.50 Participations in committees 181,125.00 0.00 181,125.00 Other 0.00 0.00 0.00 Description of other Not applicable. Not applicable. fixed compensation
Variable compensation Bonus 0.00 7,913,885.37 7.913.885,37 Profit sharing 0.00 3,910,119.84 3.910.119,84 Participation in meetings 0.00 0.00 0.00 Commissions 0.00 0.00 0.00 Other 0.00 0.00 0.00 Description of other Not applicable. Not applicable. variable compensations
Post-employment benefits 0.00 0.00 0.00 Elimination of position 0.00 0.00 0.00 Based on shares 0.00 0.00 0.00 Observation The number of members was calculated The number of members was based on the quantity of Board members calculated based on the quantity calculated each month. of Executive Board members calculated each month.See item 13.12 for the explanation of the variation of the line of directs and indirects benefits. Total compensation 2,710,193.50 21,925,151.26 24,635,344.76
Total compensation of Fiscal Year on 12/31/2011 – Annual Values Board of Directors Executive Board Fiscal Council Total No. of members 9.00 6.00 15.00 Annual Fixed Compensation Salary or compensation for work 2,199,190.00 6,676,002.73 8,875,192.73 Direct and inderect benefits 0.00 445,240.61 445,240.61 Participations in committees 157,500.00 0.00 157,500.00 Other 0.00 0.00 0.00
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Description of other fixed Not applicable. compensations
Variable compensation Bonus 0.00 7,231,899.44 7,231,899.44 Profit sharing 0.00 2,547,534.12 2,547,534.12 Participation in meetings 0.00 0.00 0.00 Commissions 0.00 0.00 0.00 Other 0.00 0.00 0.00 Description of other Not applicable. variable compensations
Post-employment benefits 0.00 0.00 0,00 Elimination of position 0.00 0.00 0,00 Based on shares 0.00 0.00 0,00 Observation The number of members was calculated The number of members was based on the quantity of Board members calculated based on the quantity calculated each month. of Executive Board members calculated each month.
Total compensation 2,356,690.00 16,900,676.90 19,257,366.90
Total compensation of Fiscal Year on 12/31/2010 – Annual Values Board of Directors Executive Board Fiscal Council Total No. of members 9.00 5.75 14.75 Annual Fixed Compensation Salary or compensation for work 1,750,056.00 5,227,553.00 6,977,609.00 Direct and indirect benefits 157,500.00 283,050.00 440,550.00 Participations in committees 0.00 0.00 0.00 Other 0.00 0.00 0.00 Description of other Not applicable Not applicable fixed compensations
Variable compensation Bonus 0.00 7,535,825.00 7,535,825.00 Profit sharing 0.00 0.00 0.00 Participation in meetings 0.00 0.00 0.00 Commissions 0.00 0.00 0.00 Other 0.00 0.00 0.00
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Description of other Not applicable Not applicable variable compensations
Post-employment benefits 0.00 0.00 0,00 Elimination of position 0.00 0.00 0,00 Based on shares 0.00 0.00 0,00 Observation The number of members was calculated The number of members was based on the quantity of Board members calculated based on the quantity calculated each month. of Executive Board members calculated each month.
Total compensation 1,907,556.00 13,046,428.00 14,953,984.00
Total compensation of Fiscal Year on 12/31/2009 – Annual Values Board of Directors Executive Board Fiscal Council Total No. of members 8.00 5.17 13.17 Annual Fixed Compensation Salary or compensation for work 900,000.00 3,853,931.76 4,753,931.76 Direct and indirect benefits 151,200.00 249,100.00 400,300.00 Participations in committees 0.00 0.00 0.00 Other 0.00 0.00 0.00 Description of other Not applicable Not applicable fixed compensation
Variable compensation Bonus 0.00 4,540,532.22 4,540,532.22 Profit sharing 0.00 0.00 0.00 Participation in meetings 0.00 0.00 0.00 Commissions 0.00 0.00 0.00 Other 0.00 0.00 0.00 Description of other Not applicable Not applicable variable compensations
Post-employment benefits 0.00 0.00 0.00 Elimination of position 0.00 0.00 0.00 Based on shares 0.00 0.00 0.00 Observation The number of members was calculated The number of members was based on the quantity of Board members calculated based on the quantity calculated each month. of Executive Board members calculated each month.
Total compensation 1,051,200.00 8,643,563.98 9,694,763.98
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13.3 – Variable compensation of the board of directors, executive board and audit committee
a. Body
Board of Directors: do not receive variable compensation, only fees as defined in item 13.2.
Fiscal Council: not established in 2011, 2010 and 2009.
Executive Board: receive variable compensation, see table below:
In BRL Executive Board Forecasted Variable compensation 2009 2010 2011 2012
a. number of members 5.75 6.00 6.00 6.00 b. in relation to bonus: i. minimum amount forecast in compensation plan 2,270,266 2,894,836 5,863,286 3,236,110 ii. maximum amount forecast in compensation plan 5,902,691 7,535,825 11,896,575 7,913,885 iii. amount forecast in compensation plan if set goals are attained 4,540,532 5,789,671 9,626,573 6,472,219 iv. amount effectively recorded in the results of the past 3 fiscal years 4,540,532 5,789,671 11,674,804 - c. in relation to profit sharing: - - - - i. minimum amount forecast in compensation plan - - - 1,470,501 ii. maximum amount forecast in compensation plan - - - 3,323,303 iii. amount forecast in compensation plan - - - 2,941,002 iv. effectively recorded in the results of the past 3 fiscal years - - - -
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13.4 – Share-based compensation plan for members of the board of directors and executive board
a. General terms and conditions
3rd Stock option plan
The program shall consists of offering Stock option (RENT3) of the Company to officers and managers .
It is a condition to participate in the Program, the investment of one portion of the profit sharing or annual bonus received in the stock purchase (RENT3).
This portion shall be equivalent to 25% or 50% of the net amount received (deducing withholding income tax) for stock purchase.
Company shall define annually, in each Program, matching in stock option, according to the correlation proposed for 2012 Program:
For each 1(one) invested Eligible stock - 2012 Officers in the Executive Board investida ‐ 2012 Officers outside the Executive Board Up to 4.0 options granted Top Management
Each year of effectiveness, a matching in stock option shall be created for each share purchased by the People Management Committee and submitted to the Board of Directors for approval.
It is the Board of Directors’ exclusive responsibility to decide on the opportunity and convenience of issuanceof the Programs in each year of effectiveness.
Company through its People Management Committee, elected by the Board of Directors, shall inform those eligible the matching offered of Stock options. The eligible ones shall be responsible for signing a Participation Agreement and Stock Option Offer Agreement in order to accept the offer, in which they declare being aware of the rules and risks, and formalize the acceptance and interest in participating in the Program.
2nd Stock Option Plan
The Stock Option Plan (“Option Plan”) approved at Special Shareholders’ Meeting on April 26, 2006 offers to its eligible employees and officers, except members of the Board of Directors, the opportunity to purchase Company shares (RENT3), at predefined quantity, price and term, aiming at incentivating contribution in favor of the Company’s interests and objectives and, consequently, its shareholders as well as retaining them.
The plan sets that stock options offers has to be made in 5 (five) annual Programs, the first one beginning in 2007 and the last one in 2011.
b. Main objectives of the plan
The objectives of the 3rd and 2nd stock option plan are as follows: 1. aligning the interests of eligible employees with those of the Company's shareholders; 2. attracting and retaining executives; and 3.fostering a long-term view in the decision-making process.
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13.4 - Share-based compensation plan for the board of directors and executive board
c. Manner in which plans contribute to these objectives
The Stock Option Plan is part the strategy of long-term incentives aimed at generating consistent results over the course of the years.
Eligible employees are encouraged to remain at the Company aimed at future gains, based on the appreciation of shares on the market as a result of the profits achieved and short and medium terms.
Such involvement of eligible employees in the Company's success stimulates shareholder’s behaviour constantly strive for enhanced efficiency and better results, contributing with decisions capable of generating consistent and sustainable results.
d. Manner in which plans fit in issuer’s compensation policy
This stock option plan does not represent compensation by the issuer paid to eligible officers and employees, but it may represent a capital gain for them, depending on the difference between the predefined price for purchase of the share and the value of the share (RENT3) on the market at the date on which they decide to sell.
e. How plans align with officers’ and issuer’s interests in the short, medium and long-term.
The plan aligns such interests as it encourages a long-term view, sense of belonging and commitment to achievement of the Company's objectives by the officers, permitting growth with profitability and appreciation of the share in the market.
f. Maximum number of shares comprised
3rd Stock option plan
The Stock Option Plan shall have annual programs and the number of stock options granted foreseen for the programs of 5 years shall not exceed 2.5% of the total number of Company’s shares.
The 2012 program granted 616,484 stock options to the eligible employees.
2nd Stock option plan
The Stock Option Plan is divided into five individual and annual programs, and the number of shares comprised by the programs shall be 4,500,000 shares.
g. Maximum number of shares granted
3rd Stock option plan
The maximum number of stock options, per program, to be granted shall take into consideration the amount invested in shares by eligible officer or employee, not exceeding the limit of the multiple defined by the Company per program.
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13.4 - Share-based compensation plan for the board of directors and executive board
2nd Stock option plan
The Stock Option Plan is divided into five individual annual programs, and the maximum number of options to be granted will be 4,500,000 options which correspond to 4,500,000 shares.
h. Condition for acquisitions of shares
3rd Stock option plan
The acquision of shares at prefixed price may be in total or partial quantity of the offered options, obeying the deadline to exercise the call option.
In order to be able to exercise the call option right the eligible officers and employees shall:
1‐ Invest 25% or 50% of net value of annual bonus in shares (RENT3) of the Company; 2‐ Keep the acquired shares (item 1) inalienable until the compliance with vesting period to exercise stock option corresponding to 3 years; 3‐ Comply with the vesting period to exercise stock options; 4‐ Formalize the participation in the program on the date of the grant; 5‐ Maintain the employment relation or term of office on the date in which the stock options become exercisable or be retired at the age of 65; 6‐ Exercise fully or partially the right of call option within 3 (three) years at the most, as from the end of the vesting period (item 2); and 7‐ Pay in cash upon subscription or purchase of shares.
2nd Stock option plan
In order to exercise a call option, eligible officers or employees shall:
1.Formally adhere to the program at the grant date; 2.Fulfill the vesting period for exercising their options; 3.Maintain their employment relationship or term of office up to the date at which the options become exercisable or they retire at the age of 65; and 4.Make payment in cash upon subscription or purchase of the shares.
Acquisition of shares directly from the Company at the predefined price may be in either the total quantity of the options received or in a partial quantity, obeying the deadline for exercising the call option.
i. Criteria for establishing acquisition or exercise price
3rd Stock option plan
The Value of the Share, to be acquired by the Beneficiaries as a result of the exercise of the Option, shall be calculated based on the average price of RENT3 quotation weighted by the negotiated volume, at the closing of the past 40 (forty) tradings at BM&FBOVESPA, previous to the date of the payment of the profit sharing.
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13.4 - Share-based compensation plan for the board of directors and executive board
2nd Stock option plan
The setting of the grant price for the options is carried out by reference to the quotation of the RENT3 share at BM&FBovespa S.A at the closing of the year prior to the grant date, plus the projected annual inflation, with the prices for exercise of the options being set as from April of each year, as approved by the Board of Directors.
j. Criteria for setting the exercise period
3rd Stock option plan The proposal for setting the exercise period is as follows:
Percentage of Options Released Vesting period for Exercise (as from Stock Option grant) 100% As from third anniversary
2nd Stock option plan
The criteria for setting the exercise period are as follows:
Percentage of Options Released Vesting period for Exercise (as from Stock Option grant) As from third anniversary to the exercise limit date, defined by 25% Board of Directors. As from fourth anniversary to the exercise limit date, defined 25% by Board of Directors. As from fifth anniversary to the exercise limit date, defined by 25% Board of Directors. As from sixth anniversary to the exercise limit date, defined by 25% Board of Directors.
k. Settlement structure
3rd Stock option plan
The payment upon exercise of stock option shall take place as follows:
1‐ Cash with eligible employee’s own funds:
2‐ In installments, with maturity on the first business day after the financial settlement of the share sale transaction (after exercise of the stock option), through issuanceof a promissory note in full payment. Only for officers, employees currently working and employees at mandatory retirement age (65 years old).
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13.4 - Share-based compensation plan for the board of directors and executive board
nd 2 Stock option plan
The payment upon exercise of stock option shall take place as follows:
1‐ Cash with own funds; or
2‐ In installments, with maturity on the first business day after the financial settlement of the share sale transaction (after exercise of the stock option), through issuanceof a promissory note in full payment.
l. Restrictions on transfer of shares
2nd and 3rd Stock option plan
The eligible employees shall have the right to, and be considered owner of, the shares as from the time he or she exercises his/her right through formal purchase and/or subscription and paying in of the shares. The following restrictions shall be applied to the Options:
- the Options are granted on a highly personal basis and may not be encumbered or transferred; - the eligible employee undertakes not to encumber the Options and not to put any kind of lien on them; and - the Options are non-pledgeable and may not be used as bond or pledge in any manner whatsoever.
In the case of death of an eligible employee, all the options not yet released for exercise become exercisable in advance and the Option will be extended to their heirs and successors based on legal succession or by testamentary provision for a non-extendable period of 36 (thirty-six) months counting from the date of death or up to the end of the term for exercise of the options if there is a remaining period of less than 36 (thirty-six) months, with the options to be exercised in whole or in part by the Beneficiary’s heirs or successors by means of cash payment.
In the event of a permanent disability, the options may be exercised in advance, in whole or in part, or within the original period for a non-extendable period of 36 (thirty-six) months counting from the date of communication from the INSS (Brazilian Social Security Institute) or up to the end of the term for exercise of the options by means of cash payment.
m. Criteria and events, when verified, will give suspension, alteration or extinction of the plans
• Alteration of plans
The Company's stock option plan determines that, in the event of corporate reorganization or transfer of control, the plan will be altered so as to adjust such modifications to the Options not exercised by their beneficiaries.
• Extinction or suspension
The Company’s Stock option plans set forth that, in case of legal alteration in the Brazilian Corporation regulation, they may be suspended or extinct, at the Board of Directors’ discretion.
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13.4 - Share-based compensation plan for the board of directors and executive board
n. Effects of officers leaving Company on their rights provided for in shared-based compensation plan
3rd Stock option plan
Eligible officers or employees will not have any rights to exercise their Options in the event they are dismissed with cause.
In the event of dismissal at the Company's initiative for any reason, except with cause aforementioned, all Options that are not yet released for exercise may not be exercised. Nonetheless, it will be up to the owners of such options to exercise the Options already exercisable on the dismissal date within a non-extendable period of 30 (thirty) days counting from the dismissal date. The Company's Board of Directors may extend this period when such measure is justified by specific circumstances of the case.
In the event of resignation at the initiative of the eligible employee, only the Options released for exercise may be exercised within a non-extendable period of 30 (thirty) days as from the Resignation date.
In the event of mandatory retirement due to Beneficiary’s age (65) all the granted options shall become exercisable within a non-extendable period of 36 (thirty-six) months or up to the end of the exercise period, fully or partially, by means of cash payment.
2nd Stock option plan
The eligible officers or employees will not have any rights to exercise their Options in the event they are dismissed with cause.
In the event of dismissal at the Company's initiative for any reason, except with cause aforementioned, all Options that are not yet released for exercise may not be exercised. Nonetheless, it will be up to the owners of such options to exercise the Options already exercisable on the dismissal date within a non-extendable period of 90 (ninety) days counting from the dismissal date. The Company's Board of Directors may extend this period when such measure is justified by specific circumstances of the case.
In the event of resignation at the initiative of the eligible employee, only the Options released for exercise may be exercised within a non-extendable period of 30 (thirty) days as from the Resignation date.
At the Special Employment Termination of Participants at the age of 65, all granted options released for exercise or those not yet released shall become exercisable within a period of 36 months from the employment termination date or until the end of the period for exercising the Options, whichever occurs first, by means of cash payment, and the effects of this proposal shall retroact when compared to the Programs of 2007, 2008, 2009, 2010 and 2011 for the Participants who were part of the Company’s list of employees and officers on 05/24/09 and from this date on.
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13.5 – Interests in shares, membership units and other convertible securities held by officers and members of the fiscal council – by body
Share interest of Controlling Shareholders, members of the Board of Directors and Executive Office in Localiza Rent a Car S.A.’s capital is as follows:
Position on December 31, 2011 Group and related parties Shares directly held Shares indirectly held Controlling Shareholders 68,129,621 No record Board of Directors 58,125 No record Executive Officer 170,700 (*) No record
(*) Does not include 12,517 shares held by executive board officers (non – statutory).
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13.6 – Share-based compensation of board of directors and executive board
The Board of Directors: does not participate in the Stock Option Program.
3rd Stock option plan
Share-based compensation Executive Office 2012 Number of members 6 i. date of grant ‐ Board of Directors’ Meeting April/2012 ii. quantity of granted options 505,712 iii. deadline for options to become exercisable 100% ‐ 05/01/2015 iv. maximum deadline for the exercise of the options 05/01/2018 v. period of restriction for share transfer From 3 years to 6 years vi. weighted average price outstanding at the beginning of fiscal year BRL33.28 lost during fiscal year ‐ exercised during fiscal year ‐ expired during fiscal year ‐ fair value of options in the exercise of the grant (*) Potential dilution in the event of exercising all granted options (programs 0.25% (*****) from 2007 to 2011)
2nd Stock option plan
Share-based compensation Executive Board 2009 2010 2011 Number of members 6 6 6 i. date of grant ‐ Board of Directors’ Meeting 09/15/2009 05/20/2010 04/28/2011
ii. quantity of granted options 359,089 363,233 440,515 25% ‐ 04/01/12 25% ‐ 04/01/13 25% ‐ 03/01/14 iii. deadline for options to become 25% ‐ 04/01/13 25% ‐ 04/01/14 25% ‐ 03/01/15 exercisable 25% ‐ 04/01/14 25% ‐ 04/01/15 25% ‐ 03/01/16 25% ‐ 04/01/15 25% ‐ 04/01/16 25% ‐ 03/01/17 iv. maximum deadline for option exercise 04/30/2016 04/30/2017 04/30/2018 v. period of restriction for share transfer Not applicable Not applicable Not applicable vi. weighted average price outstanding at the beginning of fiscal year BRL8.93 (**) BRL24.76 (***) BRL36.63 (****) lost during fiscal year ‐ ‐ ‐ exercised during fiscal year ‐ ‐ ‐ expired during fiscal year ‐ ‐ ‐ fair value of options in the exercise of the grant 12,2 12.1 11.12 Potential dilution in the event of exercising all granted options (programs from 2007 to 2011) 0.18% (*****) 0.18% (*****) 0.22% (*****)
(*) Number not yet available, once volatility has not been calculated
(**) Average weighted price considered: the prices for exercise of the stock options for the 2009 program were predefined at R$8.35 for the options to be exercised up to April 2013; R$8.72 for the options to be exercised up to April 2014; R$9.12 for the options to be exercised up to April 2015; and R$9.53 for options to be exercised up to April 2016.
(***)Average weighted price considered: the prices for exercise of the stock options for the 2010 program were predefined at R$23.15 for the options to be exercised up to April 2014; R$24.19 for the options to be exercised up to April 2015; R$25.28 for the options to be exercised up to April 2016; and R$26.42 for the options to be exercised up to April 2017.
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13.6 – Share-based compensation of board of directors and executive board
(****) Average weighted price considered: the prices for exercise of the stock options for the “Program 2011” are fixed at BRL34.25 for the options to be exercised up to April 2015; BRL35.79 for the options to be exercised up to April 2016; BRL37.40 for the options to be exercised up to April 2017; and BRL39,08 for the options to be exercised up to April 2018.
(*****)The Company may use treasury shares in order to transfer them to program participants.
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13.7 - Information on outstanding options held by members of the board of directors and executive board
Options outstanding at the end of fiscal year ended as at December 31, 2009, 2010 and 2011:
Executive Board Executive Board Executive Board On 12/31/2009 On 12/31/2010 On 12/31/2011 Number of members 6 6 6 Option not yet exercisable Quantity 1,040,610 1,242,817 1,758,526 Date when they become exercisable 1st tranche – program 2007 Mar/10 2nd tranche – program 2007 Mar /11 3rd tranche – program 2007 Mar /12 4th tranche – program 2007 Mar /13 1st tranche – program 2008 Mar /11 2nd tranche – program 2008 Mar /12 3rd tranche – program 2008 Mar /13 4th tranche – program 2008 Mar /14 1st tranche – program 2009 Mar /12 2nd tranche – program 2009 Mar /13 3rd tranche – program 2009 Mar /14 4th tranche – program 2009 Mar /15 1st tranche – program 2010 Mar /13 2nd tranche – program 2010 Mar /14 3rd tranche – program 2010 Mar /15 4th tranche – program 2010 Mar /16 1st tranche – program 2011 Mar /14 2nd tranche – program 2011 Mar /15 3rd tranche – program 2011 Mar /16 4th tranche – program 2011 Mar /17 Maximum deadline for exercise of options Program 2007 Apr/14 Program 2008 Apr/15 Program 2009 Apr/16 Program 2010 Apr/17 Program 2011 Apr/18 Period for restriction of share transfer Not applicable Weighted average price of the exercise aplicável Program 2007 BRL25.23 Program 2008 BRL24.27 Program 2009 BRL8.93 Program 2010 BRL24.76 Program 2011 36.63 Fair value of the options on the last day of fiscal year Program 2007 BRL7.09 Program 2008 BRL0.88 Program 2009 BRL12.21 Program 2010 BRL12.10 Program 2011 BRL11.12 there are no Exercisable on Exercisable on Options exercisable exercisable options 12/31/2010 12/31/2011 on 12/31/2009 exercíveis em 12/31/09 quantity ‐ 74,502 559,325 Maximum deadline for exercise of options ‐ Mar/14 Mar/14 e 15 Period for restriction of share transfer ‐ ‐ ‐
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13.7 - Information on outstanding options held by members of the board of directors and executive board
Weighted average price of the exercise ‐ BRL23.76 BRL23.74 Fair value of the options on the last day of fiscal year ‐ BRL12.10 BRL11.12 Fair value of the total options on the last day of fiscal ‐ BRL901,475 BRL6,219,694 year
The Board of Directors does not participate in the Stock Option Program.
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13.8 - Options exercised and shares granted related to share-based compensation of the members of the board of directors and executive board
The members of the Company's Board of Directors are not eligible to share-based compensation
In 2011 fiscal year options were released for exercise by executive officer, as described below:
Exercised options – fiscal year ended on 12/31/2011 Executive Office Number of members 1 Exercised options Number of shares 43,120 Weighted average exercise price BRL8.35 Difference between exercise value and market value of the shares BRL26.83 relative to the exercised options Shares delivered Number of shares delivered 43,120 Weighted average acquisition price BRL10.32 Difference between acquisition value and market value of acquired BRL15.28 shares
For 2010 and 2009 fiscal years no options were released for the exercise by the executive board.
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13.9 - Information necessary for understanding data disclosed in items 13.6 through 13.8 - Method for pricing the value of shares and options
a) Pricing model
The fair value of the shares and options under the Company's stock option programs has been estimated based on the Black & Scholes options pricing model.
b) Data and assumptions used in the pricing model, including the weighted average price of the shares, exercise price, expected volatility, duration of the option, expected dividends and risk-free rate
nd 2 Stock option plan
Program 2011 2010 2009 2008 2007 Price of shares 26.46 23.99 17.70 5.70 19.68 Risk-free rate 10.21% 10.04% 9.69% 10.93% 8.67% Expected annualized volatility (*) 50.12% 52.34% 55.01% 56.63% 37.60% Expected dividends 0.39% 0.42% 0.45% 0.46% ‐ Duration of program in years 4.4 4.2 4.0 3.8 4.5 Fair value of option on date of grant (BRL/per share) 11.12 12.10 12.21 0.88 7.09
3rd Stock option plan
Number not yet available, once volatility will still be calculated.
c) Method and assumptions adopted to incorporate the expected effects of early exercise
The Stock Option Plan establishes early exercise in the event of permanent disability, death or retirement at the age of 65. The method and assumptions adopted that will be used to incorporate the expected effects of early exercise will be defined for each case by the Board of Directors.
d) Form of determining expected volatility
The annualized expected volatility has been determined based on the historical volatility of the RENT3 shares in capital markets since the Company went public in 2005, discounting dividends paid in each period.
e) Whether any other characteristic of the option has been incorporated in the measurement of its fair value
No other characteristic of the options has been used in the measurement of the fair value beyond those disclosed in sub-item (b) above.
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13.10 - Information on pension plans granted to the members of the board of directors and executive board
In August, 2011, Company began sponsoring a complementary retirement benefit plan, through a complementary pension plan managed by a large-sized independent pension management company.
The complementary pension plan was established as “defined contribution”, thus there being no actuarial and investment risk to be taken on by Company as sponsor. Consequently, there is no need for actuarial risk assessments and there is no possibility of actuarial gain or loss. According to this plan’s regulation, the costing is equally shared, the Company’s portion is equivalent to the officer’s, which is 5% of their compensation.
Board of Directors Excutive Office Number of members 0 6 Collective Agreement of Open Complementary Pension Plan– PGBL
(Established and Life Name of the plan 0 Insurance with Survival Coverage – VGBL Registered
Quantity of officers with requirements to retire 0 0 Requirements for early retirement 0 0 Accumulated value adjusted of accumulated contributions until the end of fiscal year, discounting installment relative to contributions made directly by the officers 0 134,049.86 Total accumulated value of contributions made during fiscal year, discounting installment relative to contributions made directly by the officers 0 134,049.86 Possibility of early redemption and conditions 0 No
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13.11 - Maximum, minimum and average compensation of the members of the board of directors , executive board and members of the fiscal council
Annual Amounts
Executive Board Board of Directors 12/31/2011 12/31/2010 12/31/2009 12/31/2011 12/31/2010 12/31/2009 Number of members 6.00 5.75 5.17 9.00 9.00 8.00 Maximum 5,395,102.47 4,839,793.00 3,007,630.00 366,670.00 272,508.00 175,200.00 Compensation(BRL) Minimum 879,114.16 699,678.00 773,910.00 314,170.00 272,508.00 175,200.00 Compensation BRL) Average 2,816,779.48 2,268,944.00 1,671,869.24 336,670.00 272,508.00 175,200.00 Compensation(BRL)
Note Executive Office
12/31/2009 In the period from January to May 2009, Company had 4 officers and began to have 6 in the period from June to December 2009. The calculation used criteria defined in the CVM SEP 05/2010 circular letter.
Board of Directors PAGE 212 of 282 12/31/2011 For the calculation of the average remuneration were excluded 2 members, because they have not received as members of the Board, once they have received as Estatutory Directors of the Company. 12/31/2010 Considering that all members of the Board have received the same remuneration, the small value of the remuneration is equal to the largest. For the calculation of the average value of remuneration were excluded 2 members , due to they did not received as Board members, once they have received as Estatutory Directors of the Company. 12/31/2009 Considering that all members of the Board have received the same remuneration, the small value of the remuneration is equal to the largest. For the calculation of the average value of remuneration were excluded 2 members , due to they did not received as Board members, once they have received as Estatutory Directors of the Company.
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13.12 - Mechanisms of compensation or indemnification for management in the event of removal or retirement
As of August 2011, the Company started the sponsorship of a plan for complementation of retirement benefits, through a supplementary pension plan administrated by a large independent managing.
The supplementary pension plan was established in form of “defined contribution”, thus, no actuarial and investment risks to be assumed by the Company as a sponsor. Therefore, there are not necessary actuarial assessments and there is no possibility of gain or losses. In accordance of the rule of this plan, the cost is paritary, and the instalment of the Company equivalent to those made by the employee, which varies according to a scale of contribution based on income ranges from 1% to 5% of their remuneration.
As of July 2012, the Company signed the Term additive of the coletive contract of the supplementary pension plan open PGBL, which will be made additional contributions for statutory directors that have worked for more than 20 continuous years in the Company and that has a few years to retirement. These contributions has as objective compensate for the years prior to the implementation of the pension plan and contributes for the continuity of the services provided by these Directors, to goal that they retire in the Compny and to mitigate the competition risk.The variation presented in the line of Directors’ direct and indirect benefits, when compared to the predicted remuneration values for the social exercise of 2012 in relation to 2011, from the item 3.2, is due to this benefit.
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13.13 - Percentage of total compensation retained by officers and members of the fiscal council who are parties related to the controlling shareholders
There are no members of the Board of Directors or the Executive Office who are parties related to the Controlling Shareholders.
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13.14 - Compensation of management and members of the fiscal council, grouped by body, received for any reason other than for the position they hold
As at December 31, 2009 the amounts recorded in the Company's results related to amounts paid to management for any reason other than the position they hold were as follows:
Nature Board of Executive Office Directors Management consulting services BRL156,000.00 ‐
In 2010 and 2011, Company did not make any payments to Management for any reason other than for the position they hold.
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13.15 - Compensation of management and members of the fiscal council recorded in the results of controlling shareholders, direct and indirect, companies under common control and subsidiaries of the issuer
The following amounts were paid by the Company's wholly-owned subsidiaries in view of the positions held by the executive officers in such subsidiaries:
Fiscal year 2011 (**) – compensation received in In BRL view of position at subsidiary Executive Office Fixed Compensation Variable Compensation Direct and indirect controlling shareholders ‐ ‐ Subsidiaries of the issuer 634,595(*) 631,379(*) Companies under common control ‐ ‐
(*) Refer to fees. (**) In 2011 compensation considered for 1 officer
Fiscal year 2010 (**) – – compensation received In BRL in view of position at subsidiary Executive Office Fixed Compensation Variable Compensation Direct and indirect controlling shareholders ‐ ‐ Subsidiaries of the issuer 667,930 (*) 598,181 (*) Companies under common control ‐ ‐
(*)Refer to fees. (**)In 2010 2 officers were considered.
Fiscal year 2009(**)–compensation received in In BRL view of position at subsidiary Executive Office Fixed Compensation Variable Compensation Direct and indirect controlling shareholders ‐ ‐ Subsidiaries of the issuer 489,562 (*) 515,642 (*) Companies under common control ‐ ‐
(*)Refer to fees. (**) In 2009 3 officers were considered, 2 of them only from April to December.
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13.16 – Other Relevant Information
Amounts related to compensation of Board of Directors and Executive Office (including outside officers) recorded in the Company’s consolidated results as at December 31, 2011.
Consolidated 12/31/11
Compensation of the Board of Directors 2,409 Management and Executive Office: Fees and Compensation 19,342 Social Contributions and Employment charges 3,747 Share-based compensation 4,599 Complementary Pension Plan 163 Total 30,260
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14.1 – Description of Human Resources
a) Number of employees (total, per group based on activity performed and geographic location):
Consolidated 12.31.09 12.31.10 12.31.11 Region Operation Administrative Operation Administrative Operation Administrative Center West 135 19 196 21 239 25 Northeast 481 54 609 63 773 78 North 74 16 117 18 119 14 Southeast 1,646 745 2,102 866 2.351 1.087 South 376 59 479 62 562 56 2,712 893 3,503 1.030 4.044 1.260 Total 3,605 4,533 5,304 Interns 46 24 1
b) Number of outsourced (total, per group based on activity performed and geographic location)
Region Activity 2009 2010 2011 MG Administrative 83 109 125
c) Turnover rate
We calculated Company general turnover rate , considering the following formula:
Turnover = total employment termination / Annual average number of employees in Company’s list
Year 2009 2010 2011
Turnover 19.7% 22.3% 24.4%
d) Exposure of issuer to liabilities and labor contingencies
The Company and its subsidiaries are parties to various labor lawsuits, mainly related to recognition of employment relationships that independent service providers, undertaker or similar parties claim in court and to payment of overtime and the related effects. There is no uniformity in court decisions regarding such matters.
As at December 31, 2009, 2010 and 2011, Company and its subsidiaries recorded the following amounts of provisions, considered sufficient to cover expected losses on the lawsuits in progress:
2009 2010 2011 Balances in BRL thousand 6,732 8,302 12,124
Further details on the labor lawsuits can be found in item 4.6 of this Reference Form.
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14.2 – Relevant Changes – Human Resources
The increase of employees in Company’s list in the past years is due to the growth in Company and its subsidiaries’ operations.
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14.3 – Description of employee compensation policy
a) Salary and variable compensation policy
Recognizing the performance of employees is part of the Company's values. Meritocracy is the means of recognizing, by paying tribute and compensation, those employees who stand out in the performance of their functions.
The basis of the Company's compensation system is made up of fixed salary plus bonuses, besides profit sharing and the long-term incentive program (stock options) granted to certain employees.
The Company uses the Hay System1 job evaluation methodology to maintain internal and external consistency for its human resources policies, recognizing the importance of the position according to the responsibilities and impact on the Company's results.
With the Company's growth, more opportunities are generated by the Company and its subsidiaries. Accordingly, in order to recognize internal talents that stand out and have a pro- active attitude in carrying out their work, the Company seeks, on a preferential basis, to promote its internal employees before going to the market in search of new professionals. In 2011, 382 employees were promoted internally.
The Company conducts annual performance evaluations linked to the payment of profit sharing, aiming to maximize results and better guide each employee.
b) Benefit policy
The Company adopts a benefits package that is consistent with its business and aligned with the standard package offered in the market (medical and dental coverage, subsidized meals, social security, among other benefits).
The objective of the package is to use it as a tool to provide health, well-being and healthy nutrition to employees.
Legend:
¹ Hay System: Methodology of position assessment by Haygroup, which measures the importance and complexity related to expected results from the position.
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14.3 – Description of employee compensation policy
c) Characteristics of share-based compensation plan for employees in non-managerial positions, as follows:
Company has two stock option plans outstanding.
2nd stock option plan
The 2nd plan is subdivided into 5 stock option programs, which grant options for subscription of Company common share to certain executives and employees (eligible employees). In order to be eligible, executives and employees must meet minimum requirements related to length of service rendered to Localiza, or to one of its subsidiaries, ranging from 1 to 2 years, and to performance in the execution of their jobs.
Each of the 5 programs of stock option is divided into 4 annual tranches, and the quantity of options per tranche equal to 25% of the total of options granted for each one of these programs. The vesting period for the eligible employee to be entitled to exercise the option is from 3 to 6 years and the stock options may exercised at any time as from the date of being entitled until the limit date for exercising the option.
3rd stock option plan
The Program shall consist of grant of Company Stock options (RENT3) to officers and managers.
The investment of a portion of the profit sharing or annual bonus received upon purchase of shares (RENT3) is a condition for participating in the Program.
This portion shall be equivalent to 25% or 50% of the net value received (discounting withholding income tax) for purchase of shares.
The Company shall define annually in each Program, a matching in options, according to the proposed correlation for the 2012 Program:
For each 01 (one) share Eligible invested ‐ 2012 Executive Office Executive Office outside Up to 4.0 granted options Top management
At each year of effectiveness, a matching in options for each purchased share will be created by the People Management Committee and submitted to the Board of Directors for approval.
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14.3 – Description of employee compensation policy
(i) Beneficiary groups
2nd and 3rd stock option plan
Those holding positions which belong to the salary class 13 and above, considering attributions, responsibilities and length of service in the Company. The positions included in these classes are: Employed officers, Managers, Supervisors and Analysts.
(ii) Conditions for the exercise
3rd stock option plan
The acquisition of shares at prefixed price may be in total or partial quantity of the offered options, obeying the deadline to exercise the call option.
In order to be able to exercise the call option the eligible officers and employees shall:
1‐ Invest 25% or 50% of net value of annual bonus in shares (RENT3) of the Company; 2‐ Keep the acquired shares (item 1) inalienable until the compliance with vesting period to exercise stock option corresponding to 3 years; 3‐ Comply with the vesting period to exercise stock options; 4‐ Formalize the participation in the program on the date of the grant; 5‐ Maintain the employment relation or term of office on the date in which the stock options become exercisable or have retired at the age of 65; 6‐ Exercise fully or partially the right of call option within 3 (three) years at the most, as from the end of the vesting period (item 2); and 7‐ Pay in cash upon subscription or purchase of shares.
2nd Stock option plan
In order to exercise a call option right, eligible officers or employees shall:
1.Formally adhere to the program at the grant date; 2.Fulfill the vesting period for exercising their options; 3.Maintain their employment relation or term of office up to the date at which the options become exercisable or they retire at the age of 65; and 4.Make payment in cash upon subscription or purchase of the shares.
Acquisition of shares directly from the Company at the predefined price may be in either the total quantity of the options received or in a partial quantity, obeying the deadline for exercising the call option.
(iii) Exercise prices
3rd Stock option plan
The Value of the Share, to be acquired by the Beneficiaries as a result of the exercise of the Option, shall be calculated based on the average price of RENT3 quotation weighted by the negotiated volume, at the closing of the past 40 (forty) tradings at BM&FBOVESPA, previous to the date of the payment of the profit sharing.
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14.3 – Description of employee compensation policy
2nd Stock option plan
The table below summarizes the exercise price of stock options predefined for each annual tranche based on the market value of the share quoted at the closing of the year previous to the date of grant, plus estimate of annual projected inflation, and the values for the exercise are established as from April of each year:
Program 2010 2011 2012 2013 2014 2015 2016 2017 2007 23.76 24.71 25.70 26.73 ‐ ‐ ‐ ‐ 2008 ‐ 22.77 23.74 24.76 25.82 ‐ ‐ ‐ 2009 ‐ ‐ 8.35 8.72 9.12 9.53 ‐ ‐ 2010 ‐ ‐ ‐ 23.15 24.19 25.28 26.42 ‐ 2011 34.25 35.79 37.40 39.08
(iv) Exercise periods
3rd Stock option plan The proposal for setting the exercise period is as follows:
Percentage of Options Released Vesting period for Exercise (as from Stock Option grant) 100% As from third anniversary
2nd Stock option plan
The criteria for setting the exercise period are as follows:
Percentage of Options Released Vesting period for Exercise (as from Stock Option grant) As from third anniversary to the exercise limit date, defined by 25% Board of Directors. As from fourth anniversary to the exercise limit date, defined 25% by Board of Directors. As from fifth anniversary to the exercise limit date, defined by 25% Board of Directors. As from sixth anniversary to the exercise limit date, defined by 25% Board of Directors.
(v) Quantity of shares linked to the plan
3rd Stock option plan
The maximum number of options, per program, to be granted shall take into consideration the value invested in shares by the eligible officer and/or employee, not exceeding the limit of the multiple defined by Company per program.
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14.3 – Description of employee compensation policy
2nd Stock option plan
The Stock Option Plan is divided into five individual annual programs, and the maximum number of options to be granted will be 4,500,000 options which correspond to 4,500,000 shares.
vi) Training
Company invests in training and qualification of employees, which provide a clarified view of the client and with a strong culture focused on the results. In 2011 Company invested BRL6.6 million in training, with a total of 142,273 hours which corresponds to 29 hours per employee.
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14.4 - Description of relationships between issuer and unions
The Company has established a close relationship with trade unions, with mutual respect and trust being a key value in such relations.
The Company complies with the collective labor agreements defined for each location/region where it operates and, in the event of a legal disagreement, it seeks legal support and means to defend its position or interest in question. The Company seeks to abstain from any political party and/or labor union involvement.
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15.1 / 15.2 – Shareholding composition
Shareholder CPF/CNPJ shareholder Nationality- State Party to shareholders’ agreement Controlling shareholder Last amended on Qty. common shares (Units) Common shares % Qty. preferred shares (Units) Preferred shares % Qty. total shares (Units) Total shares % Detailing per class of shares (Units) Class of share Qty. of shares (Units) Shares % Eugênio Pacelli Mattar
130.057.586-72 BR-MG No Yes 09/05/2013
15,107,482 7.133122% 0 0.000000% 15,107,482 7.133122%
José Salim Mattar Júnior
071.823.766-87 No Yes 09/05/2013
18,105,774 8.548790% 0 0.000000% 18,105,774 8.548790%
Antônio Cláudio Brandão Resende
076.364.666-00 BR-MG No Yes 09/05/2013
19,061,406 9.000000% 0 0.000000% 19,061,406 9.000000%
Flávio Brandão Resende
186.119.316-53 BR-MG No Yes 09/05/2013
12,816,031 6.051195% 0 0.000000% 12,816,031 6.051195%
BlackRock Inc
American No No 13/09/2012
10,605,826 5.007628% 0 0.000000% 10,605,826 5.007628%
OTHERS
132,134,322 62.388311% 0 0.000000% 132,134,322 62.388311%
TREASURY SHARES – Last amended on:
3,962,559 1.870954% 0 0.000000% 3,962,559 1.870954%
TOTAL
211,793,400 100.000000% 0 0.000000% 211,793,400 100.000000%
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15.3 – Capital Distribution
Date of last meeting / Date of last April 25, 2012 amendment Quantity of individual shareholders 2,076 (Units) Quantity of corporate shareholders 1,222 (Units) Quantity of institutional shareholders (Units) 89
Outstanding shares
Outstanding shares corresponding to all the issuer's shares, except those held by the controlling shareholder, parties related to shareholder, and those held by officers of the issuer and treasury shares
Quantity of ordinary shares(Units) 132,134,322 62.388311% Quantity of preferred shares (Units) 0 0.000000% Total 132,134,322 62.388311%
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15.4 – Organizational chart of the shareholders
As at May 09, 2013, the organization chart of the group is as follow:
Controlling Shareholders
Antônio Cláudio Eugênio Pacelli Flávio Brandão Salim Mattar BlackRock Inc Free Float Shares in treasury Brandão Resende Mattar Resende
8,55% 9,00% 7,13% 6,05% 5,01% 62,39% 1,87% 18.105.774 (*) 19.061.406 15.107.482 (**) 12.816.031 10.605.826 (***) 132.134.322 3.962.559
LOCALIZA
95% 100% 100% 100% 100% 100% 100% 100% LFI Localiza Franchising Brasil Total Fleet Car Rental Car Assistance Rental International Rental Brasil (Argentina) Serviços Prime
100% 5% LFI TF Assistance (Argentina)
(*) Contemplates 938,730 shares available for rent. (**) Contemplates 71,757 shares available for rent (***) According to the notice received by the Company as of September 17, 2012, and released to the market through to a notice to the market as of September 18, 2012, BlackRock Inc, asset manager headquartered in USA, informed that it reached relevant shareholder position representing more than 5% of ordinary shares issued by Localiza, as of September 13, 2012. The amount of shares was adjusted with the stock dividend.
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15.5 – Shareholders’ agreement filed at issuer’s registered office or to which the controlling shareholder is a party
a) Parties
At present, there is no shareholders’ agreement in force in the Company.
b) date of agreement execution
See sub-item (a) above
c) duration
See sub-item (a) above
d) description of clauses related to exercise of voting right and control power
See sub-item (a) above
e) description of clauses related to the appointment of officers
See sub-item (a) above
f) description of clauses related to transfer of shares and the first refusal right to acquire them
See sub-item (a) above
g) description of clauses which restrict or bind voting right of members of the board of directors
See sub-item (a) above
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15.6 - Material changes in interests held by members of the controlling shareholders group and officers of the issuer
Disposition/acquisition of relevant equity interest
At auction held at BM&FBovespa on October 29, 2010, Company founders sold 12,102,480 shares of Company issue, 3,025,620 shares each, which jointly corresponds to 6.0% of the shareholders’ equity.
On June 25, 2010, at auction held at BM&FBovespa, the Founder, Chairman of the Board of Directors and CEO of Localiza, Mr. José Salim Mattar Junior sold 4,000,000 shares issued by Company, corresponding to 1.9831% of the shareholders’ equity.
On June 2, 2009, the Founder, Chairman of the Board of Directors and CEO of Localiza, Mr. José Salim Mattar Junior, sold 14,000,000 shares issued by the Company, corresponding to 6.9407% of the shareholders’ equity, at an auction held on such date at BM&FBovespa. The proceeds from such sale were intended to settle the balance of a personal debt contracted by Mr. Salim Mattar with UBS Pactual S.A. in order to finance the acquisition of shares that occurred within the Controlling Block.
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15.7 – Other relevant information
All relevant information pertaining to this topic has already been provided in the previous items.
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16.1 – Description of issuer’s rules, policies and practices for executing transactions with related parties
The Company's practice is to conduct transactions with its wholly-owned subsidiaries in the normal course of business, and the most significant ones are: i) rental of cars between the companies in order to meet their customers’ needs and ii) intercompany loan agreements involving transfers of funds.
Article 20 of the Company's Articles of Incorporation expressly forbids and determines as null and void insofar as the Company is concerned about any acts by any officer, attorney or employee that involve obligations related to business affairs or transactions that are outside the scope of its corporate purpose, such as guarantees, collateral signatures, endorsements or any other type of guarantee in favor of third parties, unless expressly authorized by the Board of Directors at a meeting. It is also forbidden to grant loans to the Company's controlling shareholders and officers, with the exception of loans granted under the terms of the Stock Option Plan provided by the Company.
As at May 30, 2012 the Board of Directors approved the Policy of Transactions with Related Parties prepared in compliance with ABRASCA Code of Self-regulation.
The policy of Transactions with Related Parties aims to ensure transparency in the transactions which involve related parties and is based on the following principles:
i) transactions with related parties, if existent, be performed in strictly interchanging conditions and with adequate offsetting payment; and
ii) these transactions be conducted within market parameters, when compared to deadlines, rates, guarantees and be clearly reflected in Company’s reports.
Full policy is available in Company’s website.
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16.2 – Information on transactions with related parties
Related party Date of Amount involved Existent balance Amount (BRL) Duration Loan or Interest transaction (BRL) other type rate of debt charged Total Fleet S.A. 12/31/2011 6,867,000.00 BRL1,585,000.00 Not applicable. Indefinite. NO 0.000000
Relation with issuer Wholly-owned subsidiary.
Purpose of agreement Balance of accounts receivable resulting from car rental by Total Fleet in order to serve its customers. The recorded values correspond to transactions carried out during 2011. Guarantee and insurances There are no guarantees or insurance for this transaction
Rescission or termination There are no conditions defined of rescission or termination
Nature of and reason for the transaction
Total Fleet S.A. 12/31/2011 14,054,000.00 BRL12,879,000.00 Not applicable. Indefinite. NO 0.000000
Relation with issuer Wholly-owned subsidiary.
Purpose of agreement Other short-term accounts receivable resulting from use of Localiza’s administrative structure, publicity and sales. The recorded values correspond to transactions carried out during 2011. Guarantee and insurances There are no guarantees or insurance for this transaction.
Rescission or termination There are no conditions defined of rescission or termination.
Nature of and reason for the transaction
Prime Prestadora de Serviços S.A. 12/31/2011 7,602,000.00 BRL7,602,000.00 Not applicable. Indefinite. NO 0.000000
Relation with issuer Wholly-owned subsidiary.
Purpose of agreement Other short-term accounts receivable. The recorded values correspond to transactions carried out during 2011.
Guarantee and insurances There are no guarantees or insurance for this transaction.
Rescission or termination There are no conditions defined of rescission or termination.
Nature of and reason for the transaction
Localiza Car Rental S.A. 12/31/2011 4,645,000.00 BRL0.00 Not applicable. Indefinite. NO 0.000000
Relation with issuer Wholly-owned subsidiary.
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16.2 – Information on transactions with related parties
Related Party Date Amount involved Existente Balance Amount (BRL) Duration Loan or Interest of transaction (BRL) other type rate of debt charged Purpose of agreement Accounts receivable due to car rental by Car Rental to serve its customers. The recorded values correspond to transactions carried out during 2011. Guarantee and insurances There are no guarantees or insurance for this transaction.
Rescission or termination There are no conditions defined of rescission or termination.
Nature of and reason for the transaction
Locapar Participações e Administração Ltda 03/14/2005 235,875,567.85 216,446,000.00 235,875,567.85 Indefinite NO 0.000000
Relation with issuer Company controlled by Company’s Founders
Purpose of agreement In 2005, Localiza, Total Fleet and Prime executed agreement by means of which they assigned and transferred to Locapar, which assigned its rights to the founders, the totality of the rights resulting from lawsuits with tax and social security nature in which they are plaintiffs. Conversely, the founders took on pecuniary obligations levied on the lawsuits. Localiza, Total Fleet and Prime engaged themselves to give continuity to the lawsuits and use credits obtained in the lawsuits for the purpose of complying with tax obligations and , later pass on to the founders the amounts corresponding to to the benefit obtained from the offsetting, deducing administration fee of 3% of the amount of the rights obtained in the lawsuits which were effectively received and used through offsetting tax obligations. Guarantee and insurances There are no guarantees or insurance for this transaction.
Rescission or termination Agreement executed on irrevocable basis.
Nature of and reason for the transaction
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16.3 – Identification of measures taken to deal with conflicts of interest and demonstration of the strictly commutative nature of the terms agreed upon or adequate compensatory payment
a) identify measures taken to deal with conflicts of interest
The Company delegates to the Board of Directors certain key responsibilities in order to prevent situations that may potentially generate conflicts of interest, as defined in its Articles of Incorporation:
According to article 11, §5: The member of the Board of Directors must have irreproachable reputation, and may not be elected, unless permitted by General Meeting resolution, one who: (i) acts as manager, advisor, consultant, lawyer, auditor, executive, employee, official or service renderer in companies which are involved in the business of car rental, car fleet rental, car fleet leasing, car trade, car manufacturing or any other business which may be considered as Company’ competitors; or (ii) has or represent conflict interest with the Company. The member of the Board of Directors may not exercise the voting right, subsequently to the election, in the event the same impairment factors take place.”
According to article 12: "it is the responsibility of the Board of Directors, among other items: (i) approve the setting up of subsidiaries, as well as any amendments to the articles of incorporation, subscription and paying in of capital increases and interests of the Company in the capital of any other company in Brazil or abroad; (ii) authorize the Company and its subsidiaries to guarantee obligations in favor of third parties, with authorization for guarantees to subsidiaries being waived; (iii) establish the amount of compensation for the Executive Office and approve the proposal of the Executive Office related to compensation policies and the overall amount of profit sharing for employees, as well as approve the personnel list of the Company and its associates; and (iv) approve alterations in the Company's organizational structure, required for the operation of its business and execution of the strategies defined, as well as determine the Company's vote or its granting of proxy voting instructions in all the meetings of shareholders of its subsidiaries."
According to article 20: expressly forbids and determines as null and void insofar as the Company is concerned by any acts by any officer, attorney or employee that involve obligations related to business affairs or transactions that are outside the scope of its corporate purpose, such as guarantees, collateral signatures, endorsements or any other type of guarantee in favor of third parties, unless expressly authorized by the Board of Directors at a meeting. It is also forbidden to grant loans to the Company's controlling shareholders and officers, with the exception of loans granted under the terms of the Stock Option Plan provided by the Company.
Additionally, Company has an exclusive section in its “Values and Ethics Code” manual that deals exclusively with conflicts of interest. All the Company's employees have a copy of this manual and the hiring of new employees is conditioned to their signing the "Commitment Statement" whereby the new employee expressly makes a commitment to comply with all the provisions contained therein.
As described in the Company's code of ethics, the following acts are considered as undesirable:
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16.3 – Identification of measures taken to deal with conflicts of interest and demonstration of the strictly commutative nature of the terms agreed upon or adequate compensatory payment hold either directly or indirectly through a spouse, children and 1st degree kinship any interests in any institution that may be benefited to the extent that it maintains business relations with the Company or is a competitor of the Company;
• provide services of any kind to other organizations, compensated either directly or indirectly, that conflict with our interests, except for cases expressly authorized in advance;
• obtain privileged financial advantages either directly or indirectly in institutions that maintain commercial relations with the Company;
• accept either directly or indirectly cash or objects of value from any person or entity that has or is interested in creating commercial relations with the Company;
• provide competitors or third parties with any confidential information regarding customers, pricing policies or commercial, economic and financial plans;
• pass on to third parties in an improper manner benefits that are exclusively offered to the Company's employees;
• omit the existence of marital or family relations up to the 1st degree of kinship or closely related persons working at the Company or occupying positions of influence, or which might influence decisions affecting business, or working in competitors, suppliers of products and/or services, or in partnership with the Company. Such factors must be communicated to the employee's immediate superior and recorded in their commitment statement;
• make improper use of confidential information reserved to the organization or compete in a disloyal manner with the Company after leaving the Company;
• Obtain or give third parties any gains of personal nature in order to close business deals;
• use Company resources (knowhow, facilities, equipment, supplies, information and other assets) for personal benefit or on behalf of third parties without authorization; and/or;
• engage, on the Company's premises, any union, political party and/or religious activities not safeguarded by constitutional principles or union agreement.
Such conflicts of interest do not extend to participation in charitable, philanthropic, civic, religious, political, social or cultural organizations whose activities do not require dedication during working hours. In carrying out any of these activities, employees must make it quite clear that they are of a private nature and do not involve the use of the Company's name. The Company does not hire former employees of competitors within 2 (two) years of their termination and, in such case, it will be appropriate to consult their hierarchical superior. Likewise, the Company expects its former employees not to work for the competition for up to 2 (two) years of their termination.
Any conflicts of interest not covered in the Code of Ethics must be reported to the Ethics Committee, which is responsible for defining and ensuring that the Company's ethical principles and values are strictly enforced, deciding on dilemmas in the best interests of the Company as a whole, irrespective of specific interests.
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16.3 – Identification of measures taken to deal with conflicts of interest and demonstration of the strictly commutative nature of the terms agreed upon or adequate compensatory payment
b) demonstrate the strictly commutative nature of the conditions agreed upon or adequate compensatory payment
The Company only has wholly-owned subsidiaries, i.e. where it owns 100% of the equity of the investees. Accordingly, any transaction carried out with its subsidiaries does not affect the Consolidated Financial Statements.
On May 30, 2012 Company’ Board of Directors approved the Policy of Transactions with Related Parties prepared in compliance with ABRASCA Code of Self-regulation. The full Policy is available in Company’s website.
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17.1 – Information on the share capital
Date of authorization or Deadline for capital Number of common Number of preferred Total number of shares approval Amount (BRL) paying-in shares (Units) shares (Units) (Units) Type of capital Paid in 10/15/2010 601,708,000.00 201,708,000 0 201,708,000
Type of capital Paid in 05/05/2009 400,000,000.00 201,708,000 0 201,708,000
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17.2 –Increases of the share capital
Date of the Responsible for Amount Typeof Common Preferred Total Subscription/ Price (issue) Quotation resolution the decision Date of issue (BRL) increase (Units) (Units) (Units) Previous Capital factor
05/05/2009 EGM 05/05/2009 0,00No shares issued 0 0 0 0.00000000 0.00 BRL/Unit
Criteria for determination of the issuanceprice Manner of paying-in
10/15/2010 EGM 10/15/2010 0,00No shares is sued 0 0 0 0.00000000 0.00 BRL/Unit
Criteria for determination of the issuanceprice
Manner of paying-in
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17.3 - Information on stock splits, reverse stock splits and stock bonuses
Reason for not filling out the chart:
There have been no share splits, reverse stock splits or stock bonuses in the last 3 years.
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17.4 – Information on capital reductions
Reason for not filling out the chart:
There have been no capital reductions in the last 3 years.
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17.5 - Other relevant information
All relevant information pertaining to this topic has already been provided in the previous items.
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18.1 –Rights associated with the shares
Type of share or ADR Common
Tag along 100,000000
Right to dividends Under article 24 of paragraph 3 of the Company’s Articles of Incorporation, shareholders are assured the right to receive mandatory annual dividends of no less than twenty-five percent (25%) of the fiscal year’s net profit, added or subtracted by the following amounts: (i) amount allocated for the legal reserve fund; (ii) amount allocated for the contingencies fund and reversal of those same funds formed in previous years; and (iii) amount resulting from the reversal of the unrealized profits fund formed in previous years, in accordance with article 202, item II, of Federal Statute no.6404/76.
Right to vote Unrestricted
Convertibility No
Right to capital reimbursement Yes
Description of the capital In the event of liquidation of the Company, the shareholders will be reimbursed the capital in the proportion reimbursement characteristics of their share in the capital stock, right after the payment of all the Company’s obligations. Those shareholders who dissent from certain decisions by the General Meeting are allowed to withdraw from the Company, through the reimbursement of their shares calculated based on their equity value, in accordance with the Corporations Law. If the Company’s shares (i) have liquidity, i. e., make up the general BM&FBOVESPA index or any other index in the stock Market, as defined by CVM, and (ii) are scattered through the market, so that the controlling company or other companies under common control hold less than 50% of the shares, the shareholders will not be entitled to withdraw in the following cases:: (a) consolidation of the Company; (b) upstream merger into another Company; and (c) participation in a group of companies.
Restriction on circulation No
Terms and Conditions for Under the Corporations Law, neither the Company’s Articles of Incorporations nor the decisions taken in the alteration of the rights assured by Annual General Meeting may deprive the shareholders from the following rights: (i) participation in the such securities profits; (ii) participation, in the event of liquidation, in the distribution of whatever remaining assets, in the proportion of their share in the capital stock; (iii) inspecting the Company’s management, under the terms of the Corporations Law; (iv) priority in future capital increases, except when provided for in the Corporations Law; and (v) withdraw from the Company in those cases provided for in the Corporations Law.
Other relevant The inclusion of Article 38 in the Company’s Articles of Incorporation was approved during an Extraordinary characteristics General Meeting held on April 25, 2012, so as to include rules that predict the event of takeover, whenever any shareholder or group of shareholders reaches a 15% share in the Company’s capital stock. Such rules are transcribed in item18.2.
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18.2 – Description of rules in the articles of incorporation that restrict the relevant shareholders’ voting right or that oblige them to execute a takeover
As determined by the Company’s Articles of Incorporation, altered in the Extraordinary General Meeting of April 25, 2012:
“Article7.All shares are indivisible with respect to the Company and each common share entitles its holder to one vote in the decisions taken during General Meetings.”
“Article38.Whenever a shareholder or group of shareholders attains, directly or indirectly, a Relevant Equity Interest, either through a single operation or through various operations (“New Relevant Shareholder”),such shareholder shall make a public offering for takeover including the totality of shares and securities convertible to shares held by the other shareholders of the Company, under this article(“Takeover by Attainment of Relevant Equity Interest”). §1º.Such Takeover by Attainment of Relevant Equity Interest must be:(i)addressed indistinctly to all the Company’s shareholders;(ii) performed through an auction at BM&FBOVESPA; (iii)launched by the price determined in accordance with the provisions of paragraph 2 of this article and settled on the spot, in national currency; and(iv)instructed by the Company’s appraisal report, as per paragraph 4 of this article. §2º. The price of acquisition per share in such Takeover by Attainment of Relevant Equity Interest (“Takeover Price”)is not to be lower than the higher amount determined between:(i)the Economic Value; and(ii)the highest price paid by the New Relevant Shareholder during the twelve (12) months the preceded the attainment of the Relevant Equity Interest, adjusted by events of the Company, such as dividends payouts or the payment of interest on own capital, reverse stock splits, split shares, payments of bonuses, except those related to operations of judicial reorganization, and duly updated by the Selic rate. §3º.Without prejudice to its obligation to publish a material fact in the press, in accordance with CVM Instruction no. 358, of January03,2002as amended(“CVMInstruction358”),immediately after purchasing or becoming the holder of shares issued by the Company or of any equity interest in the Company, in a percentage equal or higher than fifteen percent (15%) of the capital stock, the New Relevant Shareholder shall submit a report to the Chief Investor Relations Officer, which must contain the following information:(a)the information defined inart.12 of CVM Instruction no. 358and in the items “i” through “m” of Section I of Annex II to CVM Instruction no.361, of March 05,2002, as amended;(b)information about any other Equity Interests owned by them in the Company;(c)information about the obligation of performing the Takeover by Attainment of Relevant Equity Interest;(d)the highest price paid by the New Relevant Shareholder during the twelve (12) months the preceded the attainment of the Relevant Equity Interest, adjusted by events of the Company, such as dividends payouts or the payment of interest on own capital, groupings, split shares, payments of bonuses, except those related to operations of judicial reorganization; and(e)the price of purchase per share that the New Relevant Shareholder is willing to pay in the operation of Takeover for Relevant Equity, in accordance with paragraph 2 of this article(the “Proposed Price”). §4º.The Economic Value will be determined by an appraisal report prepared by an expert institution or firm with total independence with respect to the New Relevant Shareholder, in accordance witharticle37 of these Articles of Incorporation, and the New Relevant Shareholder (including those parties related thereto) will not be entitled to vote in the choice of the three-name list to be presented by the Board of Directors or in the final choice by the General Meeting.
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18.2 – Description of rules in the articles of incorporation that restrict the relevant shareholders’ voting right or that oblige them to execute a takeover
If the appraisal report indicates a range of values (maximum and minimum), the Economic Value will be defined as the range’s average point, considering that such range may not vary by more than 10% with respect to the maximum value. The appraisal report must also has the highest price paid by the New Relevant Shareholder during the twelve (12) months that preceded the attainment of the Relevant Equity Interest, adjusted by events of the Company, such as dividends payouts or the payment of interest on own capital, groupings, split shares, payments of bonuses, except those related to operations of judicial reorganization. §5º.The Board of Directors shall hold a meeting to define the three-name list and to summon a General Meeting for the choice of the expert institution or firm that will be responsible for the preparation of the appraisal report, as soon as possible after the report mentioned in the 3rd paragraph of this article is submitted. §6º. The appraisal report must be submitted by the expert institution or firm to the Chief Investor Relations Officer for immediate disclosure to the Market through an electronic system available at CVM’s website on the internet. §7º.Those shareholders who possess, at least 10% of the shares issued by the Company, excluding from the calculation those held by the New Relevant Shareholder, are entitled to request the Company officers to summon an Extraordinary General Meeting to decide upon a new appraisal of the Company in order to recalculate the Takeover price. The new report must be prepared in like manner as the appraisal report mentioned in paragraph 4 of this article, in accordance with the procedures set forth in article 4‐A of the Federal Statute no.6404/76, with the regulations of CVM, with this Chapter and with paragraph 6 of this article. All shareholders will be entitled to vote in the Extraordinary General Meeting, except the New Relevant Shareholder. §8º. If the appraisal report determines a takeover price higher than the Proposed Price, the New Relevant Shareholder will be allowed to quit the takeover, within 10 business days from the date of disclosure of the appraisal report, observing, in this case, whenever applicable, the procedure determined by article 28 of CVM Instruction no. 361 or whatever comes to replace it, and to sell the excess of equity interest within 3 months from the date on which such quitting is reported to the Company. The quitting must be reported to the market by the Relevant Shareholder through a communication of Material Fact. §9º.The performance of Takeover by Attainment of Relevant Equity Interest may be dismissed through the favorable voting of the shareholders gathered in a General Meeting summoned specifically for that purpose, observing the following rules: (a) the dismissal of the performance of Takeover by Attainment of Relevant Equity Interest will be considered approved through simple majority voting by the shareholders present, either in a first or in a second call and (b) for the calculation of simple majority, dealt with in item (a), those shares owned by the New Relevant Shareholder will not be counted.
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18.2 – Description of rules in the articles of incorporation that restrict the relevant shareholders’ voting right or that oblige them to execute a takeover
§10. If the Takeover by Attainment of Relevant Equity Interest is not legally liable to registration in CVM, the New Relevant Shareholder shall issuancea public communication of Takeover by Attainment of Relevant Equity Interest within 10 business days from the date of presentation, by the expert institution or firm, of the appraisal report. §11. If the Takeover by Attainment of Relevant Equity Interest is legally liable to registration in CVM, the New Relevant Shareholder shall request the registration within 10 business days from the date of presentation, by the expert institution or firm, of the appraisal report, and will be under the obligation to meet CVM’s requirements with regard to the Takeover by Attainment of Relevant Equity Interest, within the time set forth in the applicable regulations. The issuanceof the public communication of Takeover by Attainment of Relevant Equity Interest must be within 5 business days from the date of registration of the Takeover by CVM. §12. If the New Relevant Shareholder does not observe the obligations imposed by this article, the Company’s Board of Directors shall summon an Extraordinary General Meeting, in which the New Relevant Shareholder will not be allowed to vote, to decide upon the suspension of the New Relevant Shareholder’s rights for not observing any of the obligations imposed by this article, as per article120of the Federal Statute no. 6404/76. §13. Without prejudice to the provisions of paragraph 12 above, until the Takeover by Attainment of Relevant Equity Interest is not effected and liquidated, the New Relevant Shareholder will not be allowed to vote with more than 15% of the shares issued by the Company, and the president of the General Meeting will be responsible for not computing, in the Meeting, those votes exceeding that limit. §14. The requirement of Takeover by Attainment of Relevant Equity Interest does not apply to the shareholder or group of shareholders that attains a Relevant Equity Interest: (a) by means of public offering of takeover of the totality of shares issued by the Company, provided that the price paid is, at least, equivalent to the Proposed Price; (b) unwittingly, as a result of redemption or cancelling of shares; (c) by subscription of shares made in primary offering, by virtue of incomplete subscription by those who had the right of priority or of insufficient number of interested parties in the respective public distribution; (d) as a consequence of consolidation, merger or upstream merger involving the Company; or (e) as a consequence of: (i) advancement of inheritance, donation or succession, provided that it has been for the benefit of a descendant or spouse of a shareholder or group of shareholders owning a Relevant Equity Interest; or(ii) transfer to a trust or similar entity, provided that it has been for the benefit of a shareholder or group of shareholders owning a Relevant Equity Interest, their descendants or spouses. §15.The public offering of Takeover by Attainment of Relevant Equity Interest does not exclude the possibility of another shareholder of the Company, or even the Company itself, making a competing public offering for takeover, in accordance with the applicable regulations.”
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18.2 – Description of rules in the articles of incorporation that restrict the relevant shareholders’ voting right or that oblige them to execute a takeover
“Article39.Any Shareholders or Group of Shareholders that attain, directly or indirectly, the ownership of shares issued by the Company or Equity Interests equal to or higher than 10% of the capital stock ,either through a single operation or through various operations, and that wishes to acquire shares issued by the Company, will be obliged to(i)perform each new acquisition exclusively through an auction of purchase summoned at least 3 business days before, to be performed at BM&FBOVESPA, of which third parties may actively take part and/or even the Company itself, and private trading operations or over-the-counter markets will be forbidden, and(ii)previously to each new acquisition, to report in writing to the Company’s Chief Investor Relations Officer the date of the auction of purchase and the number of shares to be acquired, at least 3 business days before the date of new purchase of shares, always observing the terms of the applicable law, especially the applicable CVM and BM&FBOVESPA regulations. §1º.The requirement above does not apply to the acquisition of shares resulting from:(i) advancement of inheritance, donation or hereditary succession, provided that it has been for the benefit of a descendant or spouse of a shareholder or group of shareholders; or(ii) transfer to a trust or similar entity, provided that it has been for the benefit of a shareholder or group of shareholders, their descendants or spouse. §2º. If the New Relevant Shareholder does not observe the obligations imposed by this article, the Company’s Board of Directors shall summon an Extraordinary General Meeting, in which the New Relevant Shareholder will not be allowed to vote, to decide upon the suspension of the New Relevant Shareholder’s rights for not observing any of the obligations imposed by this article, as perarticle120 of the Federal Statute no. 6404/76 §3º.If this is the Company’s legitimate interest, the Board of Directors may exempt the demanded parties from the application of this article 38 of the Company’s Articles of Incorporation.”
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18.3 Description of exceptions and suspension clauses related to equity or political rights prescribed in the articles of incorporation
The Company's Articles of Incorporation do not include any suspension clauses related to equity or political rights.
For as long as they are maintained in treasury, shares do not vest equity or political rights, as defined in CVM Instruction n 10, article 16.
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18.4 – Trading volumes and highest and lowest quotations of securities
Year 12/31/2011 Traded Highest quotation Lowest quotation Quarter Security Type Class Market Administrative entity amount (BRL) (BRL) (BRL) Quotation factor 03/31/2011 Shares Common Stock Exchange BM&FBOVESPA S.A.-Bolsa de Valores, 20,862,766 26.20 25.41 BRL/unit MercadoriaseFuturos 06/30/2011 Shares Common Stock Exchange BM&FBOVESPA S.A.-Bolsa de Valores, 22,767,612 28.18 27.69 BRL/unit MercadoriaseFuturos 09/30/2011 Shares Common Stock Exchange BM&FBOVESPA S.A.-Bolsa de Valores, 31,317,511 25.31 24.61 BRL/unit MercadoriaseFuturos 12/31/2011 Shares Common Stock Exchange BM&FBOVESPA S.A.-Bolsa de Valores, 91,835,705 27.19 25.60 BRL/unit MercadoriaseFuturos
Year 31/12/2010 Security Type Class Market Traded Highest quotation Lowest quotation Quarter Administrative entity amount (BRL) (BRL) (BRL) Quotation factor 03/31/2010 Shares Common Stock Exchange BM&FBOVESPA S.A.-Bolsa de Valores, 11,792,713 22.00 18.50 BRL/unit MercadoriaseFuturos 06/30/2010 Shares Common Stock Exchange BM&FBOVESPA S.A.-Bolsa de Valores, 13,282,710 21.70 17.70 BRL/unit MercadoriaseFuturos 09/30/2010 Shares Common Stock Exchange BM&FBOVESPA S.A.-Bolsa de Valores, 11,911,397 28.45 21.70 BRL/unit MercadoriaseFuturos 12/31/2010 Shares Common Stock Exchange BM&FBOVESPA S.A.-Bolsa de Valores, 27,664,108 31.20 24.30 BRL/unit MercadoriaseFuturosPAGE 247 of 282
Year 31/12/2009 Security Type Class Market Traded Highest quotation Lowest quotation Quarter Administrative entity amount (BRL) (BRL) (BRL) Quotation factor 03/31/2009 Shares Common Stock Exchange BM&FBOVESPA S.A.-Bolsa de Valores, 3,006,600 8.47 7.22 BRL/unit MercadoriaseFuturos 06/30/2009 Shares Common Stock Exchange BM&FBOVESPA S.A.-Bolsa de Valores, 10,847,200 13.32 8.00 BRL/unit MercadoriaseFuturos 09/30/2009 Shares Common Stock Exchange BM&FBOVESPA S.A.-Bolsa de Valores, 14,694,200 18.48 11.55 BRL/unit MercadoriaseFuturos 12/31/2009 Shares Common Stock Exchange BM&FBOVESPA S.A.-Bolsa de Valores, 18,264,400 20.59 17.50 BRL/unit MercadoriaseFuturos
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18.5 - Description of other securities issued
Security Debentures Security Identification Simple non-convertible debentures, registered and book-entry, in two series. Issuancedate 05/05/2010
Maturity date 05/05/2017
Quantity 370
(Units) Total 370,000,000.00 amount (BRL) Restriction on circulation Yes
Description of restriction In agreement with CVM Instruction no. 476/09, these Debentures maybe traded only 90 days after the issuancedate, and, after that, they may be traded only between qualified investors. Convertibility No
Possibility of redemption Yes
Cases for redemption and These debentures are subject to optional early redemption, on the Company’s sole discretion, calculation of amount thereof at any time from the issuancedate, provided that such redemption occurs in a date that
coincides with a date in which yield or the principal are paid. Early redemption is subject to the payment of a 1.20% premium, calculated on the debentures’ Unit Face Value, with the appropriate addition of the payment of the yield for the 1st or 2nd series, calculated pro rata temporis from the most recent date of payment of yield until the date of the actual redemption. Securities’ characteristics These debentures are simple, non-convertible, registered and book-entry,with floating guarantee and restricted placement efforts, in two series, the first one in the amount of BRL 240.0 million and the second in the amount of BRL 130.0 million, with unit face value of BRL 1.0 million on the issuancedate, i. e., 05/05/2010. The maturity term is 7 years, with 6 amortizations for the 1st series and 4 for the 2nd series. Interest payments are biannual.
Terms and conditions for alteration This issuance of debentures further imposes certain cases for early maturity, such as:lowering, of the rights assured by such by Standard &Poors, of the Issuer’s corporate rating by two or more points, on a national securities level, with respect to the rating brAA- (BR, double A, negative) given on the issuancedate, even
if by virtue of whatever alteration in the corporate makeup, which may result in the loss, transfer or sale of the Company’s controlling interest by the present controlling shareholders.
Interest corresponding to 112.0% and 114.0% of the CDI rate. These debentures have floating Other relevant guarantees. characteristics
Security Debentures Security identification Simple non-convertible debentures, registered and book-entry, single series Issuancedate 09/30/2009
Maturity date 09/30/2015
Quantity 40,000
(Units) Total 400,000,000.00 amount (BRL) Restriction on circulation Yes
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18.5 - Description of other securities issued
Description of restriction In agreement with CVM Instruction no. 476/09, these Debentures may be traded only 90 days after the issuancedate, and, after that, they may be traded only between qualified investors. Convertibility No
Possibility of redemption Yes
Cases for redemption and These debentures are subject to optional early redemption, on Total Fleet’s sole discretion, calculation of amount thereof from the 36th month after the issuancedate, provided that such redemption occurs in a date that coincides with a date in which yield or the principal are paid, without payment of premium.
These debentures are simple, non-convertible, registered and book-entry, single series, with unit Securities’ characteristics face value of BRL 10 on the issuancedate, September 30, 2009. The maturity termis 6 years, with 4 equal and consecutive amortizations, the first one on September 30, 2012, and the last one on
September 30, 2015. Interest payments are biannual.
Terms and conditions for This issuance of debentures further imposes certain cases for early maturity, such as: (a) merger, alteration of the rights assured by consolidation or spin-offby Total Fleet orLocaliza (the guarantor), except as provided for in article such securities 231 of the CorporationsLaw; (b) capital decrease by Total Fleet or Localiza (the guarantor)and/or repurchase, by Total Fleet or Localiza (the guarantor), of their own shares for the purpose of cancelling.
Interest corresponding to CDI rate + 1.95% per year. These debentures have floating Other relevant guarantee. characteristics
Security Debentures Security identification Simple non-convertible debentures, registered and book-entry, single series Issuancedate 05/30/2011
Maturity date 05/30/2017
Quantity 50,000
(Units) Total 500,000,000.00 amount (BRL) Restriction on circulation Yes
Description of restriction In agreement with CVM Instruction no. 476/09, these debentures may be traded only 90 days after the issuancedate, and, after that, they may be traded only between qualified investors. Convertibility No
Possibility of redemption Yes
Cases for redemption and These debentures are subject to optional early redemption, wholly or partly, from May 29, 2013, calculation of amount thereof through payment of the face value with the addition of (i) the yield due until the date of redemption and (ii) a 0.30% premium, adjusted for the remaining term,as per formula defined in the deed, levied upon the debentures’ adjusted amount due.
These are simple, non-convertible, registered and book-entry, single series, with unit face value Securities’ characteristics of BRL 10,000.00 on the issuancedate, May 30, 2011. The maturity term is 6 years, with two equal amortizations, the first one on May 30, 2016, and the last one on May 30, 2017.Interest payments are biannual.
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18.5 - Description of other securities issued
Terms and conditions for This issuance of debentures further imposes certain cases for early maturity, such as: (a) the alteration of the rights assured by Issuer’s merger, consolidation or spin-off, except as provided for in article 231 of the such securities Corporations Law; (b) capital decrease by the Issuer and/or repurchase, by the Issuer, of its own
shares for the purpose of cancelling. Other relevant Interest corresponding to 112.8% of the CDI rate. These debentures are of unsecured type characteristics (simply debentures).
Security Debentures Security identification Simple non-convertible debentures, registered and book-entry, single series Issuancedate 07/02/2007
Maturity date 07/02/2014
Quantity 20,000
(Units) Total 200,000,000.00 amount (BRL) Restriction on circulation No
Convertibility No
Possibility of redemption Yes
Cases for redemption and These debentures are subject to optional early redemption, from the 36th month after the calculation of amount thereof issuancedate, with a 1% premium paid proportionally to the period between the redemption date and the maturity date, calculated as set forth in the deed.
On July 10, 2007, the Company registered the issuance of 20,000 corporate debentures at CVM, Securities’ characteristics with net financial liquidation of BRL 200 million on July 12, 2007, pertaining to the 1st tranche of the First debenture Distribution Program. These debentures are simple, non-convertible,
registered and book-entry, single series, with unit face value of BRL 10 on the issuancedate, July th th th 02, 2007. The maturity term is 7 years, with amortizations scheduled for the 5 , 6 and 7 years. Interest payments are biannual.
Terms and conditions for alteration of the rights assured by This issuance of debentures further imposes certain cases for early maturity, such as: (a) the such securities Company’s merger, consolidation or spin-off, except as provided for in article 231 of the Corporations Law; (b) lowering, by Standard &Poors, of the issue’s rating by two or more points, on a national level, with respect to the rating given on the issuancedate, by virtue of whatever alteration in the corporate makeup, which may result in the loss, transfer or sale of the Company’s controlling interest by its founding members.
Other relevant Interest corresponding to CDI rate + 0.44% per year. These debentures have floating characteristics guarantee.
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18.6 - Brazilian markets on which securities are listed for trading
The Company's shares are traded as follows:
The Company's shares are listed for trading on the Brazilian Mercantile & Futures Exchange and São Paulo Stock Exchange - BM&FBOVESPA S.A.
As of May 31, 2012, the other securities issued by the Company were traded as follows:
• 2nd Issuance Debentures: These debentures are listed for trading on the secondary market (i) through the National System for Corporate Debentures (SND), which is administered by the Custody and Settlement Chamber (CETIP), based on the policies and guidelines set forth by the National Association of Financial Market Institutions (ANDIMA), with the debentures settled and held in custody at CETIP, and (ii) through the BovespaFix System administered by BM&FBovespa, in which case the debentures are settled and held in custody at the Brazilian Settlement and Custody Company (CBLC).
• 4th Issuance Debentures: These debentures are listed for trading in the secondary market through the Securities Distribution Module (SDT) and the SND, respectively, both of which are administered and made operational by CETIP S.A. - Organized Over-the-Counter Market for Assets and Derivatives” (CETIP), with the trades settled and the debentures held in custody at CETIP.
• 5th Issuance Debentures: These debentures are listed for trading on the secondary market through the (i) SDT and SND, respectively, both of which are administered and made operational by CETIP, with the distribution and trades settled and the debentures held in electronic custody at CETIP; and/or (ii) Asset Distribution System (DDA) and BovespaFix (the latter is an asset trading environment), respectively, both of which are administered and made operational by BM&FBovespa S.A., with the custody and financial settlement and trading of the debentures processed by the latter.
• Total Fleet’s 1st Issuance Debentures: These debentures are listed for trading in the secondary market through the Securities Distribution Module (SDT) and the SND, respectively, both of which are administered and made operational by CETIP S.A. - Organized Over-the-Counter Market for Assets and Derivatives” (CETIP), with the trades settled and the debentures held in custody at CETIP.
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18.7 - Information on class and type of security listed for trading in foreign markets
a. Country
On December 15,2011, the Board of Directors approved the issuance of theCompany’s AmericanDepositary Receipts–ADRsProgram, LevelI (“ADRs Program”),without the issuance of new shares.
The Company’s American Depositary Receipts Program was approved by CVM in May,2012. Under the ADRs Program, Bradesco is the trust agent of our common sharesRENT3,andDeutscheBank TrustCompanyAmericasis the depositary agent.
b. Market
See item(a)above
c. administrative entity for the Market in which securities are listed for trading
See item (a) above
d. date of listing for trading
See item (a) above
e. trading segment, if any
See item (a) above
f. date of first listing on trading segment
See item (a) above
g. percentage of trading volume overseas when compared to the total trading volume for each class and type of security last year
See item (a) above
h. proportion of certificates of deposit overseas, if any, when compared to each class and type of shares
See item (a) above
i. depositary bank, if any
See item (a) above
j. trust agent, if any
See item (a) above
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18.8 - Public offers for distribution performed by the issuer or third parties, including shareholders and subsidiaries and associates, related to issuer’s securities
The Company has not issued shares in the last 3 years.
Information on other securities issued can be found in section 18.5 of this Reference Form.
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18.9 - Description of public offers for acquisition made by the issuer with respect to shares issued by third parties
Not applicable, since the Company did not make any public offers with respect to shares issued by third parties in the last 3 years.
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18.10 - Other relevant information
All relevant information pertaining to this topic has already been provided in the previous items.
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19.1 - Information on plans for repurchase of issuer’s shares
Date of Repurchase Reserves and profits Type Class Estimated % of Approved number PMP Quotation % resolution period available (BRL) number outstanding acquired (Units) factor acquired (Units) shares Other characteristics
08/22/2011 08/23/2011 to 297,034,000.00 Common 5,316,400 2.707040 0 0.00 BRL/Unit 0.000000 08/22/2012 The Board of Directors, through a meeting that took place on August 22, 2011, authorized the Executive Board to purchase shares issued by the Company to be held in treasury for subsequent sale, without capital decrease. The Board of Directors also authorized the Executive Board to settle those options of purchase of shares still within their term, objectof the Company’s Shares Option of Purchase Plans. Such purchase must observe the following terms and conditions, in agreement with the provisions of CVM Instruction no. 10/80 and its amendments, as stated below: (1) The Company’s goal in the Operation: to maximize value generation for the shareholders andmeet their requirements, considering the quotation value of the Company’s shares at BM&FBOVESPA; (2) The number of shares to be purchased is up to 5,316,400 shares; (3) The deadline for performing the operation authorized hereby is 365 days from August 23, 2011, until August 22, 2012; (4) The number of outstanding shares, as defined by article 5 of the afore mentioned Instruction, is 128,328,179 shares; (5) Such purchases will take place at BM&FBOVESPA and the shares’ purchase price must not exceed the market value; and (6) The financial institutions that will act as mediators are: (6.1) BTG PactualCorretora de Títulos e ValoresMobiliários S.A. and (6.2) Credit Suisse S.A. Corretora de Títulos e Valores Mobiliários.
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19.2 - Balance of securities held in treasury
Year ending on 12/31/2011
Shares
Type of share Class – common share Description of securities Common
Balance Quantity (units) Total amount (BRL) Weighted-average price (BRL) Opening balance 4,226,300 43,625,922.19 10.32 Acquisition 0 0.00 0.00 Disposal 43,120 445,105.58 10.32 Cancelling 0 0.00 0.00 Closing balance 4,183,180 43,180,816.61 10.32
Year ending on 12/31/2010
Shares
Type of share Class – common share Description of securities
Common Balance Quantity (units) Total amount (BRL) Weighted-average price (BRL) Opening balance 4,226,300 43,625,922,19 10.32
Acquisition 0 0,00 0.00 Disposal 0 0,00 0.00 Cancelling 0 0,00 0.00 Closing balance 4,226,300 43,625,922,19 10.32
Year ending on 12/31/2009
Shares Class – common share Description of securities Type of share s Common Balance Quantity (units) Total amount (BRL) Weighted-average price (BRL) Opening balance 4,226,300 43,625,922.19 10.32 Acquisition 0 0.00 0.00 Disposal 0 0.00 0.00 Cancelling 0 0.00 0.00 Closing balance 4,226,300 43,625,922.19 10.32
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19.3 - Information on securities held in treasury at the end of the last reporting period
Security Shares Outstanding Description of securities Quantity (units) Weighted-average shares (%) Type of share Class acquisition price Quotation factor Date of acquisition Common 4,183,180 10.32 BRL/unit 12/18/2007 2.117800
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19.4 - Other relevant information
Treasury Shares
1st Plan of Repurchase of Shares
The following is the information on the purchases of shares issued by the Company, by acquisition date. Such shares were acquired under the stock repurchase program approved by the Company's Board of Directors in a meeting held on December 18, 2007.
The amount of shares acquired under this repurchase program totals 4,226,300 shares, for a total cost of BRL 43,626 thousand (including trading costs). The average unit cost of the shares acquired was BRL 10.32 (minimum of BRL 5.15 and maximum of BRL 16.55).
Acquistion Quantity of shares Average price (R$) Total % in relation to total date (units) outstanding 1/14/2008 70,000 16.145929 1,130,894.38 0.034716% 1/15/2008 100,000 16.107060 1,611,673.67 0.049618% 1/16/2008 120,000 15.963042 1,916,715.59 0.059578% 1/17/2008 60,000 16.205300 972,902.63 0.029798% 1/18/2008 72,300 16.358852 1,183,455.88 0.035919% 1/21/2008 115,600 16.161417 1,869,381.99 0.057464% 1/22/2008 860,900 15.820085 13,627,683.97 0.429786% 1/23/2008 197,300 15.950821 3,148,986.51 0.098595% 1/24/2008 142,100 16.390598 2,330,502.70 0.071061% 7/22/2008 145,800 15.977277 2,330,885.96 0.072964% 10/7/2008 71,400 6.661134 475,891.60 0.035744% 10/8/2008 80,700 7.202305 581,575.98 0.040416% 10/9/2008 10,000 7.200000 72,044.46 0.005008% 10/10/2008 160,000 6.130781 981,514.82 0.080200% 10/15/2008 22,000 7.081818 155,894.74 0.011029% 10/16/2008 20,000 6.599650 132,073.44 0.010027% 10/23/2008 20,000 6.136500 122,804.90 0.010028% 10/24/2008 15,000 6.500000 97,559.77 0.007522% 11/11/2008 800 5.950000 4,764.12 0.000401% 11/12/2008 839,700 5.376695 4,517,521.14 0.422843% 11/13/2008 18,000 5.887667 106,042.84 0.009065% 11/14/2008 19,900 6.067236 120,811.69 0.010023% 11/17/2008 413,000 5.882932 2,431,110.05 0.208445% 11/18/2008 303,300 5.697488 1,729,086.07 0.153313% 11/19/2008 225,000 5.698862 1,283,014.61 0.113863% 11/21/2008 123,500 5.592818 691,128.68 0.062537% Totals 4,226,300 10.322486 43,625,922.19 2.140097%
The Board of Directors, through a meeting that took place on November24, 2008, decided on the termination of the Share Repurchase Program launched on December 18,2007, expected to end on December 17, 2008. A total of 4,226,300 shares were purchased through that Program, within an authorized total of 4,500,000.
2nd and 3rd Share Repurchase Programs
The Board of Directors, through meetings that took place on November 24, 2008, and August 22, 2011, authorized the launch of the 2nd and 3rd Share Repurchase Programs, respectively.
Both programs ended with no repurchase performed.
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19.4 – Other Relevant Information
4th Share Repurchase Program
The Board of Directors, through a meeting that took place on July 19, 2012, authorized the launch of the 4th Share Repurchase Program.
The number of shares authorized for repurchase is 8,447,000 shares, with a deadline of 365 days from July 19, 2012, in other others, July 18, 2013 (that date included).
Until May 9, 2013, the amount of shares acquired in this 4th repurchase program was 1,072,200. The total cost of the transaction was R$ 36,782.1 million (including trading costs). The average unit cost of the acquired shares was R$ 34.64 (minimum of R$ 33.18 and maximum of R$ 35.60).
Transactions involving shares held in Treasury
As of May 09, 2013, 1,450,563 share options had been executed with respect to the Share Repurchase Programs with the use of shares held in Treasury.
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20.1 - Information on securities trading policy
Date of approval 03/01/2005 Position and/or function “Related Parties”- Localiza, its direct and indirect Controlling shareholders, managers, Fiscal Council members or members of any other Body with Tecnhical or Consulting Duties of Localiza, employees and executive officers of Localiza who, on account of their jobs or function, have access to any Inside Information, as well as the controlled companies thereof and/or companies under common control, and their respective Controlling Shareholders, as well as the spouses, domestic partners and dependents.
Main characteristics
The purpose of the Company’s Trading Policy is to restrain and punish the use of Inside Information for one’s own benefit by Related Parties when trading Securities issued by Localiza and set forth guidelines that will rule, orderly and within the law, the trading of such Securities, in agreement with CVM Instruction no. 358/02 and with Localiza’s internal bylaws.Those rules are also intended to restrain the practice of insider trading (improper use of Inside Information for one's own or third parties’ benefit) and tipping (disclosure of Inside Information for the benefit of third parties), preserving transparency in all trades of Securities issued by Localiza.The rules of such Trading Policy define those periods in which Related Parties must refrain from trading Securities issued by Localiza, in order to avoid questions with respect to improper use of Inside Information not disclosed to the public. In addition to Related Parties, the rules of this Trading Policy also apply to those cases in which trading, by Related Parties, are carried out for one’s own direct or indirect benefit, through the use, for instance, of:
(a) a company directly or indirectly controlled by a Related Party; (b) third parties with whom a related party has a management, trust or financial asset management agreement; (c) attorneys-in-fact or agents; and/or (d) spouses (from whom the related party is not judicially separated), domestic partners and any dependents included in annual income tax returns.
The restrictions contained in this Trading Policy do not apply to trading operations carried out by investment funds owned by Related Parties, provided that: (a) they are not exclusive investment funds; and (b) the trading decisions by the investment fund administrator cannot be affected by the fund’s owners.
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20.1 - Information on securities trading policy
Prohibited periods and descriptionof Localiza and its Related Parties must refrain from trading their Securities issued by Localiza: inspection procedures i) during all periods in which the Investor Relations Officer determines that trading is prohibited; ii) prior to public disclosure of a Material Fact to the market under the terms of the Company's Disclosure Policy; iii) during the time public distribution of securities issued by Localiza is underway.
Related parties must ensure that their Business Contacts and those with whom they maintain business, professional or trust relations, abstain from trading securities whenever they have access to Inside Information.For such purpose, related parties shall exert their best efforts to cause anyone with access to inside information to sign the relevant instruments of Adhesion to the Trading Policy.The trading prohibitions are to be applied to all related parties until the disclosure of the relevant information to the market. Such prohibitions must, however, remain in effect even after such disclosure of relevant information, if any possible trading of securities by a related party affects or potentially affects any act or event associated with the relevant information, to the detriment of Localiza or its shareholders. In such event, the Chief Investor Relations Officer shall issuancean internal memorandum warning about the prohibition.Related parties are further forbidden to trade securities issued by Localiza in whenever they are aware of still undisclosed relevant information of another company, which may potentially affect the quotation of securities issued by Localiza. This event includes any subsidiary, controlled companies and affiliates of Localiza, as well as any of Localiza’s competitors, vendors and clients.Any related party who leaves a managerial office in Localiza prior to the disclosure of relevant information, the origin of which dates back to his/her term of office, may not trade securities issued by Localiza until: (a) the expiration of a six month term from the date of his/her termination; or (b) the disclosure of such relevant information to the market..
Blackout Period. Related parties shall refrain from trading any securities, regardless of any notice by the Investor Relations Officer, in the following situations: (a) during the period of 15 days preceding the disclosure of the quarterly and yearly financial statements (ITR, DFP and IAN) required by CVM; (b) during the period between the decision, by the competent body, to increase the Company’s capital stock, pay out dividends or interest on own capital and the disclosure of the respective announcements; and (c) from the moment they have access to the information about Localiza’s its Controlling Shareholders’ intention to: (i) change Localiza’s capital stock through subscription of new shares; (ii) approvea program of acquisition or disposal, by Localiza, of shares issued by Localiza; or (iii) pay out dividends or interest on own capital, bonuses on shares or their derivatives or split shares, until the disclosure of the respective announcements.
Before disclosing any material fact or any restriction to the Company’s Trading Policy, an announcement is sent to managerial employees, executives and Board of Directors informing about the blackout period.Weekly, a report is sent by the Depositary Agent through which the Company reviews the most relevant transactions performed in that period, as well as their sellers and buyers. .
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20.2 - Other relevant information
All relevant information pertaining to this topic has already been provided in the previous items.
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21.1 - Description of internal norms, regulations or procedures related to disclosure of information
The following internal procedures are adopted by the Company to ensure that the information to be publicly disclosed is:
• Gathered
In agreement with the Company’s standard procedure, the Chief Investor Relations Officer attends all meetings of the Executive Board, the Board of Directors and the General Assembly, taking part in all decisions taken by the Company. The Chief Investor Relations Officer appraises all decisions taken, defining which ones are for public disclosure, basing such decisions on the rules set forth by the Company’s Disclosure Policy and by CVM Instruction no.358/02.
In addition,paragraph 2.2.7of the Company’s Disclosure Policy determines that Related Parties who have access to whatever information considered a Material Fact must immediately report such knowledge, in writing, to the Chief Investor Relations Officer for appropriate action to be taken with respect to the information’s disclosure, in accordance with the applicable law and the Company’s Disclosure Policy.
• Processed
After defining which information will be disclosed to the market, the Chief Investor Relations Officer provides guidelines to the Controllership, in order to gather all necessary information to prepare the material for public disclosure.
• Reported
All information to be publicly disclosed is approved by the Chief Investor Relations Officer prior to disclosure.
In addition, the Bylaws of the Disclosure Committee, a body llinked to the Company’s Board of Directors, defines the Committee’s scope as follows:
The Disclosure Committee’s responsibility is to review the minutes of documents containing economic and financial information, which must be submitted to the Brazilian Securities Commission (CVM), in order to ensure the accuracy, completeness and timeliness of all publicly disclosed information.
The Committee must study all subjects assigned thereto and prepare proposals to the Board, helping in the decision making process, through the following attributions:
o Inspecting all procedures for disclosure of reports and economic/financial information to the market, specifically:Reference Form Reports, Standard Financial Statements(DFP), Quarterly Financial Report (ITR), Annual Financial Statements Report,Earnings Releases and other releases and mailings containing financial information, presentations to market analysts or investors, as well as information for the Company’s investor relations website; and
o Monitoring the need to update the Company's economic and financial information, pursuant to the applicable legislation.
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21.2 - Description of the policy for disclosure of material facts or events and procedures related to confidentiality of undisclosed material information
The Company has a Disclosure Policy archived in its website (www.localiza.com/ri) and in the CVM website, by means of the IPE system, since 2005, specifically dealing with the disclosure of material facts. Such information is described below:
The Chief Investor Relations Officer shall exercise all due diligence for the proper disclosure, in accordance with this Disclosure Policy and the applicable law, clearly and precisely, in a language accessible to all investors, of all Material Facts related to the Company’s business, and also ensure their wide and immediate dissemination in all the markets where Localiza securities are traded.
All Material Facts must be immediately reported to CVM and to the Stock Exchange Market in writing, with a detailed description of all acts/facts pertaining thereto, indicating, whenever possible, the amounts involved and other necessary clarification.
The disclosure of Material Facts must be made through announcements in widely circulated newspapers of regular use by the Company. Such announcements may contain a summary description of the relevant information and indicate the internet addresses where a more detailed version of that information can be accessed by actual or potential investors,with minimum contents identical to that which was submitted to CVM or to the Stock Exchange Market.
The Company may create an on-line system for disclosure of information to investors, sending Material Facts by means of e-mail messages to persons registered on a database created for that purpose. Such disclosure system, however, is not to replace the other means for disclosure of information prescribed by this Disclosure Policy and by the applicable legislation.
Whenever possible, the disclosure of any Material Fact must take place prior to the start or closing of trading operations in the stock market, although, in the event of incompatibility of times with other markets, the operating schedule of the Brazilian stock market will prevail.
Whenever a Material Fact is disseminated by any means of communication, including information to the press or in meetings of associations/unions, investors, analysts or selected public in Brazil or abroad, such Material Fact is to be simultaneously disclosed to CVM, the Stock Exchange Market and investors in general.
Related Parties that become aware of any information which might constitute a Material Fact shall immediately report this in writing to the Chief Investor Relations Officer, so that the latter may take the actions required to disclose such information in the manner prescribed by the applicable law and by this Disclosure Policy.
Related Parties that become aware of any information which might constitute a Material Fact and find out that the Chief Investor Relations Officer has failed to comply with his/her duty to disclose for more than three (3) working days shall communicate such situation, immediately in writing, to the Officers of Localiza so that they can take the appropriate measures to disclose the information to the market and to the appropriate authorities, if applicable. The responsibility of the Officers and Related Parties that have access to undisclosed Material Facts only ceases when disclosure to CVM has occurred.
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21.2 - Description of the policy for disclosure of material facts or events and procedures related to confidentiality of undisclosed material information
Exceptions to Immediate Disclosure
The Chief Investor Relations Officer may abstain from disclosing a given Material Fact whenever, in his/her judgment, such disclosure might jeopardize the Company’s legitimate interests. However, if such information escapes control or in the event of atypical oscillation in the quotation, price or number of the Company’s Securities traded, that fact must be disclosed.
The Chief Investor Relations Officer may request to CVM that such information be kept secret, and that request must be made in a sealed envelope on which a notice is written which reads“CONFIDENTIAL”, addressed to the Presidency of CVM.
If the Chief Investor Relations Officer finds necessary, the keeping of the secrecy of a given Material Fact may be requested to the Executive Board, which, in turn, may submit the request to the Board of Directors.
Secrecy and Other Duties of Related Parties
Related Parties shall treat as secret Material Facts that have not yet been disclosed and to which they have access based on the position they hold, until such Material Facts are disclosed to the public, and also ensure that their subordinates and third parties of their trust, as well as Business Contacts, also do so, since those will be held jointly liablein the event of non- compliance.Related Parties are not to discuss Material Facts in public venues.
Inside Information is only to be discussed with those who have the need to know about it.
Related Parties shall further:
(a) refrain from taking advantage of Inside Information to obtain, directly or indirectly, for oneself or for third parties, any pecuniary benefits, including those obtained through the purchase or sale of Securities issued by Localiza or related thereto;
(b) ensure that violation of the provisions of this Article do not occur through their direct subordinates or third parties of their trust,since those will be held jointly liable in the event of non-compliance;and
(c) report to Localiza, to CVM and to the Stock Market, the number, the characteristics and the manner of acquisition of Securities issued by Localiza or related thereto of which they are the holders, as well as the alterations in their positions. Such report must be submitted within the time frame set forth by CVM Instruction no.358/02 and must contain: I‐ position’s balance for the period; II - holder’s name and description, indicating the taxpayer ID (CPF); III - quantity, by type and class, in the case of shares, and other characteristics in the case of other securities, in addition to the identification of the issuing company;and IV‐manner, price and date of the transactions.
Related Parties shall further report to the Company, to CVM and to the Stock Exchange Market all securities belonging to spouses of whom the party is not judicially separated, to domestic partners or any dependent included in the annual tax return, as well as direct or indirect subsidiaries of such person, under the same terms as the above item.
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21.3 - Officers responsible for implementation, maintenance, assessment and inspection of the information disclosure policy
The Company has a policy for disclosure of relevant information and a policy for trading the securities that it issues, as approved by the Board of Directors in a meeting held on March 01, 2005. These policies are grounded on the following basic principles:
(a)compliance with the specific legislation, with the regulations of CVM and other Brazilian and foreign regulatory bodies to which Localiza is subject;
(b)adherence to best investor relations practices; and
(c) transparency and equity in the treatment of investors and capital markets in general.
The responsibility for the implementation, maintenance, assessment and inspection of the information disclosure policy belongs to the Chief Investor Relations Officer,who has also the responsibilities described below in accordance with item 2.4 of the Company's Policy for Disclosure of Relevant Information:
"The following are the responsibilities of the Chief Investor Relations Officer:
(a)disclosing and reporting to CVM and to the Stock Exchange Market, immediately upon becoming aware, of any Material Factthat has occurred or is related to Localiza's business;
(b) ensuring broad and immediate dissemination of Material Facts simultaneously to the Stock Exchange Market and to investors in general;
(c) whenever requested, providing clarifications in addition to the disclosure of the Material Fact to the appropriate authorities;and
(d) monitoring and verifying the trading of securities issued by Localiza, carried out by Related Parties, in order to clarify if they had knowledge of any Inside Information and/or information that must be publicly disclosed.”
Full awareness of and strict compliance with the Disclosure Policy and Trading Policy is mandatory for all Related Parties.Any questions regarding the provisions contained in the Disclosure Policy and Trading Policy, in the applicable CVM regulations or in the regulations of other Brazilian and foreign regulatory bodies to which Localiza is subject and/or the need to disclose or not disclose any specific information to the public are to be clarified by the Chief Investor Relations Officer.
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21.4 - Other relevant information
All relevant information pertaining to this topic has already been provided in the previous items.
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22.1 - Acquisition or sale of any material asset not classified as a normal operation in the issuer’s business
In the last 3 years there have been no acquisitions or sales of any material assets that have not been classified as a normal operation in the Company’s or its subsidiaries’ business.
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22.2 - Significant changes in the manner of conducting the issuer’s business affairs
In the last 3 years, there have been no significant changes in the manner of conducting the Company's business affairs.
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22.3 - Material agreements entered into between the issuer and its subsidiaries not directly related to their operating activities
In the last 3 years there have been no agreements entered into between the Company and its subsidiaries not directly related to their operating activities.
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22.4 - Other relevant information
All relevant information pertaining to this topic has already been provided in the previous items.
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Localiza R ent a Car S.A.