(A free translation of the original in Portuguese)
B2W - Companhia Global do Varejo Financial statements at December 31, 2012 and independent auditor's report (A free translation of the original in Portuguese)
Independent auditor's report
To the Board of Directors and Shareholders B2W - Companhia Global do Varejo
We have audited the accompanying financial statements of B2W - Companhia Global do Varejo (the "Company" ou "Parent Company"), which comprise the balance sheet as at December 31, 2012 and the statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
We also have audited the accompanying consolidated financial statements of B2W - Companhia Global do Varejo and is subsidiaries ("Consolidated"), which comprise the consolidated balance sheet as at December 31, 2012 and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
Management's responsibility for the financial statements
Management is responsible for the preparation and fair presentation of the parent company financial statements in accordance with accounting practices adopted in Brazil, and for the consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and accounting practices adopted in Brazil, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Brazilian and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
PricewaterhouseCoopers, Av. José Silva de Azevedo Neto 200, 1º e 2º, Torre Evolution IV, Barra da Tijuca, Rio de Janeiro, RJ, Brasil 22775-056 T: (21) 3232-6112, F: (21) 3232-6113, www.pwc.com/br PricewaterhouseCoopers, Rua da Candelária 65, 20º, Rio de Janeiro, RJ, Brasil 20091-020, Caixa Postal 949, T: (21) 3232-6112, F: (21) 2516-6319, www.pwc.com/br
2 B2W - Companhia Global do Varejo
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion on the parent company financial statements
In our opinion the parent company financial statements referred to above present fairly, in all material respects, the financial position ofB2W - Companhia Global do Varejo as at December 31, 2012, and its financial performance and cash flows for the year then ended, in accordance with accounting practices adopted in Brazil.
Opinion on the consolidated financial statements
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of B2W - Companhia Global do Varejo and its subsidiaries as at December 31, 2012, and their financial performance and their cash flows for the year then ended, in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and the accounting practices adopted in Brazil.
Emphasis of matter
As discussed in note 2 to these financial statements, the parent company financial statements have been prepared in accordance with accounting practices adopted in Brazil. In the case of B2W - Companhia Global do Varejo, these practices differ from International Financial Reporting Standards (IFRS) applicable to separate financial statements only in relation to the measurement of investments in subsidiaries, associates and jointly-controlled entities based on equity accounting, while IFRS requires measurement based on cost or fair value, and the maintenance of the balances of deferred charges existing as at December 31, 2008, which are being amortized. Our opinion is not qualified in respect of this matter.
Other matters
Supplementary information - statement of value added
We have also audited the parent company and consolidated statements of value added for the year ended December 31, 2012, which are the responsibility of the Company's management. The presentation of this statement is required by the Brazilian corporate legislation for listed companies, but it is considered supplementary information for IFRS. These statements were subject to the same audit procedures described above and, in our opinion, is fairly presented, in all material respects, in relation to the financial statements taken as a whole.
Rio de Janeiro, March 1, 2013
PricewaterhouseCoopers Claudia Eliza Medeiros de Miranda Auditores Independentes Contadora CRC 1RJ087128/O-0 CRC 2SP000160/O-5 "F" RJ
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Balance sheets at December 31 In thousands of reais (A free translation of the original in Portuguese)
Note Parent Company Consolidated ASSETS 2012 2011 2012 2011
CURRENT Cash and cash equivalents 30 8,075 4,270 36,267 15,297 Marketable securities 7 1,125,926 880,883 1,333,890 923,113 Accounts receivables 8 363,250 586,622 857,950 1,133,190 Inventories 9 709,801 479,160 726,240 510,934 Recoverable taxes 10 110,980 109,862 127,534 116,654 Prepaid expenses 15,654 15,844 16,946 17,790 Other current assets 34,798 74,128 37,948 84,051
Total current assets 2,368,484 2,150,769 3,136,775 2,801,029
NON CURRENT Long-term assets: Marketable securities 7 22,538 18,544 - - Recoverable taxes 10 85,051 - 85,051 - Deferred income tax and social contribution 11(a) 236,427 138,425 256,862 165,737 Escrow deposits 20 25,364 19,775 25,509 19,802 Related parties 13 67,935 51,536 30,848 19,604 Other non current assets - - 873 871 Investments 12 71,851 59,209 - - Fixed assets 14 249,184 198,587 262,015 213,037 Intangible 15 950,031 781,902 988,814 809,592 Deferred 16 11,915 27,641 -
Total non current assets 1,720,296 1,295,619 1,649,972 1,228,643
TOTAL ASSETS 4,088,780 3,446,388 4,786,747 4,029,672
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Balance sheets at December 31 In thousands of reais (continued)
Note Parent Company Consolidated LIABILITIES AND SHAREHOLDERS' EQUITY 2012 2011 2012 2011
CURRENT Suppliers 30 911,852 689,587 960,175 702,339 Loans and financing 17 438,301 442,703 594,745 636,254 Debentures 18 22,396 8,303 22,396 8,303 Salaries, provisions and social contributions 24,447 14,289 28,448 16,929 Taxes payable 19 4,444 4,881 8,839 8,275 Income tax and social contribution - - 4,275 2,315 Other current liabilities 15,427 20,415 28,513 25,806
Total current liabilities 1,416,867 1,180,178 1,647,391 1,400,221
NON CURRENT LIABILITIES Long-term liabilities: Loans and financing 17 1,074,486 785,086 1,540,244 1,163,672 Debentures 18 601,467 302,663 601,467 302,663 Provisions for contingencies 20 18,941 15,341 18,941 15,341 Other non current liabilities - 5,743 9,691 8,927
Total non current liabilities 1,694,894 1,108,833 2,170,343 1,490,603
SHAREHOLDERS' EQUITY Capital 21(a) 1,182,491 1,182,491 1,182,491 1,182,491 Capital reserve 21(e) 1,719 - 1,719 - Equity adjustment 48 935 48 935 Accumulated losses (207,239) (26,049) (215,245) (44,578)
Total shareholders's equity 977,019 1,157,377 969,013 1,138,848
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 4,088,780 3,446,388 4,786,747 4,029,672
The accompanying notes are an integral part of these financial statements.
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Statement of operations Years ended December 31 In thousands of reais, except the (losses) earnings per thousand shares in reais (A free translation of the original in Portuguese)
Note Parent Company Consolidated 2012 2011 2012 2011
Net revenue 23 4,433,188 3,848,396 4,812,439 4,232,137
Cost of goods and services sold (3,467,292) (2,977,218) (3,666,975) (3,172,480)
Gross profit 965,896 871,178 1,145,464 1,059,657
Operating income (expenses) Selling expenses 25 (640,339) (491,507) (732,667) (565,721) General and administrative expenses 25 (144,814) (128,881) (168,206) (143,296) Management fees (7,478) (7,470) (7,718) (7,890) Other operating income (expenses) 30 (75,415) (98,044) (77,026) (106,137)
Result before financial result 97,850 145,276 159,847 236,613
Financial revenue 24 159,087 176,902 206,093 219,061 Financial expenses 24 (552,996) (501,776) (626,310) (591,085)
Financial result (393,909) (324,874) (420,217) (372,024)
Equity accounting 12( c) 13,139 18,437 - -
Income (loss) before income tax and social contribution (282,920) (161,161) (260,370) (135,411)
Income tax and social contribution Current 11(d) - - (5,822) (16,199) Deferred 11(d) 101,730 61,165 95,525 62,442
Net income (loss) of the period (181,190) (99,996) (170,667) (89,168)
Diluted net income (loss) per share - R$ (1.1575) (0.7373) (1.0903) (0.6575)
The accompanying notes are an integral part of these financial statements.
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Statement of comprehensive results Years ended December 31 In thousands of reais (A free translation of the original in Portuguese)
Parent Company Consolidated 2012 2011 2012 2011
Net income (loss) of the exercise (181,190) (99,996) (170,667) (89,168)
Change in fair value of assets available for sale (1,417) 476 (1,417) 476
Deffered income tax and social contribution 482 (161) 482 (161)
Cumulative translation adjustments 48 - 48 -
Total comprehensive result (182,077) (99,681) (171,554) (88,853)
The accompanying notes are an integral part of these financial statements.
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Statement of changes in shareholders' equity Parent company In thousands of reais (A free translation of the original in Portuguese)
Profit Reserves Acumulated Aditional Capital Treasury Equity Legal Expansion Treasury Capital Stock losses (net proposal Total reserve shares adjustment reserve reserve shares income) dividends
Balance at January 1st, 2011 182,491 207,807 (200,000) 620 9,632 72,580 (18,631) - 803 255,302
Comprehensive result Net income (loss) for the period (99,996) (99,996) Change in fair value of assets available for sale 315 315
Contributions from shareholders and distributions to shareholders Capital increase 1,000,000 1,000,000 Stock option plan 2,559 2,559 Dividends payments (803) (803) Shares cancelation (Note 21(c) e (i)) (200,000) 200,000 (18,631) 18,631 Compensation of the losses of the exercise: With profit reserves (9,632) (53,949) 63,581 With capital reserves (10,366) 10,366
Balance at December 31, 2011 1,182,491 935 (26,049) 1,157,377
Comprehensive result Net income (loss) for the period (181,190) (181,190) Change in fair value of assets available for sale (935) (935) Cumulative translation adjustments 48 48
Contributions from shareholders and distributions to shareholders Stock option plan 1,719 1,719
Balance at December 31, 2012 1,182,491 1,719 48 (207,239) 977,019
The accompanying notes are an integral part of these financial statements.
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Statement of changes in shareholders' equity Consolidated In thousands of reais (A free translation of the original in Portuguese)
Profit Reserves Acumulated Aditional Capital Treasury Equity Legal Expansion Treasury Capital Stock losses (net proposal Total reserve shares adjustment reserve reserve shares income) dividends
Balance at January 1st, 2011 182,491 207,807 (200,000) 620 9,632 43,223 (18,631) 803 225,945
Comprehensive result Net income (loss) for the period (89,168) (89,168) Change in fair value of assets available for sale 315 315
Contributions from shareholders and distributions to shareholders Capital increase 1,000,000 1,000,000 Stock option plan 2,559 2,559 Dividends payments (803) (803) Shares cancelation (Note 21(c) e (i)) (200,000) 200,000 (18,631) 18,631 Compensation of the losses of the exercise: With profit reserves (9,632) (24,592) 34,224 With capital reserves (10,366) 10,366
Balance at December 31, 2011 1,182,491 - - 935 - - - (44,578) - 1,138,848
Comprehensive result Net income (loss) for the period (170,667) (170,667) Change in fair value of assets available for sale (935) (935) Cumulative translation adjustments 48 48
Contributions from shareholders and distributions to shareholders Stock option plan 1,719 1,719
Balance at December 31, 2012 1,182,491 1,719 48 (215,245) 969,013
The accompanying notes are an integral part of these financial statements.
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Statement of cash flows Years ended December 31 In thousands of reais (A free translation of the original in Portuguese)
Parent Company Consolidated 2012 2011 2012 2011 Cash flows from operating activities
Net Income (Loss) of the period (181,190) (99,996) (170,667) (89,168)
Adjustments to net income (loss): Depreciation and amortization 93,530 78,444 94,329 72,641 Deferred income tax and social contribution (13,139) (18,437) - - Interest and changes on financing and other debts (101,730) (61,165) (95,525) (62,442) Equity accounting 59,992 205,263 (91,327) 221,077 Others (23,234) 12,831 (33,910) 26,718 Adjusted net income (loss) (165,771) 116,940 (297,100) 168,826
Decrease (increase) in operational assets: Accounts receivable 70,256 124,024 115,023 140,399 Inventories (227,007) 40,558 (211,672) 37,850 Recoverable taxes (82,504) (57,163) (92,266) (61,735) Prepaid expenses (current and non-current) 190 1,969 844 993 Escrowdeposits (5,589) (6,362) (5,707) (5,955) Accounts receivable related parties (16,404) (5,917) (11,249) (238) Other accounts receivable (current and non-current) 39,455 (14,149) 46,110 (16,485) (221,603) 82,960 (158,917) 94,829
Increase (decrease) in operation liabilities: Suppliers 221,402 (77,076) 256,974 (89,940) Payroll and related charges 10,158 5,060 11,519 5,409 Taxes and contributions (current and non current) 13,714 2,900 12,400 1,655 Other accoutns payable (current and non current) (10,732) (5,895) 7,747 (9,228) 234,542 (75,011) 288,640 (92,104)
Cash Flow from Investment Activities (152,832) 124,889 (167,377) 171,551
Investment Activities: Marketable securities (249,972) (122,139) (411,712) (131,929) Investments in subsidiaries and in parent company 545 (4) - - Fixed assets (296,531) (351,640) (322,529) (376,755) Plant, property and equipament (63,836) (89,626) (70,012) (100,251) Intangible (232,695) (262,014) (252,517) (276,504) Net cash generated (applied) in investment activities (545,958) (473,783) (734,241) (508,684)
Financing Activities: Loans and financing (current and non current): Additions 655,491 121,288 1,362,853 670,165 Payments (417,588) (257,563) (923,567) (404,968) Debentures 300,000 (453,710) 300,000 (453,710) Discount of receivables 164,810 (57,953) 183,420 (468,154) Capital increase - 1,000,000 - 1,000,000 Dividends and participations to be payed (118) (6,186) (118) (6,186) Net cash generated (applied) in financing activities 702,595 345,876 922,588 337,147
Increase (decrease) in Cash and Cash Equivalents 4,270 7,288 15,297 15,283 Opening balance of cash and cash equivalents 8,075 4,270 36,267 15,297 Closing balance of cash and cash equivalents 3,805 (3,018) 20,970 14
The accompanying notes are an integral part of these financial statements.
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Statement of value added Years ended December 31 In thousands of reais (A free translation of the original in Portuguese)
Parent Company Consolidated 2012 2011 2012 2011
Revenues Sales of products, goods and services 4,956,421 4,264,541 5,398,405 4,713,520 Other revenues 125 390 13,408 11,793 Reversal (allowance) for doubtful accounts (11,240) (13,979) (1,918) (28,350) 4,945,306 4,250,952 5,409,895 4,696,963 Goods acquired from third parties Costsofproductssold(includingICMS,PISandCOFINS) (4,001,285) (3,353,940) (4,248,108) (3,588,862) Materials, energy, third party services and others (512,341) (479,167) (619,455) (560,239) (4,513,626) (3,833,107) (4,867,563) (4,149,101)
Gross value added 431,680 417,845 542,332 547,862
Depreciation and amortization (93,530) (78,444) (94,329) (72,641)
Net value added generated by the Company 338,150 339,401 448,003 475,221
Value added received in transfer Equity result 13,139 18,437 - - Financial income 159,087 176,902 206,093 219,061 172,226 195,339 206,093 219,061
Total value added to distribute 510,376 534,740 654,096 694,282
Distribution of value added Employees Direct compensation 138,749 84,767 156,795 99,381 Benefits 28,598 21,806 30,610 23,672 Guarantee fund for years of service 12,378 7,374 14,031 8,757 179,725 113,947 201,436 131,810 Taxes and contributions Federal (105,558) (40,017) (87,491) (20,369) State 22,355 25,010 38,790 43,079 Municipal 1,116 1,059 4,000 3,928 (82,087) (13,948) (44,701) 26,638 Compensation of third party capital Interest 552,995 501,776 626,310 591,085 Rentals 40,681 32,814 41,464 33,770 Others 252 147 254 147 593,928 534,737 668,029 625,002 Pay Equity Retained earnings / losses of the period (181,190) (99,996) (170,667) (89,168) (181,190) (99,996) (170,667) (89,168)
Distributed Value Added 510,376 534,740 654,096 694,282
The accompanying notes are an integral part of these financial statements.
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Management report 2012
In compliance with legal provisions and pursuant to current Brazilian corporate law, B2W presents this Management Report with financial and operating statements for the fiscal year ended December 31, 2012.
B2W is the leading online retail Company in Brazil and was formed in December, 2006 from the merger between Americanas.com and Submarino. This report contains information regarding the brands administered by the Company: Americanas.com, Submarino, Shoptime, BLOCKBUSTER® Online and SouBarato, as well as the Company's subsidiaries: B2W Viagens, Ingresso.com and Submarino Finance.
The Company's shares are listed on the São Paulo Stock, Commodities and Futures Exchange (BM&FBOVESPA) under ticker symbol BTOW3 and figure on the Novo Mercado listing segment, which is the highest level accorded for corporate governance in Brazil.
Lojas Americanas S/A is B2W's controlling shareholder, with approximately 63% of the Company's shares. The Company's free float corresponds about 37% of the Company's total capital. The following chart summarizes B2W's share structure:
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Management report 2012
1. Company Overview
B2W Digital is the leader in e-commerce in Brazil. Resulting from the merger between Americanas.com and Submarino in 2006, the Company operates through a digital platform, with business that present a huge synergy and a unique business model, multichannel, multibrand and multibusiness.
B2W has a portfolio with the brands Americanas.com, Submarino, Shoptime, B2W Viagens, Ingresso.com, Submarino Finance, BLOCKBUSTER® Online and SouBarato, that offer more than 35 categories of products and services through the internet, telesales, catalogs, TV and kiosks distribution channels.
Americanas.com
The largest Store. The lowest prices.
Operating for the past 13 years in e-commerce, Americanas.com (www.americanas.com.br) is Brazil's largest and most complete Internet store. The brand offers more than 500,000 items distributed in 32 categories such as computers, home appliances, electronics, cellphones, furniture, domestic utensils, toys, books and much more.
Besides the online channel, the marketing operation is also conducted through telephone sales and more than 700 kiosks located inside Lojas Americanas stores. The Americanas.com kiosks are designed to offer the best client purchase experience, with competitive prices and the comfort of receiving the product in one's own home. They also provide additional options, such as different means of payment, and contribute to digital inclusion, in many cases offering clients their first online shopping experience with the help of a trained associate.
In 2012, the brand launched a "Jet Delivery" service for more than 10,000 items for same-day-purchase delivery to clients in the city of São Paulo. Furthermore, Americanas.com has developed an application for smartphones, with a search tool that makes it possible to seek items using a bar code and providing the address of the Lojas Americanas store closest to the customer. Another search tool the brand offers is "Caixa Expresso" (Express Check-Out), a speedier and easier way of concluding an Internet purchase. The brand also operates a travel agency (http://viagens.americanas.com.br), B2B (business-to-business) services and a wedding list service.
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In 2012, the brand was six-time champion in the Datafolha Institute's Top of Mind Award in the e-commerce category, and elected the preferred brand of residents of Rio de Janeiro in the Purchase Site category, according to "O Globo" newspaper.
Submarino
The products you like and the best Internet service.
Operating in the sector for 13 years, Submarino (www.submarino.com.br) - a pioneering online store and the benchmark for technology and innovation - offers more than 30 product categories through its sales channels: Internet, telephone sales and catalogs, with a strong emphasis on the sale of books, CDs, DVDs, electronics, computers, telephone products, games and online services.
Moreover, Submarino has been consolidating itself through other services, such as Submarino Viagens travel site (www.submarinoviagens.com.br), Submarino on Demand (sale of streaming digital films), B2B (business- to-business) services and the Submarino Card (www.cartaosubmarino.com.br) - a credit card that offers exclusive advantages on the Submarino, Submarino Viagens and Ingresso.com websites.
Designed to serve consumers in an easier, faster and fully encompassing manner, Submarino has developed cell phone apps for models such as iPhone, Nokia and Android, with the following features: search by QRCode, search by barcode, native (faster) browsing, product promotions on the home page and 1-Click purchasing. Submarino sponsors a number of events, and is present at national and international activities such as Campus Party Brasil, the São Paulo Book Biennial and Rock in Rio.
Shoptime
Exclusive products and live demonstration.
Shoptime (www.shoptime.com.br) is Brazil's first home shopping (television sales) and operates through internet, telesales and catalogues. The TV channel reaches more than 28 million Brazilian households, of which more than 12 million with pay TV subscriptions (Sky 19 and Net 31 channels) and more than 16 million - connected to satellite television (Vertical 5B), with interactive transmission including more than 11 hours of live programming 7 days a week. Since 1995, the television channel broadcasts 24 hours a day, ensuring speed and improved interaction for clients' shopping experiences. The catalogue is distributed five times a year throughout Brazil with a printing run of 400,000 copies each.
Shoptime currently offers 23 product categories. Shoptime's assortment focus is on articles marketed under the Shoptime brand, with an emphasis on portable appliances (Fun Kitchen), bed, bath and dining (Casa & Conforto), housewares (La Cuisine) and sports and leisure products (Life Zone). The computer and technology department also plays an important role in the brand's product mix.
Furthermore, Shoptime operates a travel agency through Shoptime Viagens (http://viagens.shoptime.com.br).
B2W Viagens
B2W Viagens operatesthrough Americanas Viagens, Submarino Viagens, Shoptime Viagens and Submarino Viajes brands and offers tour packages, plane tickets, online hotel reservations, cruises, travel insurance, car rentals and tourist attractions packages in Brazil and abroad. The Company markets its services through the Internet, telephone sales and television, and has been working to expand product assortment aiming to aggregate the largest and best travel content in Latin America.
B2W Viagens' objective is to build a platform that allows each brand's clients to quickly and easily plan and purchase their travel packages, so that the Company pursues a leadership position in Latin America's online travel market on account of the Company's innovation, excellent customer service, outstanding content and competitive prices.
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Following its strategy of continuous innovation, B2W Viagens launched in 2010 Milevo (www.milevo.com.br) a social travel network, which now has over 70,000 users. The site allows users to add comments concerning their travel experiences, which enables B2W Viagens to gain access to a qualified traveling public with guaranteed travel knowledge and experience. It is noteworthy that Milevo complements the positioning strategy of B2W Viagens, because it interacts with the customers on the travel planning and sharing experiences phases.
In 2011, B2W Viagens began its international expansion with the official launching of the travel operation in Argentina through the brand Submarino Viajes (www.submarinoviajes.com.ar).
Ingresso.com
Ingresso.com provides technology and services of online purchase of tickets for movies, theater productions, concerts, soccer games and cultural events. With more than 4 million registered clients, Ingresso.com is the biggest online ticket seller in Brazil. The Company also allows clients to make seat assignments online, which enables the client to comfortably choose his or her preferred movie or theater seat. In addition, the Company has invested heavily in commercialization of tickets for concerts. Ingresso.com is the operator ticket sales for Rock in Rio 2013.
In addition to the main site (www.ingresso.com.br), which includes an exclusive version for mobile devices and iPhone, Blackberry and Android application, Ingresso.com is also available on the Americanas.com, Submarino and Shoptime websites.
Another area in which Ingresso.com operates involves marketing its ticketing software in Brazil. The Company is currently responsible for computerizing various movie theaters, theaters, sports stadiums and concert venues. Furthermore, Ingresso.com is present in Latin America and currently operates in Mexico, Argentina and Chile through movie ticket sales in a partnership with Cinemark. This initiative allows B2W to explore and study new markets with low entry costs.
Submarino Finance
Submarino Finance offers the Submarino Mastercard Card, which makes a number of special advantages available on Submarino website like installment payments in up to 15 times without interest charges, exclusive discounts, differentiated credit limit and the Léguas Program, which permits accumulation of rewards so that one can exchange them for products on Submarino.
For B2W, the Submarino Card represents an opportunity to leverage sales, especially high-cost items, to reduce the costs associated with credit-card administrative fees, to promote client's loyalty and to improve business revenue resulting from consumer financing. During the year, we have reached the target of more than 790 thousand cards and participation of 40% of the sales on Submarino website.
BLOCKBUSTER® Online
B2W acquired the right to use the BLOCKBUSTER® trademark online in Brazil and started offering in 2008 online DVD and Blu-ray Disk rentals on www.blockbuster.com.br. BLOCKBUSTER® Online is a rental store that allows clients to choose online the movies they want to watch, to create their wish list, and to receive and return movie rentals from the comfort of their homes. It offers monthly plans that allow clients to always have movies at home without worrying about return dates and late-return fines.
BLOCKBUSTER® Online currently includes the largest online selection of movies in Brazil, with more than 20,000 titles, and it provides services to the states of São Paulo, Rio de Janeiro, Minas Gerais, Paraná, Santa Catarina and Rio Grande do Sul. It also has the largest Blu-ray Discs collection available for rent in Latin America, with about 2,000 titles. Lastly, it also offers the service of rental of videogame games, being the unique online rental store offering DVD, Blu-ray and games in Brazil.
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SouBarato
At the end of 2011, it was launched the SouBarato (www.soubarato.com.br) website, aimed at factory outlet inventory selling. Since then, the site has been performing excellently, becoming a great way to reach a distinctive audience, thereby contributing to the Company's growth.
SouBarato website is an e-commerce store whose great competitive advantage consists of lower-than-market average price promotions offered to customers. The products sold are all new and repackaged, passing strict quality testing and are in flawless condition to be sold.
2. Message from the Management
Since it was founded, in 2006, B2W has undergone strong growth, intense transformation and a significant learning curve to confront the many changes observed in the Brazilian digital retail market.
During this period, based on a digital platform for businesses with strong synergies, B2W more than doubled in size. With its unique multichannel, multibrand and multibusiness model, the Company faced the challenges of a market that was expanding and becoming more diversified every day — and therefore more competitive and complex.
In 2012, the Company posted consolidated gross revenue of R$ 5.4 billion, representing a 15.3% growth when compared to the same period of the previous year. During the fourth quarter of 2012, the Company posted growth of 38.0%.
During 2012, a number of important measures that were implemented made it possible for the Company to advance its strategy for moving closer to its clients — offering them the best purchase experience, the best delivery option and the best customer service. In the month of October 2012, four new Distribution Centers were opened and at least another 10 Distribution Centers will be inaugurated over the next three years (2013, 2014 and 2015).
As a reward for the mobilization of the entire Company to provide the best digital experience in Latin America, B2W received a series of honors and awards in 2012. It placed first, through the Submarino brand, in three categories of the "Reclame Aqui Service Quality" website's annual award competition and in two categories of the prize offered by "Consumidor Moderno" Magazine; and it was elected, through Americanas.com, the preferred brand of consumers in the city of Rio de Janeiro, according to the O Globo newspaper. However, the greatest recognition was the trust placed in it by all of the clients who purchased and approved the products and services offered by B2W.
The Company is totally engaged to continue transforming its processes and investing in the infrastructure necessary to enable B2W to expand its competitive advantages, thereby enabling it to capture the innumerable e-commerce opportunities that will be presenting themselves in the forthcoming years. To be even closer to its clients the Company will invest more R$ 1 billion in the next three years (2013, 2014 and 2015) in logistics, technology and innovation.
B2W is prepared for 2013, a year which already is replete with opportunities. During this year, the Company will seek new and superior efficiency levels, expanding all of its operations and moving forward with its strategy to get closer to the clients, that is offering the best Internet purchase experience in Brazil and Latin America.
We would like to express our appreciation to all of our Associates, who made the' difference during the year and are part of the best and most successful digital team in Latin America. Our staff, one of the Company's main assets, is made up of e-commerce pioneers — with active participation in the development of the industry in Brazil and who have a privileged strategic vision about the digital retail market — and by the most brilliant people in the market, the result of a strong recruiting and professional development program to attract talented individuals.
We also would like to thank the support and trust of all of our clients, suppliers and shareholders.
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THE MANAGEMENT
3. Economic Landscape
Throughout 2012, internal consumption was consolidated as an important driver of the economy, boosted by incentive measures such as the temporary reduction of the Industrialized Product Tax (IPI) and the cut in the economy's basic interest rate (SELIC) to a historical minimum of 7.25% per year. Even facing macroeconomic challenges - with the Gross Domestic Product (GDP) growing 0.9% and inflation as measured by the National Wide Consumer Price Index (IPCA) reaching an accumulated rate of 5.84% — the retail sector was able to report a sales growth of 8.4%, up 1.7 p.p. over 2011. This performance could also be partly attributed to the evolution of the indicators for the country's labor market, which ended the year with the lowest unemployment rate in recent history (5.5%).
B2W reiterates its confidence in the country's economic development and in the growth opportunities in the retail digital segment, mainly due to the perspectives of modest credit expansion and reduction of consumers' delinquency in 2013. The Company reaffirms its confidence regarding the country's economic development and underscores the resilience of its unique business model through its nationwide presence and multichannel customer service.
*Source: Instituto Brasileiro de Geografia e Estatística and Banco Central do Brasil
4. Strategy and Investment
B2W's strategy is to get closer to the client, offering the best purchase experience, the best delivery service and the best customer service:
Best Purchase Experience - To offer the best products, the best prices and the best site browsing experience on our websites, facilitating clients' purchase process.
Best Delivery Service - We want to get even closer to the customers' homes, making deliveries in a faster and more reliable way.
Best Customer Service - We want to enchant clients, being speedy and efficient in solving any problems.
In line with this strategy, we will invest more than R$ 1 billion over the next 3 years (2013, 2014 and 2015), in technology, innovation and logistics and we will open 10 Distribution Centers.
Investment
We have adopted an investment plan which the main objective is to enable growth and improvements in our operations. In the year of 2012, B2W invested a total of R$ 322.5 million, mainly concentrated on logistics, technology and innovation.
Logistics
In line with its strategy of getting closer to its clients, during the month of October, B2W Digital opened 4 new Distribution Centers, located in the states of SP, RJ, MG and PE. The new distribution centers will guarantee speedier delivery of products purchased from the Company's websites and better client service.
B2W Digital has been constantly investing to optimize its logistical systems and distribution chain. During the last months, new equipment was installed and a number of construction projects at the Company's Distribution Centers were concluded, expanding the level of automation and thereby reducing the time needed to deliver merchandise and also reducing human error. Likewise, systems were installed to better satisfy new tax and legal requirements.
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Another important investment front has been the development of a new customer service system, which is used in the Distribution Center for localization and dispatch of orders processed and it will allow B2W to operate more efficiently and assertively.
In addition, the Company established strategic alliances with the leading transporters of the country, ensuring the joint commitment to offer the best level of service to the customers.
Technology
One of the goals of the technology investments is the creation of a robust infrastructure by optimizing back office systems, sales layers and accessory systems, such as means of payment and management information systems.
This way, the Company is able to benefit from productivity gains and to prepare itself for supporting the future growth of its operations. It's worth mentioning other important gains, such as the increase of the browsing speed of the Internet sites, the greater agility in commercial actions and the notable advances in management information systems.
The investments in technological platforms of the operational/logistics, television, customer service and telephone sales areas seek to improve the quality and efficiency of Company's operations, with the goal of giving the client an even better purchasing experience.
Following its path of innovation, B2W Digital has proceeded to invest in new features, designed mainly to improve the purchase experience, increase the conversion rate and strengthen the positioning of its brands.
During last year, a lot of projects were implemented involving from improvements in the structure of the technological platform to new features. We highlight the following recently introduced projects: o Launch of the new search system in Submarino. Seeking to enhance the purchase experience of its clients and offer greater convenience and speed, Submarino introduced its new search system. In books, movies, music and games categories, clients can search by title, author, publisher, and many others key words. For other categories, Submarino offers a refurbished and more assertive search system focused on the relevance and popularity of each item and including new services that provide greater ease of use for clients, such as "auto-complete," search suggestions and automatic filters. o Launch of the "Eu vi na TV" (I Saw It on TV) application by Shoptime. The iPhone-platform-based application exhibits the latest offers available on TV with an easy shortcut to finalize the purchase process. o New home page for the Americanas.com iPhone app. Seeking to offer its clients greater speed and convenience, Americanas.com introduced a new home page for its iPhone application. The new site highlights the main services available and is simpler to browse, as well as being lighter and loading faster, and is equipped with a more assertive search feature. o Implementation of the "Buy Later" tool. Now, clients of Americanas.com, Submarino and Shoptime will be able to select their product preferences and use the "Buy Later" tool to place them in their shopping carts and conclude purchases at a later time of their own choosing. o Implementation of the "Chat Service" tool. Clients of Americanas.com, Submarino and Shoptime now can count on a fast and easy service option, known as Chat Online. Through this option, clients can more comfortably clarify doubts, make suggestions or resolve eventual problems. o Implementation of "Product Evaluation." Through the Americanas.com and Shoptime websites, clients now have the opportunity to evaluate products, grading them and posting their opinions. As a result, other clients can make use of these evaluations for their own purchase decisions.
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o Implementation of the "Store Payment" option. Besides the different options available on the Americanas.com website itself, clients now have a new alternative: payment in the nearest Lojas Americanas store. o Implementation of "1-Click Buy" tool in Shoptime. After the implementation of the fastest purchase tool on the Internet by Americanas.com, Submarino and Ingresso.com, now its Shoptime's turn to offer the comfort and speed of "1-Click Buy" on its website. o Personalized offers in Submarino e-mails. Submarino now sends personalized offers by e-mail, using behavior information in real time. Besides improving the relevance of the offers for clients, the practice improves conversion of the average ticket. o Launch of the Nokia Cellphone Application. To offer more comfort to clients and strengthen its strategy of expanding product offerings to more mobile devices, B2W launched an Americanas.com and Submarino application for Nokia cell phones. Then besides clients who have iPhone or Android devices, now Nokia clients can also have this feature for greater ease of purchases. o Launch of suggestions channel by Shoptime and Submarino. A channel was developed for the clients of Shoptime and Submarino websites make suggestions regarding new products, improvements, clarify doubts and other possibilities. This channel is designed to improve our services and to enhance the client's online experience. o New generation search engine at Americanas.com. The Americanas.com search system continues being developed, becoming more assertive in its results, making use of such new features as "autocomplete", search suggestions, automatic filters by model, size and color, as well as it's a more intelligent system that learns through the "clicks" made by each user. o Launch of the functionality of product evaluation by the customers - Bazaar Voice of Submarino. It's a platform that was created to host Submarino's clients evaluations, reviews and contents, allowing a greater interaction with consumers, who can post their assessments of products and leave comments through images and videos.
People
One of B2W's main assets is the best and most successful digital team in Latin America, made up of e-commerce pioneers — who have actively participated in the development of the sector in Brazil and have a strategic and privileged vision about the digital retail market — along with the most brilliant people in the market who have been attracted by strong recruitment and talent development programs.
The expansion of B2W's operations directly reflects its Associates' professional development. The Company provides training and education programs to face the challenges that arise from the growth of our businesses. Career opportunities follow a merit-based system that rewards Associates' commitment to the Company's long- term vision.
Training and Development
In 2012, we consolidated the training schedule drawn up in the preceding year and logged 20,000 associate training hours.
Our focus on providing training and development to our Associates is a reflection of our pursuit of ever more challenging goals.
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Recruiting Talent
B2W's policy is to develop talent internally by hiring Associates for our Internship, Trainee and New Talents programs and for jobs at our business facilities. Thus, we emphasize the recruitment of young university students and new graduates, which are provided with specific training that accounts for challenges particular to the retail sector and immerses the associate in the Company's organizational culture.
Internship Program
The objective of the Internship Program is to recruit university students with an entrepreneurial spirit. Thus, we look for young people whose profile fits with a results-oriented team. During their participation in the program, interns are introduced to daily work routines in various departments at headquarters, distribution centers and other business facilities. Monthly training models are also offered during this period, and interns are given the opportunity to better understand the Company's vision, mission and values, its primary features and its respective departments, as well as the technical tools necessary to work in a specific field. The countrywide Program has brought many young professionals into the Company.
New Talents Program
The New Talents Program is focused on hiring recent university graduates, aiming at developing, in a fast way, young professionals capable of following the growth of the group enterprises. The talents are settled into specific areas since the beginning of the program, and undergo training where they have a vision of all Company areas.
Trainee Program
Registration for the B2W's Trainee Program is conducted on an annual basis. As rapid and dynamic as the internet itself, this program is conducted over 12 months, representing an intense learning experience for young candidates whose profiles suggest they could be future managers at Lojas Americanas. The selection process consists of: registration, an online stage, skills laboratory, HR interview, final assessment and hiring. In the first six months, the trainee learns about the company's overall operations and undergoes various corporate training modules. After this period, each trainee is sent to one business area for on-the-job learning and they all get an opportunity to develop a final challenging project.
Program for People with Disabilities
B2W proactively seeks to include and train people with disabilities in its workplaces. The company offers job positions through which disabled employees are given the opportunity to learn retail routines and develop themselves professionally. Recruitment of candidates occurs through partnerships with municipal authorities and specialized consultants, who indicate them for jobs in our stores and distribution centers around the country. Furthermore, in Rio de Janeiro and São Paulo, we participate in the "Special Opportunities" project, a specialized and accessible outreach program through which large companies offer jobs to people with disabilities.
5. Overview of the Company's Financial Results
General Considerations
The accounting information that serves as basis for the comments that follow are presented according to the international financial reporting standards (IFRS), to the rules issued by the Brazilian Securities Exchange Commission (CVM), to the Novo Mercado listing rules, and in Reais (R$). The follow analysis refer to the Consolidated results and the comparisons refer to the 4th quarter of 2011 (4Q11) and the year of 2011, except where otherwise indicated.
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B2W's portfolio is composed by the brands Americanas.com, Submarino, Shoptime, B2W Viagens, Ingresso.com, Submarino Finance, BLOCKBUSTER® Online and SouBarato, that offer over 35 categories of products and services through the Internet, telesales, catalogs, TV and kiosks.
Consolidated Consolidated 4T12 4T11 Var. (%) Financial Highlights (R$ million) 2012 2011 Var. (%) 1,588.2 1,176.6 35.0% Net Revenue 4,812.4 4,232.1 13.7% 362.3 273.6 32.4% Gross Profit 1,145.5 1,059.7 8.1% 22.8% 23.3% -0.5 p.p. Gross Margin (%NR) 23.8% 25.0% -1.2 p.p. 109.6 101.7 7.8% Adjusted EBITDA 331.2 415.4 -20.3% 6.9% 8.6% -1.7 p.p. Adjusted EBITDA Margin (%NR) 6.9% 9.8% -2.9 p.p. (43.7) (28.8) 51.7% Net Result (170.7) (89.2) 91.4% -2.8% -2.4% -0.4 p.p. Net Margin (%NR) -3.5% -2.1% -1.4 p.p.
Net Revenue
In 4Q12, the consolidated net revenue reached R$ 1,588.2 million compared to R$ 1,176.6 million in 4Q11, a growth of 35.0%.
In 2012, the consolidated net revenue reached R$ 4,812.4 million compared to R$ 4,232.1 in 2011, a growth of 13.7%.
+14%
+35% 4,812
4,232
1,588 1,177
4Q11 4Q12 2011 2012 Consolidated Consolidated
Gross Profit
In 4Q12, the consolidated gross profit reached R$ 362.3 million, a growth of 32.4% in relation to the R$ 273.6 million registered in 4Q11.
In 2012, the consolidated gross profit reached R$ 1,145.5 million, a growth of 8.1% in relation to the R$ 1,059.7 million registered in 2011.
+8%
+32% 1,146 1,060
362 274
4Q11 4Q12 2011 2012 Consolidated Consolidated
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Selling, General and Administrative Expenses
In 4Q12, the consolidated selling, general and administrative expenses totaled R$ 252.7 million, representing 15.9% of net revenue.
In 2012, the consolidated selling, general and administrative expenses totaled R$ 814.3 million, representing 16.9% of net revenue.
+1.7 p.p.
+1.3 p.p. 16.9%
15.2% 15.9% 14.6%
4Q11 4Q12 2011 2012 Consolidated Consolidated
Adjusted EBITDA
In 4Q12, the consolidated Adjusted EBITDA reached R$ 109.6 million, a growth of 7.8% comparing to R$ 101.7 million registered in the same period of the preceding year.
In 2012, the consolidated Adjusted EBITDA reached R$ 331.2 million, comparing to R$ 415.4 million registered in the preceding year.
-20%
+8% 415 331
102 110
4Q11 4Q12 2011 2012 Consolidated Consolidated
Adjusted EBITDA (Earnings before interest, taxes, depreciation and amortization and excluding other operating revenues/expenses and equity accounting) is presented as additional information because we believe it represents an important indicator of our operating performance besides being useful for keeping the comparability with previous reported results.
EBITDA (CVM 527/12)
On October 4th, 2012, Brazilian Securities Exchange Commission (CVM) enacted Instruction 527/12, which disposes about the voluntary disclosure of not of accounting information as EBITDA.
The Instruction aims to standardize the disclosure, in order to improve the understanding of this information and making it comparable among the publicly listed companies.
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To keep the consistency and the comparability between previous periods, we present the reconciliation of EBITDA in the following table.
Consolidated EBITDA Reconciliation - R$ MM 4Q12 4Q11 ∆ % 2012 2011 ∆ % GrossProfit 362.3 273.6 32.4% 1,145.5 1,059.7 8.1% (+)SellingExpenses (225.8) (146.5) 54.1% (732.7) (565.7) 29.5% (+)GeneralandAdministrativeExpenses (26.9) (25.4) 5.9% (81.6) (78.6) 3.8% (=)AdjustedEBITDA 109.6 101.7 7.8% 331.2 415.4 -20.3% (+)OtherOperatingIncome(Expenses)* (25.6) (20.5) 24.9% (77.0) (106.1) -27.4% (=)EBITDA(CVM527/12) 84.0 81.2 3.4% 254.2 309.3 -17.8% * In the old accounting rules, considered as "non operating income".
Adjusted EBITDA: Operational earnings before interest, taxes, depreciation and amortization and excluding other operational revenues/expenses and equity accounting.
EBITDA's (CVM 527/12) calculation takes into account the net income of the period plus income taxes, net financial expenses of financial revenues and depreciation and amortization.
Net Financial Result
In 4Q12, the consolidated net financial expenses were R$ 126.2 million, a variation of 17.3% comparing to the consolidated net financial expense of R$ 107.6 million presented in 4Q11. In 2012, the consolidated net financial expenses were R$ 420.2 million, a variation of 13.0% comparing to the consolidated net financial expense of R$ 372.0 million presented in 2011.
The growth of 13.0% in the consolidated net financial expenses in 2012 is related to the increase of the financial discounts granted because of the mean of payment chosen. The increase of this line is in line with the market practices observed during the period.
Consolidated Net Financial Result - R$ Million 4Q12 4Q11 Δ% 2012 2011 Δ%
Net Financial Result (126.2) (107.6) 17.3% (420.2) (372.0) 13.0%
The Company continues to reaffirm its commitment to a conservative cash investment policy, manifested by the use of hedge instruments in foreign currencies, to offset eventual exchanges fluctuations, whether relative to financial liabilities or total cash position. These instruments offset the foreign exchange risk, transforming the cost of the debt to local currency and interest rates (as a percentage of CDI*). Similarly, it is worth mentioning that the Company's cash is invested with Brazil's largest financial institutions.
CDI - Certificado de Depósito Interbancário: average rate of borrowing in the interbank market.
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Net Result
In 4Q12, the consolidated net result was R$ -43.7 million, compared to the R$ -28.8 million obtained in the same period of the preceding year. In 2012, the consolidated net result was R$ -170.7 million, compared to the R$ -89.2 million obtained in the preceding year.
Reconciliation of the Consolidated Net Result - R$ Million 4Q12 4Q11 Δ% 2012 2011 Δ%
AdjustedEBITDA 109.6 101.7 7.8% 331.2 415.4 -20.3%
(+) Depreciation / Amortization (25.8) (16.0) 61.3% (94.3) (72.6) 29.9% (+) Net Financial Result (126.2) (107.6) 17.3% (420.2) (372.0) 13.0% (+) Other Operating Income (Expenses)* (25.6) (20.5) 24.9% (77.0) (106.1) -27.4% (+) Income Tax and Social Contribution 24.3 13.6 78.7% 89.6 46.1 94.4% (=)NetResult (43.7) (28.8) 51.7% (170.7) (89.2) 91.4%
* In the old accounting rules, considered as "non operating income".
Adjusted EBITDA: Operational earnings before interest, taxes, depreciation and amortization and excluding other operational revenues/expenses and equity accounting.
Indebtedness
B2W uses its cash generation prioritizing investments that present better returns to shareholders. Thus, in the year of 2012, the consolidated investments in plant, property and equipment and intangible (development of websites and systems) totaled R$ 322.5 million.
B2W's cash balance at December 31, 2012 amounted R$ 1,370.2 million, amount higher than the Company's sum of short-term debt and debentures, which totaled R$ 617.1 million.
At December 31, 2012, the Company's net debt was R$ 641.0 million, representing 1.9 times the accumulated Adjusted EBITDA in the last 12 months, which shows an evolution when compared to the same indicator at September 30, 2012.
R$ million Consolidated
Indebtedness 12/31/2012 09/30/2012
ShortTermDebt 594.7 829.2 ShortTermDebentures 22.4 31.1 ShortTermIndebtedness 617.1 860.3 LongTermDebt 1,540.2 1,062.5 LongTermDebentures 601.5 599.1 LongTermIndebtedness 2,141.7 1,661.6
TotalDebt(1) 2,758.8 2,521.9
CashandEquivalents 1,370.2 1,167.4
Credit Card Accounts Receivables Net of Discounts 747.6 686.0
TotalCash(2) 2,117.8 1,853.4
NetCash(Debt)(2)-(1) (641.0) (668.5)
NetCash(Debt)/EBITDALTM 1.9 2.1
Average Maturity of Debt (days) 848 805
Adjusted EBITDA: Operational earnings before interest, taxes, depreciation and amortization and excluding other operational revenues/expenses and equity accounting.
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The accounts receivable is composed, mainly, by credit card receivables, net of the discounted value, which have immediate liquidity and can be considered as cash. The breakdown of B2W's accounts receivable is demonstrated in the table below:
AccountsReceivableConciliation 12/31/2012 09/30/2012
GrossCredit-CardsReceivable 1,835.5 1,859.7 ReceivableDiscounts (1,087.9) (1,173.7)
Credit Card Accounts Receivables Net of Discounts 747.6 686.0
PresentValueAdjustment (6.8) (3.5) AllowanceforDoubtfulAccounts (49.7) (58.3) OtherAccountsReceivable 166.9 234.8 NetAccountsReceivable-Consolidated 858.0 859.0
For calculation of the working capital purposes the consolidated gross credit cards receivables at December 31, 2011 were R$ 1,863.0 million.
Because of the adoption of the new CPCs/IFRS, in particular the CPC 38 and its corresponding IAS 39, the Company began to write off (derecognize) receivables from credit card administrators at the moment they are effectively discounted (as of the explanatory notes of the financial statements). However, to better demonstrate the volume of receivables discounted on the base-dates analyzed, in the table above the Company presents the accounts receivable adjusted by the discounts made until the base-dates under analysis.
No Foreign Currency Exposure
At December 31, 2012, B2W's balance sheet recorded foreign currency denominated debt. Such debt, however, is FULLY PROTECTED against any foreign exchange fluctuations through derivative operations (swap) that replace the foreign exchange risk for the variation in the basic Brazilian interest rate (CDI).
Sales by Means of Payment
Sales by means of payment can be seen in the following table:
Means of Payment 4Q12 4Q11 ∆% 2012 2011 ∆%
Credit Card 62% 71% -9p.p 65% 73% -8p.p Other Means of Payment 38% 29% +9p.p 35% 27% +8p.p
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Net Working Capital
The consolidated net working capital at December 31, 2012 was 98 days, representing an improvement of 21 days when compared to the 119 days presented at December 31, 2011.
- 21 days
119 98
12/31/2011 12/31/2012 (Net Working Capital = Days of Inventory + Days of Accounts Receivable - Days of Suppliers)
B2W, confirming its commitment to maximize shareholder value, continues to manage working capital variables. Opportunities of improvement in internal processes and relationship with suppliers continue being implemented and we are certain that better levels can be achieved.
Consolidated Income Statement
B2W Consolidated Consolidated Income Statements Period ended on December 31 Period ended on December 31 (in million of Brazilian reais, except result per share) 4Q12 4Q11 Variation 2012 2011 Variation Gross Sales and Services Revenue 1,821.4 1,319.9 38.0% 5,421.0 4,702.5 15.3% Taxes on sales and services (233.2) (143.3) 62.7% (608.6) (470.4) 29.4% Net Sales and Services Revenue 1,588.2 1,176.6 35.0% 4,812.4 4,232.1 13.7% Cost of goods and services sold (1,225.9) (903.0) 35.8% (3,666.9) (3,172.4) 15.6% Gross Profit 362.3 273.6 32.4% 1,145.5 1,059.7 8.1% Gross Margin (% NR) 22.8% 23.3% -0.5 p.p. 23.8% 25.0% -1.2 p.p. Operating Revenue (Expenses) (278.5) (187.9) 48.2% (908.6) (716.9) 26.7% Selling expenses (225.8) (146.5) 54.1% (732.7) (565.7) 29.5% General and administrative expenses (26.9) (25.4) 5.9% (81.6) (78.6) 3.8% Depreciation and amortization (25.8) (16.0) 61.3% (94.3) (72.6) 29.9% Operating Result before Net Financial Result and 83.8 85.7 -2.2% 236.9 342.8 -30.9% Equity Accounting Net Financial Result (126.2) (107.6) 17.3% (420.2) (372.0) 13.0% Financial Revenues 43.9 45.9 -4.4% 206.1 219.1 -5.9% Financial Expenses (170.1) (153.5) 10.8% (626.3) (591.1) 6.0% Other operating income (expenses)* (25.6) (20.5) 24.9% (77.0) (106.1) -27.4% Income tax and social contribution 24.3 13.6 78.7% 89.6 46.1 94.4% Net Result (43.7) (28.8) 51.7% (170.7) (89.2) 91.4% Net Margin (% NR) -2.8% -2.4% -0.4 p.p. -3.5% -2.1% -1.4 p.p. Adjusted EBITDA 109.6 101.7 7.8% 331.2 415.4 -20.3% Adjusted EBITDA Margin (% NR) 6.9% 8.6% -1.7 p.p. 6.9% 9.8% -2.9 p.p. Weighted average of outstanding shares (thousand) 156,536 135,627 156,536 135,627
Net Result per Outstanding Share (R$) (0.2791) (0.2124) 31.4% (1.0903) (0.6575) 65.8% * In the the former accounting rules, considered as "non-operating income".
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6. Corporate Governance and Capital Markets
B2W is subject to the BM&FBOVESPA's Novo Mercado, the highest Corporate Governance level in Brazil, listing rules. These include an ownership structure exclusively comprised of common shares and the election of independent members to the Board of Directors. B2W's Board of Directors is comprised of seven members, four of whom are appointed by the controlling shareholders and another three independent members.
The IPO and membership processes in the Novo Mercado were granted by the CVM and BOVESPA on July 25 and July 26, 2007, respectively.
B2W's common shares are listed on the BM&FBOVESPA and have been traded under the ticker symbol BTOW3 (common) since August 8, 2007.
Below is a short description of the main events occurred during the year:
On April 30, 2012 the Company's General and Extraordinary Shareholders Meetings were held, at which the following resolutions were approved:
1- To take recognizance of the accounts prepared by the managers and related financial statements for the fiscal year ended December 31, 2011.
2- Setting the global compensation to be paid to officers.
3- Inclusion of a statutory provision for adoption on the part of the Company of mechanisms that assure compensation of the officers and members of the Fiscal Council and technical bodies.
4- Detailing of the Company's corporate purpose.
5- Change in the wording of Art. 5th of the Bylaws to reflect the canceling of shares held in the treasury.
6- Fiscal Council Installation and election of Messrs. Carlos Alberto de Souza, Pedro Carvalho de Mello and Peter Edward Cortes Marsden Wilson to the position of full members and Messrs. Ricardo Scalzo, Luciano Mancini and Marcos Duarte Santos to the position of alternate members.
On May 25, 2012, at a Meeting of the Board of Directors, the third public issuance of Company's debentures was approved, in single series, unsecured, registered and book-entry, for public distribution with restricted placement efforts. The debentures were issued on June 13, 2012 in the total amount of R$ 300 million, maturing on June 13, 2017. The funds obtained through the issue of the debentures will be used to strengthen the Company's working capital.
On July 2, 2012, a meeting of the Board of Directors was held to elect Mr. Carlos Eduardo Rosalba Padilha as Chief Operating Officer, for mandate that shall expire, along with the other members of the Management, as of the holding of the General Shareholders Meeting in 2013.
On August 7, 2012, in the meeting of the Board of Directors was approved the election of Mr. Fabio da Silva Abrate, in substitution to Mr. François Pierre Bloquiau, as Investor Relations Officer, for mandate that shall expire, along with the other members of the Management, as of the holding of the General Shareholders Meeting in 2013.
On August 9, 2012, the shareholders were informed through the publication of Material Fact that Lojas Americanas S.A. (LASA), the controller Company, had ended a partnership with Itaú Unibanco Holding S.A for the distribution and sales of financial products and services exclusively through FAI - Financeiras Americanas Itaú. Pursuant to the obligations assumed in the constitution of the Company on November 23, 2006, LASA will offer to B2W the portion of the right to exclusivity, acquire by it, to offer, distribute and sell financial products and services through Company's distribution channels. It was further communicated that the Company will consider the LASA offer, when received, and will keep the market informed regarding the outcome of the negotiations of this matter.
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On September 24, 2012, a General Meeting of Holders of the Second Issue of Simple Debentures was held, approving on the occasion new wording of the definition of Consolidated Net Debt and the signing of the second amendment to the issue registration to change the financial index related to the Consolidated Net Debt/Adapted EBITDA ratio.
On September 26, 2012 a Market Announcement was published reporting that the controller, Lojas Americanas, had acquired 234,400 common shares issued by the Company, representing 0.15% of its Capital Stock. Through this acquisition, the Company's parent company reached 93,263,207 shares, representing 59.58% of its Capital Stock.
On September 28, 2012, a General Meeting of Holders of the First Issue of Simple Debentures was held, approving on the occasion new wording of the definition of Consolidated Net Debt, and the signing of the second amendment to the issue registration to change the financial index related to the Consolidated Net Debt/Adapted EBITDA ratio.
On November 1, 2012, through the Consolidated Form for Trading between Administrators and Connected Persons (Art 11 of CVM Instruction 358/02), it was communicated that the controller, Lojas Americanas, had acquired 950,100 of the Company's common shares. With this acquisition, the participation of the controller in the Company reached 94,558,106 shares, corresponding to 60.47% of the Social Capital.
On December 10, 2012, through the Consolidated Form for Trading between Administrators and Connected Persons (Art 11 of CVM Instruction 358/02), it was communicated that the controller, Lojas Americanas, had acquired 2,200,800 of the Company's common shares. With this acquisition, the participation of the controller in the Company reached 96,758,906 shares, corresponding to 61.81% of the Social Capital.
On January 2, 2013 through a Material Fact, the Company reported it had been informed, through its controller's management Lojas Americanas S.A., that Brazilian Central Bank had approved the acquisition of the total shares owned by LASA in FAI - Financeira Americanas Itaú S.A. Crédito, Financiamento e Investimento by Itaú Unibanco Holding S.A..
On January 10, 2013, through the Consolidated Form for Trading between Administrators and Connected Persons (Art 11 of CVM Instruction 358/02), it was communicated that the controller, Lojas Americanas, had acquired 1,426,300 of the Company's common shares. With this acquisition, the participation of the controller in the Company reached 98,185,206 shares, corresponding to 62.72% of the Social Capital.
On January 11, 2013 through a Material Fact, the Company reported it had been offered, through its controller, LASA, the exclusive right to offer, distribute and market financial services, securities and pension products through its distribution channels, as part of the process ending its partnership with Itaú Unibanco Holding S.A. in FAI; and that B2W had paid LASA the amount of R$ 16,500,000.00 as agreed on January 11, 2013.
Minutes of the last meetings and other financial or corporate information about B2W are available on our website (www.b2winc.com).
On December 31, 2012, Lojas Americanas' block of controlling stock was composed of 62.72% of the Company's shares, excluding treasury shares. The distribution of shares was as follows:
Shareholders Number of Shares (%)
Lojas Americanas 98,185,206 62.72
Market and Others 58,351,149 37.28
Subtotal 156,536,355 100.00
Treasury Shares -
GrandTotal 156,536,355
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Management report 2012
Dividend Policy
The Company's Bylaws, pursuant to the provisions of current legislation, set the minimum value for dividends at 25% of net income for the fiscal year, adjusted according to current legislation. In 2012, B2W have not distributed dividends to its shareholders.
Stock
The shares of B2W (BTOW3) are part of the Ibovespa, the most important indicator of average performance for the market price of Brazilian stocks. In addition, common and preferred shares of the Company are part of the Special Tag Along Stock Index (ITAG). This indicator is composed of shares of companies that offer the same conditions to minority shareholders as to majority shareholders in the case of a change in the control of the Company. The Company is also part of other important Brazilian indexes, such as the ICON, IGC and IVBX-2.
Participation on the Board of Arbitration
The Company, its shareholders and directors are obliged to resolve, through arbitration, any and all disputes or controversies that may arise between them, related to or originating specifically from the application, validity, efficacy, interpretation, violation and the attendant effects of matters contained in the Bylaws; in the provisions of Law 6404/76; in the regulations issued by the National Monetary Council, the Central Bank of Brazil, and the Brazilian Securities Exchange Commission (CVM); and in the other forms of regulation applicable to the participation on the stock market in general; in addition to those contained in the Novo Mercado Listing Rules, the Novo Mercado Participation Agreement, the Market Arbitration Board's Arbitration Rules and, especially, the Terms of Voting and Assumption of Obligations ("Terms of Vote") signed on December 13, 2006 and on file at the Company's Headquarters, which will be conducted jointly with the Market Arbitration Board instituted by BM&FBOVESPA, in conformity with the regulations of the aforementioned Board, unless both parties, under the terms of Chapter 12 of the same regulations, choose by common agreement an alternative board or arbitration center to resolve their differences.
Accordingly, the Company is subject to arbitration in the Market Arbitration Board, pursuant to its commitment clause in its Bylaws.
Independent Auditors
Pursuant to CVM Instruction 381, the Company reports that its independent auditors rendered services for evaluating the tax and accounting procedures adopted by the Company, having been hired on June 25, 2012, receiving fees of R$ 250,000, representing about 25% of the total fees related to the external auditing services. The aforementioned services already have been carried out and are not in conflict with the rules regarding independence of independent auditors. The Company's policy regarding the hiring of independent auditors for services not related to the outside audit assures that there is no conflict of interest or loss of independence or objectivity with regard to the independent auditors' work.
The Company's policy regarding the hiring of independent auditors for services not related to the outside audit assures that there is no conflict of interest or loss of independence or objectivity with regard to the independent auditors' work.
7. Socio-environmental Aspects
Social Aspects
B2W promotes the Program for People with Disabilities, a project that encourages hiring employees with special needs and fosters the social inclusion of these individuals by opening doors to the labor market. We believe that diversity contributes different worldviews and enriches the workplace, which improves service to all clients.
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Management report 2012
Environment
Aligned with its vision of being a socially and ecologically responsible organization, the company created the Sustainability Committee in 2007. The Committee's objectives are: to strengthen environmental awareness, reduce the consumption of water, energy and waste generation and develop social-environmental projects applicable to both business and community realities, striving to improve the quality of life of its Associates and other stakeholders (shareholders, clients, suppliers, service suppliers, government and society).
The Committee takes a multidisciplinary approach, made up of representatives of the Investor Relations, Human Resources, Institutional Relations, Management, Commercial and Treasury Departments. Each week it discusses and plans the implementation of actions designed to promote the company's sustainable development — always referencing the needs of its social, environmental and economic stakeholders.
The Sustainability Committee was formally established by the Board of Directors in 2010 and since then has quickly assumed an important role within the company. In the same year, it was created a specific hotsite to "Companhia Verde" in the Investor Relations website. In this space are presented the Committee objectives, the Company's Environmental Policy, the Carbon Inventory and a specific communication channel for the sustainability issues. Thus, it is possible that all stakeholders can interact with the Committee, clarifying questions and sending suggestions.
In 2008, the Code of Ethics and Conduct underwent a makeover aiming to enlarge the adoption of ethical and behavioral principles. The respect due individual differences and the constant care to be taken regarding social responsibility inherent in relations with stakeholders.
The Code compiles values and commitments that must be applied by every associate to his or her relationship with the other stakeholders (shareholders, clients, suppliers, service suppliers, government and society).
As of the moment new Associates enter the company, they sign a Term of Acceptance of the Code of Ethics and Conduct, thereby becoming committed to compliance with the rules and principles contained in the document.
Through the Code of Ethics and Conduct, the company strengthens its commitment to:
Respect for laws; Access to education and development activities; Safety and health; Eradication of force or compulsory work; Eradication of child labor; Prevention of harassment; Commitment for combating sexual exploitation of children and teenagers; Combating the practice of discrimination in all its forms; Valuing diversity; Respect for freedom to join unions and the right to collective bargaining.
In 2011, we have included environmental assignments in job description of all offices.
The Company practice the selective waste collection program at our Head Offices and Distribution Centers to eliminate or better dispose of the waste that is generated. At the same time, we are developing training and communication programs to encourage a reduction in the generation of waste and the consumption of natural resources. In 2012, we also have continued to monitor water and energy consumption through an internal application that facilitates weekly control, identifies anomalies and allows problems to be handled as soon as they arise.
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Management report 2012
We continuously strive to be more transparent to the market and reduce our impacts on global warming. Accordingly, we developed important initiatives:
In 2013, we are going to release our first Sustainability Report, already based on the internationally recognized Global Reporting Initiative (GRI) standards. It is designed to elevate our sustainable practices to a higher quality level, providing greater credibility in the Company's social, environmental and economic performance communication, besides strengthening our commitment to clients, society, investors and all the value chain.
For the third consecutive year, B2W calculated emissions of greenhouse gases generated by the Company, publishing the GEE Inventory on the B2W Investor Relations website. The Emissions Inventory, a measurement of greenhouse gases resulting from our operations, is a key step in the fight against global climate change. We also participate in initiatives of great importance to the market, such as the Carbon Disclosure Project (CDP), a nonprofit organization whose goal is to encourage transparency in relation to the climate management practices of public companies.
Environmental education is an important activity for the "Companhia Verde". Training conducted at our Americanas Development Center (CDA), newsletters sent by e-mail, a regular column on these topics in all of the editions of "Isto é LASA" (the in-house corporate newspaper), periodic pop-up alerts on computers and orientation materials for new employees are some of the ways that the Company has found to increase the awareness and the engagement of all. We will continue to rely on this involvement to achieve even better results in 2012, making our Company more socially and environmentally responsible.
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Notes to the financial statements at December 31, 2012 In thousands of reais
1 Operating context
B2W - Companhia Global do Varejo ("B2W" or "Company") is a publicly traded corporation, with head offices at Rua Sacadura Cabral, 102, in the City and State of Rio de Janeiro, incorporated through the merger of Americanas.com S.A. - Comércio Eletrônico (Americanas.com) and Submarino S.A., with shares traded on the Brazilian Securities, Commodities and Futures Exchange (BM&FBOVESPA), under the ticker symbol BTOW3. B2W is controlled by Lojas Americanas S.A. ("LASA" and/or "Parent Company"), a publicly held company with shares traded on the São Paulo Stock Exchange under the ticker symbols LAME3 - ON and LAME4 - PN.
The Company and its subsidiaries are engaged in retail marketing and as wholesalers of goods and products in general through various sales channels, particularly through the Internet; the rental of movies and related items; the intermediation and distribution of theater and cinema tickets, tickets for transportation and public events, entrance to theme parks and events in general; the import of products for resale; promotional services, marketing development and the offering of credit products; and various other products and services for the general consumer.
B2W's portfolio contains the Americanas.com, Shoptime, Submarino, Submarino Finance, B2W Viagens, Ingresso.com, BLOCKBUSTER® Online and SouBarato brands, which offer hundreds of thousands of products and services in various categories through distribution via the Internet, catalogs, television sales and kiosks. B2W also offers outsourced e-commerce services for some of the leading consumer goods companies (Business-to-business to consumer - B2B2C).
The issuing of these financial statements was authorized by the management on March 1, 2013.
2 Summary of significant accounting policies
The principal accounting policies applied in preparing these financial statements are set out below. These policies have been applied consistently in the years presented, unless otherwise specified, and at fair value.
2.1 Basis of preparation
The financial statements were prepared based on historical cost, except for financial assets available for sale that are presented at fair value and of financial liabilities measured to amortized cost.
The preparation of financial statements requires the use of certain critical accounting estimates and also the exercise of judgment by the Company's management in applying accounting policies. Those areas that require a higher level of judgment and are more complex, as well as those where assumptions and estimates are significant to the financial statements are shown in Note 3.
(a) Consolidated financial statements
The consolidated financial statements have been prepared and are presented according to accounting practices adopted in Brazil, including the pronouncements issued by the Brazilian Accounting Pronouncements Committee (CPC), and according to the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).
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Notes to the financial statements at December 31, 2012 In thousands of reais
(b) Individual statements
The Company's individual financial statements had been prepared and are being presented according to accounting practices adopted in Brazil issued by the Brazilian Accounting Pronouncements Committee (CPC) and are disclosed in conjunction with the consolidated financial statements.
In the individual financial statements, subsidiaries and jointly controlled companies are accounted for using the equity accounting method. In the case of B2W, the accounting practices adopted in Brazil and applied in financial statements differ from the IFRS applicable to the consolidated financial statements only (i) in the valuation of investments in subsidiaries and jointly controlled by the equity accounting method, which according to the IFRS should be by cost or fair value, and (ii) in the maintenance of existing deferred assets at December 31, 2008, which are being amortized, whereas under IFRS these expenses do not qualify for recognition as an asset.
(c) Changes in accounting policies and disclosures
There are no new accounting statements or interpretations of CPCs/IFRS in force from 2012 that could have a significant impact on the Company's financial statements, except for the choice of adopting the equity accounting method for accounting for investments in jointly controlled companies instead of proportional consolidation. The Company has not opted to change the accounting criteria of investments in jointly controlled subsidiary companies.
2.2 Consolidation
The following accounting policies were applied in preparing the consolidated financial statements:
(i) Subsidiaries
Subsidiaries are all entities (including special purpose entities) in which the Group has the power to govern the financial and operating policies, generally accompanied by a participation of more than half of the voting rights (voting capital). The existence and effect of potential voting rights currently exercisable or convertible are considered when assessing whether the Group controls another entity. The subsidiaries are fully consolidated from the date on which control is transferred to the Group. Consolidation is discontinued from the date the Group ceases to have control.
The Group uses the acquisition method to account for business consolidations. The consideration transferred for the acquisition of a subsidiary is the fair value of assets transferred, liabilities incurred and equity instruments issued by the Group. The consideration transferred includes the fair value of assets and liabilities arising from a contracted contingent consideration, if applicable. Costs related to acquisition are recorded in income according to the date incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured at fair values at the acquisition date. The Group recognizes the non-controlling interest in the acquired company, both at their fair value as well as the pro rata share of the uncontrolled share at the fair value of the net assets acquired. The measurement of a non-controlling interest is determined for each acquisition made.
The unrealized gains from transactions between the Group and its affiliates and subsidiaries together are eliminated according to the proportion of each in the Group. Unrealized losses are also eliminated unless the transaction provides evidence of a loss (impairment) of the transferred asset. The accounting policies of associated companies are modified as necessary to ensure consistency with the policies adopted by the Group.
Transactions and balances on transactions between Group companies are eliminated.
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Notes to the financial statements at December 31, 2012 In thousands of reais
(ii) Jointly controlled subsidiaries
Jointly controlled subsidiaries are those over which the Group has joint control with one or more parties. The Company has no investments in affiliates. Investments in jointly controlled subsidiaries are consolidated proportionally.
From 2011, the Company consolidates proportionally the financial information of the Fênix Fundo de Investimento em Direitos Creditórios do Varejo (FIDC), a special purpose corporation created in 2011 to carry out the securitization of the receivables of the Company and its Parent Company, Lojas Americanas S.A. (individually "transferor" or, collectively, "assignor"). In the consolidation process, the Company considers, for the purpose of determining the percentage of consolidation that accrued to each grantor (proportional consolidation), the percent share of the balance of the securitized assets for each base-date by the Transferor in relation to the total balance of assets securitized. At December 31, 2012, approximately 85.8% and 14.2% were consolidated in the Company and the Parent Company, respectively. See additional details in Note 7 (a).
(iii) Reconciliation of the Shareholders' Equity and the Results of the year of the Parent Company with the Consolidated:
Shareholders' equity Result
December December December December 31, 2012 31, 2011 31, 2012 31, 2011
Parent company 977,019 1,157,377 (181,190) (99,996 )
Write-off of deferred assets (12,131 ) (28,075 ) Reversal of deferred amortization 15,944 16,406 Deferred income tax and social contribution 4,125 9,546 (5,421) (5,578)
Consolidated 969,013 1,138,848 (170,667) (89,168)
2.3 Presentation of segment information
The Company's activities are concentrated in the marketing of products and delivery of services by various means of non presence marketing, especially the Internet. Despite the diversity of products sold and services provided by the Company (retail and wholesale trade, movie rentals, sale and distribution of theater and cinema tickets, tickets for transportation and public events, entrance to theme parks and events in general, among others), such activities are not controlled and managed by the Management as independent operational segments, as their accompanying results are monitored, tracked and evaluated in an integrated manner. Thus, Management understands that the Company is organized, basically, in a single business unit. The Company also operates in the area of financial products through the subsidiary Submarino Finance Promotora de Crédito Ltda. (up to November 30,2012 jointly controlled), which, by not achieving the minimum quantitative and qualitative parameters, is not being presented as a separate operating segment.
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Notes to the financial statements at December 31, 2012 In thousands of reais
2.4 Foreign currency translation
(a) Functional and presentation currency
The functional currency and of the presentation of the financial statements of the Group is the Real.
(b) Transactions and balances
Transactions in foreign currency, i.e. all those not made in the functional currency, are converted at exchange rates prevailing on the dates of the transactions. Assets and liabilities in foreign currencies are converted into the functional currency using the exchange rate on the balance sheet closing date. Gains and losses, from changes in the exchange rates, on monetary assets and liabilities are recognized in the statements of operations. Non-monetary assets and liabilities acquired or contracted in foreign currency, as applicable, are converted using the exchange rates on the dates of transactions or at fair value, on the dates of review, when it is used.
2.5 Cash and cash equivalents
Cash and cash equivalents include cash, bank deposits, other high-liquidity short-term investments, with original maturities of three months or less, and with insignificant risk of changes in value.
2.6 Financial assets
2.6.1 Classification
The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables and available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.
(a) Financial assets at fair value through profit and loss
The financial assets at fair value through profit and loss are financial assets held for trading. A financial asset is classified under this category if it was acquired primarily to be sold in the short term. The assets under this category are classified as current assets.
Derivatives are also classified as held for trading.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These are included as current assets, except for those with maturities greater than 12 months after the base date of the balance sheet (these are classified as non-current assets). The Group's loans and receivables comprise "Accounts receivable and other receivables" and "Cash and cash equivalents" (Notes 2.5 and 2.8).
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Notes to the financial statements at December 31, 2012 In thousands of reais
(c) Financial assets available for sale
Financial assets available for sale are non-derivatives that are designated in this category or not classified in any of the above categories. They are presented as non-current assets unless management intends to sell the investment within 12 months after the date of the balance sheet.
2.6.2 Recognition and measurement
Purchases and sales of financial assets are usually recognized on the trade date. Investments are initially recognized at fair value plus transaction costs for all financial assets not classified under fair value through profit or loss. Financial assets at fair value through profit or loss are initially recognized at fair value and transaction costs are charged to the statement of operations. Financial assets are written off when the rights to receive cash flows from investments have expired or have been transferred; in the latter case, provided that the Company has substantially transferred all risks and benefits of ownership. The financial assets available for sale and the financial assets measured at fair value through income are subsequently accounted for at fair value. Loans and receivables are accounted for at amortized cost using the effective interest method.
Gains or losses arising from changes in fair value of financial assets measured at fair value through profit or loss are presented in the statement of operations under "Finance income" in the period in which they occur.
Changes in fair value of monetary securities denominated in foreign currency and classified as available for sale are divided between translation differences resulting from changes in amortized cost of the security and other changes in the carrying value of the security. The effects of changes in foreign exchange rates on foreign currency securities are recognized as profit or loss. Changes in fair value of monetary and non-monetary securities classified as available for sale are recognized in equity.
When securities classified as available for sale are sold or suffer loss (impairment), the accumulated fair value adjustments recognized in equity are included in the statement of operations as "Finance income and costs."
Interest on securities available for sale, calculated using the effective interest method , is recognized in the income statement as part of financial result.
The fair values of publicly quoted investments are based on current purchase prices. If the market for a financial asset (and securities not listed on the Stock Exchange) is not active, the Group establishes fair value using valuation techniques. These techniques include using recent transactions with third parties, references to other instruments that are substantially similar, analysis of discounted cash flows and option pricing models making maximum use of information generated by the market and have the minimum possible information generated by the administration of the entity itself.
2.6.3 Offsetting financial instruments
Financial assets and liabilities are offset and the net value is reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle them on a net basis or realize the asset and settle the liability, simultaneously.
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Notes to the financial statements at December 31, 2012 In thousands of reais
2.6.4 Impairment of financial assets
(a) Assets carried at amortized cost
On the date of closing each balance sheet, the Group assesses whether there is objective evidence that a financial asset or group of financial assets is impaired. An asset or group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events occurring after the initial recognition of the asset (a "loss event") and that loss event (or events) has an impact on the estimated future cash flows of the financial assets or group of financial assets that can be reliably estimated.
The criteria the Company uses to determine whether there is objective evidence of an impairment loss include:
(i) significant financial difficulty of the issuer or obligor;
(ii) a breach of contract such as default or late payment of interest or principal;
(iii) the Group, for economic or legal reasons relating to the financial difficulty of the borrower, extends to the borrower a concession that a lender would not normally consider;
(iv) it becomes likely that the borrower will file for bankruptcy or other financial reorganization;
(v) the disappearance of an active market for that financial asset because of financial difficulties; or
(vi) observable data indicating that there has been a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although such decrease cannot yet be identified with the individual financial assets in the portfolio, including:
adverse changes in the payment status of borrowers in the portfolio; and
national or local economic conditions that correlate with defaults on the assets in the portfolio.
The amount of the impairment loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognized in the consolidated statement of operations. If a loan or investment held to maturity has a variable interest rate, the discount rate to measure an impairment loss is the current effective interest rate provided for in the contract. As a practical matter, the Company may measure impairment based on fair value of an instrument using an observable market price.
If, in a subsequent period, the value of the impairment loss decreases and such decrease can be related objectively to an event occurring after the impairment to be recognized (such as an improvement in creditworthiness of the borrower), the reversal of the previously recognized impairment loss is recognized in the statement of operations.
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Notes to the financial statements at December 31, 2012 In thousands of reais
(b) Assets classified as available for sale
In the case of investments in equity securities classified as available for sale, a significant or prolonged decline in fair value below its cost basis is also evidence that the asset is impaired. If any such evidence exists for financial assets available for sale, the cumulative loss - measured as the difference between the acquisition cost and current fair value, less any impairment loss on the financial asset previously recognized in profit or loss - is removed from equity and recognized in the statement of operations. Impairment losses for equity instruments recognized in the consolidated statement of operations are not reversed in the consolidated statement of operations. In the case of debt instruments, if, in a subsequent period, the fair value of this instrument classified as available for sale increases, and the increase can be objectively related to an event occurring after the impairment loss was recognized in income, loss impairment is reversed through the statement of operations.
2.7 Derivative financial instruments - Hedging
Derivatives are recognized at fair value on the date of the contract and are subsequently recalculated at their fair value. For details see Note 2.16 and 4.1 (a).
2.8 Accounts receivable clients
Accounts receivable from credit card administrators are shown at net adjusted present value, calculated on the portion of the sales and the allowance for doubtful accounts. Sales through corporate loyalty programs and trade agreements are recorded under "Other Receivables."
Accounts receivable are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method less the allowance for doubtful accounts ("PDD" or "impairment")
2.9 Inventories
Inventories are stated at average cost or net realizable value, whichever is less. The average cost of acquisition is adjusted by the effect of the present value of suppliers (forward purchases) and rebates received from suppliers, as applicable. The net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to carry out the sale.
2.10 Intangible assets
(a) Goodwill
Goodwill is represented by the positive difference between the amount paid and/or payable for the acquisition of a business and the net fair value of assets acquired and liabilities of the subsidiary. Goodwill on acquisitions of subsidiaries is recorded as "Intangible Assets" in the consolidated financial statements. In the case of calculating the discount, the amount is recorded as a gain in earnings at the date of acquisition. Goodwill is tested annually for impairment. Goodwill is stated at its cost less accumulated impairment losses. Recognized impairment losses on goodwill are not reversed. Gains and losses from disposal of an entity include the carrying amount of goodwill related to the entity sold.
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Notes to the financial statements at December 31, 2012 In thousands of reais
Goodwill is allocated to Cash Generating Units (CGUs) for impairment testing purposes. The allocation is made to the Cash Generating Units or groups of Cash Generating Units that should benefit from the business combination that generated the goodwill, and are identified according to the operating segment.
The goodwill on acquisition of investments, including acquisition, due to expected future profitability, were amortized through December 31, 2008 using a 5 to 10 year period, according to the proportion of expected future results from the investments. The value of goodwill for future profitability is no longer amortized since January 1, 2009.
(b) Trademarks and licenses
Trademarks and licenses acquired separately are shown initially at historical cost. Trademarks and licenses acquired in a business combination are recognized at fair value at the acquisition date. Subsequently, the trademarks and licenses, evaluated with finite lives are stated at cost less accumulated amortization. Amortization is calculated on the straight-line method to allocate the cost of trademarks and licenses over their estimated working life of 15 to 20 years.
(c) Software/website
The expenses related to the development of web sites (the principal sales channel of the Company), such as the development of application and operational technology infrastructure (purchase and internal development of software and application installation in sites), the rights to use software and graphics development are recorded as an intangible, as specified in FRS 04 (IAS 38) and are amortized on the straight-line method considering the stipulated period of its use and benefits to be accrued (Note 15).
The software licenses are capitalized on the basis of costs incurred to acquire the software and websites and make them ready for use. Costs related to software maintenance are expensed as incurred. Development costs that are directly attributable to the design and testing of new software and websites identifiable and unique, controlled by the Group are recognized as intangible assets when the following criteria are met:
it is technically feasible to complete the software/website product and make it available for use;
management plans to complete the software/website and use it or sell it;
the software/website can be sold or used;
it can be shown that it is likely that the software/website will generate future economic benefits;
adequate technical, financial and other resources to complete the development and use or sell the software/website are available; and
the expenses attributable to the software/website during its development can be measured reliably.
The directly attributable costs that are capitalized as part of the software product/website, include the costs allocated to employees in software/website development and an appropriate share of applicable overheads. Costs also include borrowing costs incurred during the development of software/websites. The amount of charges on borrowings capitalized is obtained by applying the weighted average rate on borrowings that were in force during the period of the investments to obtain the asset and that does not exceed the amount of borrowing costs incurred during the period.
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Notes to the financial statements at December 31, 2012 In thousands of reais
Other development expenditures that do not meet these criteria are recognized as an expense as incurred. Development costs previously recognized as an expense are not recognized as assets in a subsequent period.
2.11 Fixed assets
Fixed assets are measured at their historical cost less accumulated depreciation. Historical cost includes directly attributable expenditures to acquire these items and financing costs related to the acquisition of qualifying assets.
Subsequent costs are included in the assets' carrying amount or recognized, as appropriate, as a separate asset, only when it is probable that future economic benefits associated with these costs will accrue and can be reliably measured. All other repairs and maintenance, are charged to the statement of income during the financial period in which they are incurred.
Land is not depreciated. Depreciation of other fixed assets is calculated using the straight-line method, to allocate their costs to their residual values over the estimated useful lives, as shown in Note 14.
Residual value and useful life calculations of assets are reviewed and adjusted, as appropriate, at the end of each reporting period.
The book value of an asset is immediately reduced to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount (Note 2.13).
Gains and losses on the disposal of assets are calculated as the difference between the total proceeds realized from disposals and their carrying value, and are recognized as "Other net operating income (expenses)" in the statement of operations.
2.12 Deferred assets
In connection with Law No. 11941/09 and CPC 43, the Company (Parent Company) opted to maintain, in its overall results, under Deferred Assets, the balances related to pre-operating expenses that showed signs of recoverability, for amortization during the period of anticipated benefits. The effect of maintaining the Deferred Assets balance is totally eliminated in the preparation and presentation of the consolidated financial statements (Note 16).
2.13 Impairment of non-financial assets
Assets that have an indefinite useful life, such as goodwill, are not subject to amortization and are tested annually to identify any need to reduce recoverable value (impairment). The assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. An impairment loss is recognized when an asset's carrying amount exceeds its recoverable amount, which is the greater of fair value of an asset, less costs to sell, and its value in use. For purposes of impairment evaluation, assets are grouped at the lowest levels for which there are separately identifiable cash flows (Cash Generating Units - CGUs). Non-financial assets, except goodwill, which have been adjusted for impairment, are subsequently reviewed for possible reversal of the impairment at each reporting date.
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Notes to the financial statements at December 31, 2012 In thousands of reais
2.14 Trade accounts payable
Trade accounts payable are payable obligations related to goods or services that were purchased from vendors in the ordinary course of business and are classified as current liabilities if the payment is due in a period of up to one year. Otherwise, the accounts payable are posted as non- current liabilities.
They are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method.
2.15 Present value adjustment
The operations of long-term purchases, primarily from suppliers of goods and services, were adjusted to their present value taking into account the maturities of these transactions. The average rate used of 8.43% per annum (p.a.) at December 31, 2012 (11.73% p.a. at December 31, 2011), was based on funding for the respective periods. The constitution of the present value adjustment of purchases is recorded under "Suppliers" and "Inventory" (Note 9) and the counterpart entries are shown under the heading "Finance Costs", through the maturity date, in the case of suppliers, and for the realization of inventories based on the amounts recorded under the heading "Cost of goods sold."
The operations of long-term transactions, at the same previously-agreed prices as represented, mainly, through credit card installment sales, were brought to their present value taking into account the payment deadlines of the aforementioned transactions. The same treatment was given to the taxes on those sales, considering the effective rate on them. The average rate used of 9.03% p.a. at December 31, 2012 (12,53% p.a. at December 31, 2011), was based on receivable discounts on their respective base dates. The present value adjustment of installment sales has a counterpart entry under the heading "Accounts receivable from clients" (Note 8) and its realization is recorded under "Finance income" through the maturity date.
2.16 Borrowings and financing
Borrowings are recognized initially at fair value, net of transaction costs incurred and are, subsequently, stated at amortized cost. Any difference between the values obtained (net of transaction costs) and the liquidation value is recognized in the statement of operations during the period during which borrowings are outstanding, using the effective interest method. Borrowings subject to swap as protection against exchange rate fluctuations are recorded at fair value, as shown in Note 4.1 (a).
Borrowings are classified as current liabilities, unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
2.17 Provisions
Provisions and legal claims (labor, civil and tax claims) are recognized when: (i) the Group has a present legal or constructive obligation as a result of events that have already occurred, (ii) it is probable that an outflow of resources is necessary to settle an obligation, and (iii) the amount can be reliably estimated.
When there are a number of similar obligations, the likelihood of settling them is determined by taking into consideration the class of obligations as a whole. A provision is recognized even if the probability of settlement relating to any individual item included in the same class of obligations is small.
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Notes to the financial statements at December 31, 2012 In thousands of reais
Provisions are measured at the present value of the expenditures expected to be required to settle an obligation using a pre-tax rate, which reflects current market assessments of the time value of money and, if appropriate, the risks specific to the obligation. The increase in a provision due to the passage of time is recognized as a finance cost.
2.18 Current and deferred income tax and social contribution
The income tax and social contribution expenses for the year comprise current and deferred taxes. Income taxes are recognized in the statement of operations, except to the extent that they relate to items recognized directly in equity or comprehensive income. In this case, the tax is also recognized in equity or in comprehensive income.
The current and deferred income taxes and social contribution burden are calculated using the tax laws that have been enacted, or substantially enacted, by the balance sheet date. Management periodically evaluates positions taken in the Group's tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities.
Current income tax and social contribution are shown net, by contributing entity, as liabilities, when there are amounts, payable, or as assets, when amounts paid in advance exceed the total amount due on the date of the report.
Deferred income tax and social contribution are recognized using the liability method on the temporary differences arising between the tax bases of assets and liabilities, and their carrying amounts in the financial statements. However, the deferred income tax and social contribution are not accounted for if they result from the initial recognition of an asset or liability in a transaction other than a business combination which, at the time of the transaction, does not affect the accounting result or the taxable profit (tax loss).
Deferred income tax and social contribution assets are recognized only in proportion to the probability that future taxable profit will be available and against which the temporary differences can be used.
Deferred income tax and social contribution assets and liabilities are presented net in the balance sheet when there is a legal right and intention to set off the recognized amounts in the calculation of current taxes that, in general, relate to the same legal entity and the same tax authority. However, the deferred tax assets and liabilities are presented separately in Notes 11 (a).
2.19 Employee benefits
(a) Share-based compensation
The Group operates a share-based compensation plan, paid in shares, according to which the entity receives the services of employees as consideration for equity instruments (options) of the Group. The fair value of employee services, received in exchange for share options, is recognized as an expense. The total amount to be recognized is determined by referencing the fair value of options granted, which is calculated on the grant date of the options program for the purchase of shares based on pricing models usually adopted by the market. These models are calculated using assumptions, such as market value of the share, the option exercise price, Company share price volatility (calculated based on the historical price of its shares), risk-free interest rate, term of the contract ("vesting period") and anticipated dividends distribution. The compensation costs linked to
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Notes to the financial statements at December 31, 2012 In thousands of reais
these programs are recorded using the straight-line method during the period in which the recipient is engaged in providing services, accounting for forfeitures as they occur. The assumptions and models used to estimate the fair value of share-based payments are disclosed in Note 22. On the closing date of the balance sheet, the entity revises its estimates of the number of options, whose rights may be acquired based on the conditions of acquisition of rights that are not in the market. This recognizes the impact of the revision of original estimates, if any, in the income statement, with a corresponding adjustment in equity.
The amounts received, net of any directly attributable transaction costs, are credited to share capital (nominal value) and goodwill reserves, if applicable, when the options are exercised.
The social contributions payable in connection with the granting of share options are considered part of the grant itself, and the collection will be treated as a cash-settled transaction.
(b) Profit sharing
When applicable, the Group recognizes a liability and an expense for profit sharing based on a methodology that takes into consideration the profit attributable to Company shareholders after certain adjustments. The Group recognizes a provision where it is contractually obliged or where there is a past practice that has created a constructive obligation.
(c) Other benefits
The Company and its subsidiaries do not provide other post-employment benefits, contract termination benefits or other long-term benefits for Management and its employees (except for the share option purchase plan described in Note 22).
2.20 Share capital
Common shares are classified as net equity.
The incremental costs directly attributable to the issuance of new shares or options are shown in equity as a deduction from the proceeds, net of taxes. When the Company purchases its own equity share capital (treasury shares), the consideration paid, including any additional, directly attributable costs (net of income taxes) is deducted from equity attributable to shareholders of the Company until the shares are canceled or reissued. When these shares are subsequently reissued, any consideration received, net of any additional, directly attributable transaction costs and the related income tax and social contribution effects, are included in equity attributable to the shareholders of the Company.
2.21 Recognition of revenues
Revenue is the fair value of the consideration received or receivable from the trading of products and services in the ordinary course of business of the Company. Revenue is reported net of taxes, returns, rebates and discounts, as well as the elimination of sales between Group Companies.
The Group recognizes revenue when its amount can be reliably measured, and it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group's activities, as described below. The Company bases its estimates on historical results, taking into consideration the type of customer, type of transaction and the specifications of each sale.
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Notes to the financial statements at December 31, 2012 In thousands of reais
(a) Sales of goods and services
Revenues from the sales of goods and services, which include freight charged to customers, are recognized upon transfer of property and the risks to third parties for their gross values and deductions for unconditional discounts, returns, adjustments to present value calculated on credit and sales tax. Sales orders approved by credit card issuers, where products have not yet been billed or shipped to customers, and sales of gift certificates that are held by customers and that will be used in future, are recorded as "other obligations" classified as current liabilities.
(b) Financial income
Interest earned is accrued on a time-proportion basis using the effective interest method. When impairment is identified in relation to some accounts receivable, the Company reduces the book value to its recoverable amount, which corresponds to estimated future cash flows, discounted at the original instrument's original effective interest rate. Subsequently, over time, interest is incorporated into the accounts receivable in return for financial income. This interest income is calculated by the same effective interest rate used to determine the recoverable amount.
2.22 Distribution of dividends and interest on capital
Pursuant to the Company's bylaws and when applicable, the distribution of dividends and interest on capital to shareholders of the Company is recognized as a liability in the Group's financial statements at the end of the year. Any amount above the mandatory minimum is only accrued on the date on which it is approved.
2.23 New standards, amendments to and interpretations of standards that are not yet in force
The following new standards, amendments to and interpretations of standards were issued by the International Accounting Standards Board (IASB), but are not effective for the year 2012. The early adoption of these standards, although encouraged by the IASB, was not allowed in Brazil by the Brazilian Accounting Pronouncements Committee (CPC).
IFRS 9 - Financial instruments covers the classification, measurement and recognition of financial assets and liabilities. IFRS 9 was issued in November 2009 and October 2010 and substitutes the sections of IAS 39 related to the classification and measurement of financial instruments. IFRS 9 requires the classification of financial assets in two categories: fair value or amortized cost. The determination is made on initial recognition. The classification base depends on the business model of the organization and the contractual characteristics of the cash flow of the financial instruments. With relation to financial liabilities the standard maintains most of the requirements established by IAS 39. The principle change is that of the cases in the option when just value is adopted for financial liabilities, the portion of changes in the fair value due to credit risks of the actual entity is recorded in comprehensive income and not in the statement of operations, except when it results in an accounting separation. The Group is evaluating the total impact of IFRS 9. The standard is applicable as of January 1, 2015.
IFRS 10 - Consolidated financial statements supported in principle on existing principles, identifying the concepts of control as a predominant factor to determine if an entity should or not be included in the consolidated financial statements of the parent company. The standard provides additional guidance for the determination of control. The standard is applicable as of January 1, 2013. The group estimates that its adoption will not bring significant impact to the company.
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Notes to the financial statements at December 31, 2012 In thousands of reais
IFRS 11 - Joint Agreements, issued in May 2011. The standard calls for more realistic reflections of joint agreements by focusing on the rights in the obligations of the agreement instead of its legal form. There are two types of joint agreements: (i) joint operations - that occur when an operator has right to contractual assets, liabilities and expenses; and (ii) shared control - which occurs when an operator has rights over liquid assets of the contract and books the investment through the equity accounting method. The proportional consolidation method no longer will be permitted for joint control. The standard is applicable as of January 1, 2013.
IFRS 12 "Disclosure of ownership interests in other entities, deals with the requirements for disclosing all types of participation in other entities, including joint agreements associations, participations with specific purposes and other participations not recorded in the accounting records. The Group is evaluating the total impact of IFRS 12. The standard is applicable as of January 1, 2013. The impact of this rule will be basically an increase in disclosure.
IFRS 13 "Measurement of fair value issued in May 2011. The objective of IFRS 13 is to improve the consistency and reduce the complexity of measuring fair value, providing a more precise definition and a sale source for measuring fair value and the requirements for disclosure for the application of IFRS. The requirements, that are very similar between IFRS and US GAAP do not increase use of accounting for fair value, but supply orientation on how to apply it when its use is required or permitted for other IFRS standards or US GAAP. The Group is still evaluating the total impact of IFRS 13. The standard is applicable as of January 1, 2013. The impact of this rule will be basically an increase in disclosure.
There are no other International Financial Reporting Standards (IFRS) or interpretations from the International Financial Reporting Interpretations Committee (IFRIC), which have not yet entered into force that could have a significant impact on the Group.
3 Critical accounting estimates and judgments
Accounting estimates and judgments are continually evaluated, and are based on historical experience and various other factors, including expectations of future events, which are believed to be reasonable under the circumstances.
3.1 Critical accounting estimates and assumptions
Based on assumptions, the Group makes estimates concerning the future. By definition, the resulting accounting estimates will seldom be equal to actual results. Estimates and assumptions, which present significant risk, with a probability of causing a material adjustment to the carrying amounts of assets and liabilities for the next fiscal year, are addressed below:
(a) Loss (impairment) of goodwill
Pursuant to the accounting policy disclosed in Note 2.13, the Group annually tests losses (impairment) of goodwill Recoverable amounts from Cash Generating Units (CGUs) were determined based on value in use calculations, which were, in turn, based on estimates.
Losses due to goodwill impairment were not recorded in the financial statements of December 31, 2012 and December 31, 2011.
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Notes to the financial statements at December 31, 2012 In thousands of reais
(b) Recovery of income tax, social contribution and other deferred taxes
Significant management judgment is required to determine the value of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits, together with future tax planning strategies.
According to Management's estimates, the Company will generate sufficient taxable income to offset deferred taxes on tax loss carry-forwards and temporary differences in up to 8 years. In a scenario where there is a 20% deterioration in the taxable profit, this period will be extended to 10 years.
(c) Fair value of derivatives and other financial instruments
The fair value of financial instruments traded in active markets (such as securities held for trading and available for sale) is based on market prices, quoted on the balance sheet date.
3.2 Critical judgments in applying the entity's accounting policies
(a) Allowance for doubtful accounts
This allowance is based on the analysis of historical losses monitored by Management and at a level considered sufficient to cover probable losses on accounts receivable.
(b) Allowance for inventory losses
Allowance for inventory losses is estimated based on historical losses in the physical inventories at distribution centers, as well as selling items below purchase price. This allowance is considered by Management to be sufficient to cover probable losses on the Company's inventories.
(c) Useful life of fixed and intangible assets
Depreciation and amortization of fixed and intangible assets is Management's best estimate on the use of these assets over the course of their operations. Changes in the economic and/or consumer market may require a revision of these useful life estimates.
(d) Loss from reduction in the recoverable value of non-financial assets
Impairment tests are performed in consideration of future revenue projections, calculated on the basis of internal and market assumptions, discounted to present value. These projections are calculated by considering the best estimates of Management, which are revised when changes occur in the economic environment or the consumer market.
(e) Provisions for civil, labor and tax risks
The Company recorded provisions, which involve considerable judgment by Management, for tax risks, labor and civil, as a result of a past event. An outflow of resources involving economic benefits will likely be necessary to settle the obligation and a reasonable estimate may be made as regards the amount of this obligation. The Company is subject to legal, civil and labor claims involving matters that arise in the normal course of its business activities.
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Notes to the financial statements at December 31, 2012 In thousands of reais
Assessing probability of loss includes evaluating available evidence, the hierarchy of laws, available jurisprudences, recent court decisions and their relevance in the legal system, as well as the evaluation of external counsel. Allowances are reviewed and adjusted in consideration of changes in circumstances, such as the applicable limitation period, findings from tax inspections or additional exposures identified based on new issues or court decisions. The actual results may differ from these estimates.
4 Management of financial risk
4.1 Financial risk factors
In the normal course of business, the Company and its affiliates are exposed to market risks related to the fluctuation of interest rates and exchange variations, as well as credit risk on its installment sales. Under monitoring carried out by its officers and management, and supervised by the Board of Directors, the Company and its affiliates use hedge instruments to minimize exposure to these risks. These administrators determine what strategies are to be adopted and Management contracts appropriate hedge instruments for each circumstance and inherent risk.
The Company and its affiliates have no term contracts, options, swap options, zero cost collars, flexible options, derivatives built into other products, operations structured with derivatives and "exotic derivatives." The Company and its affiliates do not operate using derivative financial instruments for speculative purposes, thereby reaffirming its commitment to conservative policies for cash management, in relation to financial liabilities or available resources.
(a) Market risk
(i) Exchange rate risk
These risks originate from foreign currency exchange rate variations on the loan portfolio and the accounts payable for the importation of goods for resale. The Company and its subsidiaries make use of derivatives, such as traditional swaps, for the purpose of canceling exchange losses resulting from sharp devaluations of the Real (R$ ) against foreign currency denominated funding. In addition, the Company uses currency forward contracts to protect themselves from currency fluctuations in the US dollar (US$ ) compared to the Real (R$ ) on the import flow.
At December 31, 2012, the position of these derivative financial instruments was the following:
Traditional Swaps (registered in the borrowings and financing account):
The counterparts to these traditional swaps are the financial institutions that provide borrowings in foreign currency (American dollars). These CDI-referenced swaps aim to cancel exchange risk, transforming the cost of the debt (Note 17) to local currency and interest rates, which varies from 119.1% to 136.8% of the CDI. These contracts, at December 31, 2012, amounted to a reference value of R$ 501,284 for the Parent Company (R$ 557,661 in the Consolidated) and at December 31, 2011, R$ 389,610 in the Parent Company (R$ 469,801 in the Consolidated). These operations are matched in terms of amount, terms, and interest rates. The Company always seeks to liquidate such contracts, together with the respective borrowings that are the subject of the hedge transactions simultaneously. There are no contractual clauses for margin calls in this type of transaction.
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Notes to the financial statements at December 31, 2012 In thousands of reais
Parent company Consolidated
December Decembe December December 31, 2012 r 31, 2011 31, 2012 31, 2011
Hedge object (debt) Amortized cost 478,132 420,300 542,929 509,730 Amounts adjusted by the fair value of the covered risks 622,036 470,870 687,834 560,300
143,904 50,570 144,905 50,570 Swaps
Asset position (US Amortized cost (478,132 ) (420,299) (542,929) (509,731) dollar + Pre) Fair value (624,403) (472,859) (690,201) (562,291)
(146,271) (52,560) (147,272) (52,560)
Liability position (% Amortized cost 477,458 408,437 544,284 494,486 CDI) Fair value 475,091 410,427 541,917 496,476 2,367 1,990 2,367 1,990
(143,904) (50,570) (144,905) (50,570)
Considering that the Company's exposure to the risk of wide swings in currency exchange rates is mitigated by traditional swap operations, contracted for exchange protection purposes and, therefore, simultaneously with the respective foreign currency borrowings, the change in the rate of the US dollar compared to the real due to the current market conditions does not produce any significant impacts on the Company's financial statement.
(ii) Interest rate risk
The Company and its subsidiaries use resources produced by operational activities to manage its operations, as well as to guarantee investments and growth. To meet the cash requirements for growth, the Company and its subsidiaries obtain borrowings and financing from Brazil's principal financial institutions, substantially indexed to the variation of the Interbank Deposit Certificate (CDI). Relevant fluctuations in the CDI (see analysis of sensitivity item (d) below) raise the possibility of inherent risk. Financial investment policies indexed by the CDI partially mitigate this effect.
(b) Credit risk
Credit risk is managed at the corporate level. Credit risk stems from cash and cash equivalents, derivative financial instruments, deposits in banks and other financial institutions as well as exposure to client credit. With regard to banks and other financial institutions, the individual risk limits are determined based on internal or external classifications according to the limits set by the Board of Directors. The use of credit limits is regularly monitored. Sales to retail clients are settled in cash or through the main credit cards existing in the market.
The credit risk is minimized by the fact that approximately 64% of the Company's sales and those of its subsidiaries are conducted through credit cards administered by the main credit card operators, which have excellent levels of risk classification. The Company and its subsidiaries maintain provisions for doubtful credit in an amount that is considered by Management sufficient to cover possible losses on its receivables.
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Notes to the financial statements at December 31, 2012 In thousands of reais
(c) Liquidity risk
Management continuously monitors forecasts for the liquidity requirements of the Company in order to ensure that it has sufficient cash to satisfy its operating needs. This forecast takes into consideration plans for financing the Company's debt, compliance with clauses, compliance with internal targets for the asset balance quotient and, if applicable, external or legal regulatory requirements - for example, currency restrictions.
The Treasury invests excess cash in interest-bearing bank accounts, term deposits, short-term deposits and securities, choosing instruments with appropriate maturities with sufficient liquidity that offer a sufficient margin as determined by the aforementioned forecasts.
The following table analyzes the non-derivative financial liabilities of the Group and the derivative financial liabilities that are settled on a liquid basis by the Group, through common maturity periods that correspond to the period remaining between the date of the calculation of the net equity balance and the contracted date of maturity. Derivative financial liabilities are included in the analysis if their maturities are essential for an understanding of the cash flows.
Parent company
Between Between Less than one and two and one year two years five years
At December 31, 2012 Suppliers 911,852 Borrowings, financing and debentures 482,352 420,506 1,771,316
At December 31, 2011 Suppliers 689,587 Borrowings, financing and debentures 469,927 343,222 1,261,701
Consolidated
Between Between Less than one and two and one year two years five years
At December 31, 2012 Suppliers 960,175 Borrowings, financing and debentures 644,662 434,272 1,771,316
At December 31, 2011 Suppliers 702,339 Borrowings, financing and debentures 670,116 343,222 1,261,701
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Notes to the financial statements at December 31, 2012 In thousands of reais
(d) Analysis of additional sensitivity required by CVM
Sensitivity analysis of swap transactions
Swap transactions recorded by the Company and its affiliates were contracted, simultaneously, for foreign currency loan transactions, contemplating terms, rates, and equivalent values, exchanging the borrowings' exchange exposure for exposure to the CDI.
At December 31, 2012 the Company's gross debt, in U.S. dollars, was R$ 622,036 (Parent Company) and R$ 687,834 (Consolidated).
According to data drawn from the Brazilian Central Bank ("Relatório Focus") January 18, 2013 market expectations were indicating an exchange rate for the end of the year 2013 (probable scenario) of 2.0800 R$ /US$ compared to 2.0435 R$ /US$ at December 31, 2012.
Scenarios I and II were calculated with a deterioration of 25% and 50% respectively, above probable expectations (Management's opinion), according to figures below:
Parent company
Scenario I - Scenario II - Probable Deterioration Deterioration Operation Risk scenario of 25% of 50%
US dollars Exchange rate at December 31, 2012 2.0435 2.0435 2.0435 Estimated exchange rate at December 31, 2012 2.0800 2.6000 3.1200 Forreign currency borrowings (variation US$ ) 11,111 169,397 327,684 Swaps (Long position in foreign currency) (variation US$ ) (11,111) (169,397 ) (327,684)
Net effect Zero Zero Zero
Consolidated
Scenario I - Scenario II - Probable Deterioration Deterioration Operation Risk scenario of 25% of 50%
US dollars Exchange rate at December 31, 2012 2.0435 2.0435 2.0435 Estimated exchange rate at December 31, 2012 2.0800 2.6000 3.1200 Forreign currency borrowings (variation US$ ) 12,286 187,316 362,345 Swaps (Long position in foreign currency) (variation US$ ) (12,286) (187,316 ) (362,345)
Net effect Zero Zero Zero
CDI Rate sensitivity analysis
The Company and its affiliates maintain the whole of their debt and cash and equivalents indexed to the variation of the CDI (considering the exchange of debts in foreign currency for variation in the CDI with traditional swaps). At December 31, 2012, the Company (Parent Company) had a net debt of R$ 980,111 (R$ 635,059 at December 31, 2011), which represented the loan values, financing and debentures, net cash and negotiable securities. In the Consolidated, the net debt was R$ 1,388,695 (R$ 1,172,482 at December 31, 2011)).
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Notes to the financial statements at December 31, 2012 In thousands of reais
According to data from the Brazilian Central Bank ("Relatório Focus") at January 18, 2013, market expectations were indicating an effective average CDI rate of 6.90% (probable scenario) for calendar year 2013, against the effective rate of 6.90% as applied during the year 2012.
In addition, Management ran sensitivity tests for adverse scenarios, CDI rate deterioration at 25% or 50% above the probable scenario (Management's opinion), as shown below:
Parent company
Scenario I - Scenario II - Probable Deterioration Deterioration Operation scenario of 25% of 50%
CDI effective annual interest rate in 2012 6.90% 6.90% 6.90% Net debt 980,111 980,111 980,111 CDI estimated annual interest rate in 2013 6.90% 8.63% 10.35% Annual effect on net debt: Reduction 16,976 33,953
Consolidated
Scenario I - Scenario II - Probable Deterioration Deterioration Operation scenario of 25% of 50%
CDI effective annual interest rate in 2012 6.90% 6.90% 6.90% Net debt 1,388,695 1,388,695 1,388,695 CDI estimated annual interest rate in 2013 6.90% 8.63% 10.35% Annual effect on net debt: Reduction Increase 23,636 47,271
4.2 Capital management
The goal of the Company and its subsidiaries with regard to capital management is to ensure the continuity of its operations to offer a return to shareholders and benefits to other stakeholders, as well as maintaining the ideal capital structure to minimize associated costs.
The Company monitors the levels of its indebtedness through the Net Debt/EBITDA ratio, which in its understanding represents the most appropriate manner to present the debt metric, because it reflects consolidated net financial obligations requiring immediate cash for payments, considering its operating cash generation.
4.3 Fair value estimate
It is assumed that the book value of the balances of client accounts receivable and suppliers accounts payable, minus impairment in the case of Accounts Receivable, are close to their fair value. The fair value of financial liabilities, for disclosure purposes, is estimated using discounted contractual future cash flows at existing market interest rates, which are available to the Group through similar financial instruments.
The Group applies CPC 40/IFRS 7 to the financial instruments measured in the balance sheet at fair value, which requires disclosure of the fair value measurements by the level in the following hierarchy:
Price quotes (unadjusted) in asset markets for identical assets and liabilities (Level 1).
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Notes to the financial statements at December 31, 2012 In thousands of reais
Information, besides the price quotes, included in Level 1 that are adopted by the market for assets or liabilities, whether directly (that is, as prices) or indirectly (that is, price derivatives) (Level 2).
Insertions for assets or liabilities that are not based on data adopted by the market (that is, non- observable insertions) (Level 3).
The following table presents the Group's assets and liabilities measured by fair value as at December 31, 2012.
Consolidated Total Level 1 Level 2 Level 3 balance
Assets Financial assets at fair value through result Fundo de Investimento em Direitos Creditórios - FIDC 109,210 109,210 Financial assets available for sale Marketable securities 1,224,680 1,224,680
Total assets 1,333,890 1,333,890
Liabilities Financial liabilities at fair value though result Borrowings and financing (Foreign currency) 687,834 687,834 Derivatives used for hedge - swap (145,917 ) (145,917 )
Total liabilities 541,917 541,917
The following table presents the Group's assets and liabilities measured by fair value as at December 31, 2011.
Consolidated Total Level 1 Level 2 Level 3 balance
Assets Financial assets at fair value through result Fundo de Investimento em Direitos Creditórios - FIDC 17,980 17,980 Financial assets available for sale Marketable securitiess 905,133 905,133
Total assets 923,113 923,113
Liabilities Financial liabilities at fair value though result Borrowings and financing (Foreign currency) 560,300 560,300 Derivatives used for hedge - swap (65,815) (65,815)
Total liabilities 494,485 494,485
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Notes to the financial statements at December 31, 2012 In thousands of reais
5 Financial instruments by category
Consolidated
Borrowings Fair value and through Available receivables result for sale Total
At December 31, 2012
Assets, according to the balance sheet Financial assets 109,210 1,224,680 1,333,890 Clients accounts receivable and other accounts Accounts receivable, excluding anticipated payments 895,898 895,898 Cash and cash equivalents 36,267 36,267
932,165 109,210 1,224,680 2,266,055
Liabilities at fair value Other though financial result liabilities Total
At December 31, 2012
Liabilities, according to the balance sheet Borrowings National currency 1,593,072 1,593,072 Foreign currency 687,834 687,834 Derivatives financial instruments - swap (145,917 ) (145,917 ) Suppliers and other liabilities, excluding legal liabilities 1,035,823 1,035,823 Debentures 623,863 623,863
541,917 3,252,758 3,794,675
Consolidated
Borrowings Fair value and through Available receivables result for sale Total
At December 31, 2011
Assets, according to the balance sheet Financial assets 17,980 905,133 923,113 Clients accounts receivable and other accounts Accounts receivable, excluding anticipated payments 1,217,241 1,217,241 Cash and cash equivalents 15,297 15,297
1,232,538 17,980 905,133 2,155,651
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Notes to the financial statements at December 31, 2012 In thousands of reais
Liabilities at fair value Other though financial result liabilities Total
At December 31, 2011
Liabilities, according to the balance sheet Borrowings National currency 1,305,440 1,305,440 Foreign currency 560,301 560,301 Derivatives financial instruments - swap (65,815) (65,815 ) Suppliers and other liabilities, excluding legal liabilities 737,072 737,072 Debentures 310,966 310,966
494,486 2,353,478 2,847,964
Parent company
Accounts receivable and cash and cash equivalents are classified as "Loans and receivables"; accounts payable are classified as "Other financial liabilities."
6 Credit qualities of the financial assets
The Company's financial assets are comprised mainly of the balance of available cash and cash equivalents, securities and credit card accounts receivable. The Company's cash is invested in the largest financial institutions in Brazil - all top tier institutions - and the Company's receivables and those of its subsidiaries are essentially with the main credit card operators, which have excellent risk classification levels.
7 Securities
Parent company Consolidated
2012 2011 2012 2011
Available for sale "Fênix Fundo de Investimentos em Direitos Creditórios do Varejo (FIDC)" 22,538 18,544 109,210 17,980 Available for sale Certificates of bank deposits - CDBs 364,627 198,021 381,685 213,513 Debentures 761,299 681,445 842,995 690,203 Equity Valuation Adjustments 1,417 1,417
1,148,464 899,427 1,333,890 923,113
Non-current (22,538 ) (18,544 ) Current 1,125,926 880,883 1,333,890 923,113
51 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
(a) Fênix Fundo de Investimento de Direitos Creditórios do Varejo - Fênix FIDC do Varejo
Operations of the Fênix Fundo de Investimento em Direitos Creditórios do Varejo ("Fênix FIDC do Varejo") began in February 2011, its purpose, defined under regulation, is the investment in credit rights, constituted as a closed credit fund, governed by CMN Resolution 2.907/2001, and by CVM Instruction 356/01, by the Regulations and by other applicable legal and regulatory conditions, for the specific purpose of acquiring creditor rights owned by Lojas Americanas and the Company ("Grantors"), originating from credit card operations used for the purchase and sale of products and services between the Grantors and their final customers, whose electronic transactions were captured and processed by their processing systems. The Fênix FIDC do Varejo will exist for an indefinite period of time, where every issue/series of shares has a specific maturity date. The first issue of senior quotas and subordinated mezzanine, quotas ("Quotas"), realized on February 24, 2011, the same date on which the Quotas were purchased by investors ("Subscription Date") have the amortization payment scheduled for the 60th (sixtieth) month as of the Subscription Date.
The structure of the net equity of the Fênix FIDC do Varejo on December 31, 2012, represented, in the following balance sheet, by the lines "accounts payable" in the non-current liabilities and shareholders' equity, is subdivided into 1,643 (1,643 at December 31,2011) senior quotas held by third parties, with a value of R$ 506,020 (R$ 515,501 at December 31,2011), representing 89.40% (90.53% at December 31,2011) of the equity of Fênix FIDC do Varejo on that date; 72 (72 at December 31, 2011) subordinated mezzanine quotas held by third parties with a value of R$ 22,407 (R$ 23,029 at December 31, 2011), representing 3.96% (4.04% at December 31, 2011) of the net equity of Fênix FIDC do Varejo on that date; and 93.94 (93.34 at December 31, 2011) subordinated junior quotas held by the Grantors, in the amount of R$ 37,563 (R$ 30,906 at December 31, 2011), representing 6.64% (5.43% at December 31,2011) of the net equity of Fênix FIDC do Varejo on that date. The regulations of Fênix FIDC do Varejo define that the ratio between the net equity and the total value of senior quotas cannot be less than 109.86% (one hundred and nine point eighty six percent), and that the ratio between the value of net equity and the sum of the total value of senior quotas and the total value of the subordinated mezzanine quotas may not be less than 105.25% (one hundred and five point twenty-five percent). The Benchmark for remuneration of Senior quotas is 111% of the DI rate and for the subordinate mezzanine shares 155% of the DI rate. Junior subordinated quotas do not have a target remuneration rate.
The grantors were hired by Fênix FIDC do Varejo to act as agents for following-up payment of past due credit rights, reconciliation and collection agents and depository agents.
At December 31, 2012, the securitization of credit right operations realized by the Grantors for Fênix FIDC do Varejo amounted to a total of R$ 433,957 (R$ 539,295 at December 31, 2011), of which R$ 61,622 (R$ 159,911 at December 31, 2011) were securitized by Lojas Americanas and R$ 372,335 (R$ 379,384 at December 31, 2011) were securitized by the Company.
52 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
The Balance Sheet and Financial Statements for the years ended December 31, 2012 and 2011 of Fênix FIDC do Varejo are presented as follows:
December December 31, 31, 2012 2011 Assets Cash and cash equivalents 4,852 4,304 Marketable securities 127,285 25,576 Accounts receivable 433,957 539,295 Other accounts receivable 2 389
Total assets 566,096 569,564
Liabilities Accounts payable (current) 106 128 Accounts payable (non-current) 528,427 538,530 Shareholders' equity 37,563 30,906
Total liabilities and shareholders' equity 566,096 569,564
December December 31, 31, 2012 2011
Financial revenue 57,666 61,659 Financial expenses (51,009) (58,753)
Net income for the year/period 6,657 2,906
The FIDC securities portfolio is made up of: National Treasury Bills (LFTN), Bank Deposit Certificates (CDB) and Financial Investment Fund Quotas, which are available at any moment, for acquisition of receivables originating in operations with sellers.
(b) Other financial assets available for sale
The Certificates of Deposit, totally from top-ranked financial institutions, are remunerated at a rate of 96.0% to 102.5% of the CDI at December 31, 2012 (100.0% to 105.0% of the CDI at December 31, 2011). There is no intention to dispose of such securities in a period superior to 1 year, so they are classified in current assets.
53 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
Debentures were issued by a top-ranked financial institution, and are recorded at fair value, remunerated at 75.0% to 103.0% of CDI, parent company, and consolidated at December 31, 2012 (from 100% to 102.9% of the CDI at December 31, 2011) and can be traded at any time. There is no intention to dispose of such securities in a period superior to 1 year, so they are classified in current assets. The movement of financial assets available for sale are as follows:
Parent company Consolidated
At January 1, 2011 776,973 790,707 Additions 3,423,168 4,138,651 Disposals (3,319,878) (4,006,865) Gains and losses transferred to the shareholder's equity 620 620
At December 31, 2011 880,883 923,113 Additions 3,741,834 4,514,226 Disposals (3,495,375) (4,102,032) Gains and losses transferred to the shareholder's equity (1,416) (1,417)
At December 31, 2012 1,125,926 1,333,890
8 Clients accounts receivable
Parent company Consolidated
2012 2011 2012 2011
Credit cards 347,578 560,851 375,278 572,313 Retail Credit Rights Investment Fund (FIDC) 372,335 379,384 Other accounts receivable 50,531 72,323 166,772 261,131
398,109 633,174 914,385 1,212,828 Present value adjustments (6,782) (16,169 ) (6,782 ) (16,169) Provision for doubtful accounts (28,077) (30,383 ) (49,653 ) (63,469)
363,250 586,622 857,950 1,133,190
(i) The operations with credit cards can be paid in installments of up to twelve months. The Company's and its subsidiaries' credit risks are minimized as the portfolio receivables are monitored by the credit card management companies.
(ii) Other accounts receivable mainly represent sales to companies through corporate transactions, consumer loyalty projects and commercial agreements.
The Company carried out the securitization operations of its credit rights represented by Accounts Receivable from credit card companies with the Retail Credit Rights Investment Fund (FIDC), Note 7(a). As described in Note 2.2 (ii), the FIDC is consolidated by the Company.
The amounts recorded as receivables approximate their fair values.
54 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
The aging list by maturity is as follows:
Parent company Consolidated
2012 2011 2012 2011
Falling due 332,175 555,449 826,875 1,093,120 Overdue up to 30 days 14,100 5,574 14,100 7,165 30 to 60 days 9,314 4,428 9,314 5,692 61 to 90 days 2,251 4,555 2,251 5,855 91 to 120 days 3,254 4,635 3,254 5,959 121 to 180 days 2,156 11,981 2,156 15,399
363,250 586,622 857,950 1,133,190
The amount of the provision for doubtful accounts considers the average of the effect of losses over the last 12 months, combined with a Management analysis of the probable losses from due and past due accounts.
Changes in the provisions for doubtful accounts is shown as follows:
Parent Company Consolidated
Balance at January 1, 2011 30,208 66,135 Reversals (2,841) Additions 175 175
Balance at December 31, 2011 30,383 63,469 Reversals (2,306) (13,816)
Balance at December 31, 2012 28,077 49,653
9 Inventories
Parent company Consolidated
2012 2011 2012 2011
Goods for resale 731,335 498,773 747,774 530,546 Supplies and packaging 5,982 11,854 5,982 11,855 Present value adjustment (5,022) (5,339) (5,022) (5,339) Provision for losses (22,494) (26,128) (22,494) (26,128)
709,801 479,160 726,240 510,934
55 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
The movement of the provision for losses is shown as follows:
Parent company and consolidated
Balance at January 1, 2011 (24,577) Additions (1,551)
Balance at December 31, 2011 (26,128) Reversals 3,634
Balance at December 31, 2012 (22,494)
10 Recoverable taxes
Parent company Consolidated
2012 2011 2012 2011
Income tax withheld at source 37,249 22,667 39,428 23,938 Social Integration Program (PIS) and Contribution for the financing of social security (COFINS) 99,951 70,881 101,275 71,805 Taxes on Goods and Services (ICMS) 30,063 10,390 30,075 10,402 Deferred income tax and social contribution 27,728 4,907 40,441 9,137 Others 1,040 1,017 1,366 1,372
196,031 109,862 212,585 116,654
Non-current portion 85,051 85,051 Current portion 110,980 109,862 127,534 116,654
56 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
11 Income tax and social contribution
(a) Deferred income tax and social contribution
Assets
Parent company Consolidated
2012 2011 2012 2011
Tax losses 208,704 105,065 213,812 106,735 Negative bases for social contribution 75,133 37,823 76,965 38,692 Temporary differences: Contingency 6,440 5,216 6,440 5,216 Unsettled swaps 12,637 13,551 13,678 14,908 Present value adjustments receivables and payables 6,353 14,013 6,353 14,013 Provision for doubtful accounts 15,968 12,182 23,873 8,346 Provisions for losses on inventories 7,766 8,884 7,766 8,884 Write-off of deferred assets 4,125 9,546 Others 1,556 2,046 1,980 19,752
334,557 198,780 354,992 226,092 Liabilities
Parent company Consolidated
2012 2011 2012 2011
Amortization of goodwill 29,357 19,408 29,357 19,408 Capitalization of interest 34,666 20,309 34,666 20,309 Revision of the useful life of intangible assets 25,453 15,896 25,453 15,896 Revision of the useful life of fixed assets 8,654 4,742 8,654 4,742
98,130 60,355 98,130 60,355
Net balance 236,427 138,425 256,862 165,737
(b) Expected realization of deferred taxes
Parent company
2012 2011
Deferred tax assets Deferred tax assets to be recovered within a year 7,400 37,940 Deferred tax assets to be recovered after 12 months 327,157 160,840
334,557 198,780
Deferred tax liabilities Deferred tax liabilities to be settled after 12 months 98,130 60,355
98,130 60,355
Deferred tax assets (net) 236,427 138,425
57 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
Consolidated
2012 2011
Deferred tax assets Deferred tax assets to be recovered within a year 20,435 42,957 Deferred tax assets to be recovered after 12 months 334,557 183,135
354,992 226,092
Deferred tax liabilities Deferred tax liabilities to be settled after 12 months 98,130 60,355
98,130 60,355
Deferred tax assets (net) 256,862 165,737
The estimates for recovery of the deferred tax assets within 8 years are supported by the taxable income projections, taking into consideration a number of financial and business assumptions taken into account in the year ended December 31, 2012. Consequently, the estimates are subject to not being realized in the future in view of the uncertainties that are inherent in forecasts.
Brazilian legislation permits that tax losses and negative social contribution bases may be carried over indefinitely to compensate future taxable profits. However, tax legislation enacted in 1995 limits the use of such tax losses in any given year to 30% of taxable income.
(c) Deferred tax movements
The movement of deferred tax assets and liabilities during the year, without taking into account compensation of balances, is as follows:
Parent Company
Present value Fiscal Provisions adjustments losses Others Total
Deferred tax assets
At January 1, 2011 43,322 15,535 34,581 10,168 103,606 Charged (credited) to the financial statements (3,489) (1,522) 108,307 (7,232) 96,064 Other charges (credits) (890) (890)
At December 31, 2011 39,833 14,013 142,888 2,046 198,780 Charged (credited) to the financial statements 2,978 (7,660 ) 144,677 (490 ) 139,505 Other charges (credits) (3,728) (3,728)
At December 31, 2012 42,811 6,353 283,837 1,556 334,557
58 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
Parent Company
Review of Review of Goodwill Capitalization useful life useful life amortization of interest intangible fixed assets Total
Deferred tax liabilities
At January 1, 2011 9,458 7,354 6,996 1,649 25,457 Credited to the financial statements 9,950 12,955 8,900 3,093 34,898
At December 31, 2011 19,408 20,309 15,896 4,742 60,355 Credited to the financial statements 9,949 14,357 9,557 3,912 37,775
At December 31, 2012 29,357 34,666 25,453 8,654 98,130
Consolidated
Present Write-off value deferred Fiscal Provisions adjustments assets losses Others Total
Deferred tax assets
At January 1, 2011 29,887 15,535 20,745 34,159 34,617 134,943 Charged (credited) to the financial statements 7,467 (1,522 ) (11,199) 111,268 (14,297 ) 91,717 Other charges (credits) (568) (568 )
At December 31, 2011 37,354 14,013 9,546 145,427 19,752 226,092 Charged (credited) to the financial statements 14,403 (7,660 ) (5,421) 149,749 (17,770) 133,301 Other chages (credits) (4,401) (4,401 )
At December 31, 2012 51,757 6,353 4,125 290,775 1,982 354,992
Consolidated
Review of Review of Goodwill Capitalization useful life useful life amortization of interest intangible fixed assets Total
Deferred tax liabilities
At January 1, 2011 9,458 7,354 6,996 7,272 31,080 Charged (credited) to the financial statements 9,950 12,955 8,900 (2,530) 29,275
At December 31, 2011 19,408 20,309 15,896 4,742 60,355 Charged (credited) to the financial statements 9,949 14,357 9,557 3,912 37,775
At December 31, 2012 29,357 34,666 25,453 8,654 98,130
59 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
(d) Reconciliation between nominal and effective tax rates
The reconciliation between the income tax and social contribution, computed by the nominal and effective rates is demonstrated as follows:
Parent Company Consolidated
2012 2011 2012 2011
Losses before tax and social contribution (282,920 ) (161,161) (260,370 ) (135,411) Nominal rate 34% 34% 34% 34%
96,193 54,795 88,526 46,039 Effect of (additions) or deductions on net income Equity pick up adjustment 4,467 6,269 Other deductions (additions) permanent, net 1,070 101 1,177 204
Income tax and social contribution at effective rates 101,730 61,165 89,703 46,243
Current (5,822 ) (16,199) Deferred 101,730 61,165 95,525 62,442
Income tax and social contribution 101,730 61,165 89,703 46,243
12 Investments
Parent Company
2012 2011
Subsidiaries 71,851 48,816 Jointly controlled Companies 10,393
71,851 59,209
(a) Subsidiaries
Ingresso.com
The subsidiary provides technology and services to purchase tickets via the Internet for concerts, theater shows, soccer games, theme parks, events and cinemas.
The Company holds a 100% ownership stake in Ingresso.com, which owns a 100% interest in B2W Rental Ltda, 100% in B2W Argentina, 99% in Mesa Express, 99% in B2W México and 50% in B2W Chile. With the exception of B2W Rental, which rents films and similar items, all of the activities of the others involve the intermediation and distribution of tickets for shows and public attractions, theme parks and events in general.
60 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
B2W Viagens
The subsidiary, under its brands Americanas Viagens, Submarino Viagens and Shoptime Viagens, offers hotel reservation services, tour packages, airline tickets, ocean cruises and rental cars.
Apart from direct participation in B2W Viagens e Turismo Ltda., the Company has a 15.73% indirect interest in this company through 8M Participações Ltda.
(b) Jointly controlled
(i) Submarino Finance Promotora de Crédito Ltda.
With the goal of providing greater efficiencies for the economic conglomerate in which the company and Cetelem Brasil S/A - Crédito participate, an Extraordinary Shareholders Meeting held November 30, 2012 approved the "Protocol and Justification of the Partial Spinoff of Submarino Finance Promotora de Crédito Ltda. followed by its merger with Cetelem Brasil S/A - Crédito, Financiamento e Investimento," which had been signed on November 27, 2012. Once Submarino Finance Promotora de Crédito Ltda. was spun off, it became entirely a part of the Company, which now owns 100% of its capital stock.
The net amount of the assets taken over by Cetelem Brasil S/A - Crédito, based on the Balance Sheet prepared by Submarino Finance Promotora de Crédito Ltda, was R$ 13,858, as shown below.
Below is the Balance Sheet used to calculate the value of the spin-off:
Before After spin-off spin-off September Spin-off September Assets 30, 2012 effects 30, 2012
Current Cash and cash equivalents 70 70 Marketable securities 27,368 (12,866 ) 14,502 Recoverable taxes 2,686 2,686 Others 260 260
30,384 (12,866 ) 17,518
Non-current Deferred income tax and social contribution 1,983 (992 ) 991 Fixed 56 56 Intangible 39 39
2,078 (992 ) 1,086
Total assets 32,462 (13,858 ) 18,604
Liabilities
Current Suppliers 1,190 1,190 Salaries and social charges payable 941 941 Recoverable taxes 2,560 2,560 Income tax and social contribution 55 55
4,746 4,746
Shareholders' equity Share capital 24,010 (12,005 ) 12,005 Accumulated profits 3,706 (1,853 ) 1,853
27,716 (13,858 ) 13,858
Total liabilities 32,462 (13,858 ) 18,604
61 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
Statement of operations for the periods ended December 31, 2012 and 2011 and September 30, 2012 (before split):
Three-month Nine-month Year period ended period ended ended December September December 31, 2012 30, 2012* 31, 2011(*)
Net revenue 4,382 6,366 10,796 Selling, administrative and general expenses (1,464) (1,907 ) (3,446) Net financial result 392 839 414 Other operational expenses Income tax and social contribution (1,042 ) (1,833) (2,670)
Net income for the period 2,268 3,465 5,094
(*) Considering the proportional participation of 50% of the results of joint control.
62 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
(c) Change in parent company's investments
Submarino Submarino 8M Viagens e Finance ST - Ingresso.com Participações Turismo Promotora de Importações B2W Viajes S.A. Ltda. Ltda. Crédito Ltda. Ltda. Mesaexpress Chile Argentina Total
At January 1, 2011 17,040 2,864 10,111 5,299 5,458 40,772 Equity in subsidiaries 2,685 1,320 7,486 5,094 1,852 18,437
At December 31, 2011 19,725 4,184 17,597 10,393 7,310 59,209 Equity in subsidiaries 571 12 70 5,733 7,038 (3) 100 (382) 13,139
Exchange variation on investments abroad 27 14 7 48
Investment acquisition 1,423 1,423
Goodwill on investments acquisition 3 3
Dividends (1,971) (1,971)
At December 31, 2012 20,323 4,196 17,667 14,155 14,348 114 1,048 71,851
63 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
(d) Information about subsidiaries and jointly controlled companies December 31, 2012
Shareholders' Net income % Share Capital equity (loss)
Direct subsidiaries Ingresso.com 100 6,998 20,323 570 8M Participações Ltda. 100 2,661 4,196 12 B2W Viagens e Turismo Ltda. 84,27 3,922 20,965 84 ST Importações Ltda. 100 4,050 14,348 7,038 B2W Chile 50 3 229 200 Viajes Argentina 100 1,423 1,048 (382 ) B2W Mexico 1 27 42 7 Mesaexpress (*) 1 84 (220 ) (260 ) Submarino Finance Promotora de Crédito Ltda. 100 12,005 14,155 2,268
December 31, 2011
Shareholders' % Share Capital equity Net income
Direct Subsidiaries Ingresso.com 100 6,998 19,725 2,685 8M Participações Ltda. 100 2,661 4,184 1,320 Submarino Viagens e Turismo Ltda. 84.27 3,922 20,882 8,883 ST Importações Ltda. 100 4,050 7,310 1,852
Jointly held company Submarino Finance Promotora de Crédito Ltda. 50 24,010 20,786 10,188
13 Related party transactions
(a) Commercial cooperation agreement and others
During the year ended December 31, 2012, the Company sold to its controller LASA the amount of R$ 17,173 (R$ 17,577 at December 31, 2011) of merchandise.
In addition, during the year ended December 31, 2012, the Company made purchases from its controller LASA of R$ 38,717 (there is no value in the same period last year).
At December 31, 2012 and December 31, 2011, there was no amount to pay from these operations.
(b) Controlling shareholder operations
Earnings for the years ended December 31, 2012 and 2011 represent recoveries of the following expenses: (i) rental of the Headquarters of R$ 2,264 and R$ 1,674, respectively; (ii) Management fees of R$ 750 and R$ 1,086 respectively. Furthermore, the Company has R$ 2,595 (R$ 838 at December 31, 2011) to pay as reimbursement for various expenses.
(c) Licensing of the use of the Americanas.com Brand and Similar Trademarks
The Company signed a licensing agreement with LASA for the use of the trademark, through which it is granted the exclusive license to use the Americanas.com trademark and similar brands for the activities specified in its bylaws. As stated in the contract, the brand licensing will be free as long as LASA holds a significant shareholding position in the Company. 64 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
(d) Remuneration of management
The transactions, compensation and benefits for the Directors and key executives of the Company and subsidiaries are described in Notes 22 and 29 as recommended in Technical Bulletin CPC 05 (IAS 24).
Through a specialized company, one of the members of the Board of Directors of the Controller, renders services of monitoring of the Company's strategic plan. The amount of this compensation was R$ 2,044,000 at December 31, 2012.
(e) Kiosk Operations
The Company has a contract with its Parent Company, LASA, to jointly carry out activities to increase the synergy in their operations with the installation of Americanas.com brand kiosks in the commercial premises of LASA. Under the agreement, the payments for transactions on the Americanas.com site by customers can also be made at any of the counters in the LASA stores.
The amounts obtained from these transactions, which are paid at the LASA points of sale, are transferred monthly to the Company, net of costs incurred by the LASA operation of the kiosks. Thus, the total amount receivable from the operation of all the kiosks installed was R$ 33,443 at December 31, 2012 (R$ 20,443 at December 31, 2011), and the amount of LASA operating costs reimbursed by B2W totaled R$ 23,199 and R$ 17,359 in the years ended December 31, 2012 and 2011, respectively.
(f) Private issue of debentures
On December 7, 2010, at a Board of Directors Meeting it was approved the first private issuance of debentures, non convertible into shares, of subordinated species, sole series. The issuance was not registered with the CVM, because the debentures constituted a private placement without any sales efforts aimed at investors, fully subscribed by BWU Comércio Entretenimento S.A., a wholly owned subsidiary of the parent company Lojas Americanas S.A. The requirements and the characteristics of the issue are reported in Note 18.
(g) Open balances
The balances with related parties, classified as "Related parties", in non-current assets, refer to operating current accounts and kiosks among the companies of the Group and do not incur interest. Asset balances
2012 2011 Parent company Lojas Americanas S.A. 30,848 19,604
Direct subsidiaries Ingresso.com S.A. 45 118 Submarino Viagens e Turismo Ltda. 2,134 6,273 B2W Rental 34,703 25,495 Others 205 46
37,087 31,932
67,935 51,536
The consolidated results are presented, basically, for the transfers made to LASA on account of the operations noted above. 65 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
14 Fixed assets
Parent company
Facilities, Improvements furniture Machines and to third parties Computer Construction Land and fixtures equipment buildings equipment in progress Others Total
At January 1, 2011 5,754 19,432 93,431 2,475 1,375 4 122,471 Acquisitions 58,451 24,788 3,143 4,141 341 19 90,883 Write-off (50 ) (688) (415) (11) (93 ) (1 ) (1,258 ) Transfers (1,045) (187) 392 790 (4 ) 54 Depreciation (4,646) (6,697) (1,220 ) (874) (72) (13,509)
At December 31, 2011 5,704 71,504 110,920 4,779 5,339 337 4 198,587 Acquisitions 2,657 52,833 197 4,536 3,636 63,859 Write-off (10) (14) (24 ) Transfers 68 (68 ) Depreciation (4,543) (5,849) (1,134) (1,712) (13,238)
At December 31, 2012 5,704 69,618 157,894 3,910 8,149 3,905 4 249,184
At December 31, 2012 Total cost 5,754 93,408 186,270 13,850 37,249 3,977 88 340,596 Write-off (50 ) (688) (425) (11) (107) (1 ) (1,282 ) Transfers (1,045) (187) 460 790 (72 ) 54 Acumulated depreciation (22,057 ) (27,764) (10,389) (29,783) (137) (90,130)
Net book amount 5,704 69,618 157,894 3,910 8,149 3,905 4 249,184
At December 31, 2011 Total cost 5,754 90,751 133,437 13,653 32,713 341 88 276,737 Write-off (50 ) (688) (415) (11) (93 ) (1 ) (1,258 ) Transfers (1,045) (187) 392 790 (4 ) 54 Acumulated depreciation (17,514) (21,915) (9,255 ) (28,071) (137) (76,892)
Net book amount 5,704 71,504 110,920 4,779 5,339 337 4 198,587
Annual depreciation rate - % 6.81 5.37 10 8.38 10
66 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
Consolidated
Facilities, furniture Machines Improvements and and to third parties Computer Goods for Construction Land fixtures equipment buildings equipment lease in progress Others Total
At January 1, 2011 5,754 20,165 93,601 2,555 2,336 7,533 5 131,949 Acquisitions 58,710 24,763 3,138 4,652 9,874 341 19 101,496 Write-off (50 ) (688 ) (415 ) (11) (93 ) (1 ) (1,258 ) Transfers (1,046 ) (188 ) 393 791 (3 ) 53 Depreciation (4,814 ) (6,715 ) (1,229 ) (1,245 ) (5,075 ) (72) (19,150)
At December 31, 2011 5,704 72,327 111,046 4,846 6,441 12,332 338 4 213,037 Acquisitions 2,795 53,573 570 5,014 4,489 3,597 70,038 Write-off (2 ) (10 ) (14) (26 ) Transfers (2,306 ) 68 2,306 (68 ) Depreciation (4,672 ) (5,921 ) (1,188) (2,198) (7,055 ) (21,034)
At December 31, 2012 5,704 68,142 158,688 4,296 9,243 12,072 3,867 4 262,015
At December 31, 2012 Total cost 5,754 94,766 187,254 14,309 40,368 24,889 3,938 99 371,377 Write-off (50 ) (690 ) (425 ) (11) (107) (1 ) (1,284) Transfers (3,352 ) (188 ) 461 791 2,306 (71 ) 53 Acumulated depreciation (22,582 ) (27,953 ) (10,463) (31,809) (15,123 ) (148) (108,078)
Net book amount 5,704 68,142 158,688 4,296 9,243 12,072 3,867 4 262,015
At December 31, 2011 Total cost 5,754 91,971 133,681 13,739 35,354 20,400 341 99 301,339 Write-off (50 ) (688 ) (415 ) (11) (93 ) (1 ) (1,258 ) Transfers (1,046 ) (188 ) 393 791) (3 ) 53 Acumulated depreciation (17,910 ) (22,032 ) (9,275 ) (29,611) (8,068 ) (148) (87,044)
Net book amount 5,704 72,327 111,046 4,846 6,441 12,332 338 4 213,037
Annual depreciation rate - % 6.81 5.37 10 8.38 33 10
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Notes to the financial statements at December 31, 2012 In thousands of reais
15 Intangible assets Parent company
License for Goodwill on Right to Development the use of investment the use of of web sites BLOCKBUSTER® acquisitions software and systems Online brand Others Total
At January 1, 2011 82,575 14,230 452,932 17,743 953 568,433 Additions 1,138 260,878 262,016 Amortization (10,377 ) (37,066 ) (1,104 ) (48,547 )
At December 31, 2011 82,575 4,991 676,744 16,639 953 781,902 Additions 2,529 230,166 232,695 Amortization (6,235 ) (57,226 ) (1,105 ) (64,566 )
At December 31, 2012 82,575 1,285 849,684 15,534 953 950,031
At December 31, 2012 Total cost 138,048 78,759 1,009,923 21,060 953 1,248,743 Accumulated amortization (55,473 ) (77,474 ) (160,239 ) (5,526 ) (298,712 )
82,575 1,285 849,684 15,534 953 950,031
At December 31, 2011 Total cost 138,048 76,230 779,757 21,060 953 1,016,048 Accumulated amortization (55,473 ) (71,239 ) (103,013 ) (4,421 ) (234,146 )
82,575 4,991 676,744 16,639 953 781,902
Amortization's annual rate - % Undefined 12.72 12.17 5.26 Undefined Consolidated
License for Goodwill on Right to Development the use of investment the use of of web sites BLOCKBUSTER® acquisitions software and systems Online brand Others Total
At January 1, 2011 84,788 30,178 452,897 17,744 959 586,566 Additions 11,140 265,223 154 276,517 Amortization (12,397 ) (39,989 ) (1,105 ) (53,491 )
At December 31, 2011 84,788 28,921 678,131 16,639 1,113 809,592 Investments transfers 310 310 Additions 20,720 231,487 252,207 Amortization (13,980 ) (58,210 ) (1,105 ) (73,295 )
At December 31, 2012 85,098 35,661 851,408 15,534 1,113 988,814
At December 31, 2012 Total cost 143,858 127,759 1,015,586 21,060 1,113 1,309,376 Accumulated amortization (58,760 ) (92,098 ) (164,178 ) (5,526 )- (320,562 )
85,098 35,661 851,408 15,534 1,113 988,814
At December 31, 2011 Total cost 143,548 107,039 784,099 21,060 1,113 1,056,859 Accumulated amortization (58,760 ) (78,118 ) (105,968 ) (4,421 )- (247,267 )
84,788 28,921 678,131 16,639 1,113 809,592
Amortization's annual rate - % Undefined 12.72 12.17 5.26 Undefined
68 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
At December 31, 2012 and December 31, 2011, the goodwill of the acquisitions in investments were represented as follows:
Parent company
December December 31, 2012 31, 2011
Accumulated Cost amortization Net Net Goodwill on investment acquisitions TV Sky Shop 135,305 (53,866) 81,439 81,439 Ingresso.com 2,743 (1,608 ) 1,136 1,136 8M Participações Mesaexpress
138,048 (55,474) 82,575 82,575
Consolidated
December December 31, 2012 31, 2011
Accumulated Cost amortization Net Net Goodwill on investment acquisitions TV Sky Shop 135,305 (53,866) 81,439 81,439 Ingresso.com 6,164 (3,613) 2,551 2,551 8M Participações 2,079 (1,281) 798 798 Mesaexpress 310 310
143,858 (58,760) 85,098 84,788
(a) Goodwill on acquisition of investments
The goodwill referring to the investment in TV Sky Shop S.A. was constituted at the time of its acquisition from Shoptime S.A. (Shoptime) and TV Sky Shop S.A. (TV Sky) by Americanas.com. On August 31, 2005, Americanas.com acquired the equivalent of 98.85% of the capital of Shoptime, which held 56% of the capital of TV Skyshop, and 44% of the capital of TV Sky. During the first quarter of 2006 Americanas.com acquired the remaining 1.15% of Shoptime, and now holds 100% of this company.
On August 1, 2006, Shoptime was incorporated by its holding company TV Sky, and thus the goodwill registered with Americanas.com with reference to an investment in Shoptime was added to the goodwill with reference to the investment in TV Sky, for a total of R$ 135,305. With the merger of Americanas.com and Submarino S.A on December 13, 2006, B2W was incorporated, with all the rights and obligations of Americanas.com and, consequently, the portion of the goodwill related to TV Sky. On March 31, 2007, at the EGM, it was resolved that the Company would be incorporated into TV Sky Shop S.A. The aforementioned goodwill was kept in line with CVM Circular Letter 001/2007.
The balances of the goodwill related to the acquisitions of other shareholder interests are supported by Technical Appraisals based on the future profitability of the companies and were amortized through December 31, 2008, using the period of 5 to 10 years, according to the proportion of future income expected from these investments. Beginning on January 1, 2009, the amortization of these balances for goodwill is subject only to the evaluation of impairment.
69 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
The Company annually evaluates impairment, with the latest assessment conducted upon the closing of the year ended December 31, 2012, this goodwill calculated from investments and mergers stemming from the expectation of future profitability, based on the projections of future earnings for a period of 10 years, using 10% per year for the nominal growth rate (equivalent to the long-term inflation rate, not taking into account any real growth) and a single discount rate of 12% to discount future estimated cash flows. For the impairment test of the goodwill of TV Sky, the Company used B2W as the cash generating unit. The impairment test of goodwill as well as of all intangible assets and property, did not reveal the need for recognition of any losses.
(b) Web Site Development and Systems/Software Use License
These represent expenses for e-commerce platforms (development of technological infrastructure, content, applications and graphic layout for the sites), the ERP Oracle system and expenses for the implementation of the development of the Company's own systems, and amortized using the straight-line method over the period stipulated for the use of the benefits identified.
Following its path of innovation, B2W has proceeded to invest in new features, designed mainly to improve the purchase experience, increase the conversion rate and strengthen the positioning of its brands, as well as implementing new operating functions for the Company. Overall during the first nine months of the year, 80 projects were implemented, ranging from improvements in the technological platform through to new features. Below are highlighted the following recently introduced projects:
Implementation of the "1 Click Buy" tool in Shoptime. After implementing the fast purchase feature on the Internet within Americanas.com, Submarino and Ingresso.com, now it is the turn of the first Home Shopping channel in Brazil to offer the same convenience and speed of the "1 Click Buy" experience in its website.
Submarino/Americanas.com Mobile Project > Nokia: Implementation of a version of Submarino and Americanas.com websites as an application for Nokia.
Submarino > Open Innovation: Launch of the innovation challenge to Campus Party Brasil 2012's guests, enabling participants to send projects in the areas of social networks, new services and features, mobile applications and services.
Easter "Hidden Friend" in Facebook: An online "hidden friend" platform in social networks to encourage the sale of Easter-time products by Americanas.com.
Americanas - Help Layer: Layer that appears after 15 seconds of permanence in the informatics and eletronics department screens.
Login with e-mail - Identification in Shoptime by CPF or e-mail.
Customers' Suggestions - Space in Shoptime and Submarino websites for suggestions of products by the website's customers.
Automatic Filter - Gradual opening of a new research engine in Americanas.com website.
Affiliates' Platform/Lomadee - Management platform of campaigns to affiliates through banners' exhibition in the websites that are participants of the program.
Bazaar Voice - Platform to host customers' contents, evaluations and reviews in Submarino website.
70 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
New Wedding List - New Features: online conversion of gift cards, invitation sending to the guests and gratitude message in Americanas.com website.
"Eu vi na TV" (I Saw It on TV) application - Application for the iPhone platform that exhibits the latest offers available on TV with an easy shortcut to finalize the purchase process.
(c) Borrowing costs capitalized
The value of borrowing costs capitalized during the years ended December 31, 2012 and 2011 were R$ 37,388 and R$ 38,103, respectively. The rate used for calculating the costs of borrowing costs eligible for capitalization was approximately 117.7% of the CDI at December 31, 2012 (118.4% of CDI at December 31, 2011), corresponding to the weighted average rate on borrowings taken by the Company.
16 Deferred
Parent company
December December 31, 2012 31, 2011
Accumulated Cost amortization Net Net
Pre-operating expenses 84,700 (72,785) 11,915 27,641
The period for amortization of deferred assets is 5 years.
71 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
17 Borrowingsandfinancing
(a) Composition
Parent company Consolidated
Annual Final December December December December charges maturity 31, 2012 31, 2011 31, 2012 31, 2011
In local currency 108.5% CDI to Working capital 135.8% CDI 11.18.2016 602,245 446,908 704,232 551,176 TJLP + 1.4% p.a. BNDES (i) to 4.5% p.a. 07.17.2017 435,450 372,443 435,450 375,679 111.0% to FIDC Shares (iv) 155.0% CDI 02.24.2016 453,390 378,586
In foreign currency (iii) US$ + 3.05% to Working capital (ii) 7.89% p.a. 12.14.2015 622,036 470,870 687,834 560,300 119.1% to Swap operations (ii) 134.0% CDI 12.14.2015 (146,944 ) (62,432 ) (145,917 ) (65,815 )
1,512,787 1,227,789 2,134,989 1,799,926 Non-current portion (1,074,486 ) (785,086) (1,540,244 ) (1,163,672)
Current portion 438,301 442,703 594,745 636,254
(i) BNDES financing related to the FINEM program (investments in information technology, implementing a distribution center, acquisition of machinery and equipment and investments in social projects), PEC (Working Capital), BNDES Automatic and "Connected Citizens - Computers for Everyone" programs.
(ii) Foreign currency operations are protected against changes in exchange rates by the use of financial instruments known as swaps (see Note 4).
(iii) Funding consistent with Resolution 2,770 of the Brazilian Central Bank (BACEN).
(iv) Represents the value of the senior and subordinated mezzanine quotas issued by FIDC (Note 7 (a)).
Borrowings and long-term financing by maturity:
Parent company Consolidated
2012 2011 2012 2011
2013 259,369 259,369 2014 257,798 141,701 270,167 141,701 2015 734,539 351,587 734,539 351,587 2016 70,518 32,429 523,907 411,015 2017 11,631 11,631
1,074,486 785,086 1,540,244 1,163,672
72 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
(b) Guarantees
Borrowings and financing in the Parent Company and Consolidated are guaranteed by letters of credit and promissory notes in the amount of R$ 435,450 and R$ 186,876, respectively.
(c) Available lines of credit
At Decemebr 31, 2012, the Company and its subsidiaries maintained lines of credit with a number of institutions in order to use them for moments of necessity to ensure the organic growth of the Company.
73 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
18 Debentures
(a) Composition
Value at Annual Type of Bonds the issue financial December December Issue date Maturity issue outstanding date charges 31, 2012 31, 2011
2nd Public issue 7.21.2010 7.21.2014 Public 100 R$ 1,000 IPCA+8.4% 113,041 111,191 1st Private issue 12.22.2010 12.22.2016 Private 200 R$ 1,000 111.5% CDI 200,295 200,640 3rd Public issue 6.13.2012 6.13.2017 Public 30 R$ 10,000 120.0% CDI 314,603
627,939 311,831
Cost of borrowings* (4,076) (865)
623,863 310,966
Non-current (601,467) (302,663)
Current 22,396 8,303
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Notes to the financial statements at December 31, 2012 In thousands of reais
(b) Movement 1st Public 2nd Public 1st Private 3rd Public issue issue issue issue Total
At January 1, 2011 385,933 105,610 200,717 692,260 Principle amortization (364,400 ) (7,749) (372,149) Interest amortization (54,235) (1,054) (26,110 ) (81,399) Financial charges 32,702 14,384 26,033 73,119
At December 31, 2011 111,191 200,640 311,831 Issuance 300,000 300,000 Interest amortization (9,187) (19,123 ) (28,310 ) Financial charges 11,037 18,778 14,603 44,418
At December 31, 2012 113,041 200,295 314,603 627,939
(c) Information about issues of debentures
In a General Assembly of Debenture Holders of the 2nd Public Issue of Company Debentures held September 24, 2012, the following points were changed in line "(q) (i)" of Clause 7.1 of the Registry: multiple of "Financial Index" from 2.9 to 3.5; and (ii) the "Consolidated Net Debt" concept. Besides these changes, payment was decided to be up to three (3) working days, as of the holding of the aforementioned meeting, in an amount corresponding to 0.05% (five hundredths of a percent) of the restated Face Value of the debentures in circulation.
In a General Assembly of Debenture Holders of the 1st Public Issue of Company Debentures held on September 28, 2012 the following points were changed in line "(k)" of Clause 7.1 of the Registry: multiple of "Financial Index" from 2.9 to 3.5; and (ii) the "Consolidated Net Debt" concept. Besides these changes, payment was decided to be up to three (3) working days, as of the holding of the aforementioned meeting, in an amount corresponding to 0.05% (five hundredths of a percent) of the restated Face Value of the debentures in circulation.
Below are descriptions of the debentures that were issued and those still in effect:
Nature 2nd Public issue 1st Private issue 3rd Public issue
Issuance date 7.21.2010 12.22.2010 6.13.2012 Maturity date 7.21.2014 12.22.2016 6.13.2017 Quantity issued 100 200 30 Unit value R$ 1,000 R$ 1,000 R$ 10,000 Financial index to calculate (Net debt/Adjusted (Net debt/Adjusted (Net debt/Adjusted covenants EBITDA) ≤ 3.5 EBITDA) ≤ 3.5 EBITDA) ≤ 3.5 Annual financial burden IPCA + 8.4% 111.5% DI 120% DI Convertibility simple, non convertible simple, non convertible simple, non convertible into shares into shares into shares Type and form Nominative and book- Nominative and book- Nominative and book- entry entry entry Amortization of the unit 0.05% between 9.24 0.05% between 09.28 and amortised annually in value and 9.26.2012 and 10.02.2012 and 99.95% three equal installments 99.95% on the payment on the payment date and consecutive date (2015, 2016 and 2017) Payment of the July 21 of each year December 22 of each year July 13 of each year compensatory interest (from 2011 to 2014) (from 2011 to 2016) (from 2013 to 2017) Guarantees floating, with privilege does not have does not have on Company's assets Repricing does not have permitted, provided that does not have agreement between issuer and debenture holder
75 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
19 Taxes and contributions (Current)
Parent company Consolidated
2012 2011 2012 2011
Taxes on goods and services (ICMS) 4,323 4,831 4,889 5,378 Service tax (ISS) 121 50 375 521 Social integration program (PIS)and Contribution for the social security fund (COFINS) 2,499 1,390 Tax on industrialized products (IPI) 820 665 Others 256 321
4,444 4,881 8,839 8,275
20 Provisions for contingencies
The Company and its subsidiaries are parties to lawsuits and administrative proceedings before courts and government agencies involving issues of tax, labor, civil and other matters. The Management has a system for monitoring judicial and administrative proceedings conducted by the Company's own Legal Department and outside counsel. Judicial deposits are made when legally required, and totaled R$ 25,364 at December 31, 2012 (R$ 19,775 at December 31, 2011), in the Parent Company, and R$ 25,509 at December 31, 2012 (R$ 19,802 at December 31, 2011), in the consolidated statements. Based on information provided by its external legal advisors, analysis of pending lawsuits, and labor actions (with prior experience as regards claims), management was able to record a provision that it judged sufficient to cover potential losses from the lawsuits in progress. Letters of guarantee are used to secure some lawsuits.
(a) Provisions
2012 2011
Tax 1,316 1,316 Labor 1,896 1,896 Civil 15,729 12,129
18,941 15,341
Tax
Related to the administrative process for tax assessment notices issued for recovery of alleged debt of ICMS (State Value-added Tax).
Labor
The Company and its subsidiaries are also parties to lawsuits related to labor claims. None of these refer to significant amounts, and complaints mainly involve claims for overtime among others.
Civil
The Company is a party, together with its subsidiaries, to lawsuits resulting from the ordinary course of its operations and its subsidiaries, primarily related to consumers, which accounted for, at December 31, 2012, the amount indicated as a contingent liability related to these issues.
76 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
Changes in provisions for contingencies:
Parent company
Tax Labor Civil Total
At January 1, 2011 1,917 1,879 9,015 12,811 Payments/reversals (611) 1 3,009 2,399 Monetary variation 10 16 105 131
At December 31, 2011 1,316 1,896 12,129 15,341 Additions 3,480 3,480 Monetary variation 120 120
At December 31, 2012 1,316 1,896 15,729 18,941
(b) Contingent liabilities not provided
At December 31, 2012, the Company had administrative and legal demands of a civil nature in the approximate amount of R$ 30,374 (R$ 37,130 at December 31, 2011), for the Parent Company and Consolidated statements, classified by their legal counsel as "possible losses" and, for this reason no provision has been made for them.
Additionally, there are lawsuits related to tax assessment notices classified as "possible losses" that mainly refer to the recovery of IPRJ and CSLL debts due to alleged improper use of tax loss carry forwards and social contribution, since the limit of 30% for realization of compensation was not observed, in the amount of approximately R$ 4,636.
21 Shareholders' equity
(a) Share capital
Share capital may be increased by the Board of Directors, without the need for a change in the statutes, up to a limit of 200,000,000 common shares. There is no preemptive right for the subscription of shares. At December 31, 2012, the capital was represented by 156,536,355 common shares, nominal and having no par value (159,816,337 shares at December 31, 2011).
The composition of the shareholders of the Company's capital at December 31, 2012 and 2011 is as follows:
Number of shares
2012 2011
Lojas Americanas S.A 98,185,206 92,157,006 Openheimer Devel Markets Fund 11,430,158 15,109,458 Management 276,759 216,407 Other shareholders (free floating) 46,644,232 49,053,484 Treasury shares 3,279,982
156,536,355 159,816,337
77 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
(b) Changes in capital
Number of shares, without par value.
Common Nominal
At December 31, 2011 159,816,337 Cancelation of Treasury shares (3,279,982)
At December 31, 2012 156,536,355
(c) Shares held in treasury
On May 8, 2008, pursuant to CVM Instructions 10/80 and 268/97, the Board of Directors of the Company approved a repurchase program for shares of its own issue, using equity reserves, in order to retain them in treasury or cancel them, with the ability to further sell or transfer them, during the subsequent 365 days, up to the limit of 4,971,895 common shares, which corresponds to 10% of the outstanding shares.
On December 31, 2011, the Company presented an excess number of shares in treasury compared to the available reserves, and, therefore, pursuant to CVM instructions, at the Board of Directors Meeting realized on March 1, 2012, it was approved the cancellation of the 3,279,982 treasury shares, in the total amount of R$ 218,631, against profit and capital reserves. The cancellation of these shares was registered on December 31, 2011, "ad referendum" in the Board of Directors Meeting.
Changes in shares held by treasury:
Balance Acquisition Quantity (thousand weighted of shares reais) avarage cost
At December 31, 2011 3,279,982 218,631 66.66
Shares cancelled on March 1, 2012 (3,279,982) (218,631)
Market value at December 28, 2012 per share R$ 17.00
The minimum and maximum share prices were R$ 46.39 and R$ 74.20, respectively.
(d) Capital reserve
This reserve was created as a result of a 2007 ownership restructuring process, in consideration of merged net book assets.
(e) Legal reserve
As required by Article 193 of Brazilian Corporation Law 6.404/76, the legal reserve is constituted by means of an appropriation of 5% of each year's net profits.
78 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
(f) Expansion reserve
The reserve for future investments is constituted based on the capital budget to be submitted for approval to the shareholders at the next General Shareholders Meeting to be used for future investment plans of the Company. The remaining profits from the year will be used for purposes approved by the General Shareholders' Meeting, according to the proposals submitted by the Board of Directors.
22 Payment based on shares
The Company approved a Share Option Plan ("B2W Plan") at the GSM held on December 13, 2006, pursuant to § 3 of Art. 168 of Law No. 6.404/76, earmarked for its Managers and employees. The GSM held on March 31, 2007 approved the merger of the Company with TV Sky Shop S.A., ratified maintaining the Plan approved in December 2006, as mentioned. The options are limited to 3% of total capital.
The Plan is administered by the Board of Directors or by a Committee nominated by the Board and has the following features:
the equivalent of 10% of the option must be exercised by the beneficiary on the date of the award;
the remainder of the option is not subject to a grace period, and may be exercised fully or partially at any moment until the program expires;
the issue price or the purchase price shall be the equivalent to the average value of the closing price of the Company's options over the past 22 trading sessions of the São Paulo Stock Exchange (BOVESPA) prior to the date the option was awarded, with the payment of the issue price or the purchase price of the residual batch plus monetary correction based on the variation of the IGPM and 6% interest per year as of the date of the award;
the exercise price of the options that have not been exercised will be deducted from the amount of the dividends and interest on own equity per share paid by the Company on the date of the award; the shares that have been exercised may be freely sold by their beneficiaries when they have been fully paid up and have observed the conditions defined in the Plan;
the Company has first rights of refusal for the repurchase option of the shares once an employment relationship no longer exists with the beneficiary.
At the General Shareholders' Meeting (GSM) held on August 31, 2011, the Company approved the reform of its Share Option Plan, with the main changes described below:
the options may be exercised in the manner that is foreseen in each program, within the deadline and during the periods that have been established for the Programs and their respective Contracts;
the issue price, the purchase price will be equivalent to the weighted average of the price of the Company's shares at the closing of the last 22 trading sessions of the Bolsa de Valores Mercadorias e Futuros (BM&FBOVESPA) prior to the date the option concession was awarded, and can be monetarily restated based on the IPCA (Full National Consumer Price Index) produced by the IBGE, or other index to be indicated by the Board of Directors, plus interest according to a rate as determined by the Board of Directors; and
79 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
the shares that are exercised may be freely transferred by its beneficiaries when they have been totally paid up and the minimum non-trading period observed in establishing each Program for each lot of shares.
Shown below is a statement of the 2009 and 2007 Programs still open as at December 31, 2012 offered to the Company's principal executives:
Program
2009 2007
Global volume (ON) 1,189,414 1,099,868
Strike price 47.92 83.54
Strike deadline 6 years 6 years
12.10.2007 and Subscription date 7.30.2010 9.23.2008
Number of shares offered 1,006,861 906,736
Number of shares not exercised 121,500 207,216
Number of canceled shares 137,500 658,392
Weighted avarage cost of shares not exercised 37.39 65.14
The fair value of the shares awarded by the B2W Plan was estimated based on the Black & Scholes options value model, based on the following assumptions:
Program
2009 2007
Risk free rate 10.64% 9.79% "Plan" duration in years 6 6 Expected annualized volatility 40.83% 45.30% Dividend yield 0.23% 1.44% Fair value of the option on the granting date (per share) 28.85 19.43 Market value on the granting date (per share) 33.63 58.37 Expected dropout rate (*) 50.00% 50.00%
(*) The dropout rate corresponds to the percentage of the share options awarded by the Company, which it expects will not be exercised, because of the non-compliance on the part of the participants with the conditions established by the B2W Plan. This rate was estimated by the Company using historical bases and the monitoring of the compliance of the performance conditions of the participants of the B2W Plan.
80 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
From the date of the approval of the B2W Plan until December 31, 2012 there were exercised:
Weighted average market value on Total the date of Period of option amount Weighted exercise of the exercise Quantity of shares in reais avarage cost option
2007 69,952 3,180 45.46 78.10 2008 141,403 6,799 48.08 56.97 2010 27,495 925 33.63 28.74
The remuneration costs stemming from the B2W Plan for the year ended December 31, 2012 were R$ 1,719 (R$ 2,559 for the year ended December 31, 2011). The counterpart to the remuneration costs is the posting to capital reserve - reserve of recognized options awarded under net equity, in view of the fact that the options, once exercised, are settled through the issue of new shares or the use of shares that are kept in treasury. The remuneration cost corresponds to the fair value of the B2W Plan, calculated at the date of the award, registered during the period when the services were rendered, which begins at the date of the award and ends at the date on which the beneficiary acquires the right to exercise the option.
The remuneration costs of the B2W Plan to be recognized by the Company for the remaining period (the period of services that will occur) based on the assumptions used totaled approximately R$ 1,529 at December 31, 2012 (R$ 3,403 at December 31, 2011).
Based on the capital share base on December 31, 2012, and the maximum participation dilution in the percentage that could be submitted to the current shareholders of the Company in the event all of the shares awarded were to be exercised is less than 1%.
23 Revenue of sales and services
Parent company Consolidated
2012 2011 2012 2011
Gross revenue of sales 5,253,490 4,386,539 5,578,346 4,386,539 Gross revenue of services 125,678 193,841 273,626 667,073 Returns and unconditional discounts (422,747) (345,301) (430,994) (351,083) Sales tax (523,233) (386,683) (608,539) (470,392)
Net revenue 4,433,188 3,848,396 4,812,439 4,232,137
81 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
24 Financial result
Parent company Consolidated
2012 2011 2012 2011
Interest and monetary variation on securities 52,891 45,288 99,697 86,843 Financial discounts obtained 15,972 10,086 16,061 10,545 Accounts receivable's fair value adjustment 90,162 121,411 90,162 121,411 Other financial revenues 62 117 173 262
Total financial revenue 159,087 176,902 206,093 219,061
Interest and monetary variation of borrowings and financing (140,385 ) (175,848) (200,515) (249,292 ) Expenditure in anticipation of receivables (90,997) (85,681) (92,740) (87,342 ) Monetary variation of tax liability (292) (622) (320) (632 ) Bank charges and taxes on financial transactions Suppliers present value adjustment (9,794) (7,623) (10,728) (8,834 ) Conditional/granted discounts (84,713) (91,559) (84,713) (91,559 ) Interest on suppliers overdue (205,689) (128,069) (215,110) (141,045 ) Other financial expenses (17,152) (8,306) (17,152) (8,306 )
Total financial expenses (552,996) (501,776) (626,310) (591,085 )
Net financial result (393,909) (324,874) (420,217) (372,024 )
25 Expenses by nature
The Company chose to present its statement of operations for the years ended September 30, 2012 and 2011 by function and presents, as follows, the details by nature:
Parent company Consolidated
2012 2011 2012 2011 Sales Staff (164,611) (99,127) (183,795) (115,222) Occupation (33,393) (26,745) (33,665) (26,900) Distribution (304,546) (252,917) (309,262) (262,404) Others (a) (137,789) (112,718) (205,945) (161,195)
(640,339) (491,507) (732,667) (565,721)
General and administrative Staff (45,229) (29,801) (52,755) (34,918) Depreciation and amortization (93,530) (78,444) (94,329) (72,641) Others (b) (6,055) (20,636) (21,122) (35,737)
(144,814) (128,881) (168,206) (143,296)
(a) Mainly refers to on and off-line media and outsourced client services.
(b) Mainly refers to attorney's fees, services and court ordered payments. 82 of 85 B2W - Companhia Global do Varejo
Notes to the financial statements at December 31, 2012 In thousands of reais
26 Earnings (losses) per share
Basic earnings (losses) per share is calculated by dividing net income (loss) by the average weighted number of common shares in circulation during the year. The calculation of basic losses per share is as follows:
(a) Basic earnings (losses) per share
Parent company Consolidated
2012 2011 2012 2011 Numerator Net income (loss) for the year (181,190) (99,996) (170,667) (89,168)
Denominator (in thousands of shares) Weighted average of the common shares in circulation 156,536 135,627 156,536 135,627
Basic earnings (losses) per share (1.1575) (0.7373) (1.0903) (0.6575)
The Company has not issued or granted equity instruments that should be considered for calculation of the diluted earnings per share, according to Technical Pronouncement CPC 41. Additionally, losses per share considering the impact of convertible debentures issued in 2011 exceeded the basic losses per share and therefore the effect is anti-dilutive.
27 Insurance coverage
The Company and its affiliates have insurance coverage for merchandise in inventory and fixed assets, as well as against robberies and thefts of cash. At December 31, 2012, such coverage was as follows:
Coverage amount - Property insured Covered risks In reais
Inventories and fixed assets Fire and other risks 898,845 Loss of profit 263,000 Civil liability Up to 20,000 Theft 1,050
28 Obligations - Rental contracts
The Company has a Private Instrument for Commercial Real Estate Rental Contracts and Other Agreements with Hulusa Comercial e Imóveis Ltda (unaffiliated company). Through this instrument, the Company, in the capacity of tenant, and Hulusa, in the capacity of landlord, executed a study regarding the establishment of a new distribution center (DC) for use by B2W on real estate owned by Hulusa. This new DC has been used by the Company since August 2008. The Company still maintains its Pirambóia and Osasco DCs, whose consolidation into the operations in the Hulusa DC is anticipated.
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Notes to the financial statements at December 31, 2012 In thousands of reais
The rent is updated monthly on the basis of the arithmetical average of the following Brazilian indexes: IGP-M (Market General Price Index) and IPC (Consumer Price Index) (at December 31, 2012, the value of the monthly rent was R$ 2,744). The 10-year (120-month) lease term is counted as of the execution date on the above-mentioned lease instrument. To guarantee the new DC, the Company made payments of R$ 10,000 that will be applied against future rent payments, representing 50% of the monthly rent. Under the above- referenced contract, Lojas Americanas S.A. is the Company's co-signer, guarantor, and principal debt payer.
For the year, ended December 31, 2012, the Company incurred rent expenses for its DCs of R$ 33,393 (R$ 27,195 for the year ended December 31, 2011).
The Company analyzed the above-referenced contracts and concluded that they conform to the classification of operational mercantile leasing. Future commitments arising from the lease contracts of these DCs-in-use, for values as of December 31, 2012 are as follows:
2017 2013 2014 2015 2016 onwards
Rentals 35,063 36,816 38,657 40,590 42,619
29 Employee and management remuneration
(a) Management remuneration
In accordance with Brazilian Corporation Law and the Company's bylaws, it is the responsibility of the shareholders, at a General Shareholders Meeting, to establish the total amount of the annual remuneration of the Management. The Board of Directors is charged with making the disbursement of this allocation amongst the members of Management. At the General Shareholders' Meeting on April 30, 2011, the monthly global remuneration limit was established for the Company's Management (Board of Directors and Executive Board).
For the years ended December 31, 2012 and 2011, the total remuneration (salaries and profit- sharing) for the Company's board members, directors and principal executives was R$ 7,478 and R$ 6,773 respectively (R$ 7,718 and R$ 7,218 in the consolidated), with compensation falling within the limits approved in the corresponding Shareholders' Meetings.
The Company and its affiliates do not grant post-employment benefits, employment contract rescission benefits, or other long-term benefits for management and its employees (except for the Stock Option Purchase Plan described in Note 22).
30 Other information
Cash and cash equivalents are basically comprised of balances in bank accounts.
Obligations with suppliers stem mainly from purchase of merchandise for reselling from domestic suppliers, net of present value adjustment in the amount of R$ 911,852 at December 31, 2012 (R$ 689,587 at December 31, 2011).
Other net operating expenses mainly are comprised of income related to the solution of delivery problems that occurred at the end of 2010.
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Notes to the financial statements at December 31, 2012 In thousands of reais
Considering the Company's core business, cost of goods sold consist primarily of cost of inventory for resale.
The Company reacquired from LASA the amount of R$ 16,500 referring to telecommunications usage rights (Internet, telephone sales, among others), deriving from the finalizing of the partnership between LASA and Itaú Unibanco Holding S.A.
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