goldf2q11_6ka.htm - Generated by SEC Publisher for SEC Filing

 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 6-K/A
 
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the month of September, 2011
(Commission File No. 001-32221) ,
 

 
GOL LINHAS AÉREAS INTELIGENTES S.A.
(Exact name of registrant as specified in its charter)
 
GOL INTELLIGENT AIRLINES INC.
(Translation of Registrant's name into English)
 


 
R. Tamoios, 246
Jd. Aeroporto 
04630-000 São Paulo, São Paulo
Federative Republic of Brazil
(Address of Regristrant's principal executive offices)

 


Indicate by check mark whether the registrant files or will file
annual reports under cover Form 20-F or Form 40-F.

Form 20-F ___X___ Form 40-F ______

Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under
the Securities Exchange Act of 1934.

Yes ______ No ___X___

If "Yes" is marked, indicated below the file number assigned to the
registrant in connection with Rule 12g3-2(b):

 

 

 

 

 

Gol Linhas Aéreas
Inteligentes S.A.

Consolidated Interim Financial Information

for the Quarter Report Ended June 30, 2011

and Review of Interim Financial Statements

 

 

 

 

 

 


 

 

Index

 

 

 

Company Profile
Subscribed Capital 1

Interim Consolidated Financial Statements

Balance Sheet - Assets 2
Balance Sheet - Liabilities 3
Income Statement 4
Statement of Comprehensive Income 5
Statement of Cash Flows 6
Consolidated Statements of Changes in Equity
     From 01/01/2011 up to 06/30/2011 7
     From 01/01/2010 up to 06/30/2010 8
Statements of Value Added 9
Notes to the Interim Consolidated Financial Statements 10
Report on Review of Interim Financial Statements 46

 

 


 

 

Company Profile / Subscribed Capital

 

 

Number of Shares

Current Quarter

 

 

 

 

(Thousands)

06/30/2011 

 

 

 

 

Paid- in Capital

 

 

 

 

 

Common

137,032,734

 

 

 

 

Preferred

133,354,132

 

 

 

 

Total

270,386,866

 

 

 

 

Treasury

 

 

 

 

 

Common

0

 

 

 

 

Preferred

454,425

 

 

 

 

Total

454,425

 

 

 

 

 

 

 

 

 

 

 

 

                                                                                                                                                                                                                                                                                                                                          

  Pafe 1 of 46

 


 

Interim Consolidated Financial Statements / Balance Sheet - Assets

 

(In Thousands of Reais)

 

 

 

Current Quarter

 

Previous Year

Account Code

 Account Description

 

06/30/2011

 

12/31/2010

1

Total Assets

 

9,195,926

 

9,063,847

1.01

Current Assets

 

2,659,531

 

2,704,852

1.01.01

Cash and Cash Equivalents

 

1,643,472

 

1,955,858

1.01.02

Short Term Investments

 

313,431

 

22,606

1.01.03

Trade and Other Receivables

 

281,087

 

303,054

1.01.03.01

Clients

 

281,087

 

303,054

1.01.04

Inventories, Net

 

141,746

 

170,990

1.01.06

Recoverable Taxes, Net

 

117,644

 

88,143

1.01.06.01

Current Recoverable Taxes, Net

 

117,644

 

88,143

1.01.07

Prepaid Expenses

 

88,727

 

116,182

1.01.08

Other Current Assets

 

73,424

 

48,019

1.01.08.03

Other Credits

 

73,424

 

48,019

1.02

Non-current Assets

 

6,536,395

 

6,358,995

1.02.01

Long-Term Assets

 

1,617,897

 

1,630,850

1.02.01.06

Deferred Taxes

 

831,022

 

817,545

1.02.01.06.01

Deferred Income Taxes

 

831,022

 

817,545

1.02.01.07

Prepaid Expenses

 

49,515

 

54,201

1.02.01.09

Other Non-current Assets

 

737,360

 

759,104

1.02.01.09.01

Other Non-current Assets

 

7,053

 

9,227

1.02.01.09.03

Restricted Cash

 

8,608

 

34,500

1.02.01.09.04

Deposits

 

611,435

 

715,377

1.02.01.09.05

Long term Investments

 

110,264

 

0

1.02.03

Property, Plant and Equipment

 

3,659,079

 

3,460,968

1.02.03.01

Operation Property, Plant and Equipment

 

1,061,811

 

926,874

1.02.03.01.01

Other Flight Equipment

 

876,911

 

751,816

1.02.03.01.04

Other

 

184,900

 

175,058

1.02.03.02

Property, Plant and Equipment on Leasing

 

2,233,994

 

2,210,433

1.02.03.02.01

Property, Plant and Equipment on Finance Leasing

 

2,233,994

 

2,210,433

1.02.03.03

Property, Plant and Equipment in Progress

 

363,274

 

323,661

1.02.03.03.01

Advance of Property, Plant and Equipment Acquisition

 

363,274

 

323,661

1.02.04

Intangible

 

1,259,419

 

1,267,177

1.02.04.01

Intangible

 

717,117

 

724,875

1.02.04.02

Goodwill

 

542,302

 

542,302

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Pafe 2 of 46

 


 

 

Interim Consolidated Financial Statements / Balance Sheet - Liabilities

 

(In Thousands of Reais)

 

 

 

 

Current Quarter

 

Previous Year

Account Code

 Account Description

 

06/30/2011

 

12/31/2010

2

Total Liabilities

 

9,195,926

 

9,063,847

2.01

Current Liabilities

 

1,725,982

 

1,688,993

2.01.01

Salaries, Wages and Benefits

 

252,682

 

205,993

2.01.01.02

Salaries, Wages and Benefits

 

252,682

 

205,993

2.01.02

Accounts Payable

 

235,215

 

215,792

2.01.03

Tax Obligations

 

50,403

 

58,197

2.01.04

Short Term Debt

 

342,102

 

346,008

2.01.04.01

Short Term Debt

 

342,102

 

346,008

2.01.05

Other Current Liabilities

 

829,872

 

807,036

2.01.05.02

Other

 

829,872

 

807,036

2.01.05.02.01

Dividends Payable

 

593

 

51,450

2.01.05.02.04

Sales Taxes and Landing Fees

 

140,344

 

85,140

2.01.05.02.05

Advance Ticket Sales

 

492,763

 

517,006

2.01.05.02.06

Customer Loyalty Programmes

 

55,744

 

55,329

2.01.05.02.07

Advance From Customers

 

29,023

 

24,581

2.01.05.02.08

Other Liabilities

 

111,405

 

73,530

2.01.06

Provisions

 

15,708

 

55,967

2.02

Non-Current Liabilities

 

4,865,295

 

4,445,685

2.02.01

Long Term Debt

 

3,700,052

 

3,395,080

2.02.01.01

Long Term Debt

 

3,700,052

 

3,395,080

2.02.02

Other Liabilities

 

313,672

 

319,509

2.02.02.02

Other

 

313,672

 

319,509

2.02.02.02.03

Customer Loyalty Programmes

 

162,586

 

152,327

2.02.02.02.04

Advance Ticket Sales

 

0

 

33,262

2.02.02.02.05

Tax Obligations

 

121,833

 

99,715

2.02.02.02.06

Other

 

29,253

 

34,205

2.02.03

Deferred Tax

 

670,276

 

642,185

2.02.03.01

Deferred Income Tax

 

670,276

 

642,185

2.02.04

Provisions

 

181,295

 

88,911

2.02.04.01

Tax, Labor, and Civil Provision

 

181,295

 

88,911

2.03

Consolidated Shareholders’ Equity

 

2,604,649

 

2,929,169

2.03.01

Capital

 

2,183,940

 

2,183,133

2.03.01.01

Issued Capital

 

2,316,462

 

2,315,655

2.03.01.02

Cost on Issued Shares

 

(132,522)

 

(132,522)

2.03.02

Capital Reserves

 

107,060

 

92,103

2.03.02.05

Treasury Shares

 

(11,887)

 

(11,887)

2.03.02.07

Share-based Payments

 

58,684

 

43,727

2.03.02.08

Capital Reserve

 

60,263

 

60,263

2.03.04

Retained Earnings

 

642,860

 

642,860

2.03.05

Accumulated Earnings

 

(326,769)

 

0

2.03.06

Equity’s Evaluation Adjustment

 

(2,442)

 

11,073

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Pafe 3 of 46

 


 

Interim Consolidated Financial Statements /Income Statement

 

(In thousands of Reais)

 

 

 

Current Quarter

 

Current Quarter Accumulated

 

Quarter Previous Year

 

Quarter

Previous Year Accumulated

Account Code

 Account Description

 

04/01/2011 up to 06/30/2011

 

01/01/2011 up to 06/30/2011

 

04/01/2010 up to 06/30/2010

 

01/01/2010 up to 06/30/2010

3.01

Operating Revenues

 

1,566,341

 

3,405,303

 

1,590,853

 

3,320,670

3.01.01

Passenger

 

1,378,585

 

3,025,673

 

1,410,679

 

2,978,561

3.01.02

Cargo and Other

 

187,756

 

379,630

 

180,174

 

342,109

3.02

Cost of Goods and Services Sold

 

(1,567,901)

 

(3,040,504)

 

(1,297,212)

 

(2,622,423)

3.03

Gross Revenue

 

(1,560)

 

364,799

 

293,641

 

698,247

3.04

Operating Expenses/Income

 

(269,254)

 

(557,103)

 

(236,372)

 

(449,558)

3.04.01

Sales

 

(152,955)

 

(302,389)

 

(143,763)

 

(272,300)

3.04.01.01

Sales and Marketing

 

(152,955)

 

(302,389)

 

(143,763)

 

(272,300)

3.04.02

General and Administrative

 

(116,299)

 

(254,714)

 

(92,609)

 

(177,258)

3.05

Profit Before Income Taxes and Finance Result

 

(270,814)

 

(192,304)

 

57,269

 

248,689

3.06

Finance Result

 

(87,026)

 

(112,832)

 

(113,203)

 

(246,943)

3.06.01

Financial Income

 

62,497

 

164,361

 

22,391

 

41,789

3.06.01.01

Investments Income

 

33,376

 

67,565

 

22,391

 

41,789

3.06.01.02

Exchange Variation, net

 

27,013

 

96,796

 

0

 

0

3.06.01.03

Other Finance Income

 

2,108

 

0

 

0

 

0

3.06.02

Financial Expenses

 

(149,523)

 

(277,193)

 

(135,594)

 

(288,732)

3.06.02.01

Interest on Loans

 

(86,670)

 

(176,193)

 

(71,723)

 

(138,877)

3.06.02.02

Derivatives Net Result

 

(62,853)

 

(93,468)

 

(25,733)

 

(43,504)

3.06.02.03

Other Operating Expenses

 

0

 

(7,532)

 

(8,590)

 

(19,054)

3.06.02.04

Exchenge Variation, Net

 

0

 

0

 

(29,548)

 

(87,297)

3.07

Profit Before Income Taxes

 

(357,840)

 

(305,136)

 

(55,934)

 

1,746

3.08

Income (Expenses) Tax

 

(863)

 

(21,633)

 

4,027

 

(29,731)

3.08.01

Current

 

3,794

 

(308)

 

11,882

 

(20,558)

3.08.02

Deferred

 

(4,657)

 

(21,325)

 

(7,855)

 

(9,173)

3.09

Net Profit of Continued Operation

 

(358,703)

 

(326,769)

 

(51,907)

 

(27,985)

3.11

Consolidated Profit (Loss) for the Period

 

(358,703)

 

(326,769)

 

(51,907)

 

(27,985)

3.11.01

Attributed to Shareholders of Parent Company

 

(358,703)

 

(326,769)

 

(51,907)

 

(27,985)

3.99

Earnings Per Share (Reais / Share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Pafe 4 of 46

 


 

Interim Consolidated Statement of Comprehensive Income

 

(In thousands of Reais)

 

 

 

 

Current Quarter

 

Current Quarter Accumulated

 

Quarter Previous Year

 

Quarter

Previous Year Accumulated

Account Code

 Account Description

 

04/01/2011 up to 06/30/2011

 

01/01/2011 up to 06/30/2011

 

04/01/2010 up to 06/30/2010

 

01/01/2010 up to 06/30/2010

4.01

Consolidated Net Profit for the Period

 

(358,703)

 

(326,769)

 

(51,907)

 

(27,985)

4.02

Other Comprehensive Income

 

(28,798)

 

(13,515)

 

(1,957)

 

(1,987)

4.02.01

Financial Assets Available for Sale

 

0

 

(487)

 

(590)

 

(913)

4.02.02

Cash Flow Hedge

 

(43,634)

 

(19,740)

 

(2,073)

 

(1,630)

4.02.03

Tax Effect

 

14,836

 

6,712

 

706

 

556

4.03

Consolidated Comprehensive Income for the Period

 

(387,501)

 

(340,284)

 

(53,864)

 

(29,972)

4.03.01

Attributed to Shareholders of Parent Company

 

(387,501)

 

(340,284)

 

(53,864)

 

(29,972)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Pafe 5 of 46

 


 

Interim Consolidated Financial Statements / Statement of Cash Flows – Indirect Method

 

(In thousands of Reais)

 

 

 

Current Quarter Accumulated

 

Same Quarter Previous Year Accumulated

Account Code

 Account Description

 

01/01/2011 up to 06/30/2011

 

01/01/2010 up to 06/30/2010

6.01

Net Cash Provided by (Used in) Operating Activities

 

(14,996)

 

438,449

6.01.01

Cash Flows from Operating Activities

 

370,734

 

401,740

6.01.01.01

Depreciation and Amortization

 

180,824

 

144,131

6.01.01.02

Allowance for Doubtful Accounts

 

4,480

 

4,588

6.01.01.03

Provisions for Contingencies and Others

 

2,836

 

6,971

6.01.01.04

Provisions for Onerous Contracts

 

12,330

 

358

6.01.01.05

Provision for Inventory Obsolescence

 

19

 

0

6.01.01.06

Deferred Taxes

 

21,325

 

9,173

6.01.01.07

Shared-based Payments

 

14,957

 

14,377

6.01.01.08

Exchange and Monetary Variations, Net

 

(111,237)

 

59,779

6.01.01.09

Interests on Loans, Net

 

176,193

 

138,877

6.01.01.10

Non Realized Hedge Result, Net

 

26,485

 

43,774

6.01.01.11

Provision for Return of Aircraft

 

(1,508)

 

13,151

6.01.01.14

Customer Loyalty Programmes

 

10,674

 

(33,439)

6.01.01.15

Write-off of Property, Plant, Equipment, and Intangible

 

5,073

 

0

6.01.01.16

Provision for profit sharing

 

28,283

 

0

6.01.02

Assets and Liabilities Variation

 

(58,961)

 

64,694

6.01.02.01

Trade and Other Receivables

 

17,487

 

264,261

6.01.02.02

Inventories

 

29,225

 

(28,713)

6.01.02.03

Deposits

 

26,329

 

31,693

6.01.02.04

Prepaid Expenses and Recovery Taxes

 

2,639

 

27,216

6.01.02.05

Other Assets

 

5,367

 

6,900

6.01.02.06

Accounts Payable

 

19,423

 

103,279

6.01.02.07

Advance Ticket Sales

 

22,046

 

(131,510)

6.01.02.08

Advance from Customers

 

(28,820)

 

(27,184)

6.01.02.09

Salaries, Wages and Benefits

 

46,536

 

42,303

6.01.02.10

Sales Tax and Landing Fees

 

8,915

 

(5,128)

6.01.02.11

Tax Obligation

 

7,918

 

(5,017)

6.01.02.12

Provisions

 

(48,345)

 

(29,629)

6.01.02.14

Interests Paid

 

(73,404)

 

(68,154)

6.01.02.15

Income Tax Paid

 

(308)

 

(20,558)

6.01.02.16

Provision for profit sharing

 

(56,727)

 

(70,000)

6.01.02.17

Insurance

 

(30,168)

 

(40,420)

6.01.02.18

Other Liabilities

 

(7,074)

 

15,355

6.01.03

Other

 

(326,769)

 

(27,985)

6.01.03.01

Net Income (loss) for the Period

 

(326,769)

 

(27,985)

6.02

Net Cash Generated by (used in) Investing Activies

 

(506,773)

 

(308,115)

6.02.01

Short term Investments

 

(401,089)

 

415

6.02.02

Restricted Cash

 

25,892

 

(46,464)

6.02.03

Purchase of Property, Plant and Equipment

 

(118,306)

 

(220,710)

6.02.04

Intangible Assets

 

(13,270)

 

(41,356)

6.03

Net Cash Generated by (used in) Financing Activities

 

207,917

 

14,540

6.03.02

Debts

 

548,458

 

301,516

6.03.03

Payments of Debts

 

(290,491)

 

(220,666)

6.03.04

Capital increase

 

807

 

119,529

6.03.05

Dividends Paid

 

(50,857)

 

(185,839)

6.04

Exchange Variation on Cash and Cash Equivalents

 

1,466

 

(9,292)

6.05

Net Increase (Decrease) in Cash and Cash Equivalents

 

(312,386)

 

135,582

6.05.01

Cash and Cash Equivalents at Beginning of the Period

 

1,955,858

 

1,382,408

6.05.02

Cash and Cash Equivalents at End of the Period

 

1,643,472

 

1,517,990

 

 

 

 

 

 

 

 

  Pafe 6 of 46

 


 

Interim Consolidated Financial Statements /  Statement of Changes in Equity – From 01/01/2011 up to 06/30/2011

 

(In thousands of Reais)

ACCCOUNT CODE

ACCCOUNT DESCRIPTION

CAPITAL STOCK

CAPITAL RESERVES, OPTIONS GRANTED AND TREASURE SHARES

INCOME RESERVES

ACCUMULATED

LOSSES

OTHER COMPREHENSIVE INCOME

TOTAL

CONTROLLERS' PARTICIPATION

TOTAL NON CONTROLLERS' PARTICIPATION

TOTAL

CONSOLIDATED

EQUITY

5.01

Beginning Balance

2,183,133

92,103

642,860

0

11,073

2,929,169

0

2,929,169

5.03

Adjusted Balance

2,183,133

92,103

642,860

0

11,073

2,929,169

0

2,929,169

5.04

Shareholders Capital Transactions

807

14,957

0

0

0

15,764

0

15,764

5.04.08

Capital Increase by Option Exercised

807

0

0

0

0

807

0

807

5.04.09

Stock Option

0

14,957

0

0

0

14,957

0

14,957

5.05

Total Other Comprehensive Income

0

0

0

(326,769)

(13,515)

(340,284)

0

(340,284)

5.05.02

Other Comprehensive Income

0

0

0

(326,769)

(13,515)

(340,284)

0

(340,284)

5.05.02.06

Net Profit for the Period

0

0

0

(326,769)

(13,515)

(340,284)

0

(340,284)

5.07

Final Balance

2,183,940

107,060

642,860

(326,769)

(2,442)

(2,604,649)

0

2,604,649

 

 

 

  Pafe 7 of 46

 


 

Interim Consolidated Financial Statements / Statement of Changes in  Equity – From 01/01/2010 up to 06/30/2010

 

(In thousands of Reais)

ACCCOUNT CODE

ACCCOUNT DESCRIPTION

CAPITAL STOCK

CAPITAL RESERVES, OPTIONS GRANTED AND TREASURE SHARES

INCOME RESERVES

RETAINED LOSSES

OTHER COMPREHENSIVE INCOME

TOTAL CONTROLLERS' PARTICIPATION

TOTAL NON CONTROLLERS' PARTICIPATION

TOTAL

CONSOLIDATED

EQUITY

5.01

Beginning Balance

2,062,272

67,360

596,627

(117,091)

818

2,609,986

0

2,609,986

5.03

Adjusted Balance

2,062,272

67,360

596,627

(117,091)

818

2,609,986

0

2,609,986

5.04

Capital Transactions with Stakeholders

119,529

14,377

0

0

0

133,906

0

133,906

5.04.08

Stock Option’s Capital Increase

463

0

0

0

0

463

0

463

5.04.09

Capital Increase on May 05,2010

119,066

0

0

0

0

119,066

0

119,066

5.04.10

Stock Option

0

14,377

0

0

0

14,377

0

14,377

5.05

Total Comprehensive Income

0

0

0

(27,985)

(1,987)

(29,972)

0

(29,972)

5.05.02

Other Comprehensive Income

0

0

0

(27,985)

(1,987)

(29,972)

0

(29,972)

5.05.02.06

Net Loss for the Period

0

0

0

(27,985)

0

(27,985)

0

(27,985)

5.05.02.07

Other Comprehensive Income, Net

0

0

0

0

(1,987)

(1,987)

0

(1,987)

5.07

Final Balance

2,181,801

81,737

596,627

(145,076)

(1,169)

2,713,920

0

2,713,920

 

 

 

 

  Pafe 8 of 46

 


 

Interim Consolidated Financial Statements / Statement of Value Added

 

(In thousands of Reais)

 

 

 

 

 

Current Quarter Accumulated

 

Quarter

Previous Year Accumulated

Account Code

 Account Description

 

01/01/2011 up to 06/30/2011

 

01/01/2010 up to 06/30/2010

7.01

Revenues

 

3,561,189

 

3,469,509

7.01.02

Other Revenues

 

3,565,669

 

3,474,097

7.01.02.01

Transportation of Passenger, Cargo and Other

 

3,565,669

 

3,474,097

7.01.04

Provision/Reversion of Doubtful Accounts

 

(4,480)

 

(4,588)

7.02

Acquired from Third Parties

 

(2,295,864)

 

(1,937,737)

7.02.02

Materials, Energy, Services from Third Parties and Other

 

(690,400)

 

(612,012)

7.02.04

Other

 

(1,605,464)

 

(1,325,725)

7.02.04.01

Fuel and Lubricant Suppliers

 

(1,411,862)

 

(1,135,490)

7.02.04.02

Aircraft Insurance

 

(16,769)

 

(24,562)

7.02.04.03

Commercial and Marketing

 

(176,833)

 

(165,673)

7.03

Gross Value Added

 

1,265,325

 

1,531,772

7.04

Retentions

 

(180,824)

 

(144,131)

7.04.01

Depreciation and Amortization

 

(180,824)

 

(144,131)

7.05

Net Value Added Generated

 

1,084,501

 

1,387,641

7.06

Value Added Received in Transference

 

487,465

 

448,715

7.06.02

Finance Income

 

487,465

 

448,715

7.07

Total Value Added to Distribute

 

1,571,966

 

1,836,356

7.08

Distribution of Value Added

 

1,571,966

 

1,836,356

7.08.01

Employees

 

744,741

 

596,008

7.08.02

Taxes

 

312,941

 

286,322

7.08.03

Third Parties' Capital Remuneration

 

841,053

 

982,011

7.08.03.03

Other

 

841,053

 

982,011

7.08.03.03.01

Funders

 

600,297

 

695,659

7.08.03.03.02

Lessors

 

240,756

 

286,352

7.08.04

Own Capital Remuneration

 

(326,769)

 

(27,985)

7.08.04.03

Period Losses

 

(326,769)

 

(27,985)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Pafe 9 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

1.      Corporate information

 

Gol Linhas Aéreas Inteligentes S.A. (“Company” or “GLAI”) is a public-listed company incorporated in accordance with Brazilian Corporate Laws, organized on March 12, 2004. The objective of the Company is through its operating wholly-owned subsidiary VRG Linhas Aéreas S.A. (“VRG”) to exploit (i) regular and non-regular air transportation services of passengers, cargo and mail bags, domestically or internationally, according to the concessions granted by the competent authorities; (ii) complementary activities of chartering air transportation of passengers.

 

GLAI is the direct parent company of the wholly-owned subsidiaries GAC Inc (“GAC”), Gol Finance (“Finance”) and indirect parent company of SKY Finance II (“SKY II”).

 

GAC was established on March 23, 2006, according to the laws of Cayman Islands, and its activities are related to the aircraft acquisition for its single shareholder GLAI, which provides a finance support for its operational activities and settlement of obligations. GAC is the parent company of SKY Finance and SKY II, established on August 28, 2007 and November 30, 2009, respectively, both located in Cayman Islands, which activities are related to obtaining funds to finance aircraft acquisition. Sky Finance and Sky II was closed in 2010, after the payment of all funds raised by the company, considering that both was created with the specific objective of obtaining such funds.

 

Finance was established on March 16, 2006, according to the laws the Cayman Islands, and its activities are related to obtaining funds for aircraft acquisition.

 

On April 9, 2007, the Company acquired VRG, a low-cost and low-fare airline company, which operates domestic and international flights with GOL and VARIG brands, providing regular and non-regular air transportation services among the main  destinations in Brazil, South America and the Caribbean.

 

The Company’s shares are traded in the New York Stock Exchange (NYSE) and on the São Paulo Stock Exchange (BM&FBOVESPA). The Company has entered into an Agreement for Adoption of Level 2 Differentiated Corporate Governance Practices with BM&FBOVESPA, and integrates the indices of Shares with Differentiated Corporate Governance – IGC and Shares with Differentiated Tag Along – ITAG, created to identify companies committed to the adoption of differentiated corporate governance practices.

 

2.   Basis of preparation and summary of significant accounting policies

 

The authorization for issue of this interim consolidated financial statements occurred in the Board of Directors’ meeting on August 11, 2011. The registered office is located at Rua Tamoios, 246, Jd. Aeroporto, São Paulo, Brazil.

 

2.1 Basis of preparation

 

The quarterly interim consolidated financial statements were prepared for the period ended on June 30,2011 in accordance with International Accounting Standards (IAS) no. 34, related to consolidated interim financial statements, as issued by the International Accounting Standards Board (IASB).

 

IAS 34 requires the use of certain accounting estimates by the Company Management. The interim consolidated financial statements were prepared based on historical cost, except for certain financial assets and liabilities, which are measured at fair value.

 

  Pafe 10 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

These interim consolidated financial statements do not include all the information and disclosure items required in the consolidated annual financial statements. Therefore, they must be read together with the consolidated financial statements referring the year ended December 31, 2010, and filed on February 22, 2011, which were prepared according to International Financial Reporting Standards – IFRS. There was no changes in accounting policies adopted on December 31,2010.

 

Some items of the Balance Sheet for the year ended December 31, 2010, presented for comparative purposes, were reclassified for adequacy and consistency with the period ended June 30, 2011.

 

 

3.   Seasonality

 

The Company expects that the revenues and profits from its flights reach the highest levels during the summer and winter vacation periods, in January and July, respectively, and during the last two weeks of December, during the season holidays. By considering of the high portion of fixed costs, this seasonality tends to cause variations in our operational income from quarter to quarter.

 

 

4.   Cash and cash equivalents

 

 

06/30/11

 

12/31/10

 

 

 

 

Cash and bank deposits

146,650

 

194,493

Cash equivalents

1,496,822

 

1,761,365

 

1,643,472

 

1,955,858

 

 

On June 30, 2011, cash equivalents refers substantially to investment funds, government securities and bank deposit certificates, bearing interest rates of 98.5% to 103.5% of Certificado de Depósito Interbancário (Inter-bank Deposit Certificate - CDI).

 

The breakdown of cash equivalents balance is presented below:

 

 

06/30/11

 

12/31/10

 

 

 

 

Bank deposit certificates

206,227

 

678,253

Government securities

264,091

 

245,186

Investment funds

1,026,504

 

837,926

 

1,496,822

 

1,761,365

 

These financial investments provide high liquidity and are promptly converted into known cash amount, and are subject to insignificant risk of value change.

 

 

5.   Restricted cash

 

On June 30,2011, restricted cash is represented by a guarantee deposits linked to loans from the Banco Nacional de Desenvolvimento Econômico e Social (BNDES) which were applied in DI funds and paid the average rate of 98.5% of CDI.

 

On April 2011, the Company redeemed CDB (Bank deposit certificates) with Santander Bank in amount of R$25.000, which were the guarantee of Banco de Desenvolvimento de Minas Gerais (BDMG), replaced by chattel mortgage of aircraft’s equipment.

 

On June 30, 2011, the restricted cash recorded in non-current assets corresponded to R$8,608 (R$34,500 on December 31, 2010).

  Pafe 11 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

6.   Short term investments

 

 

 

06/30/11

 

12/31/10

Private Bonds (CDB)

 

284,415

 

-

Government securities

 

118,560

 

-

Foreign bank deposits

 

20,720

 

19,790

Investment Funds (FIDC)

 

-

 

2,816

 

 

423,695

 

22,606

 

Short term

 

313,431

 

22,606

Long term

 

110,264

 

-

 

 

423,695

 

22,606

 

 

On June 30, 2011, the balance of short term investments is mainly form by government securities and private bonds (CDB – Certificado de depósitos bancários – Certificate of bank deposits) with maturity date until January 2015, bearing interest at 100.0% of CDI.

 

 

7.   Trade and other receivables

 

 

06/30/11

 

12/31/10

Local currency:

 

 

 

Credit card administrators

48,075

 

90,612

Travel agencies

188,329

 

149,393

Installments sales

45,085

 

48,564

Cargo agencies

23,346

 

20,582

Airline partners companies

15,528

 

16,608

Other

15,716

27,491

 

336,079

 

353,250

Foreign currency:

 

 

 

Credit card administrators

5,919

 

5,855

Travel agencies

3,544

 

3,935

Cargo agencies

152

 

141

 

9,615

 

9,931

 

345,694

 

363,181

 

 

 

 

Allowance for doubtful accounts

(64,607)

 

(60,127)

 

281,087

 

303,054

 

 

Changes in the allowance for doubtful accounts for six months period ended June 30,2011 are as follows:

 

 

 

06/30/11

 

06/30/10

Balance at the beginning of the year

(60,127)

 

(52,399)

Additions

(14,252)

 

(14,542)

Irrecoverable amounts

1,181

 

3,750

Recoveries

8,591

 

6,204

Balance at the end of the year

(64,607)

 

(56,987)

 

 

 

The aging analysis of accounts receivable is as follows:

  Pafe 12 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

 

 

06/30/11

 

12/31/10

Falling due

235,183

 

270,286

Overdue until 30 days

15,492

 

19,091

Overdue 31 to 60 days

3,254

 

4,128

Overdue 61 to 90 days

3,123

 

5,533

Overdue 91 to 180 days

21,791

 

8,041

Overdue 181 to 360 days

13,488

 

7,052

Overdue above 360 days

53,363

 

49,050

 

345,694

 

363,181

 

 

The average receivable period of installment sales is seven months and monthly interests based on 5.99% is charged over the receivable balance, which is recognized as finance income when received. The average term for receipt of other accounts receivable is 45 days.

 

On June 30, 2011, accounts receivable from travel agencies amounting to R$16,000 (R$24,300 on December 31, 2010) are related to loan agreements guarantees

 

 

8.   Inventories

 

 

06/30/11

 

12/31/10

 

 

 

 

Consumables

18,584

 

16,702

Parts and maintenance materials

114,349

 

117,740

Advances to suppliers

12,010

 

43,725

Imports in progress

1,907

 

1,885

Others

11,919

 

7,942

Provision for obsolescence

(17,023)

 

(17,004)

 

141,746

 

170,990

 

 

Changes in the allowance for inventory obsolescence is as follows:

 

 

 

06/30/11

 

12/31/10

Balance at the beginning of the year

(17,004)

 

(8,602)

Additions

(33,804)

 

(44,426)

Disposals

33,785

 

36,024

Balance at the end of the year

(17,023)

 

(17,004)

 

 

9.    Deferred and recoverable taxes

 

 

06/30/11

 

12/31/10

Recoverable taxes:

 

 

 

Current assets

 

 

 

ICMS (1)

9,846

 

7,039

Prepaid IRPJ and CSSL (2)

69,300

 

35,186

IRRF (3)

5,830

 

8,548

Withholding tax of public institutions

20,534

 

17,334

Value-added taxes – IVA (4)

4,063

 

3,512

Import tax

-

 

15,805

Other

8,071

 

719

Total recoverable taxes - current

117,644

 

88,143

 

 

 

 

 

  Pafe 13 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

Deferred taxes:

 

 

 

Non-current assets

 

 

 

Credits on accumulated income tax losses carryforward

334,162

 

340,055

Negative basis of social contribution

120,299

 

122,420

Temporary differences:

 

 

 

Mileage program

83,816

 

70,603

Provision for doubtful accounts

192,263

 

190,664

Provision for tax, labor, and civil provision

56,854

 

44,556

Return of aircraft

1,417

 

11,318

Others

42,211

 

37,929

Total deferred tax - non-current assets

831,022

 

817,545

 

 

 

 

Non-current liabilities

 

 

 

Brands

21,457

 

21,457

Rights of flight

190,686

 

190,686

Maintenance deposits

124,774

 

155,266

Engine and rotable depreciation

128,213

 

115,098

Goodwill amortization reversal

63,830

 

51,064

Aircraft leasing operations

126,806

 

94,950

Others

14,509

 

13,664

Total deferred tax - non-current liabilities

670,275

 

642,185

 

(1) ICMS: State tax on sales of goods and services.

(2) IRPJ: Brazilian federal income tax on taxable net profits.

     CSLL: social contribution on taxable net profits, created to finance social programs and funds.

(3) IRRF: withholding of income tax applicable on certain domestic operations, such as payment of fees for some service providers, payment of salaries and financial income resulting from bank investments.

(4) IVA: Value-added tax for sales of goods and services abroad.

 

 

The Company and its subsidiary have tax losses carry forward and negative bases of social contribution in the determination of the taxable profits, to be compensated with 30% of the annual taxable profits, without an expiration date, in the amounts described below:

 

 

 

Parent Company (GLAI)

 

Subsidiary (VRG)

 

06/30/11

 

12/31/10

 

06/30/11

 

12/31/10

Accumulated income tax losses carryforward

262,225

 

264,920

 

1,580,868

 

1,299,555

Negative basis of social contribution

262,225

 

264,920

 

1,580,868

 

1,299,555

 

 

 

The credits resulting from tax losses carry forward and negative basis of social contribution were recorded based on the firm expectation for generation of future taxable profits of the Company and its subsidiaries, in accordance with the legal limitations.

 

The projections of future taxable profits for utilization to compensate tax losses carry forward and negative basis of social contribution, are technically prepared and supported based on their business plans which are approved by the Board of Directors, indicate the existence of sufficient taxable profit for the realization of the deferred tax assets recognized.

 

Through its parent company and its subsidiary VRG, the Company total tax credit is R$626,652. However, the Company and subsidiary recognized an impairment of R$172,191 for the credits that would be recognized on December 31, 2011, when the company’s business plan will be revised.

 

The Management considers that the deferred tax assets resulting from temporary differences will be realized proportionally to the realization of provisions and final resolution of future events.

 

The reconciliation between income tax and social contribution, calculated by the application of the statutory tax rate combined with values reflected in the net income, is demonstrated below:

 

  Pafe 14 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

 

 

Three months period

 

Six months period ended

 

30/06/11

06/30/11

 

06/30/10

 

06/30/11

 

06/30/10

loss before Income Taxes

 

(357,840)

 

(55,934)

 

(305,136)

 

1,746

Combined tax rate

 

34%

 

34%

 

34%

 

34%

Income tax at combined tax rate

 

121,666

 

19,018

 

103,746

 

(594)

Adjustments for calculating the effective tax rate:

 

 

 

 

 

 

 

 

Non-deductible income from subsidiaries

 

(6,768)

 

(4,570)

 

(15,316)

 

(8,815)

Nondeductible expenses (nontaxable income) of subsidiaries

 

(11,595)

 

(4,519)

 

(9,497)

 

(4,265)

Nondeductible expenses (nontaxable income)

 

326

 

(735)

 

357

 

(83)

Income tax on permanent differences

 

(2,194)

 

(929)

 

(5,194)

 

(2,682)

Exchange variation on investments abroad

 

10,096

 

(4,928)

 

16,665

 

(13,982)

Use of tax credits in the repayment of Law 11,941

 

(8,013)

 

-

 

(8,013)

 

-

Benefit not recognized under tax losses carry forward and negative bases of social contribution

 

(104,381)

 

690

 

(104,381)

 

690

Income tax and social contribution expenses

 

(863)

 

4,027

 

(21,633)

 

(29,731)

 

 

 

 

 

 

 

 

 

Current income tax and social contribution

 

3,794

 

11,882

 

(308)

 

(20,558)

Deferred income tax and social contribution

 

(4,657)

 

(7,855)

 

(21,325)

 

(9,173)

 

 

(863)

 

4,027

 

(21,633)

 

(29,731)

 

10. Prepaid expenses

 

06/30/11

 

12/31/10

Deferred losses from sale-leaseback transactions (a)

58,888

 

63,574  

Prepayments of hedge awards

31,536

 

23,334 

Prepayments of leasing

23,573

 

33,322

Prepayments of insurance

10,009

 

27,860

Prepayments of commissions

8,804

 

16,628

Others

5,432

 

5,665

 

138,242

 

170,383

 

 

 

 

Current

88,727

 

116,182

Non-current

49,515

 

54,201

 

(a)  During the accounting years of 2007, 2008 and 2009, the Company registered losses with sale-leaseback transactions performed by its subsidiary GAC Inc. for 9 aircrafts in the amount of R$89,337. These losses are being deferred and amortized proportionally to the payments of the respective leasing contracts during the contractual term of 120 months. Further information related to the sale-leaseback transactions are described in Note 25b.

 

11. Deposits  

 

Maintenance deposits

 

Under certain existing lease agreements, maintenance deposits are paid to aircraft and engine lessors that are to be applied to future aircraft maintenance. The maintenance deposits paid under lease agreements exempt neither the obligation to maintain the aircraft nor the cost risk associated with the maintenance activities of the aircraft lessor. The Company maintains the right to select any third-part maintenance provider or to perform such services in-house.

 

  Pafe 15 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

These deposits are calculated based on a performance measure, such as flight hours or cycles, and are available for reimbursement to the Company upon the completion of the maintenance of the lease aircraft.  Therefore, these amounts are recorded as a deposit on the balance sheet and maintenance cost is recognized when the underlying maintenance is performed, in accordance with an accounting maintenance policy. Certain lease agreements provide that the excess deposits are not refundable to the Company. Such excess could occur if the amounts ultimately expended for the maintenance events were less than the amounts deposited. Any excess amounts held by lessor or retained by the lessor upon the expiration of the lease, which are not expected to be significant, would be recognized as additional aircraft rental expense.

 

On June 30, 2011, the Company changed the classification of maintenance deposits from non-monetary to monetary asset, as the transactions of these assets, since 2011 occurred substantially through receipts of financial funds, according to the renegotiations conducted with the lessors, recognized in the period of six month ended June 30, 2011 the amount of R$ 76,548 as exchange variation expense.

 

Based on regular analysis of deposit recoveries, Management believes that the values disclosed in the consolidated balance are recoverable, and there are no indicators of  impairment of maintenance deposits, which balances on June 30, 2011 are classified in non-current assets and amount to R$366,981 (R$456,666 on December 31, 2010).

  

Additionally, the Company holds contracts with some lessors to replace deposits by letters of credit, to enable the utilization of deposits to cover other disbursements related to leasing contracts. Many of the aircraft leasing contracts do not require maintenance deposits.

 

Deposits in guarantee for leasing contracts

 

As required by the leasing contracts, the Company makes guarantee deposits on behalf of the leasing companies, the refund of which occurs upon the contract expiration date. On June 30, 2011, the balance of guarantee deposits for leasing contracts, classified in non-current assets, is R$87,447 (R$127,963 on December 31, 2010).

 

Judicial deposits

 

Judicial deposits substantially represent guarantees of related to tax claims, labor, or civil  under judgment until such deposits will continue the resolution of conflicts related to them. The balances of judicial deposits on June 30, 2011, recorded in non-current assets totaled R$157,007  (R$130,748  on December 31, 2010).

 

 

12. Transactions with related parties

 

Graphic, consulting and transportation services

 

The subsidiary VRG holds contract with the related part Breda Transportes e Serviços S.A. for passenger and luggage transportation services between airports, and transportation of employees, which expired annually on November, 16 and can be renewed at every 12 months by additional equal periods by signing an amendment instrument signed by the parties, with annual correction based on the General Market Price Index (IGP-M) variation.

 

The Subsidiary VRG also holds contracts with related parties Expresso União Ltda. and Serviços Gráficos Ltda. for, transportation of employees and graphic services, respectively, with 12-month maturity terms without financial charges.

 

  Pafe 16 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

The Subsidiary VRG also holds contracts to use Gollog  franchising through related part União Transporte de Encomendas e Comércio de Veículos Ltda., with 60-month maturity terms.

 

The Subsidiary VRG also hold a contract with related party Vaud Participações S.A. for providing administration services and executive management, with maturity terms of two years since October 2010.

 

During the period ended on June 30, 2011, VRG recognized total expense related to these services amounting to R$5,087 (R$5,418 for the six-month period ended on June 30, 2010). All the entities previously mentioned belong to the same business group.

 

Operational lease

 

VRG is the lessee of the property located at Rua Tamoios, 246, São Paulo – SP, owned by Patrimony Administradora de Bens, controlled by Comporte Participações S.A., company owned by the same shareholder of the Company, which contract expires annually on April 4, can be renewed at every 12 months by additional equal periods and includes clause of annual readjustment based on General Market Price Index (IGP-M) variation. During the six months period ended on June 30, 2011, VRG recognized total expense related to this rental amounting to R$317 (R$215 for the six months period ended on June 30, 2010).

 

Commercial Agreement with Unidas Rent a Car

 

In May 2009, VRG signed a commercial agreement with Unidas Rent a Car, a Brazilian car rental company, which provides a 50% discount to Unidas’  customers in the daily rental rates when they buy air travel tickets on flights operated by the subsidiary VRG in its website. The chairman of the Board of Directors of the Company, Álvaro de Souza, was member of the board of directors of Unidas Rent a Car until June 20, 2011.

 

Accounts payable – current liabilities

 

On June 30, 2011, balances payable to related companies amounting to R$808 (R$878 on June 30, 2010) are included in the suppliers' balances and substantially refers to the payment to Breda Transportes e Serviços S.A. for passenger transportation services.

 

Payments of key management personnel

 

 

Three months period

 

Six months period ended

 

06/30/11

 

06/30/10

 

06/30/11

 

06/30/10

Salaries and benefits

3,341

 

3,355

 

7,256

 

6,135

Social charges

1,250

 

2,895

 

2,687

 

3,856

Share-based payments

4,573

 

10,950

 

9,146

 

14,377

Total

9,164

 

17,200

 

19,089

 

24,368

 

On June 30, 2011, the Company did not offer post-employment benefits, and there are no benefits for breach of employment agreements or other long-term benefits for Management or other employees.

 

Share-based payments

 

The Company’s Board of Directors within the scope of its functions and in conformity with the Company’s Stock Option Plan, approved the grant of a stock option for key senior executive officers and employees. For the grants until 2009,  the options vest at a rate of 20% per year, and can be exercised up to 10 years after the grant date.

 

  Pafe 17 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

Due to changes in Stock Option Plan of the Company's shares, approved the Ordinary Shareholders Meeting held on April 30, 2010, for the 2010 grants, the options become exercisable in respect of 20% as from the first year, an additional 30% as from the second and remaining 50% as from the third year. The options under this Plan of 2010 also may be exercised within 10 years after the grant date.

 

The fair value of stock options was estimated at the grant date using option-pricing model of Black-Scholes.

 

The Board of Directors meetings date and the assumptions utilized to estimate the fair value of the stock purchase options using the Black-Scholes option pricing model are demonstrated below:

 

 

 

Stock option plans

 

2005

 

2006

 

2007

 

2008

 

2009 (a)

 

2010 (b)

 

2011

Board of Directors meeting date

December 9, 2004

 

January

2, 2006

 

December 31, 2006

 

December 20, 2007

 

February 4, 2009

 

February 2, 2010

 

December 20, 2010

Total of options granted

87,418

 

99,816

 

113,379

 

190,296

 

1,142,473

 

2,774,640

 

2,722,444

Option exercisable price

33.06

 

47.30

 

65.85

 

45.46

 

10.52

 

20.65

 

27.83

Fair value of the option on the grant date

29.22

 

51.68

 

46.61

 

29.27

 

8.53

 

16.81

 

16,01 (c)

Estimated volatility of the share price

32.52%

 

39.87%

 

46.54%

 

40.95%

 

76.91%

 

77.95%

 

44.55%

Expected dividend

0.84%

 

0.93%

 

0.98%

 

0.86%

 

-

 

2.73%

 

0.47%

Risk-free return rate

17.23%

 

18.00%

 

13.19%

 

11.18%

 

12.66%

 

8.65%

 

10.25%

Option duration (years)

10

 

10

 

10

 

10

 

10

 

10

 

10

 

(a) In April 2010 additional options were granted, totaling 216,673 in addition to those approved by the 2009 plan.

(b) In April 2010 additional options were approved totaling 101,894, referring to the 2010 plan.

(c) The calculated fair value for 2011 plan  was 16.92, 16.11 and 15.17 for respective vesting  periods (2011, 2012 e 2013).

 

 

Changes in the stock options as of June 30,2011 are shown as follows:

 

 

Stock options

 

Average weighted purchase price

Options in circulation as of December 31, 2010

3,476,684

 

20.56

Granted

2,722,444

 

16.07

Exercised

(46,698)

 

15.40

Adjust on lost rights estimative

(970,571)

 

21.25

Options in circulation as of June 30, 2011

5,181,859

 

24.30

 

 

 

 

Number of options exercisable as of December 31, 2010

955,975

 

22.88

Number of options exercisable as of June 30, 2011

1,365,042

 

23.84

 

 

The interval of the exercise prices and the average maturity of the outstanding options, as well as the intervals of the exercise prices for the exercisable options as of June 30, 2011, are summarized below:

 

 

 

  Pafe 18 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

 

Options in circulation

 

Options exercisable

Exercise price intervals

Options in circulation as of Jun/2011

Remaining weighted average maturity (years)

Weighted average exercise price

 

Options exercisable as of Jun/2011

Weighted average exercise price

33.06

31,222

4

33.06

 

31,222

33.06

47.30

37,960

5

47.30

 

37,960

47.30

65.85

39,299

6

65.85

 

35,369

65.85

45.46

90,926

7

45.46

 

63,648

45.46

10.52

386,480

8

10.52

 

193,240

10.52

20.65

2,176,023

9

20.65

 

761,608

20.65

27.83

2,419,949

10

27.83

 

241,995

27.83

10.52-65.85

5,181,859

9.28

24.30

 

1,365,042

23.84

 

For the six months period ended on June 30,2011, the Company registered on the equity an result with stock options in the amount of R$14,957 (R$14,377 for the six months period ended on June 30,2010), being the expense presented in the consolidated statements of operations as labor expenses.

 

        

13.     Earnings or losses per share   

 

Although, there are differences in voting rights and liquidation preferences, the Company’s preferred shares are not entitled to receive any fixed dividends. Rather, the preferred shareholders have identical rights to earnings and are entitled to receive dividends per share in the same amount of the dividends per share paid to holders of the common shares. Therefore, the Company understands that, substantially, there is no difference between preferred shares and common shares and the basic earnings or losses per share calculation should be the same for both shares.

 

Consequently, basic earnings or losses per share are computed by dividing income or losses by the weighted average number of all classes of shares outstanding during the period. The diluted earnings or losses per share are computed including dilutive potential shares from the executive employee stock options using the treasury-stock method when the effect is dilutive. The effect anti-dilutive potential shares are disconsidered in calculating dilutive earnings or losses per share.

 

 

Three months period ended

 

Six months period ended

 

06/30/11

 

06/30/10

 

06/30/11

 

06/30/10

Numerator

 

 

 

 

 

 

 

Net loss for the period

(358,703)

 

(51,907)

 

(326,769)

 

(27,985)

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

Weighed mean of shares in circulation related

to basic earnings per share (in thousands)

270,349

 

266,090

 

270,349

 

266,090

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted weighed mean of shares in circulation and presumed conversions related to the diluted earnings per share (in thousands)

270,349

 

266,090

 

270,349

 

266,090

 

 

 

 

 

 

 

Basic losses per share

(1.32)

 

(0.19)

 

(1.20)

 

(0.11)

Diluted losses per share

(1.32)

 

(0.19)

 

(1.20)

 

(0.11)

                                                            

 

On June 30, 2011, the diluted earnings or losses per share was calculated by considering the instruments that may have potential dilutive effect in the future. On June 30, 2011 the exercise price of vested stock options of the 2009 and 2010 plans are lower than the average market quotation of the period (in the money). The 2009 plan is in the money even when the vesting stock options expenses are included in the exercise price. However due to the loss reported for the six months period ended June 30, 2011 and 2010, these shares have anti-dilutive effect. However due to the loss reported for the six months ended June 30, 2011 and 2010, these shares have anti-dilutive effect and therefore are not considered in the total number of shares outstanding.

 

  Pafe 19 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

 

                                                                                               

14. Property, plant and equipment

 

 

06/30/11

 

12/31/10

 

Annual weighted depreciation

 

Cost

 

 

Accumulated

depreciation

 

 

Net value

 

Net value

Flight equipment

 

 

 

 

 

 

 

 

 

Aircraft under financial leases

11%

 

2,680,839

 

(446,845)

 

2,233,994

 

2,210,433

Sets of replacement parts and spare engines

4%

 

821,124

 

(144,230)

 

676,894

 

649,758

Aircraft reconfigurations

11%

 

282,408

 

(100,337)

 

182,071

 

86,992

Aircraft and safety equipment

20%

 

1,393

 

(742)

 

651

 

601

Tools

10%

 

23,616

 

(6,321)

 

17,295

 

14,465

 

 

 

3,809,380

 

(698,475)

 

3,110,905

 

2,962,249

Property and equipment in use

 

 

 

 

 

 

 

 

 

Vehicles

20%

 

8,773

 

(6,052)

 

2,721

 

3,309

Machinery and equipment

10%

 

35,366

 

(9,084)

 

26,282

 

15,744

Furniture and fixtures

10%

 

18,322

 

(8,083)

 

10,239

 

10,696

Computers and peripherals

20%

 

42,986

 

(26,341)

 

16,645

 

14,354

Communication equipment

10%

 

2,667

 

(1,277)

 

1,390

 

1,517

Facilities

10%

 

4,328

 

(2,347)

 

1,981

 

2,192

Maintenance center – Confins

7%

 

105,506

 

(12,584)

 

92,922

 

93,160

Improvements in third-part properties

20%

 

31,548

 

(15,826)

 

15,722

 

18,540

Works in progress

-

 

16,998

 

-

 

16,998

 

15,546

 

 

 

266,494

 

(81,594)

 

184,900

 

175,058

 

 

 

4,075,874

 

(780,069)

 

3,295,805

 

3,137,307

 

 

 

 

 

 

 

 

 

 

Advances for acquisition of aircraft

-

 

363,274

 

-

 

363,274

 

323,661

 

 

 

4,439,148

 

(780,069)

 

3,659,079

 

3,460,968

 

 

Changes in property, plant and equipment balances are shown below:

 

 

 

Property, plant and equipment under financial leasing

 

Other flight equipment (A)

 

Advances for acquisition of property, plant and equipment

 

Other

 

Total

On December 31, 2010

2,210,433

 

751,816

 

323,661

 

175,058

 

3,460,968

Additions

127,694

 

175,121

 

118,754

 

20,552

 

442,121

Disposals

-

 

(155)

 

(79,141)

 

(22)

 

(79,318)

Depreciation

(104,133)

 

(49,871)

 

-

 

(10,688)

 

(164,692)

On June 30, 2011

2,233,994

 

876,911

 

363,274

 

184,900

 

3,659,079

 

 

(A) Additions during the period primarily represent the total estimated costs to be incurred for the reconfiguration of the aircraft with no purchase option when they return to lessor and the costs of improvements in engines under operating leases in accordance with the conditions of  big maintenance established in contracts.

 

 

  Pafe 20 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

15. Intangible assets

 

 

Goodwill

 

Trade names

 

Airport operating rights

 

Software

 

Total

Balance on December 31, 2010

542,302

 

63,109

 

560,842

 

100,924

 

1,267,177

Additions

-

 

-

 

-

 

13,270

 

13,270

Write offs

-

 

-

 

-

 

(4,896)

 

(4,896)

Amortizations 

-

 

-

 

-

 

(16,132)

 

(16,132)

Balance on June 30, 2011

542,302

 

63,109

 

560,842

 

93,166

 

1,259,419

 

 

The Company has allocated goodwill and intangible assets with indefinite lives, acquired through business combinations, for the purposes of impairment testing to a single cash-generating unit which is the operating subsidiary VRG. The recoverable amount of these assets is tested annually by the Company at the end of  year.

 

 

 

16. Short and Long Term Debt

 

 

 

Effective average interest rate (p,y,)

 

 

 

Maturity

 

06/30/11

 

06/30/11

 

12/31/10

Short term debt

 

 

 

 

 

 

 

Local currency:

 

 

 

 

 

 

 

BNDES loan

Jul, 2012

 

8.66%

 

13,605

 

14,352

BNDES loan Safra

Mar, 2014

 

11.46%

 

25,206

 

27,550

BDMG loan

Jan, 2014

 

8.05%

 

3,437

 

3,376

Interest

 

 

 

 

28,014

 

19,721

 

 

 

 

 

70,262

 

64,999

Foreign currency (in U.S. Dollars):

 

 

 

 

 

 

 

Working Capital

Mar, 2012

 

3.42%

 

79,240

 

83,803

IFC loan

Jul, 2013

 

4.15%

 

32,412

 

13,885

FINIMP

Jun, 2011

 

2.69%

 

-

 

2,718

Interest

 

 

 

 

33,029

 

33,969

 

 

 

 

 

144,681

 

134,375

 

 

 

 

 

214,943

 

199,374

 

 

 

 

 

 

 

 

Financial Lease

Dec, 2021

 

 

 

127,159

 

146,634

Total short term debt

 

 

 

 

342,102

 

346,008

 

 

 

 

 

 

 

 

Long term debt

 

 

 

 

 

 

 

Local currency:

 

 

 

 

 

 

 

BNDES

Jul, 2012

 

8.66%

 

1,196

 

8,372

BNDES - intermediated by Banco Safra

Mar, 2014

 

11.46%

 

57,287

 

70,934

BDMG

Jan, 2014

 

8.05%

 

27,022

 

27,332

Debentures IV

Sep, 2015

 

12.63%

 

594,515

 

593,870

Debentures V

Jun, 2017

 

12.26%

 

492,736

 

-

 

 

 

 

 

1,172,756

 

700,508

Foreign currency (in U.S. Dollars)

 

 

 

 

 

 

 

IFC loan

Jul, 2013

 

4.15%

 

-

 

27,770

Senior bonus I

Apr, 2017

 

7.50%

 

326,546

 

347,501

Senior bonus II

Jul, 2020

 

9.25%

 

457,525

 

487,887

Perpetual bonus

-

 

8.75%

 

279,435

 

297,944

 

 

 

 

 

1,063,506

 

1,161,102

 

 

 

 

 

2,236,262

 

1,861,610

 

 

 

 

 

 

 

 

Financial Lease

Dec, 2021

 

 

 

1,463,790

 

1,533,470

Total long term debt

 

 

 

 

3,700,052

 

3,395,080

 

 

 

 

 

4,042,154

 

3,741,088

 

  Pafe 21 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

The maturities of long-term debt for the next twelve months counted from June 30,2011, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2012

 

2013

 

2014

 

2015

 

After

2015

 

Without maturity date

 

Total

Local currency:

 

 

 

 

 

 

 

 

 

 

 

 

 

BNDES loan

1,196

 

-

 

-

 

-

 

-

 

-

 

1,196

Loan – Safra

13,392

 

28,899

 

14,996

 

-

 

-

 

-

 

57,287

BDMG and BDMG II loan

4,370

 

6,354

 

4,339

 

4,339

 

7,620

 

-

 

27,022

Debêntures

-

 

-

 

-

 

594,515

 

492,736

 

-

 

1,087,251

 

18,958

 

35,253

 

19,335

 

598,854

 

500,356

 

-

 

1,172,756

Foreign currency (Dollars):

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior bonus I

-

 

-

 

-

 

-

 

326,546

 

-

 

326,546

Senior bonus II

-

 

-

 

-

 

-

 

457,525

 

-

 

457,525

Perpetual bonus

-

 

-

 

-

 

-

 

-

 

279,435

 

279,435

 

-

 

-

 

-

 

-

 

784,071

 

279,435

 

1,063,506

Total

18,958

 

35,253

 

19,335

 

598,854

 

1,284,427

 

279,435

 

2,236,262

 

 

Fair values of senior and perpetual bonus, on June 30, 2011, reflecting the frequent readjustment of market quotations of these instruments, based on the exchange rate in effect on the balance sheet closing date, are shown below:

 

 

Consolidated

 

Book

 

Market

Senior notes (I and II)

784,071

  

842,219

Perpetual bonus

279,435

 

274,882

 

 

 

Working capital

 

On March 21, 2011, the Company collected a working capital loan amounting R$85,000 (USD51,121), tax of 3.42% p.a. and maturity date on March 15, 2012. The Company also contracted a swap operation, changing the effective cost of the loan to 118% of CDI-over, in local currency . On June 30, 2011, the balance registered in current liabilities was R$79,240.

 

The Company quit the amount of R$82,841 (USD50,000), related to working capital on March 31, 2011.

 

Finimp

 

On June 14, 2011 the Company quit the amount of R$2,659, related to the loan of funds proceeding from Banco do Brasil, collected in June, 2010.

 

Debentures

 

On June 10, 2011, the Company approved the fifth public issue of 500 debentures not convertible into shares in a single series issued by VRG without real guarantee at par value of R$1,000, totaling R$ 500,000. This issue is intended to provide the working capital from VRG. The issuance costs were R$7,264, which comprise the net amount of R$492,736. The maturity of the debentures is six years from the date of issuance and its repayment will be entirely recognized on June 10, 2017. The debentures are paid at an interest rate of 120% of CDI.

 

  Pafe 22 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

 

On June 30, 2011, the amount recorded in long term debt was R$492,736.

 

Finance leases

 

Future payments for considerations of finance leasing contracts are established in U.S. Dollars, and are as follows:

 

 

06/30/11

 

12/31/10

2011

103,088

 

227,174

2012

224,042

 

227,174

2013

223,014

 

227,174

2014

222,998

 

227,174

2015

215,880

 

219,576

After 2015

994,865

 

935,450

Total of minimum lease payments

1,983,887

 

2,063,722

Less: total interest

(392,938)

 

(383,618)

Present value of minimum leasing payments

1,590,949

 

1,680,104

Less: short-term installment

(127,159)

 

(146,634)

Long-term installment

1,463,790

 

1,533,470

 

The discount rate used to calculate the present value of the minimum leasing payments is 6.24% on June 30, 2011 (6.23% on December 31, 2010). There are no significant differences between the present value of minimum leasing payments and the market value of these financial liabilities.

 

The Company extended the maturity date of financing for some of its aircrafts leased during 15 years, by using the SOAR structure (mechanism for extending the amortization and financing payment), which enables performing calculated withdrawals to be made for settlement by payment in full at the end of the leasing contract. On June 30, 2011 the value of withdrawals performed for the integral payment on the expiration date of the leasing contract is R$42,267 (R$37,407 on December 31, 2010).

 

Restrictive covenants

 

The Company has restrictive covenants in loan agreements with the following financial institutions: IFC, BNDES,  and Banco do Brasil

 

On June 30, 2011, the Company and its subsidiaries are not complied with the minimum parameters set with the financial institutions IFC and BNDES.

 

The Company has a letter of credit with BNDES in the amount of R$ 25 million, a higher value than the current debt, avoiding liquidity problems in case of debt repayment needs.

 

 

On June 30, 2011, the Company does not achieve the minimum level required by the IFC loan agreement. However, the Company's management believes to be in compliance with existing obligations under this agreement, as described in its clauses that a default can only occur effectively 30 days after the official notification of the financial institution, called "cure period".

 

Administration appropriated the balance of non-current loan to the current, in order to comply the rules described in IAS 37 - Provisions, Contingent Liabilities and Contingent Assets.

 

  Pafe 23 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

 

17. Advance ticket sales

 

On June 30, 2011, the balance of advance ticket sales in current liabilities of R$492,763 (R$517,006 on December 31, 2010) is represented by 2,751,596 tickets sold and not yet used with 85 days of average term of use (95 days on December 31, 2010).

 

18. Smiles deferred revenue

 

Since the VRG´s acquisition, the Company has a mileage program denominated Smiles (“Smiles Program”), This program consists in the reward of mileage credits, though accumulation of mileage credits by the passengers, to use for adittional travels. The obligations assumed under the frequent flyer program, (“Smiles Program”) were valued at the VRG’s acquisition date at estimated fair value that represents the estimated price that the Company could pay to a third part to assume the mileage obligation expected to be recovered on the mileage program.

 

On June 30, 2011, the balance of Smiles deferred revenue is R$55,744 and R$162,586 classified in the current and non-current liabilities, respectively (R$55,329 and R$152,327 on December 31, 2010).

 

19. Advances from customers

 

On September 30, 2009, the Company, by its subsidiary VRG, completed a partnership with Banco Bradesco S.A. and Banco do Brasil S.A. by an operational agreement for issuing and managing credit cards in the “co-branded” format. As part of agreement, the Company received initially the amount of R$252,686, related to the purchase of miles of the mileage program, access rights and utilization of the program customers database, and plus an additional based on variable remuneration conditioned by the right to access and use of customer credit cards by financial institutions and participation on the billing registered in the issued cards by the term of 5 years.

 

On June 30, 2011, the balance reported in the advances from customers caption in the current liabilities, related to this agreement, corresponds to R$29,023 (R$24,581 in current liabilities and R$ 33,262 in non-current liabilities  on December 31, 2010).

 

 

20. Tax obligations

 

06/30/11

 

12/31/10

PIS and COFINS

110,914

 

84,022

REFIS

25,197

 

38,247

IRRF on wages and benefits

14,711

 

20,895

ICMS

11,548

 

7,165

Import tax

3,256

 

3,712

CIDE

862

 

354

IOF

141

 

125

Others

5,607

 

3,392

 

172,236

 

157,912

 

 

 

 

Current

50,403

 

58,197

Non-current

121,833

 

99,715

 

PIS and COFINS

 

  Pafe 24 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

With the start of the systematic of non-cumulative in the calculation of the PIS (Law no. 10637/02) and COFINS (Law no. 10833/03), the subsidiary VRG has implemented those rules as well as questioning the rate application for calculating these contributions. The provision recorded  in the balance on June 30, 2011 in the amount of R$110,914 (R$84,022 on  December 31, 2010) includes the portion not paid, monetarily restated  by the SELIC rate. There are judicial deposits in the amount of R$75,858 (R$66,963  on December 31, 2010) to ensure the suspension of the tax credit.

 

Adherence to the Program of Subdivision of Federal Taxes (REFIS)

 

On November 30, 2009, the Company and its subsidiary VRG filed its adherence to the Program of Subdivision of Federal Taxes (REFIS), as provided in Law no. 11941 of May 27, 2009, including all of its debts with the Receita Federal do Brasil and Procuradoria-Geral da Fazenda Nacional (Brazilian IRS), maturing through November 30, 2008.

 

The management decided to pay the debts of R$11,610 related to GLAI and R$35,012 related to VRG in 180 installments. This payment method offers reductions of 60%  of the relative values of craft and fine for late payment, 25% of interest and 20% off fines, reducing the value of debt to R$10,257 and R$27,989 for GLAI and VRG, respectively.

 

The debts consolidation occurred on June 29, 2011, according with the resolution PGFN/RFB no. 2/2011, and upon such consolidation the Company and its subsidiary VRG will use part of their tax credits relating to tax loss carry forwards and negative basis of social contribution to settle amounts related to interest and penalties amounting to R$1,670 and R$9,035 for GLAI and VRG, respectively.

 

21. Provisions

 

 

Insurance provision

 

Aircraft return

 

Onerous contracts

 

Litigation

 

Total

Balance on December 31, 2010

31,070

 

33,287

 

9,885

 

70,636

 

144,878

Additional provisions recognized

7,819

 

115,473

 

12,330

 

2,836

 

138,458

Utilized provisions

(37,988)

 

(39,881)

 

(6,542)

 

(1,922)

 

(86,833)

Balance on June 30, 2011

901

 

108,879

 

15,673

 

71,550

 

197,003

 

 

 

 

 

 

 

 

 

 

Current

901

 

7,808

 

6,999

 

-

 

15,708

Non-current

-

 

101,071

 

8,674

 

71,550

 

181,295

 

901

 

108,879

 

15,673

 

71,550

 

197,003

 

Insurance provision

 

The Management keeps insurance coverage in amounts considered necessary to cover any claims, in view of the nature the Company’s assets and the risks inherent in its operating activities, with due heed being paid to the limits set in the lease agreements, in compliance with provisions of the Law nº 10744/03.

 

Aircraft returns

 

The aircraft return costs includes provisions for the maintenance to meet the contractual return conditions on engines held under operating leases, and the cost of returning the aircraft with no purchase option according to the conditions described in the leasing contracts, whose counterpart is capitalized in the fixed assets, Note 14.

 

Onerous contracts

 

  Pafe 25 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

The provision for onerous contracts refers to losses with onerous operating lease contracts related to two Boeing 767-300 aircrafts that are out of operation and are maintained under operating lease. The provision represents the present value of the future lease payments that the Company is presently obligated to make under non-cancelable onerous operating lease contracts, less revenue expected to be earned on the lease, including estimated future sub-lease revenue, when applicable. The used premises  are judged estimates and the liquidation of this transactions may result in values significantly different from that reported by the Company. The term of the leases contracts ranges from 2 to 3 years.

 

Litigation

 

On June 30, 2011, the Company and its subsidiaries are involved in judicial lawsuits and administrative proceedings, totaling 21,224. The lawsuits and administrative suits are classified into Operation (those arising from the normal course of operations), and Succession (those arising from the application for recognition of succession by obligations of the former Varig S.A.). According to this classification, the quantity of processes on June  30, 2011 are as follows:

 

 

Operation

 

Sucession

 

Total

Civil judicial

13,439

 

700

 

14,139

Civil administrative

1,607

 

24

 

1,631

Civil miscelaneous

45

 

-

 

45

Labor judicial

1,419

 

3,917

 

5,336

Labor administrative

71

 

2

 

73

Total

16,581

 

4,643

 

21,224

 

 

The civil lawsuits are primarily related to compensation claims generally related to flight delays, flight cancellations, baggage loss and damage. The labor claims primarily consist of discussions related to overtime, hazard pay and pay differentials.

 

The estimated provisions related to civil and labor suits with probable loss risk are shown below:

 

 

06/30/11

 

12/31/10

Civil

32,622

 

29,786

Labor

38,928

 

40,850

 

71,550

 

70,636

 

Provisions are reviewed based on the evolution of the processes and history of losses through the current best estimate for labor and civil cases.

 

There are other suits evaluated by Management and by lawyers as possible risk, in the estimated amount of R$12,423 for civil claims and R$7,223 for labor claims on June 30, 2011 (R$10,681 and R$7,530 on December 31, 2010 respectively), which have no provisions recorded.

 

The Company is involved in 4 labor claims in France, resulting from debts of former Varig S.A.. During the three months period ended on September 30, 2010, the Company had favorable decision (decision from trial court) in terms of non-succession. The value involved in the discussions (not provisioned) is approximately R$4,760 (corresponding to €2,1 million).

 

The Company is challenging in court the VAT (ICMS) levies on aircraft and engines imported under aircraft leases without purchase options in transactions carried out with lessors headquartered in foreign countries. The Company’s management understands that these transactions represent simple leases in view of the contractual obligation to return the assets that are the subject of the contract.

  Pafe 26 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

 

The estimated aggregated value of the judicial disputes in progress related to non-chargeable of ICMS tax on the above mentioned imports is R$201,089 on June 30, 2011 (R$193,173 on December 31, 2010) monetarily adjusted, and not including arrears interests. Based on the evaluation of the subject by its legal counselors and supported on suits of the same nature judged favorably to the taxpayers by the High Court (STJ) and Supreme Federal Court (STF) in the second quarter of 2007. The Company understands that chances of loss are remote, and thus did not make provisions for the referred values. Although the result from these suits and proceedings cannot be forecasted, and based on consultations made with its external legal counselors, the Company understands that the final judgment of these suits will not have any relevant adverse effect on the financial position, operating results and cash flow of the Company.

 

22. Equity

 

a)  Capital stock

 

On June 30, 2011, the capital of the Company is represented by 270,386,866 shares, with 137,032,734 common shares and 133,354,132 preferred shares. The Fundo de Investimento em Participações Volluto is the Company’s controlling fund which is equally controlled by Constantino de Oliveira Júnior, Henrique Constantino, Joaquim Constantino Neto and Ricardo Constantino.

 

Shareholding composition is shown below:

 

 

06/30/11

 

12/31/10

 

Common

 

Preferred

 

Total

 

Common

 

Preferred

 

Total

Fundo Volluto

100.00%

 

26.97%

 

63.98%

 

100.00%

 

26.98%

 

63.99%

Others

-

 

1.50%

 

0.74%

 

-

 

1.42%

 

0.70%

Treasury shares

-

 

0.34%

 

0.17%

 

-

 

0.34%

 

0.17%

Free float

-

 

71.19%

 

35.11%

 

-

 

71.26%

 

35.14%

 

100.00%

 

100.00%

 

100.00%

 

100.00%

 

100.00%

 

100.00%

 

The authorized capital stock on June 30, 2011 is R$4 billion. Within the authorized limit, the Company can, with approval by the Board of Directors, increase the capital stock independently of statutory reform, by issuing shares, without preserving the proportion among the different kinds of shares. The Board of Directors will define the issuance conditions, including price and paid-in term.

 

At the discretion of the Board of Directors, the right of preference can be excluded, or reduced the term for its exercise, in the issuance of preferred shares, when placement is made by trade in stock exchange or public subscription, or also by exchange of shares, in public bid for shareholding acquisition, under the terms provisioned in the legislation. It is prohibited the issuance from beneficiary parties under the terms of the Company social statute.

 

Preferred shares do not have voting rights, except in the case of specific facts provisioned in the law. These shares have the preference below: priority in capital reimbursement, without premium and right to be included in public bid as a result from control divestiture the same price paid by share of the control block, by assuring dividends at least equal to the common shares. In addition, the Differentiated Corporate Governance Practices – Level 2 of BM&FBOVESPA, provides the concession of voting rights to preferred shareholders in subjects related to corporate restructuring, merges and transactions with related parties.

  Pafe 27 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

 

On February 22, 2011 the Board of Directors approved the capital increase of R$669 by the private issue of 34,718 preferred shares all nominatives with no nominal value according to stock option plan.

 

On February 28, 2011, based on the exercises of the Company’s Stock Option Plan, a capital increase of R$138 occurred, represented by 15,480 shares, not approved yet by the Board of Directors.

 

The quotation of  Gol Linhas Aéreas Inteligentes S.A. shares’on June 30, 2011, in the São Paulo Stock Exchange – BOVESPA, corresponded to R$18.63, and US$12.15 in New York Stock Exchange – NYSE. The book value per share on June 30,2011 is R$9.63 (R$10.83 on December 31, 2010).

 

b) Retained earnings

 

i. Legal Reserve

 

Is constituted through the appropriation of 5% of net profit for the fiscal year after completion of accumulated losses in accordance with Article 193 of Law No. 11638/07, limited to 20% of the capital, according to the Brazilian Corporate Law and Statute Of the Company.

 

ii. Reinvestment Reserve

 

Reinvestment reserve is intended to meet the planned investments in the Company's capital budget.

 

c) Dividends 

 

The Company’s bylaws provide for a mandatory minimum dividend to common and preferred shareholders, in the aggregate of at least 25% of annual net distributable income determined in accordance with Brazilian corporation law which permits the payment of cash dividends only from current net income and certain reserves registered in the Company’s statutory accounting records.

 

On December 31, 2010 the Administration proposed the payment of dividends amounting to R$ 50,873 (R$ 0.19 per share) based on net income earned in the fiscal year of 2010 and after the legal reserve, paid on June 22, 2011 in the amount of R$50,857. The remaining R$593 is available for the payment to shareholders not founded.

 

d)  Treasury shares

 

On June 30, 2011, the Company has 454,425 treasury shares, totaling R$11,887, with market price of R$8,466 (R$11,887 in shares at market price of R$11,792 on December 31, 2010).

 

e)  Share-based payments

 

On June 30, 2011 the balance of share-based payments reserves was R$58,684. The Company recorded expense with share-based payment amounting to R$14,957 during the six months period ended June 30,2011, with balancing entry in the statement of income as personnel cost (R$14,377 for the six months period ended June 30, 2010).

 

 

  Pafe 28 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

f) Other comprehensive income

 

The indication at fair value of financial investments classified as available for sale, and the financial instruments designated as cash flow hedge are recognized in the Equity Valuation Adjustments caption, net from tax effects, until the contracts’ expirations. The balance on June 30, 2011 corresponds to loss of R$2,442 (gain of R$11,073 on December 31, 2010).

 

 

23.     Costs of services, administrative and commercial expenses

 

 

 

Three months periods ended on

 

 

 

06/30/11

 

 

 

 

 

06/30/10

 

 

 

Cost of services

Commercial expenses

Administrative expenses

Total

%

 

Cost of services

Commercial expenses

Administrative expenses

Total

%

Salaries

321,519

23,539

40,246

385,304

21.0

 

249,463

20,935

41,741

312,139

20.4

Aircraft fuel

730,913

-

-

730,913

39.8

 

571,697

-

-

571,697

37.3

Aircraft rent

112,512

-

-

112,512

6.1

 

136,538

-

-

136,538

8.9

Maintenance materials and repairs

89,633

-

-

89,633

4.9

 

97,371

-

-

97,371

6.3

Aircraft and traffic servicing

56,153

17,528

43,010

116,691

6.4

 

51,436

13,114

36,303

100,853

6.6

Sales and marketing

-

89,444

-

89,444

4.9

 

-

88,115

-

88,115

5.7

Landing fees

96,762

-

-

96,762

5.3

 

77,191

-

-

77,191

5.0

Depreciation and amortization

75,769

-

14,899

90,668

4.9

 

64,569

-

15,802

80,371

5.2

Other operating expenses

84,640

22,444

18,144

125,228

6.8

 

48,947

21,599

(1,237)

69,309

4.5

 

1,567,901

152,955

116,299

1,837,155

100.0

 

1,297,212

143,763

92,609

1,533,584

100.0

 

 

 

Six months periods ended on

 

 

 

06/30/11

 

 

 

 

 

06/30/10

 

 

 

Cost of services

Commercial expenses

Administrative expenses

Total

%

 

Cost of services

Commercial expenses

Administrative expenses

Total

%

Salaries

623,423

45,303

76,016

744,742

20.7

 

484,060

40,513

72,006

596,579

19.4

Aircraft fuel

1,399,963

-

-

1,399,963

38.9

 

1,122,684

-

-

1,122,684

36.5

Aircraft rent

240,756

-

-

240,756

6.7

 

286,352

-

-

286,352

9.3

Maintenance materials and repairs

168,963

-

-

168,963

4.7

 

234,368

-

-

234,368

7.6

Aircraft and traffic servicing

111,890

32,473

80,958

225,321

6.3

 

105,768

22,223

71,964

199,955

6.5

Sales and marketing

-

181,313

-

181,313

5.0

 

-

170,261

-

170,261

5.5

Landing fees

181,894

-

-

181,894

5.1

 

155,297

-

-

155,297

5.1

Depreciation and amortization

152,101

-

28,723

180,824

5.0

 

120,034

-

24,097

144,131

4.7

Other operating expenses

161,514

43,300

69,017

273,830

7.6

 

113,860

39,303

9,191

162,354

5.3

 

3,040,504

302,389

254,714

3,597,607

100.0

 

2,622,423

272,300

177,258

3,071,981

100.0

 

24. Sales Revenue

 

a)  The net revenue for the year is composed as follow:

 

 

Three months periods ended on

 

Six months periods ended on

 

06/30/11

 

06/30/10

 

06/30/11

 

06/30/11

Passenger transportation

1,427,323

 

1,478,023

 

3,130,742

 

3,116,349

Cargo transportation and other revenues

216,236

 

188,537

 

434,927

 

357,748

Gross revenue

1,643,559

 

1,666,560

 

3,565,669

 

3,474,097

Related taxes

(77,218)

 

(75,707)

 

(160,366)

 

(153,427)

Net revenue

1,566,341

 

1,590,853

 

3,405,303

 

3,320,670

 

The revenues are net of federal, state and municipal taxes, which are collected and transferred to the appropriate government entities.

 

 

  Pafe 29 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

 

b)  Revenue by geographical segment is shown below:

 

 

Three months periods ended on

 

06/30/11

%

 

06/30/10

%

Domestic

1,460,588

93.2

 

1,513,413

95.1

International

105,753

6.8

 

77,440

4.9

Net revenue

1,566,341

100.0

 

1,590,853

100.0

 

 

 

 

Six months periods ended on

 

06/30/11

%

 

06/30/10

%

Domestic

3,121,219

91.7

 

3,130,623

94.3

International

284,084

8.3

 

190,047

5.7

Net revenue

3,405,303

100.0

 

3,320,670

100.0

 

25. Commitments

 

On June 30, 2011 the Company had with Boeing Company 97 firm orders, 10 purchase rights and 40 purchase options granted in non-charging mode, for aircraft acquisition. The commitments for purchase of aircrafts include estimations for contractual price increases during the construction phase. The approximate value for firm orders, not considering the contractual discounts is R$13,825,959 (corresponding to US$8,856,549) and are aggregated according the following periods:

 

06/30/11

2011

693,338

2012

745,752

2013

2,445,750

2014

3,613,449

2015

3,112,659

After 2015

3,215,011

 

13,825,959

 

On June 30, 2011, from the commitments mentioned above, the Company had the amount of R$1,780,553, as advances for aircraft purchase, to be disbursed according to the following periods:

 

30/06/11

2011

123,244

2012

369,436

2013

447,023

2014

417,760

2015

338,814

After 2015

84,277

 

1,780,554

 

The installment financed by long-term debt, guaranteed by the aircrafts, by the U.S. Ex-Im Bank (“Exim”) corresponds approximately to 85% of total cost of the aircrafts. Other agents finance the acquisitions with percentages equal or above this percentage, reaching up to 100%.

 

The Company is making payments related to the acquisitions of aircrafts by using its own funds, loans, cash generated in operations, short- and medium-term credit lines, and financing from the supplier.

  Pafe 30 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

 

The Company leases its entire fleet of aircrafts under a combination of operating and finance leases. On June 30,2011, the total fleet was comprised by 121 aircrafts, including 80 operational leasing and 41 registered as financial leasing. The Company has 35 aircrafts with financial leasing with purchase option. During the three months period ended on June 30,2011 the Company received 2 aircrafts classified as finance lease and returned 4 aircraft 737-300 to the lessors.

 

a)   Operating leases

Future payments of non-cancelable operating leasing contracts are designated in U.S. Dollars, and are shown below:

 

 

06/30/11

 

12/31/10

2011

222,957

 

504,784

2012

428,858

 

481,109

2013

379,326

 

414,202

2014

251,851

 

261,098

2015

147,421

 

149,637

After 2015

387,267

 

360,132

Total minimum leasing payments

1,817,681

 

2,170,963

 

 

 

b)   Sale-leaseback transactions

 

On June 30, 2011 the Company had amounts of R$7,564 and R$19,713, respectively, reported on “other obligations” in current and non-current liabilities (R$7,564 and R$23,495 on December 31,2010), related to gains with sale-leaseback transactions made by its subsidiary GAC Inc. in 2006, related to eight 737-800 Next Generation aircrafts. This gain is being deferred proportionally to the monthly payments of the respective leasing contracts according to the contractual term of 124 months.

On this same date, the Company had amounts of R$9,373 and R$49,515 reported on “prepaid expenses” on current and non-current assets, respectively (R$9,373 and R$54,201 on December 31,2010), related to losses with sale-leaseback transactions made by its subsidiary GAC Inc. during the years of 2007, 2008 and 2009, related to nine aircrafts. These losses are being deferred and amortized proportionally to the monthly payments of the  respective leasing contracts according to the contractual term of 120 months.

Additionally, on the six month period ended June 30, 2011, the Company recorded a gain of R$7,356 recognized directly in income, due to non-compensation of gain and losses on sale-leaseback transactions along the contract lease.

 

26.  Financial instruments

 

The Company has financial assets and liabilities operations which are partially composed of derivative financial instruments.

 

The financial derivative instruments are used aiming the hedging against the inherent risks to the operation. The Company and its subsidiaries consider fuel price, exchange rate, interest rate as the most relevant risks, as well as the credit risk associated with its operations. These risks are mitigated by using exchange swap derivatives, U.S. dollar futures contracts and oil, U.S. dollar and interest options.

 

  Pafe 31 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

The Management conducts a formal guideline when administering its financial instruments, observing the Risk Management Policy which is periodically defined by the Financial Policies and Risk Committee, submitted to the Board of Directors. The Committee sets forth the guidelines and limits, monitors controls, including the mathematical models adopted for a continuous monitoring of exposures and eventual financial effects and also prevents the execution of financial instruments speculative operations. For the six month period ended June 30, 2011, the management, based on a future economic scenario, increased the protections for the Company's positions by contracting derivative instruments

  

The earnings from these operations and the application of risk management controls are included in the Committee’s monitoring and these have been satisfactory to the objectives proposed.

 

The fair values of financial assets and liabilities of the Company and its subsidiaries are established through information available on the market and according to valuation methodologies.

 

Most of the financial instruments with the purpose of protection against fuel and exchange rate risks provide scenarios with low probability of occurrence, and thus have lower costs when compared with other instruments with higher probability of occurrence. Consequently, in spite of the high correlation between the object protected and the derivative financial instruments contracted, a significant part of the operations provides ineffective results upon their liquidation, which are presented on the tables along this note.

 

The breakdown of the consolidated accounting balances and the categories of financial instruments included in the balance sheet as of June 30, 2011 and December 31, 2010 is identified below:

 

 

Measured at fair value through profit and loss

 

Measured at amortized

cost (a)

 

Measured at amortized

Cost but not through profit and loss (Assets available for sale)

 

06/30/11

 

12/31/10

 

06/30/11

12/31/10

 

06/30/11

 

12/31/10

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

1,643,472

 

1,955,858

 

-

-

 

-

 

-

Financial investments

423,695

(b)

-

 

-

-

 

-

 

22,606

Restricted cash

8,608

 

34,500

 

-

-

 

-

 

-

Gain on derivatives operation

1,719

 

3,600

 

-

-

 

-

 

-

Accounts receivable

-

 

-

 

281,087

303,054

 

-

 

-

Maintenance deposits

-

 

-

 

366,981

-

 

-

 

-

Other credits

-

 

-

 

80,477

57,246

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Loans and financing

-

 

-

 

4,042,154

3,741,088

 

-

 

-

Suppliers

-

 

-

 

235,215

215,792

 

-

 

-

Loss on derivatives operations

61,989

 

1,646

 

-

-

 

-

 

-

 

(a)    Considering the short term between the issuance date and the maturity of the financial instruments measured at amortized cost, the Company understands that their fair values are similar to the book values.

 

(b)    From the balance classified on financial investments, the amount of R$139,280 is considered as investments held to maturity.

 

 

 

 

 

  Pafe 32 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

Risks

The operating activities expose the Company to the following financial risks: market (including exchange risk, interest rate risk and fuel price risk), credit and liquidness risks. The Company’s risk management program aims at mitigating potential adverse effects of operations on its financial performance.

 

The Company’s decisions on the portion of its exposure to be hedged against financial risk, both for fuel consumption and for exchange and interest rate exposures, consider the risks and hedge costs. The Company does not usually contracts hedging instruments for the whole of its exposure, and thus is subject to the portion of risks resulting from market variations. The portion of exposure to be protected is determined and reviewed quarterly in compliance with the strategies determined in the Risk Policies Committees.

 

The relevant information relating to the main risks that affect the Company operations are detailed as follows:

 

a)  Fuel price risk

 

On June 30, 2011 fuel expenses accounted for 39.2% of costs of service, administrative and commercial expenses. The aircraft fuel price fluctuates both in the short and in the long terms, in line with crude oil and by products price variations.

In order to mitigate the fuel price risk, the Company contracts crude oil derivatives and possibly its byproducts. On June 30,2011 the Company used option, collar and swap agreements.

Fuel hedge operations, classified as cash flow hedges are contracted with counterparties classified as “investment grade” or they are executed at NYMEX.

 

b)  Exchange rate risk

 

The exchange rate risk derives from the possibility of unfavorable fluctuation of foreign currencies to which the liabilities or the Company’s cash flows are exposed. The Company’s exposure to the foreign currency risk mainly derives from foreign currency-denominated leasing and financing.

 

The Company’s revenues are mainly denominated in Reais, except for a small amount in U.S. dollars, Argentinean pesos, Bolivian bolivianos, Chilean peso, Colombian peso, Paraguay guarani, Uruguayan peso, Venezuela bolívar among others.

 

In order to mitigate the exchange rate risk, the Company contracts the following currency derivatives: U.S. dollar futures and options at BM&F-BOVESPA. These operations may be executed by means of exclusive investment funds, as described in the Company’s Risk Management Policy.

 

Below, the Company’s foreign exchange exposure on June 30,2011 and December 31, 2010:

 

  Pafe 33 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

 

 

06/30/11

 

12/31/10

Assets

 

 

 

Cash, cash equivalents and short term investments

173,523

 

218,909

Deposits in guarantee for leasing contracts

85,895

 

127,963

Maintenance deposits

366,981

 

-

Advance expenses for leasing

-

 

33,322

Others

18,471

 

14,679

Total assets

644,870

 

394,873

Liabilities

 

 

 

Foreign suppliers

-

 

27,831

Short and long term debt

1,208,186

 

1,371,323

Financial leasing payable

1,590,950

 

1,639,981

Other leases payable

42,267

 

37,407

Provision for aircraft return

96,394

 

-

Other U.S. dollar liabilities

57,961

 

46,435

Total liabilities

2,995,758

 

3,122,977

Exchange exposure in R$

2,350,888

 

2,728,104

 

 

 

 

Obligations not registered in balance

 

 

 

Future obligations resulting from operating leases

1,780,554

 

1,943,880

Future obligations resulting from firm orders for aircraft acquisition

13,825,959

 

16,427,824

Total

15,606,513

 

18,371,704

 

 

 

 

Total exchange exposure R$

17,957,401

 

21,099,808

 

 

 

 

Total exchange exposure US$

11,503,043

 

12,663,431

 

 

c)  Credit risk

 

The credit risk is inherent in the Company’s operational and financial activities, mainly represented by accounts receivable, cash and cash equivalents, including bank deposits.

 

The “accounts receivable” credit risk is composed of amounts falling due to largest credit card operators, with better or equal credit risk to the Company and also accounts receivable from travel agencies, installment sales and government, with a small portion exposed to risks from individuals or other entities.

 

As defined in the Risk Management Policy, the Company is required to assess the counterparties risks in financial instruments and diversify the exposure. Financial instruments are executed with counterparties with at least rating “investment grade” in the valuation made by S&P and Moodys agencies, or they are mostly contracted at commodities and futures exchange (BM&FBOVESPA and NYMEX), fact which substantially mitigates the credit risk. The Company’s Risk Management Policy establishes a maximum limit of 20% per counterparty for financial investments.

 

 

d)  Interest rate risk

 

The Company is exposed to fluctuations in domestic and international interest rates, particularly the CDI and Libor, respectively. The highest exposure is in leasing expenses, indexed to the Libor, and in domestic loans.

 

  Pafe 34 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

In the six months period ended June 30,2011, for interest rate hedge, the Company  holds swap operations contracted with counterparties classified as “investment grade”.

 

e)  Liquidity risk

 

Liquidity risk comes in two distinct forms: market liquidity risk and cash flow liquidity risk. The first is related to current market prices and varies in accordance with the types of assets and the markets where they are traded. Cash flow liquidity risk, however, is related to difficulties in meeting the contracted operational obligations on the agreed dates.

 

As a way of managing liquidity risk, the Company applies its resources in liquid assets (bonds, CDBs and investment funds with daily liquidity) and Cash Management Policy provides that the Company's weighted average maturity of debt should not exceed the weighted average maturity of investment portfolio. On June 30, 2011, the weighted average maturity of the Company's financial assets was 6 days and the financial liability was 6 years.

 

For protection of future commitments, as shown in note 25, the Company uses derivative financial instruments with top line banks for cash management.

 

f)  Capital management

 

The table below shows the financial leverage rate on June 30,2011 and December 31, 2010:

 

 

06/30/11

 

12/31/10

Shareholder’s equity

2,604,649

 

2,929,169

Cash and cash equivalents

(1,643,472)

 

(1,955,858)

Restricted cash

(8,608)

 

(34,500)

Short term investments

(423,695)

 

(22,606)

Short and long term debts

4,042,154

 

3,741,088

Net debt (a)

1,966,379

 

1,728,124

Total capital(b)

4,571,028

 

4,657,293

Leverage ratio (a) / (b)

43%

 

37%

 

 

Additionally, the Company remains committed to keep the amount of cash and cash equivalent close to 25% of the net revenue of the last twelve months, as done on June 30, 2011.

 

 

Derivative financial instruments

The financial derivatives instruments were registered in the following accounts of the balance sheet:

 

Description

Balance account

06/30/11

 

12/31/10

Gain on derivatives operation (assets)

Other credits

1,719

 

10,420

Loss on derivatives operation (liabilities)

Other obligations

61,989

 

1,646

Premiums of options contracts (assets)

Prepaid expenses

31,536

 

23,334

 

  Pafe 35 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

The Company adopts Hedge Accounting and classifies derivatives contracted to cover exchange variation risks and fuel price risk as a “Cash Flow Hedge” or “Fair Value Hedge,” according to the parameters described in international standard IAS39. All the financial instruments contracted are formally identified, classified and allocated by documentation and control upon the acquisition, as follows:

 

Classification of Derivatives Financial Instruments

 

i) Cash flow hedge

In the cash flow hedge, the Company protects itself from variations in future revenues or expenses resulting from changes in the exchange rate or fuel price and books the actual variations at the fair value of the derivative financial instruments under shareholders’ equity until the recognition of the revenue or expense being hedged.

The Company estimates the effectiveness based on statistical methods for correlation and the ratio between gains and losses in the financial instruments used as hedge and variation of costs and expenses of the protected object.

The instruments are recognized as effective when the variation in the value of derivatives offsets between 80% and 125% of the impact of the price variation in the cost or expense of the protected object.

The balance of the effective variations in the fair value of the derivatives designated as cash flow hedges is transferred from shareholders’ equity to the result in the period in which the cost or expense being hedged impacts the result. The cash flow hedge results effective in the contention of protected expense variation are recorded in reducing accounts of the protected expenses, by reducing or increasing the operating cost, and the non-effective results are recognized as financial income or expense within the year.

 

ii) Fair Value Hedge

 

The Company protects itself from the result of a change in the fair value of a recognized liability, or a part thereof, which that could be attributed to exchange risk.  Variations in the fair value of the derivatives designated as fair value hedges are recognized directly in the income statement together with the respective variations in the fair value of the liability being hedged.

The Company estimates the effectiveness based on the ratio between the variation in the fair value of the derivative instruments used as hedge and the variation in the fair value of the liabilities hedged.

The instruments are considered effective when the variation in the value of derivatives compensates for between 80% and 125% of the fair value of liabilities hedged.

In the case of an exchange hedge of the fair value of a financial liability, the variation in the derivative’s fair value is recorded under financial revenue or expense in the same period in which it occurs. If the hedge is considered effective up to the end of the period, the book value of the item being hedged is adjusted to reflect the variation in its fair value caused by the risk covered, with a corresponding entry in financial revenue or expenses.

 

 

 

  Pafe 36 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

Derivatives financial instruments not designated as hedge

 

The Company contracts derivative financial instruments that are not formally designated for accounting of protection. These situations occur when transactions are in short-term, and the complexity of control and disclosure has not viability, or when the change in derivative fair value must be recognized in income in the same period of the effects of the protected risk.

 

Designation of hedge’ objects

 

a)  Fuel hedge

 

Due to the low liquidity of aviation fuel (Jet Fuel) derivatives traded in commodities exchange, the Company contracts crude oil derivatives (WTI – West Texas Intermediate, Brent and Heating Oil) to be protected against the oscillations in the aviation fuel prices. Historically, the petroleum prices are highly correlated with the aviation fuel prices.

 

On June 30, 2011, the Company has fuel hedge derivative contracts performed at Nymex and over-the-counter (OTC) markets.

 

The contracts for derivative financial instruments of petroleum, designated as fuel hedge by the Company, are summarized below (in thousands, except when otherwise indicated):

 

Closing balance on:

06/30/11

 

12/31/10

Fair value at end of the period (R$)

5,567

 

33,205

Average term (months)

5

 

4

Volume protected for future periods (thousand barrels)

3,820

 

2,109

Gains (losses) with hedge effectiveness recognized in shareholders’
equity, net of taxes (R$)

(8,981)

 

10,586

 

 

 

 

 

 

 

 

 

 

 

 

Three months

 

Six months

Period ended on:

 

2011

 

2010

 

2011

 

2010

Gains (losses) with hedge ineffectiveness recognized in financial revenues (expenses) (R$)

 

21,376

 

(1,219)

 

22,128

 

(14,853)

Losses with hedge ineffectiveness recognized in financial expenses for future periods (R$)

 

(47,742)

 

(17,754)

 

(52,923)

 

(17,754)

Total losses with hedge ineffectiveness recognized as financial expenses (R$)

 

(26,366)

 

(18,973)

 

(30,795)

 

(32,607)

Current percentage of exposure hedged during the period

 

46%

 

42%

 

44%

 

36%

 

The table below shows the nominal value of derivatives designated to hedge contracted by the Company to protect future fuel expenses, the average rate contracted for the derivatives and the percentage of fuel exposure protected by competence period on June 30, 2011:

Market risk factor: Fuel price

  Pafe 37 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

 

 

Over-the-counter market

 

 

 

 

 

 

 

 

 

 

3Q11

 

4Q11

 

1Q12

 

2Q12

 

Total

Percentage of fuel exposure hedged

54%

 

39%

 

30%

 

16%

 

35%

 

 

 

 

 

 

 

 

 

 

Nominal volume in barrels (thousands)

2,165

 

1,713

 

1,180

 

663

 

5,721

 

 

 

 

 

 

 

 

 

 

Future rate agreed per barrel (US$) *

111.63

 

123.99

 

130.54

 

133.15

 

121.73

Total in Reais **

377,284

 

331,581

 

240,475

 

137,814

 

1,087,154

 

*    Weighted average between call strikes,

** The Exchange rate on 06/30/11 was R$1,5611/ US$1,00,

 

 

b)  Foreign exchange Hedge

 

The Company utilizes contracts of derivative financial instruments for U.S. dollar hedge with BM&FBOVESPA, having an exclusive investments fund as vehicle for contracting risk coverage.

There were no financial assets linked to margin deposits on June 30, 2011. The margin deposits are guaranteed through bank surety maturing on September 30, 2011.

Summary of Company’s foreign currency derivative contracts designated for cash flow hedge of U.S. dollar (in thousands, except as otherwise indicated) is following:

 

 

Closing balance at:

06/30/11

 

12/31/10

Fair value at the end of the period (R$)

252

 

109

Longer remaining term (months)

4

 

4

Hedged volume for future periods (US$)

30,250

 

65,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months

 

Six months

Period ended on

 

2011

 

2010

 

2011

 

2010

Hedge effectiveness gains recognized in operating income (expenses) (R$)

 

-

 

(1,313)

 

-

 

(391)

 

 

 

 

 

 

 

 

 

Hedge ineffectiveness losses recognized in finance expenses (R$)

 

-

 

(2,004)

 

(58)

 

(4,315)

Hedge ineffectiveness losses recognized in finance expenses for future periods (R$)

 

(620)

 

(676)

 

(671)

 

(676)

Total hedge ineffectiveness losses recognized in financial expenses (R$)

 

(620)

 

(2,680)

 

(729)

 

(4,991)

Percentage of exposure hedged during the period

 

2%

 

26%

 

6%

 

20%

 

 

 

 

 

 

 

 

 

 

 

  Pafe 38 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

The following table demonstrates the face value of the derivatives designated as hedge contracted by the Company to protect the future expenses denominated in U.S. dollar and the average rate contracted for each accruing period, as of June 30, 2011:

 

Market risk factor: U.S. dollar exchange

Exchange market

 

 

3Q11

 

4Q11

 

12M11

Exposure percentage of protected cash flow

3%

 

2%

 

1%

Face value in U.S. dollar

19,750

 

10,500

 

30,250

Futures contracted average rate

1.7247

 

1.8000

 

1.7508

Total in Reais

34,063

 

18,900

 

52,962

 

 

On June 30, 2011, the Company has not foreign currency derivative contracts designated for fair value hedge of U.S. dollar (in thousands, except as otherwise indicated).

 

Closing balance at:

06/30/11

 

12/31/10

Fair value at the end of the period (R$)

-

 

(6,645)

Finance leasing

-

 

984,264

Volume protected

-

 

388,750

Actual percentage of protected exposure

-

 

39%

 

 

 

 

 

 

 

 

 

 

 

Three months

 

Six months

Period ended on

 

2011

 

2010

 

2011

 

2010

Hedge effectiveness losses recognized in operating expenses (R$)

 

(13,855)

 

-

 

(34,130)

 

-

Percentage of exposure hedged during the period

 

15%

 

-

 

21%

 

-

 

 

On June 30, 2011, the Company has the following derivatives instruments to protection against U.S. Dollar oscillation not designed to hedge accounting:  exchange swap (USD x CDI) to protect a credit line (working capital) and future dollar contracts to protection of future expenses. The table below demonstrates the amounts recognized in financial income related to these operations:

 

 

Foreign exchange derivative instruments not designated as hedge accounting

 

 

 

 

 

 

 

 

 

 

Three months

 

Six months

Period ended on

 

2011

 

2010

 

2011

 

2010

Gains (losses) recognized in financial expenses

 

(13,077)

 

850

 

(18,879)

 

850

 

 

 

c)  Interest rate hedge

 

On June 30, 2011, the Company holds swap derivative financial instruments to hedge interest rates.

 

The following is a summary of Company’s interest rate derivative contracts designated as hedge interest rate Libor:

 

 

  Pafe 39 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

Closing balance at:

06/30/11

 

12/31/10

Fair value at the end of the period (R$)

(17,308)

 

-

Face value at the end of the period(US$)

371,990

 

-

Face value at the end of the period (R$)

580,714

 

-

Hedge losses recognized in shareholders’ equity, net of taxes (R$)

11,423

 

-

 

 

 

 

 

 

 

 

 

 

 

Three months

 

Six months

Period ended on

 

2011

 

2010

 

2011

 

2010

Hedge effectiveness losses recognized in operating expenses (R$)

 

-

 

(746)

 

-

 

(1,513)

 

 

For the six months period ended on June 30, 2011 the Company had position of derivative contracts not designated as hedge accounting. The table below demonstrates the amounts recognized in financial income related to these operations:

 

Interest rate derivative instruments not designated as hedge accounting

 

 

 

 

 

 

 

 

 

 

 

Three months

 

Six months

Período encerrado em:

 

2011

 

2010

 

2011

 

2010

Losses recognized in financial expenses

 

(8,935)

 

(4,184)

 

(8,935)

 

(5,243)

 

 

In addition, the Company’s results are affected by interest rates fluctuations in Brazil, incurred on financial investments, short-term investments, Reais-denominated liabilities, U.S. dollar-denominated assets and liabilities. These fluctuations affect the market value of financial instruments, the market value of Reais-pre-fixed securities and the remuneration of cash balance and financial investments.

 

On June 30, 2011, the Company’s exclusive fund holds futures contracts for Interbank Deposits traded on BM&FBOVESPA with the face value of R$174,100, with a maximum term of 43 months and gains at the fair value of R$230.

 

 

Analysis of derivative financial instruments sensitivity

 

The sensitivity analysis of derivative financial instruments to the fluctuation of the mainly risk factor of each one considered the elements below:

 

·            The probable scenario is defined as the one expected by the Company Management, in line with the market value, used to the calculation of fair value of the financial instruments.

 

·            The possible adverse scenario considers deterioration of 25% in the major determining variation of the fair value for the financial instrument.

 

 

·            The remote adverse scenario considers deterioration of 50% in the major determining variation of the fair value for the financial instrument.

 

 

  Pafe 40 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

The tables below demonstrates the sensitivity analysis for the market risks and financial instruments considered relevant by the Company Management, open on June 30,2011 based on scenarios described above:

 

I) Fuel derivative instruments         

 

Operation

Risk

Probable Scenario

Probable Adverse Scenario

Remote Adverse Scenario

Fuel

Decrease of WTI (NYMEX) price curve

US$ 96.29/bbl

US$ 72.22/bbl

US$ 48.14/bbl

R$ 0

(R$ 28,560)

(R$ 50,080)

Fuel

Decrease of HO (NYMEX) price curve

US$ 2.98/bbl

US$ 2.23/bbl

US$ 1.49/bbl

R$ 0

(R$ 44,465)

(R$ 95,037)

Fuel

Decrease of Brent (NYMEX) price curve

US$ 113.90/bbl

US$ 85.43/bbl

US$ 56.95/bbl

R$ 0

(R$ 12,677)

(R$ 13,845)

 

 

On June 30, 2011, the Company holds call options contracts to buy oil West Texas Intermediate ("WTI"), Brent and Heating Oil representing a notional amount of 5,872 million of barrels. These contracts have maturities between July 2011 and July 2012.

 

These instruments are recorded in reducing fuel costs, if measured as effective, or recorded as financial income, if measured as ineffective.

 

In the probable scenario, according to management, the contracts totalize a fair value of R$5,567 (as described in the chart of fuel hedge designation), used to the calculation of the adverse scenarios above. In the possible adverse scenario for this instrument, with reduction of oil prices of 25%, and in the remote adverse scenario, where the price could decrease 50%, there would be negative impacts on the fair value of R$85,702 and R$158,962, respectively.

 

II) Foreign exchange derivative instruments         

 

Operation

Risk

Probable Scenario

Probable Adverse Scenario

Remote Adverse Scenario

Dollar

Decrease of Dollar (BM&F) curve

R$ 1.5611/US$

R$ 1.1708/US$

R$ 0.7806/US$

R$ 0

(R$ 72,369)

(R$ 144,485)

 

 

On June 30, 2011, the Company holds derivative dollar contracts in the notional value of US$9,921 with maturity date in July 2011 and March 2012.


Management estimates a probably scenario for the exchange rate of R$1.5611/US$ and for  the adverse scenarios possible and remote, rates of R$1.1708 and R$0.7806 respectively. The losses in the estimated fair values ​​for these scenarios are R$72,369 and R$144,485 respectively.

 

III) Interest rate derivative instruments

 

Operation

Risk

Probable Scenario

Probable Adverse Scenario

Remote Adverse Scenario

Libor

Decrease of Libor rate

3.22%

2.41%

1.61%

R$ 0

(R$ 29,889)

(R$ 59,777)

 

  Pafe 41 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

 

On June 30, 2011, the Company holds interest rate swap contracts of Libor in the  notional amount of R$22,792.

 

Management estimates a probable scenario for the interest rate of 3.22% and for the adverse scenarios, possible and remote, rates of 2.41% and 1.61% respectively. The losses in the estimated fair values ​​for these scenarios are R$29,889 and R$59,777 respectively.

 

IV) Other finanancial instruments  

 

Operation

Risk

Probable Scenario

Possible Adverse Scenario

Remote Adverse Scenario

Investments in Dólar

Decrease of Dollar (BM&F) curve

R$ 1.5611/US$

R$ 1.1708/US$

R$ 0.7806/US$

R$ 0

(R$ 69.472)

(R$ 138,945)

Debt in Dólar

Increase of Dollar (BM&F) curve

R$ 1.5611/US$

R$ 1,9514/US$

R$ 2.3417/US$

R$ 0

(R$ 757,760)

(R$ 1,515,119)

  

On June 30, 2011, the Company holds assets and liabilities indexed to the dollar, totaling US$1,438,419 in foreign exchange exposure, equivalent to R$2,245,516.

In the adverse possible scenario, increase of dollar curve to R$1.9514, increasing the exposure to R$688,087. In the remote risk scenario, increase of dollar curve to R$2.3417, increasing the exposure to R$1,376,175.

 

Part of the debt is secured with derivatives instruments, considering the same scenarios, possible and remote, the Company would earn gains in the fair value of derivative instruments of  R$72,116 and R$144,233 respectively.

 

Regarding to the liabilities in national currency, 89% are indexed to changes in the daily rate of CDI-Cetip and the rest, TJLP and IPCA. As the Company's cash is also indexed to the CDI-Cetip and has higher value than the debt, the Company believes that the sensitivity analysis of this risk does not add relevant information.

Regarding  to the interest rate on dollar-indexed liabilities, 97% have fixed rate and the remainder relates to 3-month Libor. In actual current level of Libor, less than 0.5% per year, the Company believes that the sensitivity analysis of this risk does not add relevant information.

 

 

        IFRS  

 

The analysis of impact of the financial instrument quotation variation on the Company result and its shareholders’ equity is performed by considering:

 

·       Increase and decrease of 10 percentage points in fuel prices, by keeping constant all the other variables;

·       Increase and decrease of 10 percentage points in dollar exchange rate, by keeping constant all the other variables;

·       Increase and decrease of 10 percentage points in Libor interest rate, by keeping constant all the other variables;

 

  Pafe 42 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

The sensitivity analysis includes only monetary items that are relevant to the above mentioned risks and outstanding. A positive number indicates an increase in income and equity when the risk appreciates by 10%.

 

The table below demonstrates the sensitivity analysis by the Company Management, on June 30, 2011 and 2010, based on the scenarios described above:

 

 

Fuel:

 

 

 

 

 

 

 

 

 

 

Position on June 30, 2011

 

Position on June 30, 2010

Increase (reduction) in fuel prices (percentage)

 

Effect on income before tax

(R$ million)

 

Effect on shareholders’

equity

(R$ million)

 

Effect on income before tax

(R$ million)

 

Effect on shareholders’

equity

(R$ million)

10

 

(72.5)

 

(42.4)

 

(56.4)

 

(31.4)

(10)

 

72.5

 

45.0

 

56.4

 

37.1

 

 

 

 

 

 

 

 

 

 

 

Foreign Exchange - USD:

 

 

 

 

 

 

 

 

 

 

Position on June 30, 2011

 

Position on June 30, 2010

Appreciation (depreciation) in USD /R$
(percentage rate)

 

Effect on income before tax

(R$ million)

 

Effect on shareholders’

equity

(R$ million)

 

Effect on income before tax

(R$ million)

 

Effect on shareholders’

equity

(R$ million)

10

 

(93.9)

 

(62.0)

 

(81.5)

 

(36.0)

(10)

 

93.9

 

62.0

 

81.5

 

40.8

 

 

 

 

 

 

 

 

 

 

 

Interest rate - Libor:

 

 

 

 

 

 

 

 

 

Position on June 30, 2011

 

Position on June 30, 2010

Increase / (reduction) in Libor rate

(percentage rate)

 

Effect on income before tax

(R$ million)

 

Effect on shareholders’

equity

(R$ million)

 

Effect on income before tax

(R$ million)

 

Effect on shareholders’

equity

(R$ million)

10

 

-

 

6.1

 

(0.01)

 

(0.19)

(10)

 

-

 

(6.1)

 

0.01

 

0.21

 

 

 

 

 

 

 

 

 

The Company’s sensitivity to fuel price increased during the current period when compared with the previous period, due to the growth in operating activities and increase of fuel price, which impacted on fuel expenses.

 

Sensitivity to the dollar increased in relation to the effect on income and in relation to the effect on shareholders’ equity, due to increase of expenses linked to the dollar.

  

Regarding to the Libor, the sensitivity increased in relation to the effect on shareholders’ equity, due to the increase in notional amount of protection.

 

 

 

 

  Pafe 43 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

Measurement of the fair value of financial instruments

 

In order to comply the disclosure rules for financial instruments measured at fair value, the Company must classify its instruments according to the following categories, based in observable fair value grade:

 

 

a)    Level 1: Fair value measurements are calculated based on quoted price (without adjustment) in identical active or passive market

 

b)    Level 2: Fair value measurements are calculated based on other variables in addition of quoted prices included on Level 1, observable for asset or liability, directly (as prices) or indirectly (derived from the prices); and

 

c)    Level 3: Fair value measurements are calculated based on valuation methods for asset or liability that are not based on observable market variables (unobservable inputs).

 

 

The following table states a summary of the Company’s financial instruments measured at fair value with their respective classifications of the valuation method, on June 30,2011:

 

 

 

 

 

 

 

 

Financial Instrument

 

Book value

 

Active Market Price

(Level 1)

 

Other Significant Observable Factors (Level 2)

 

 

 

 

 

 

 

Cash equivalents

 

1,496,822

 

-

 

1,496,822

Short term investments

 

423,695

 

-

 

423,695

Restricted cash

 

8,608

 

-

 

8,608

Gain on derivative operations (asset)

 

1,719

 

-

 

1,719

Loss on derivative operations (liabilities)

 

61,989

 

252

 

61,737

 

27. Non-cash transactions

 

During the six months period ended June 30, 2011, the Company made the acquisition of fixed assets under leasing in the amount R$ 90,681, without cash effect.

 

 

28. Insurance coverage

 

On June 30, 2011, the insurance coverage by nature, considering the aircraft fleet, and related to the maximum reimbursable values indicated in U.S. Dollars, is shown below:

 

Aeronautical Mode

Reais

 

Dollar

Guarantee – Fuselage/War

6,285,881

 

4,026,572

Civil Liability per occurrence/aircraft

2,731,925

 

1,750,000

Stocks (base and transit)

195,138

 

125,000

 

According to the Law No 10744, of October 09, 2003, the Brazilian government assumed the commitment to complement eventual civil liability expenses related to third parties, caused by war or terrorist attacks, occurred in Brazil or abroad, by which VRG may be occasionally requested to pay, for amounts that exceed the limit of the insurance policys signed since on September 10, 2001, limited to the equivalent amount in Brazilian Reais to one billion U.S. Dollars.

 

  Pafe 44 of 46

 


 

Notes to the Interim Consolidated Financial Statements

 

 

29. Subsequent Events

 

 

On August 1, 2011, the Company, through its subsidiary VRG, concluded with the controlling shareholders of Webjet Linhas Aereas SA ("Webjet"), Purchase and Sale Agreement which has as object the acquisition of 100% of Webjet capital by VRG.


The acquisition is subject to, among other conditions, technical and legal audit related activities and assets of Webjet, the negotiation and conclusion of the final documents by the parties and the approval of relevant government authorities, ANAC - National Agency of Civil Aviation and CADE - Administrative Council for Economic Defense.


The initial acquisition price is R$ 96,000 (ninety-six million Reais) subject to adjustments until the operation conclusion date. This amount was deposited in blocked bank account on behalf of VRG in favor of Webjet on August 08, 2011 as payment guarantee.

On August 11, 2011, the Board of Directors authorized the Management to implement a share repurchase program of the Company’s preferred shares, at market prices, up to 9,493,188 shares, representing 10% of the total number of preferred shares outstanding in the market, in accordance with the terms of CVM Instruction No. 10/80, without reducing GOL’s capital. The period for these authorized transactions is 365 days from August 12, 2011.

 

 

 

 

 

 

 

  Pafe 45 of 46

 


 

 

(Convenience Translation into English from the Original Previously Issued in Portuguese)

 

REPORT ON REVIEW OF INTERIM FINANCIAL STATEMENTS

To the Board of Directors and Shareholders of

Gol Linhas Aéreas Inteligentes S.A.

São Paulo - SP

Introduction

We have reviewed the accompanying consolidated interim financial information of Gol Linhas Aéreas Inteligentes S.A. and its subsidiaries, included in the Interim Financial Information Form (ITR), for the quarter ended June 30, 2011, which comprises the balance sheet as of June 30, 2011 and the related income statement and statement of comprehensive income for the quarter and six-month period then ended and statement of changes in equity and statement of cash flows for the six-month period then ended, including the explanatory notes.

Management is responsible for the preparation of the consolidated interim financial information in accordance with technical pronouncement CPC 21 - Interim Financial Reporting and the consolidated interim financial information in accordance with technical pronouncement CPC 21 and IAS 34 - Interim Financial Reporting, issued by the International Accounting Standards Board - IASB, as well as for the presentation of such information in accordance with the standards issued by the Brazilian Securities Commission (CVM), applicable to the preparation of Interim Financial Information (ITR). Our responsibility is to express a conclusion on this interim financial information based on our review.

Scope of review

We conducted our review in accordance with Brazilian and international standards on review of interim financial information (NBC TR 2410 and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with the standards on auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion on the consolidated interim financial information

Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated interim financial information included in the ITR referred to above is not prepared, in all material respects, in accordance with technical pronouncement CPC 21 and IAS 34, applicable to the preparation of Interim Financial Information (ITR), and presented in accordance with the standards issued by the CVM.

Other matters

Interim statements of value added

We also have reviewed the consolidated interim statements of value added (“DVA”), for the six-month period ended June 30, 2011, prepared under the responsibility of its Management, the presentation of which is required by the standards issued by CVM, applicable to the preparation of Interim Financial Information (ITR), and is considered as supplemental information for International Financial Reporting Standards - IFRS that do not require the presentation of DVA. These statements were subject to the same review procedures described above and, based on our review, nothing has come to our attention that causes us to believe that they are not prepared, in all material respects, in relation to the consolidated interim financial information taken as a whole.

Convenience translation

The accompanying interim consolidated financial information has been translated into English for the convenience of readers outside Brazil.

São Paulo, August 11, 2011

DELOITTE TOUCHE TOHMATSU

José Domingos do Prado

Auditores Independentes

Engagement Partner

 

 

 

 

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SIGNATURE
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Date: September 14, 2011
 
GOL LINHAS AÉREAS INTELIGENTES S.A.
By:

/S/ Leonardo Porciúncula Gomes Pereira


 
Name: Leonardo Porciúncula Gomes Pereira
Title:    Executive Vice-President and Chief Financial Officer
 

 

FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates offuture economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will a ctually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.