Contents Company information Individual financial statements
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Contents Company information Composition of capital 1 Cash dividends 2 Individual financial statements Balance sheet - Assets 3 Balance sheet - Liabilities 4 Income statement 5 Statement of comprehensive income 6 Cash flow statement 7 Statement of changes in equity Statement of changes in equity - 01/01/2011 to 09/30/2011 8 Statement of changes in equity - 01/01/2010 to 09/30/2010 9 Statement of value added 10 Consolidated financial statements Balance sheet - Assets 11 Balance sheet – Liabilities and equity 12 Income statement 13 Statement of comprehensive income 14 Cash flow statement 15 Statement of changes in equity Statement of changes in equity - 01/01/2011 to 09/30/2011 16 Statement of changes in equity - 01/01/2010 to 09/30/2010 17 Statement of value added 18 Comments on performance 19 Notes to financial information 30 Opinions and Statements Special Review Report - Unqualified 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Company information / Composition of capital Number of shares (Units) Current quarter 09/30/2011 Paid-in capital Common 620,405,029 Preferred 0 Total 620,405,029 Treasury stock Common Preferred Total 500,000 0 500,000 Page 1 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Company information / Cash dividends Event Approval Earning First payment Type of share Class of share Earnings per share (Reais /share) Board of Directors’ Meeting 03/22/2011 Interest on equity capital 08/17/2011 Common 0.05800 Board of Directors’ Meeting 06/21/2011 Interest on equity capital 08/17/2011 Common 0.06500 Board of Directors’ Meeting 07/21/2011 Dividend 08/17/2011 Common 0.09700 Board of Directors’ Meeting 09/20/2011 Interest on equity capital 03/14/2012 Common 0.07000 Page 2 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Individual financial statements / Balance sheet Assets (In thousands of reais) Account code Account description 1 Total assets 1.01 Current assets 1.01.01 Cash and cash equivalents 1.01.01.01 Cash and banks 1.01.01.02 Short-term investments 1.01.06 1.01.06.01 1.01.08 1.01.08.03 Current quarter 09/30/2011 Prior year 12/31/2010 3,671,608 3,535,994 546,062 752,552 510,606 689,944 27 9 510,579 689,935 Taxes recoverable 6,409 6,125 Current taxes recoverable 6,409 6,125 Other current assets 29,047 56,483 Other 29,047 56,483 1.01.08.03.01 Dividends 1.01.08.03.02 Interest on equity capital 684 4,633 28,363 51,850 1.02 Non-current assets 3,125,546 2,783,442 1.02.01 Long-term receivables 235,169 923 1.02.01.01 Short-term investments at fair value 233,266 0 1.02.01.06 Deferred taxes 647 602 1.02.01.06.01 Deferred income and social contribution taxes 647 602 1.02.01.08 732 0 1.02.01.08.02 Receivables from subsidiaries Receivables from related parties 732 0 1.02.01.09 524 321 524 321 Other non-current assets 1.02.01.09.03 Judicial deposits 1.02.02 Investments 2,878,347 2,770,286 1.02.02.01 Equity interests 2,878,347 2,770,286 1.02.02.01.02 Investments in subsidiaries 2,878,347 2,770,286 1.02.03 Property, plant and equipment 12,021 12,233 1.02.03.01 Fixed assets in operation 12,021 12,233 1.02.04 Intangible assets 9 0 Page 3 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Individual financial statements / Balance sheet – Liabilities and equity (In thousands of reais) Account code Account description Current quarter 09/30/2011 Prior year 12/31/2010 2 Total liabilities and equity 2.01 Current liabilities 3,671,608 3,535,994 54,536 71,158 2.01.01 Labor and social charges 3,431 3,063 2.01.01.01 Social obligations 3,431 3,063 2.01.03 Tax obligations 2,799 5,330 2.01.03.01 Federal tax obligations 2,799 5,330 381 0 2.01.03.01.01 Income and social contribution taxes payable 2.01.03.01.02 Other payables 2,418 0 2.01.05 Other payables 48,306 62,765 2.01.05.02 Other 48,306 62,765 47,897 62,214 2.01.05.02.01 Dividends and interest on equity capital payable 2.01.05.02.04 Other 409 551 5,721 10,229 Other payables 140 4,783 Payables to related parties 140 4,783 140 4,783 2.02 Non-current liabilities 2.02.02 2.02.02.01 2.02.02.01.02 Payables to subsidiaries 2.02.03 Deferred taxes 3,787 3,820 2.02.03.01 Deferred income and social contribution taxes 3,787 3,820 2.02.04 Provisions 1,794 1,626 2.03 Equity 3,611,351 3,454,607 2.03.01 Paid-in capital 2,265,367 1,812,294 2.03.02 Capital reserves 0 44,931 2.03.02.01 Premium on issue of shares 2.03.03 Revaluation reserves 2.03.04 Income reserves 2.03.04.01 Legal reserve 0 44,931 3,848 3,884 381,270 900,676 0 53,409 391,325 746,059 0 101,208 0 2.03.04.02 Statutory reserve 2.03.04.08 Additional proposed dividends 2.03.04.09 Treasury stock -10,055 2.03.05 Retained earnings/accumulated losses 271,261 0 2.03.06 Equity valuation adjustments 689,605 692,822 2.03.06.01 Deemed cost 717,097 758,715 2.03.06.02 Cumulative translation adjustments -27,492 -65,893 Page 4 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Individual financial statements / Income statement (In thousands of reais) Account code Account description 3.04 Operating income/expenses 3.04.02 3.04.02.01 Current quarter 07/01/2011 to 09/30/2011 YTD Prior year Accrued 01/01/2010 to 09/30/2010 01/01/2011 to 09/30/2011 Same quarter 07/01/2010 to 09/30/2010 135,287 379,105 137,372 371,988 General and administrative expenses -756 -2,284 -708 -2,220 Management fees -426 -1,275 -393 -1,186 3.04.02.02 Other administrative expenses -330 -1,009 -315 -1,034 3.04.04 Other operating income 3.04.05 Other operating expenses 3.04.06 3.05 3.06 3.06.01 3.06.02 Financial expenses 3.07 Income before income taxes 3.08 3.08.01 3.08.02 Deferred 28 77 682 870 3.09 Net income from continuing operations 154,567 430,688 142,107 378,274 3.11 Income/loss for the period 154,567 430,688 142,107 378,274 3.99 Earnings per share – (reais/share) 3.99.01 Basic earnings per share 3.99.01.01 Common shares 0.24910 0.69420 0.22887 0.60923 3.99.02 Diluted earnings per share 3.99.02.01 Common shares 0.24910 0.69420 0.22887 0.60923 0 85 0 109 -281 -790 -222 -496 Equity pickup 136,324 382,094 138,302 374,595 Income before financial income (expenses) and taxes 135,287 379,105 137,372 371,988 Financial income (expenses) 19,666 52,861 4,032 5,352 Financial income 19,714 53,009 4,043 5,385 -48 -148 -11 -33 154,953 431,966 141,404 377,340 Income and social contribution taxes -386 -1,278 703 934 Current -414 -1,355 21 64 Page 5 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Individual financial statements / Statement of comprehensive income (In thousands of reais) Account code Account description 4.01 Net income for the period 4.02 4.02.01 4.03 Comprehensive income for the period Current quarter 07/01/2011 to 09/30/2011 YTD Prior year Accrued 01/01/2010 to 09/30/2010 01/01/2011 to 09/30/2011 Same quarter 07/01/2010 to 09/30/2010 154,567 430,688 142,107 378,274 Other comprehensive income 54,949 38,401 -6,604 -25,050 Cumulative translation adjustments 54,949 38,401 -6,604 -25,050 209,516 469,089 135,503 353,224 Page 6 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Individual financial statements / Cash flow statement – Indirect method (In thousands of reais) Account code Account description YTD 01/01/2011 to 09/30/2011 Prior year Accrued 01/01/2010 to 09/30/2010 6.01 Net cash from operating activities 34,635 30,403 6.01.01 Cash from operations 50,700 2,744 6.01.01.01 Pre-tax income 431,966 377,340 6.01.01.02 Depreciation and amortization 210 108 6.01.01.03 Equity pickup -382,094 -374,595 6.01.01.04 Other 618 -109 6.01.02 Changes in assets and liabilities -16,065 27,659 6.01.02.01 Increase (decrease) in accounts receivable -7,305 25,141 6.01.02.02 Increase (decrease) in accounts payable -7,786 2,454 6.01.02.03 Income and social contribution taxes paid -974 64 6.02 Net cash from investing activities 92,413 439,953 6.02.01 Investments -1,304 -1 6.02.02 Dividends and interest on equity capital 326,983 439,954 6.02.03 Long-term financial investments -233,266 0 6.03 Net cash from financing activities -306,386 -285,892 6.03.01 Dividends/interest on equity capital -296,331 -285,892 6.03.02 Treasury stock -10,055 0 6.05 Increase/(decrease) in cash and cash equivalents -179,338 184,464 6.05.01 Opening cash and cash equivalents balance 689,944 90,989 6.05.02 Closing cash and cash equivalents balance 510,606 275,453 Page 7 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Individual financial statements / Statements of changes in equity – 01/01/2011 to 09/30/2011 (In thousands of reais) Account code Account description Paid-in capital 5.01 Opening balances 1,812,294 Capital reserves Options granted and Treasury stock 48,815 Income reserves Retained earnings/ accumulated losses Other comprehensive income 900,676 0 692,822 3,454,607 Equity 5.03 Adjusted opening balances 1,812,294 48,815 900,676 0 692,822 3,454,607 5.04 Capital transactions with shareholders 453,073 -44,930 -519,406 -201,082 0 -312,345 5.04.01 Capital increase 453,073 -44,930 -408,143 0 0 0 5.04.04 Acquired treasury stock 0 0 -10,055 0 0 -10,055 5.04.06 Dividends 0 0 -101,208 -60,179 0 -161,387 5.04.07 Interest on equity capital 0 0 0 -140,903 0 -140,903 5.05 Total comprehensive income 0 0 0 472,306 -3,217 469,089 5.05.01 Net income for the period 0 0 0 430,688 0 430,688 5.05.02 Other comprehensive income 0 0 0 41,618 -3,217 38,401 5.05.02.04 Translation adjustments in the period 0 0 0 0 38,401 38,401 5.05.02.06 Realization of deemed cost 0 0 0 41,618 -41,618 0 5.06 Internal changes in equity 0 -37 0 37 0 0 5.06.02 Revaluation reserve released to retained earnings 0 -37 0 37 0 0 5.07 Closing balances 2,265,367 3,848 381,270 271,261 689,605 3,611,351 Page 8 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Individual financial statements / Statements of changes in equity – 01/01/2010 to 09/30/2011 (In thousands of reais) Income reserves Retained earnings/ accumulated losses Other comprehensive income 1,812,294 Capital reserves Options granted and Treasury stock 48,866 660,797 0 777,782 3,299,739 1,812,294 48,866 660,797 0 777,782 3,299,739 0 0 0 -168,236 0 -168,236 Dividends 0 0 0 -66,437 0 -66,437 5.04.07 Interest on equity capital 0 0 0 -102,268 0 -102,268 5.04.08 Reversal of expired dividends 0 0 0 469 0 469 5.05 Total comprehensive income 0 0 0 416,743 -63,518 353,225 5.05.01 Net income for the period 0 0 0 378,274 0 378,274 5.05.02 Other comprehensive income 0 0 0 38,469 -63,518 -25,049 5.05.02.04 Translation adjustments in the period 0 0 0 0 -25,049 -25,049 5.05.02.06 Realization of deemed cost 0 0 0 38,469 -38,469 0 5.06 Internal changes in equity 0 -38 -127,285 38 0 -127,285 5.06.02 Revaluation reserve released to retained earnings 0 -38 0 38 0 0 5.06.04 Payment of proposed dividends 0 0 -127,285 0 0 -127,285 5.07 Closing balances 1,812,294 48,828 533,512 248,545 714,264 3,357,443 Account code Account description 5.01 Opening balances 5.03 Adjusted opening balances 5.04 Capital transactions with shareholders 5.04.06 Paid-in capital Equity Page 9 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Individual financial statements / Statement of value added (In thousands of reais) Account code Account description YTD 01/01/2011 to 09/30/2011 Accrued - prior year 01/01/2010 to 09/30/2010 7.02 Inputs purchased from third parties -356 -427 7.02.02 Materials, electricity, third party services and other -271 -438 7.02.03 Loss/recovery of amounts receivable -85 11 7.03 Gross value added -356 -427 7.04 Withholdings -210 -108 7.04.01 Depreciation, amortization and depletion -210 -108 7.05 Net value added produced -566 -535 7.06 Value added received in transfer 435,103 379,980 7.06.01 Equity pickup 382,094 374,595 7.06.02 Financial income 53,009 5,385 7.07 Total value added to be distributed 434,537 379,445 7.08 Distribution of value added 434,537 379,445 7.08.01 Personnel 2,053 1,489 7.08.01.01 Direct compensation 1,975 1,401 7.08.01.02 Benefits 43 53 7.08.01.03 Unemployment Compensation Fund (FGTS) 35 35 7.08.02 Taxes, charges and contributions 1,765 -327 7.08.02.01 Federal 1,765 -328 7.08.02.03 Local 0 1 7.08.03 Third-party capital remuneration 31 9 7.08.03.01 Interest 31 9 7.08.04 Equity remuneration 430,688 378,274 7.08.04.01 Interest on equity capital 140,903 102,267 7.08.04.02 Dividends 7.08.04.03 Retained profit/loss for the period 60,179 66,437 229,606 209,570 Page 10 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Consolidated financial statements / Balance sheet Assets (In thousands of reais) Account code Account description Current quarter 09/30/2011 Prior year 12/31/2010 1 1.01 Total assets 8,695,827 7,511,164 Current assets 5,742,007 4,794,009 1.01.01 Cash and cash equivalents 3,086,568 2,552,996 1.01.01.01 Cash and banks 104,334 53,971 1.01.01.02 Short-term investments 2,982,234 2,499,025 1.01.03 Accounts receivable 1,162,056 1,044,712 1.01.03.01 Trade accounts receivable 1,162,056 1,044,712 1.01.04 Inventories 1,269,623 1,008,952 1.01.06 Taxes recoverable 139,791 107,182 1.01.06.01 Current taxes recoverable 139,791 107,182 1.01.08 Other current assets 83,969 80,167 1.01.08.03 Other 1.02 Non-current assets 83,969 80,167 2,953,820 2,717,155 1.02.01 Long-term receivables 378,587 136,984 1.02.01.01 Short-term investments at fair value 233,266 0 1.02.01.06 Deferred taxes 103,846 78,810 103,846 78,810 797 0 1.02.01.06.01 Deferred income and social contribution taxes 1.02.01.08 Receivables from related parties 1.02.01.08.04 Receivables from other related parties 797 0 40,678 58,174 1.02.01.09.03 Judicial deposits 23,826 21,697 1.02.01.09.04 Taxes recoverable 12,298 31,661 1.02.01.09 Other non-current assets 1.02.01.09.05 Other 4,554 4,816 1.02.02 Investments 933 601 1.02.02.01 Equity interests 933 601 933 601 1.02.02.01.04 Other equity interests 1.02.03 Property, plant and equipment 2,397,920 2,395,575 1.02.03.01 Fixed assets in operation 2,397,920 2,395,575 1.02.04 Intangible assets 176,380 183,995 1.02.04.01 Intangible assets 1.02.04.02 Goodwill 32,346 43,870 144,034 140,125 Page 11 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Consolidated financial statements / Balance sheet – Liabilities and equity (In thousands of reais) Account code Account description Current quarter 09/30/2011 Prior year 12/31/2010 2 Total liabilities and equity 8,695,827 7,511,164 2.01 Current liabilities 2,818,379 1,938,803 2.01.01 Labor and social charges 188,599 141,797 2.01.01.01 Social obligations 188,599 141,797 2.01.02 Trade accounts payable 317,125 242,300 2.01.03 Tax obligations 63,632 72,204 2.01.03.01 Federal tax obligations 63,632 72,204 2.01.03.01.01 Income and social contribution taxes payable 32,196 41,718 2.01.03.01.02 Other 31,436 30,486 2.01.04 Loans and financing 1,797,222 1,018,995 2.01.04.01 Loans and financing 1,797,222 1,018,995 2.01.05 Other payables 451,801 463,507 2.01.05.01 Payables to related parties 2,308 1,570 2,308 1,570 449,493 461,937 47,903 63,440 239,143 271,949 39,348 23,583 2.01.05.01.04 Payables to other related parties 2.01.05.02 Other 2.01.05.02.01 Dividends and interest on equity capital payable 2.01.05.02.04 Advances from clients 2.01.05.02.05 Profit sharing 123,099 102,965 2.02 2.01.05.02.06 Other Non-current liabilities 2,167,388 2,028,525 2.02.01 Loans and financing 1,491,765 1,399,948 2.02.01.01 Loans and financing 1,491,765 1,399,948 2.02.02 Other payables 129,275 86,875 2.02.02.02 Other 129,275 86,875 2.02.02.02.03 Tax obligations 64,737 58,765 2.02.02.02.04 Advances from clients 36,165 0 2.02.02.02.05 Other 28,373 28,110 2.02.03 Deferred taxes 411,545 415,318 2.02.03.01 Deferred income and social contribution taxes 411,545 415,318 2.02.04 Provisions 134,803 126,384 2.03 Consolidated equity 3,710,060 3,543,836 2.03.01 Paid-in capital 2,265,367 1,812,294 2.03.02 Capital reserves 0 44,931 2.03.02.01 Premium on issue of shares 2.03.03 Revaluation reserves 2.03.04 Income reserves 2.03.04.01 Legal reserve 0 44,931 3,848 3,884 381,270 900,676 0 53,409 391,325 746,059 0 101,208 2.03.04.02 Statutory reserve 2.03.04.08 Additional proposed dividends 2.03.04.09 Treasury stock -10,055 0 2.03.05 Retained earnings/accumulated losses 271,261 0 2.03.06 Equity valuation adjustments 689,605 692,822 2.03.06.01 Deemed cost 717,097 758,715 2.03.06.02 Cumulative translation adjustments -27,492 -65,893 2.03.09 Non-controlling interest 98,709 89,229 Page 12 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Consolidated financial statements / Income statement (In thousands of reais) Account code Account description Current quarter 07/01/2011 to 09/30/2011 YTD Prior year Accrued 01/01/2010 to 09/30/2010 3.01 Revenue from sale of products and/or services 3.02 Cost of goods sold and/or services rendered 3.03 Gross profit 3.04 3.04.01 3.04.02 General and administrative expenses 3.04.02.01 Management fees 3.04.02.02 Other administrative expenses 3.04.04 Other operating income 3.04.05 Other operating expenses 3.04.06 Equity pickup 3.05 Income before financial income (loss) and taxes 3.06 Financial income (expenses) 3.06.01 Financial income 3.06.02 Financial expenses 3.07 Income before income taxes 3.08 3.08.01 3.08.02 Deferred 12,225 25,564 -6,942 -19,269 3.09 Net income from continuing operations 160,190 443,241 149,419 386,834 3.11 Consolidated income/loss for the period 160,190 443,241 149,419 386,834 3.11.01 Attributed to shareholders of parent company 154,567 430,688 142,107 378,274 3.11.02 Attributed to non-controlling shareholders 5,623 12,553 7,312 8,560 3.99 Earnings per share (Reais/share) 3.99.01 Basic earnings per share 3.99.01.01 Common shares 0.24910 0.69420 0.22890 0.60920 3.99.02 Diluted earnings per share 3.99.02.01 Common shares 0.24910 0.69420 0.00000 0.00000 01/01/2011 to 09/30/2011 Same quarter 07/01/2010 to 09/30/2010 1,317,483 3,720,858 1,188,622 3,133,544 -899,217 -2,610,493 -811,395 -2,137,892 418,266 1,110,365 377,227 995,652 Operating income/expenses -224,867 -630,260 -210,590 -559,722 Selling expenses -129,536 -368,222 -121,602 -314,914 -66,462 -189,234 -71,111 -194,047 -4,225 -12,626 -3,958 -12,035 -62,237 -176,608 -67,153 -182,012 479 11,145 5,541 16,172 -29,348 -83,949 -23,901 -68,620 0 0 483 1,687 193,399 480,105 166,637 435,930 -7,990 73,970 40,154 86,892 154,397 359,327 92,081 250,732 -162,387 -285,357 -51,927 -163,840 185,409 554,075 206,791 522,822 Income and social contribution taxes -25,219 -110,834 -57,372 -135,988 Current -37,444 -136,398 -50,430 -116,719 Page 13 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Consolidated financial statements / Statement of comprehensive income (In thousands of reais) Account code Account description 4.01 Consolidated net income for the period 4.02 4.02.01 4.03 Current quarter 07/01/2011 to 09/30/2011 YTD Prior year Accrued 01/01/2010 to 09/30/2010 01/01/2011 to 09/30/2011 Same quarter 07/01/2010 to 09/30/2010 160,190 443,241 149,419 386,834 Other comprehensive income 54,949 38,401 -6,604 -25,050 Translation adjustments in the period 54,949 38,401 -6,604 -25,050 Consolidated comprehensive income for the period 215,139 481,642 142,815 361,784 4.03.01 Attributed to shareholders of parent company 209,516 469,089 135,503 353,224 4.03.02 Attributed to non-controlling shareholders 5,623 12,553 7,312 8,560 Page 14 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Consolidated financial statements / Cash flow statement – Indirect method (In thousands of reais) Account code Account description YTD 01/01/2011 to 09/30/2011 Accrued - prior year 01/01/2010 to 09/30/2010 6.01 Net cash from operating activities 290,813 420,330 6.01.01 Cash from operations 785,628 730,442 6.01.01.01 Pre-tax income 554,075 522,822 6.01.01.02 Depreciation and amortization 139,393 135,920 6.01.01.03 Equity pickup 6.01.01.04 Employee profit sharing 6.01.01.05 Other 23,988 15,736 6.01.02 Changes in assets and liabilities -494,815 -310,112 6.01.02.01 Increase (decrease) in accounts receivable -158,381 -89,994 6.01.02.02 Increase (decrease) in accounts payable 149,649 236,063 0 -1,687 68,172 57,651 6.01.02.03 Increase (decrease) in inventories -263,387 -260,135 6.01.02.04 Income and social contribution taxes paid -133,543 -124,255 6.01.02.05 Employee profit sharing paid -89,153 -71,791 6.02 Net cash from investing activities -319,668 -336,176 6.02.01 Property, plant and equipment -124,813 -248,847 6.02.02 Intangible assets -2,462 -81,274 6.02.03 Disposal of permanent assets 2,472 18,995 6.02.04 Cumulative translation adjustments 38,401 -25,050 6.02.05 Long-term financial investments -233,266 0 6.03 Net cash from financing activities 562,427 188,502 6.03.01 Working capital financing 767,072 -44,289 6.03.02 Long-term financing 6.03.03 Dividends/interest on equity capital 102,972 516,903 -297,562 -284,112 6.03.04 Treasury stock -10,055 0 6.05 Increase/(decrease) in cash and cash equivalents 533,572 272,656 6.05.01 Opening cash and cash equivalents balance 2,552,996 2,127,117 6.05.02 Closing cash and cash equivalents balance 3,086,568 2,399,773 Page 15 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Consolidated financial statements / Statement of changes in equity – 01/01/2011 to 09/30/2011 (In thousands of reais) Paid-in capital 1,812,294 Capital reserves Options granted and Treasury stock 48,815 1,812,294 48,815 Income reserves 900,676 Retained earnings/ accumulated losses 0 Other comprehensive income 692,822 Equity 3,454,607 Non-controlling interest 89,229 900,676 0 692,822 3,454,607 89,229 3,543,836 Account code 5.01 Account description Opening balances 5.03 Adjusted opening balances 5.04 Capital transactions with shareholders 453,073 -44,930 -519,406 -201,082 0 -312,345 -3,073 -315,418 5.04.01 Capital increase 453,073 -44,930 -408,143 0 0 0 0 0 5.04.04 Acquired treasury stock 0 0 -10,055 0 0 -10,055 0 -10,055 5.04.06 Dividends 0 0 -101,208 -60,179 0 -161,387 0 -161,387 5.04.07 Interest on equity capital 0 0 0 -140,903 0 -140,903 0 -140,903 5.04.08 Other 0 0 0 0 0 0 -3,073 -3,073 5.05 Total comprehensive income 0 0 0 472,306 -3,217 469,089 12,553 481,642 5.05.01 Net income for the period 0 0 0 430,688 0 430,688 12,553 443,241 5.05.02 Other comprehensive income 0 0 0 41,618 -3,217 38,401 0 38,401 5.05.02.04 Translation adjustments in the period 0 0 0 0 38,401 38,401 0 38,401 5.05.02.06 Realization of deemed cost 0 0 0 41,618 -41,618 0 0 0 5.06 Internal changes in equity 0 -37 0 37 0 0 0 0 5.06.02 Revaluation reserve released to retained earnings 0 -37 0 37 0 0 0 0 5.07 Closing balances 2,265,367 3,848 381,270 271,261 689,605 3,611,351 98,709 3,710,060 Consolidated equity 3,543,836 Page 16 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Consolidated financial statements / Statement of changes in equity – 01/01/2010 to 09/30/2011 (In thousands of reais) Account code 5.01 Account description Opening balances 5.03 Adjusted opening balances Income reserves 660,797 Retained earnings/ accumulated losses 0 Other comprehensive income 777,782 Equity 3,299,739 Non-controlling interest 27,547 48,866 660,797 0 777,782 3,299,739 27,547 3,327,286 Paid-in capital 1,812,294 Capital reserves Options granted and Treasury stock 48,866 1,812,294 Consolidated equity 3,327,286 5.04 Capital transactions with shareholders 0 0 0 -168,236 0 -168,236 49,982 -118,254 5.04.06 Dividends 0 0 0 -66,437 0 -66,437 0 -66,437 5.04.07 Interest on equity capital 0 0 0 -102,268 0 -102,268 -14 -102,282 5.04.08 Reversal of expired dividends 0 0 0 469 0 469 0 469 5.04.09 Other 0 0 0 0 0 0 49,996 49,996 5.05 Total comprehensive income 0 0 0 416,743 -63,518 353,225 8,462 361,687 5.05.01 Net income for the period 0 0 0 378,274 0 378,274 8,477 386,751 5.05.02 Other comprehensive income 0 0 0 38,469 -63,518 -25,049 -15 -25,064 5.05.02.04 Translation adjustments in the period 0 0 0 0 -25,049 -25,049 -15 -25,064 5.05.02.06 Realization of deemed cost 0 0 0 38,469 -38,469 0 0 0 5.06 Internal changes in equity 0 -38 -127,285 38 0 -127,285 0 -127,285 5.06.02 Revaluation reserve released to retained earnings 0 -38 0 38 0 0 0 0 5.06.04 Payment of proposed dividends 0 0 -127,285 0 0 -127,285 0 0 5.07 Closing balances 1,812,294 48,828 533,512 248,545 714,264 3,357,443 85,991 3,443,434 Page 17 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Consolidated financial statements / Statement of value added (In thousands of reais) Account code Account description YTD 01/01/2011 to 09/30/2011 Accrued - prior year 01/01/2010 to 09/30/2010 7.01 Revenues 4,349,482 3,713,470 7.01.01 Sale of goods, products and services 4,334,352 3,707,780 7.01.02 Other revenues 13,011 9,591 7.01.04 Set up/reversal of allowance for doubtful accounts 2,119 -3,901 7.02 Inputs purchased from third parties -2,434,420 -2,004,300 7.02.02 Materials, electricity, third party services and other -2,433,039 -2,001,938 7.02.03 Loss/recovery of amounts receivable -1,381 -2,362 1,915,062 1,709,170 -139,393 -135,920 7.03 Gross value added 7.04 Withholdings 7.04.01 Depreciation, amortization and depletion 7.05 Net value added produced 7.06 Value added received in transfer 7.06.01 Equity pickup 7.06.02 Financial income 359,327 250,732 7.07 Total value added to be distributed 2,134,996 1,825,669 7.08 Distribution of value added 2,134,996 1,825,669 7.08.01 Personnel 775,268 650,636 7.08.01.01 Direct compensation 664,528 549,184 -139,393 -135,920 1,775,669 1,573,250 359,327 252,419 0 1,687 7.08.01.02 Benefits 73,148 68,424 7.08.01.03 Unemployment Compensation Fund (FGTS) 37,592 33,028 7.08.02 Taxes, charges and contributions 605,486 605,614 7.08.02.01 Federal 540,590 529,346 7.08.02.02 State 60,847 71,300 7.08.02.03 Local 4,049 4,968 7.08.03 Third-party capital remuneration 311,001 182,585 7.08.03.01 Interest 296,890 170,823 7.08.03.02 Rental 14,111 11,762 7.08.04 Equity remuneration 443,241 386,834 7.08.04.01 Interest on equity capital 140,903 102,267 7.08.04.02 Dividends 7.08.04.03 Retained profit/loss for the period 7.08.04.04 Non-controlling interest in retained profits 60,179 66,437 229,606 209,570 12,553 8,560 Page 18 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Comments on performance Highlights • Net operating revenue in the third quarter of 2011 totaled R$ 1,317.5 million, corresponding to an increase of 10.8% over the same period of last year; • EBITDA was of R$ 243.7 million, representing an increase of 16.5% in relation to the previous year and of 13.1% in relation to the previous quarter. EBITDA margin showed a sequential recovery, reaching 18.5%. • Net income totaled R$ 154.6 million, with net margin of 11.7%, corresponding to an 8.8% growth in relation to 3Q10 and remaining at the same level of the previous quarter. • Investments in fixed assets totaled R$ 124.8 million in the first nine months of 2011. Main Quarterly Figures Gross Operating Revenue Domestic Market External Markets External Markets in US$ Net Operating Revenue Gross Operating Profit Gross Margin Net Income Net Margin EBITDA EBITDA Margin EPS Q3 2011 1,552,044 953,515 598,529 364,730 1,317,483 418,266 Q2 2011 Growth % Q3 2010 Growth % 09M11 1,510,276 2.8% 1,419,160 9.4% 4,405,457 936,061 906,954 5.1% 2,752,439 1.9% 574,215 512,207 16.9% 1,653,018 4.2% 360,639 1.1% 298,020 22.4% 1,013,580 1,277,258 3.1% 1,188,622 10.8% 3,720,858 381,437 377,227 10.9% 1,110,365 9.7% 31.7% 29.9% 154,567 154,557 11.7% 12.1% 243,743 215,579 18.5% 16.9% 0.2491 0.2491 31.7% 0.0% 142,106 13.1% 209,196 29.8% 31.8% 8.8% 430,688 378,273 11.6% 12.1% 16.5% 624,130 564,961 16.8% 18.0% 12.0% 17.6% 0.0% 0.2289 09M10 Growth % 3,778,127 16.6% 2,539,463 8.4% 1,238,665 33.5% 700,290 44.7% 3,133,544 18.7% 995,652 11.5% 8.9% 0.6942 13.9% 10.5% 0.6092 13.9% Figures in R$ Thousands Comments by Laurence Beltrão Gomes Investor Relations Officer at WEG On September 16, 2011, WEG celebrated 50 years of history. During this half century, WEG grew from a small manufacturer of electric motors in the inland area of Santa Catarina state to one of the largest Brazilian-owned multinational companies, with operations in the five continents and assuming the leading position in the various markets and segments. In this third quarter, we observed a continuous revenue growth and the gradual recovery in operating margins. We continue to benefit from the growing importance of energy efficiency in the industrial sector, where electricity is a significant production cost, as well as the strengthening of the trend towards renewable sources for power generation. In the Brazilian market, we highlight the “Programa Brasil Maior” launched by the Federal Government, a set of industrial policy measures that aims to increase the competitiveness of the Brazilian industrial sector in three main areas: stimulus for capacity expansion and innovation, foreign trade and measures against unfair trade practices. Overseas, WEG continues seeking to grow by gaining market share and expanding the product portfolio, executing a strategy based on flexibility, timing and proximity to our customers. Our future growth relies on our ability to continue expanding access to markets and adding new technologies and new products to our portfolio. This can occur either by organic growth, technological innovation, acquisition of companies or through formation of joint ventures. Page 19 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Comments on performance Economic Activity and Industrial Production The economic activity continued to show very different situations in the various markets throughout the third quarter of 2011. In Brazil, the economic activity showed signs of settling down, albeit at relatively high levels. In the foreign markets, we observed, in some cases, situations that are similar to that in Brazil, with economic activities at relatively high levels, particularly in the socalled emerging markets. In more mature markets, especially in Europe, the situation is generally far less dynamic. Concerns surrounding the tax situation in several Eurozone countries led to a new bout in the risk aversion, with effects on the Brazilian currency. We operate differently in each of these markets, either acting on opportunities to penetrate new growth markets or exploring the strategy of expanding the product line. Analysis of the purchasing manager indexes (PMI) provides certain indication about industrial production solidity in certain selected markets. Manufacturing ISM Markit/BME Germany Purchasing Managers’ Index (PMI) HSBC China Manufacturing PMI ™ USA Germany China September 2011 August 2011 51.6 50.6 50.3 50.9 49.9 49.9 In Brazil, the industrial activity continued expanding, but at a slower pace over the year. Accumulated growth in the Brazilian industrial production until August 2011 was of 1.4% in relation to 2010. Accumulated expansion over the 12 months until August is of 2.3%, and analysis of the growth estimates compiled by the Central Bank of Brazil through the Focus report evidences convergence towards growth rates of close to 2.4% for 2011. Indicators of the current industry scenario according to category of use - August/2011 Change (%) Categories of Use Month/Month Year/Year Capital Goods 0.90 Intermediary Goods (0.20) Consumer Goods (1.30) Durable Goods (2.90) Semi-durable and non-durable (0.90) General Industry (0.20) Source: IBGE, Research office, Industry Coordination (*) Series with seasonal adjustments 8.60 0.60 2.00 1.50 2.10 1.80 Acummulated On Year 12 months 5.60 6.80 0.60 1.90 0.90 1.40 1.80 1.50 0.60 1.30 1.40 2.30 Production of capital goods has been prominent throughout 2011, with a significantly higher growth in relation to other categories of use. The growth of 5.6% accumulated in 2011 and 6.8% accumulated in the past twelve months also shows a tendency to reduce the growth pace, evidencing that investment in production capacity expansion seems to be relatively preserved. The survey conducted by the Brazilian Association of Electrical and Electronic Industries (ABINEE) in August 2011 provides the indications in this regard. For most companies in the electrical and electronic segment, sales continue rising in the annual comparison, but monthly growth is less common. Until the end of July, we observe the continuing trend of currency appreciation, with the Real reaching the highest prices after many years in relation to the U.S. dollar. However, from August onwards, particularly September, uncertainties surrounding developed economies began to grow again, with increase in the risk aversion and consequent rapid devaluation of the Real. Despite reaching R$ 1.85/US$ at the end of 3Q11, with devaluation of 18.6% at the end of the previous quarter, the average Page 20 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Comments on performance price of the Brazilian currency/US dollar appreciated by 4.7% in the quarter when compared to 3Q10. In relation to 2Q11, there was a devaluation of 3.0%. Although the currency changes partially reduce the pressure on short-term results, we continue adopting the management practices developed in the past years, which aim at minimizing the effects of foreign exchange appreciation on our business, such as the strategy for global procurement and for production increase abroad. Any positive impacts of such devaluation on the competitiveness of our industrial clients in Brazil, however, depend on maintenance of the current exchange levels over a longer period. Gross Operating Revenue Gross Operating Revenue reached R$ 1,552.0 million in the third quarter of 2011 (3Q11), corresponding to an increase of 9.4% in relation to 3Q10 and of 2.8% in relation to 2Q11. The growth of 9.4% was the result of a general rise in the business volume and increase in the price of goods sold, in addition to consolidation of revenues from businesses acquired during 2010. In 3Q11, gross operating revenue are divided as follows: • Domestic Market: R$ 953.5 million, representing 62% of Gross Revenues, with growth of 5% over 3Q10 and 2% compared to 2Q11; • External Markets: R$ 598.5 million, equivalent to 39% of Gross Revenues. The comparison of figures in Reais shows growth of 17% over the same period last year and of 4% over the previous quarter. Considering the average US dollar/Brazilian Real exchange rate, the comparison shows growth of 22% compared to 3Q10 and of 1% compared to 2Q11. Gross Revenues per Market (R$ million) External Market Domestic Market 1.419,2 1.131,5 1.227,4 29% 32% 71% 68% Q1 10 Q2 10 2010 1.504,6 1.510,3 1.552,0 38% 39% 1.343,1 36% 36% 64% 64% 64% 62% 61% Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 36% 2011 Page 21 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Comments on performance Evolution and Distribution of Consolidated Gross Revenues per Geographic Market (R$ million) Gross Operating Revenues - Domestic Market - External Markets In US$ North America South and Central America Europe Africa Australasia Q3 2011 1,552.0 953.5 598.5 Q2 2011 1,510.3 936.1 574.2 Change 2.8% 1.9% 4.2% Q3 2010 1,419.2 907.0 512.2 Change 9.4% 5.1% 16.9% 364.7 360.6 1.1% 298.0 22.4% 34% 18% 23% 15% 10% 33% 17% 24% 17% 10% 1 pp 1 pp -1 pp -2 pp 0 pp 36% 15% 22% 17% 10% -2 pp 3 pp 1 pp -2 pp 0 pp Distribution of Consolidated Gross Revenues per Business Area ingles Electro-electronic Industrial Equipments Energy Generation , Transmission and Distribution Electric Motors for Domestic Use Paints and Varnishes Q3 2011 Q2 2011 58.4% 60.1% 24.6% 22.8% 10.5% 10.7% 6.5% 6.4% % Q3 2010 -1.7 pp 59.8% 1.8 pp 21.7% -0.1 pp 12.0% 0.1 pp 6.6% % -1.4 pp 2.9 pp -1.4 pp -0.1 pp Industrial Electro-Electronic Equipment The industrial electrical-electronic equipment area includes low and medium voltage electric motors, drives & controls, industrial automation equipment and services, and maintenance services and parts. We compete in all the major world markets with our products and solutions. Electric motors and other related equipment find applications in practically all industrial segments, in equipment such as compressors, pumps and fans, for example. In the beginning of August, the “Plano Brasil Maior” was launched, setting out several industrial policy initiatives to increase competitiveness in the Brazilian industry, segregated into three comprehensive areas: fostering of investments and innovation, foreign trade and defense against unfair trade practices. Among the main incentives provided to our clients, the Plan includes expansion of the Investment Support Program (PSI) of the Brazilian Development Bank (BNDES), which offers loan facilities at attractive conditions for purposes of investment in capacity increase. For some quarters already, the Brazilian industrial environment has been marked by the stability of industrial production in all categories of use, except production of capital goods. As previously mentioned, production of capital goods grew 7% in the past 12 months, whereas all other categories of use recorded growth of less than 2%. In our understanding, such performance arises from the increase in investments concentrated on certain industrial segments, with specific conditions and dynamism. We have sought to concentrate our efforts to meet such demand, using our operating and industrial flexibility to adjust to market conditions. Similarly, in our expansion strategy in the various foreign markets, which is being applied aggressively, we seek to focus our activities on the most evident opportunities. From the regional markets standpoint, this means operating in two distinct ways: • Seeking expansion in fast-growing markets in which our share is still relatively small, such as Asia. • Gaining additional share in markets where our presence is already established and our brand recognized, such as Page 22 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Comments on performance North America and certain European countries. From the product standpoint, this expansion occurs in the following manners: • Introduction of new lines and models of electric motors that facilitate entry into foreign markets, taking advantage of the growing importance of the energy efficiency issue; • Expansion of the product line offered, beyond the electric motor, to markets in which WEG is already consolidated, with additional investments in the capacity to provide services and customization. Energy Generation, Transmission and Distribution (GTD) Products and services included in this area are electric generators for hydraulic and thermal power plants (biomass), hydro turbines (small hydroelectric plants or PCH), transformers, substations, control panels and system integration services. We have made investments in productive capacity, such as our new units of transformers in Mexico and high voltage motors in India, to expand our operations beyond the Brazilian market, where we already have strong presence. In the GTD area in general and specifically in power generation, investment maturing terms are longer, with slower investment decisions and longer project and manufacturing lead times. As such, new orders are only recognized as revenue after a few months, upon effective delivery to buyers. Recent electricity auctions, denominated A-3 and reserve, were once again marked by strong participation of wind power and thermal projects based on natural gas. Such active participation led to a new round of fall in prices of electricity sold and to an extensive predomination of these two sources of power. The energy sources in which our presence is traditionally strong, such as thermal biomass and small hydroelectric plants (SHP), had only marginal involvement. We are working on the joint venture WEG MTOI in manufacturing wind turbines, and first deliveries are planned for 2012. We also observed the consistent, although gradual, recovery of inflow of orders (sales) for projects involving thermal generation with biomass. The Transmission & Distribution area continues with a good sales performance, which is already showing reflections on revenue growth. Such good sales performance is the result of more diversified client base and markets, once the transformers and transmission systems offer a wider range of potential clients. As in prior periods, businesses with power substations stood out, for both industrial clients and for concessionaires and power generators. Motors for Domestic Use In this business area, our operations are mainly focused in Brazil, where we hold a significant share in the market of singlephase motors for durable consumer goods, such as washing machines, air conditioners, water pumps, among others. This is a short cycle business and variations in consumer demand are rapidly transferred throughout the chain, with almost immediate impacts on production and revenue. The slowdown in the pace of growth of sales and revenues in this business area, already highlighted in the previous quarter, was confirmed this quarter. The macroprudential measures implemented by the Central Bank of Brazil directly impact demand for durable consumer goods, main use of motors in this segment. Despite the slower growth rate, this business still maintains a relatively high sales and production levels. We believe that should economic conditions such as employment, disposable income and consumer credit availability, remain favorable in the medium and long terms, the perspectives will remain favorable. Page 23 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Comments on performance Paints and Varnishes In this area, including liquid paints, powder paints and electro-insulating varnishes, we have very clear focus on industrial applications in Brazil, and are expanding to Latin America. Our strategy in this business area is cross selling to customers from other operating areas. The target markets ranging from shipbuilding industry to the manufacturers of white line home appliances. We seek to maximize the scale of production and efforts to develop new products and new segments. This business area has shown a good performance, taking advantage of its position in high value added products for industrial applications. Our investments in production capacity and improvements to the logistics structure have improved our share in important markets, such as shipbuilding and oil & gas. Operating Results (R$ Thousands) (EBITDA according to methodology established by CVM’s Ofício Circular 01/07) Q3 2011 1,317.5 (899.2) 418.3 Q2 2011 1,277.3 (895.8) 381.4 EBITDA Margin 31.7% 29.9% (-) Selling Expenses (-) General & Administrative (-) Profit Sharing Result from Activities (+) Depreciation & Amortization EBITDA (129.5) (66.5) (24.7) 197.6 46.2 243.7 (122.7) (64.3) (24.6) 169.8 45.7 215.6 EBITDA Margin 18.5% 16.9% Net Operating Revenues Cost of Goods Sold Gross Operating Profit Change 3.1% 0.4% 9.7% Q3 2010 1,188.6 (811.4) 377.2 5.6% 3.4% 0.1% 16.3% 0.9% 13.1% (121.6) (71.1) (22.2) 162.3 46.9 209.2 Change 10.8% 10.8% 10.9% 31.7% 6.5% -6.5% 11.0% 21.8% -1.6% 16.5% 17.6% Cost of Goods Sold Cost of goods sold (COGS) totaled R$ 899.2 million in 3Q11, up 10.8% over 3Q10 and 0.4% over 2Q11. Gross margin was 31.7%, which is the same level observed in 3Q10 and an increase of 1.9 percentage points in relation to 2Q11. Gross Margin We continue to execute our efforts to reprice our products in accordance to the new current conditions for costs and prices of the major raw materials, such as copper and steel. Although such efforts are partially reflected in the recovery of the gross margin in relation to 2Q11, they are still not sufficient to fully recover the cost differences in relation to 3Q10. Furthermore, gross margin benefited from the growing dilution of transformation costs in the greenfield production units (India, Linhares and transformers in Mexico). Recent economic turmoil in the global financial markets and related impacts on currencies and prices of certain more liquid metal commodities, such as copper, have not yet significantly impacted results for this quarter. Cost of Raw Materials Average copper prices on the London Metal Exchange (LME) spot market rose 24% in 3Q11 over the 3Q10 average, but fell by 2% in relation to the 2Q11 average. According to the CRUspiGlobal index, steel prices in the international market grew 14.3% over 3Q10 and fell 4.5% over 2Q11. Page 24 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Comments on performance The pass-through of price increases of these inputs, such as steel and copper, to sales prices takes place naturally and gradually. This fact stems from two characteristics of our business: (i) our products are usually customized according to certain specifications; and (ii) prices of raw materials, such as copper and steel, tend to be the same or, at least, follow similar trends in the different global markets. As such, sales prices are constantly recalculated to reflect current market conditions. Selling, General and Administrative Expenses The consolidated selling, general and administrative expenses (SG&A) represent 14.9% of Net Operating Revenue in 3Q11, a decrease of 1.3 percentage point compared to 3Q10 and an increase of 0.2 percentage point over 2Q11. In absolute terms, operating expenses showed growth of 1.7% over 3Q10 and 4.8% over the previous quarter. Main impacts on EBITDA 161,2 28,3 4,0 FX Impact on Gross Revenues 88,3 Deductions on Gross Revenues 8,0 COGS (ex depreciation) 209,2 Volumes, Prices & Product Mix Changes EBITDA Q3 10 Selling Expenses 4,4 2,4 General and Administrative Expenses Profit Sharing Program 243,7 EBITDA Q3 11 EBITDA and EBITDA Margin As a result of the aforementioned effects, EBITDA in 3Q11 (calculated according to the methodology defined by CVM Oficio Circular 01/07) totaled R$ 243.7 million, an increase of 16.5% over 3Q10 and of 13.1% compared to prior quarter. EBITDA margin was 18.5%, up 0.9 percentage points compared to 3Q10 and of 1.6 percentage points in relation to 2Q11. Net Financial Results Financial revenues totaled R$ 154.4 million in 3Q11(R$ 111.4 million in 2Q11 and R$ 92.1 million in 3Q10). Financial expenses totaled R$ 162.4 million (R$ 69.3 million in 2Q11 and R$ 51.9 million in 3Q10). In this quarter, net financial income was negative in R$ 8.0 million (positive of R$ 42.1 million in 2Q11 and positive of R$ 40.2 million in 3Q10). The negative net financial result is a consequence of the exchange devaluation at the end of the quarter, of 18.6% in relation to 2Q11, which had an impact on the portion of the debt denominated in foreign currencies. Foreign exchange variation on foreign currencies denominated debt, recorded in this quarter, arises mainly from advances on exchange contracts (ACCs). These financial instruments are backed by export receivables also denominated in foreign currencies. Page 25 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Comments on performance Income Tax and Social Contribution The Income Tax and Social Contribution Tax on Net Profit provision in 3Q11 was R$ 37.4 million (R$ 58.9 million in 2Q11 and R$ 50.4 million in 3Q10). Additionally, there was a R$ 12.2 million Deferred Income Tax credit. Net Income As a result of the effects discussed above, net income for 3Q11 was R$ 154.6 million, an increase of 8.8% compared to 3Q10 and at the same level.6% over the previous quarter. The net margin of the quarter was 11.7%, a decrease of 0.2 percentage points compared to 3Q10 and of 0.4 percentage point over 2Q11. Operating cash flow In the first nine-month of 2011, cash flows from operating activities was of R$ 290.8 million, corresponding to a decrease of 30.8% over the accumulated result of the same period of the previous year. Such reduction was a consequence of the need for investment in working capital due to expansion of activities. Payment of profit sharing to employees also increased. Cash flow from investing activities Investing activities consumed R$ 319.7 million in the first nine-month period of 2011, corresponding to a 5% decrease in relation to the same prior-year period. Distribution of flows among the several components was, however, significantly different. We observed a considerable decrease in investments in fixed assets in 2011, since efforts this year are focused on use of the capacity of the new production units (India and Linhares) and on additional investments for production of wind turbines in Jaraguá do Sul. On the other hand, the Company made long-term financial investments. Cash flow from financing activities Financing activities generated R$ 562.4 million, almost 200% above the accumulated result in the same period of 2010, with new raising of short and long-term debts and payment of dividends and interest on equity capital declared in the second half of 2010. Cash Flows 2.553,0 290,8 Operating Cash 4Q10 319,7 Investing 562,4 3.086,6 Financing Cash 3Q11 Page 26 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Comments on performance Investments Investments in fixed assets for expansion and modernization of production capacity amounted to R$ 124.8 million in the first nine months of 2011, and 86% are going to industrial units and other facilities in Brazil and the rest of the production units and other subsidiaries abroad. As previously mentioned, in 2011 investments in fixed assets will be lower than usual, as we are focused on expanding production and using the capacity of the new production units, the high and medium voltage motor and generator plant in Hosur, India, and the commercial motor plant in Linhares (Espírito Santo State). Investments in Fixed Assets (R$ million) Outside Brazil Brazil 61,4 34,2 73,8 43,7 53,7 44,1 13,0 2,0 27,2 30,1 40,7 42,1 Q1 Q2 Q3 Q4 41,1 33,8 8,2 25,6 Q1 2010 2,4 49,9 7,3 38,8 42,6 Q2 2011 Q3 Debt and Cash Position (R$ Thousands) CASH & EQUIVALENT - Current - Long Term DEBT - Current - Long Term NET CASH (DEBT) September 2011 3,319,834 3,086,568 233,266 3,288,987 1,797,222 1,491,765 30,847 December 2010 2,552,996 2,552,996 0 2,418,943 1,018,995 1,399,948 134,053 September 2011 2,399,773 2,399,773 0 2,345,147 841,311 1,503,836 54,626 Net Cash Position At September 30, 2011, cash (cash and short and long term financial investments) totaled R$ 3.319,8 million and gross financial debt totaled R$ 3.289.0 million, resulting in a net cash position of R$ 30.8 million (net cash of R$ 54.6 million at September 30, 2010). Cash is invested mainly in Brazilian currency denominated financial instruments referenced to the Interbank Deposit Certificate (CDI), in first-tier banks. According to the maturity, gross debt is divided between: • Short-term debt, totaling R$ 1,797.2 million (55% of total), represented by short-term portion of loans from BNDES and other development agencies, mostly in local currency, and trade finance related transactions denominated in foreign currencies and for working capital financing of subsidiaries abroad, denominated in the respective currencies of each Page 27 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Comments on performance country. • Long-term debt, totaling R$ 1,491.8 million (45% of total), mainly represented by financing from BNDES and other development agencies, mostly in local currency, and, to a smaller extent, by working capital financing of subsidiaries abroad in respective currency of each country. The duration of the long-term portion is 29.1 months. According to the reference currencies, the total debt can be divided into: • Denominated in Reais, totaling R$ 2.060,8 million (63% of total), mainly represented by financing from BNDES and other development agencies. The weighted average cost of debt denominated in Reais is approximately 6.7% p.a. Floating rate contracts are indexed mainly by the Long-Term Interest Rate (TLJP). The duration of the portion denominated in Reais is 20.5 months. • Denominated in US dollars, Euros and other currencies, totaling R$ 1,228.2 million (37% of total), represented by working capital loans contracted by subsidiaries abroad in local currencies and trade finance transactions (advances on foreign exchange contracts or ACC), in Brazil. The duration of the portion in foreign currencies is 12.5 months. Performance of WEGE3 stock The common shares issued by WEG, traded on BM&F Bovespa under the code WEGE3, ended the last trading day of September 2011 quoted at R$ 18.70 with a nominal decrease of 14.2% in the year. Considering the dividends and interest on equity capital declared in the period, the total return in the first half of 2011 was –negative in 12%. The average daily volume traded in 3Q11 was R$ 7.2 million, 20.3% higher than in 3Q10. Throughout the quarter 48,934 stock trades were carried out (36,636 stock trades in 3Q10), involving 26.4 million shares (21.6 million shares in 3Q10) and totaling R$ 465.2 million (R$ 380.7 million in 3Q10). Share Price Performance and Traded Volume 30,00 3.000 WEGE3 Ações Negociadas (mil) 25,00 Cotações WEGE3 2.000 15,00 10,00 1.000 Ações Negociadas (mil) 20,00 5,00 0,00 0 Dividend adjusted performance Page 28 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Comments on performance Dividends As of August 17, payments declared during the first half of 2011 were made to shareholders, as below: • On March 22, as interest on stockholders’ equity (JCP), to shareholders on said date, in the gross amount of R$ 42.4 million; • On June 21, as interest on stockholders’ equity (JCP), to shareholders on said date, in the gross amount of R$ 47.4 million; • On July 21, as dividends referring to profit recorded in the first half of 2011 on July 21, in the total amount of R$ 60.2 million. Interim dividends and interest on equity capital declared in the first half of 2011 totaled R$ 150.0 million, corresponding to 54% of net income for the period. Earnings per share after withholding income tax was of R$ 0.22. • In addition, on September 20, the Board of Directors approved interest on stockholders’ equity (JCP) to the shareholders of record on said date, in the gross amount of R$ 51.1 million. Event Interest on Stockholders’ Equity Interest on Stockholders’ Equity Board Meeting Gross amount per Date Payment Date share 03/22/11 08/17/11 R$ 0.06823529 06/21/11 08/17/11 R$ 0.07647059 Net amount per share R$ 0.05800000 R$ 0.06500000 Dividends 07/21/11 08/17/11 R$ 0.09700000 R$ 0.09700000 Interest on Stockholders’ Equity Total 09/20/11 03/14/12 R$ 0.08235294 R$ 0.32405882 R$ 0.07000000 R$ 0.29000000 We maintain the policy of declaring quarterly interest on equity, in addition to twice-annually declared dividends, based on profits for the period. Page 29 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Notes to Financial Statements Notes to Financial Statements (individual and consolidated) September 30, 2011 (In thousands of reais, except where otherwise indicated) 1. Company information WEG S.A. (the “Company”) is a publicly traded company with main place of business in Jaraguá do Sul - SC, Brazil, holding company member of the WEG Group, and its business purpose is the production, manufacture, marketing, export and import of: (i) industrial, electromechanical and electronic systems, electric rotating machines, machinery and equipment in general, appliances for production, distribution and conversion of electrical energy, electrical material, programmable controllers, parts and components of machinery, appliances and equipment in general, hydraulic turbines of all types and capacities, and (ii) resins in general, dyeing materials, substances and products of plant and chemical origin. The operations are performed through manufacturing facilities located in Brazil, Argentina, Mexico, Portugal, South Africa, China and India. The Company has shares traded on BM&F Bovespa under the code “WEGE3” and has been listed since June 2007 in the special segment of corporate governance called New Market. The Company has American Depositary Receipts (ADR) – Level 1 that are traded on over-the-counter (OTC) market, in the United States under the symbol WEGZY. 2. Accounting policies The financial statements have been prepared assuming the historical cost as the basis of value, except where otherwise indicated. Preparation of financial statements requires the use of certain accounting estimates and judgment by the Company’s management, the most relevant of which are disclosed in Note 3. Authorization to complete the preparation of these financial statements was granted at the executive board meeting on October 10, 2011. There were no changes in the policies of these financial statements in relation to the December 31, 2010 financial statements. 3. Estimates and assumptions Preparation of the financial statements involves the use of estimates. These estimates took into account the experience of past and current events, assumptions relating to future events and other objective and subjective factors. Significant items subject to such estimates and assumptions include: a) review of the economic useful lives of property, plant and equipment items and their recovery in operations; b) credit risk analysis to determine the allowance for doubtful accounts; c) measurement of fair value of financial instruments; d) commitments to post-employment benefits for employees; and e) deferred income tax asset on income and social contribution tax losses, as well as the analysis of other risks in determining other provisions, including for contingencies, arising out of administrative and judicial proceedings and other assets and liabilities at the balance sheet date. The settlement of transactions involving these estimates may result in amounts different from those recorded in the financial statements due to uncertainties inherent to the estimate process. These estimates and assumptions are reviewed periodically. Page 30 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Notes to Financial Statements 4. Cash and cash equivalents a) Cash and banks b) Short-term investments In local currency: Bank deposit certificate (CDB) Financial Bills (LF) In foreign currency: Certificates of Deposits Abroad Other balances held abroad NDF – Non Deliverable Forwards TOTAL Short-term Long-term 09/30/11 27 743,845 743,845 510,579 233,266 743,872 510,606 233,266 COMPANY 12/31/10 9 689,935 689,935 689,935 689,944 689,944 - CONSOLIDATED 09/30/11 12/31/10 104,334 53,971 3,215,500 2,499,025 3,192,116 2,454,302 2,958,850 2,454,302 233,266 23,384 44,723 6,853 29,685 12,405 15,038 4,126 3,319,834 2,552,996 3,086,568 2,552,996 233,266 - Investments in Brazil: CDBs and LFs are remunerated at the rates of 100% to 106% of the CDI (100% to 106% of the CDI at December 31, 2010). Investments abroad: Certificates of deposits issued by foreign financial institutions are bear interest as follows: - In Euros with interest of 1.7% p.a. at the original amount of EUR 185, with balance at September 30, 2011 of R$ 462; - In US dollars with interest of 0.02% to 0.3% p.a. at the original amount of US$ 6.292, with balance at September 30, 2011 of R$ 6,391; - In the original currency with interest from 3.8% to 5.1% p.a. 1.7% p.a. at the amount of R$ 12,405; - NDFs in the amount of R$ 4,126. Except for investments in financial bills that mature after 365 days, other investments are readily redeemable. 5. Trade accounts receivable CONSOLIDATED 09/30/11 12/31/10 a) Balance breakdown: Domestic market Foreign market SUBTOTAL Advances on exchange contracts Present value adjustment Allowance for doubtful accounts TOTAL b) Effective losses on trade accounts receivable in the period c) Maturity of trade notes: Falling due: 629,605 562,809 1,192,414 (14,135) (3,320) (12,903) 1,162,056 364 627,619 431,978 1,059,597 (1,571) (13,314) 1,044,712 1,974 1,082,302 902,185 Page 31 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Notes to Financial Statements Overdue: Up to 30 days More than 30 days TOTAL 45,516 64,596 1,192,414 58,207 99,205 1,059,597 6. Inventories CONSOLIDATED 09/30/11 12/31/10 Finished products Work in process Raw materials and other Imports in transit Provision for obsolescence Total inventories in the domestic market 246,989 292,946 222,183 53,392 (8,960) 806,550 192,354 215,166 193,385 33,118 (9,200) 624,823 Finished products Work in process Raw materials and other Provision for obsolescence Total inventories in the foreign market 367,509 37,550 71,747 (13,733) 463,073 292,649 39,430 62,827 (10,777) 384,129 1,269,623 1,008,952 TOTAL Changes in the provision for obsolescence Balance at 12/31/10 Inventories written off permanently Set up of provision Balance at 09/30/11 (19,977) 4,740 (7,456) (22,693) Inventories are insured and their coverage is determined considering the values and level of risk involved. At September 30, 2011, the amount of R$ 2,610,493 was recognized as cost of goods sold (R$ 2,137,892 at September 30, 2010). Cost of sales includes the amounts of R$ 4,740, referring to inventories permanently written off, and R$ 7,456 referring to set up of provision for obsolescence. 7. Taxes recoverable State VAT (ICMS) on capital expenditures Value Added Tax (IVA) from foreign subsidiaries PIS/COFINS on capital expenditures ICMS IPI IRPJ/CSLL recoverable PIS/COFINS Other TOTAL Short-term Long-term 09/30/11 COMPANY 12/31/10 6,409 6,409 6,409 - 6,125 6,125 6,125 - CONSOLIDATED 09/30/11 12/31/10 23,365 45,208 14,016 17,488 16,851 6,155 25,816 3,190 152,089 139,791 12,298 29,743 39,919 26,630 20,150 9,031 3,123 4,077 6,170 138,843 107.182 31,661 Page 32 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Notes to Financial Statements Credits will be realized by the Company and its subsidiaries through refund and/or offset against taxes and contributions. 8. Related parties The commercial transactions for purchase and sale of products, raw materials and hiring of services, as well as intercompany loans and funding and management compensation were carried out as under: BALANCE SHEET ACCOUNTS Non-current assets Management of financial resources Hidráulica Industrial S.A - HISA WEG Equipamentos Elétricos S.A. Equisul S.A. Current liabilities Contracts with managing officers Non-current liabilities Management of financial resources WEG Equipamentos Elétricos S.A. RF Reflorestadora S.A. P&L ACCOUNTS Management compensation: a) Fixed (fees) Board of Directors Executive Board b) Variable (profit sharing) Board of Directors Executive Board 09/30/11 COMPANY 12/31/10 CONSOLIDATED 09/30/11 12/31/10 732 - 797 - 732 - - 58 739 - - - 2,308 2,308 1,570 1,570 140 4,783 - 140 4,644 139 - - 09/30/11 COMPANY 09/30/10 1,275 843 432 1,186 790 396 12,626 1,180 11,446 12,035 1,170 10,865 619 409 210 394 263 131 3,680 573 3,107 2,027 389 1,638 CONSOLIDATED 09/30/11 09/30/10 Additional information: a) Commercial operations Transactions for purchase and sale of inputs and products are carried out on an arm’s length basis, prevailing cash sales. b) Management of financial resources The financial and commercial operations between Group companies are recorded in book accounts, in compliance with the requirements of the Group’s bylaws, not subject to interest The credit/debt contracts entered into with Administrators are recorded in book accounts, subject to interest from 95% to 100% of the CDI variation. c) Provision of services and other covenants WEG Equipamentos Elétricos S.A. entered into an agreement for “Guarantees and Other Covenants” with Hidráulica Industrial S.A. Ind. e Com - HISA, for WEG to be guarantor in loan operations and provide guarantee to customers (Performance Bond, guarantee insurance, etc.). d) Guarantees and sureties Page 33 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Notes to Financial Statements WEG S.A. granted guarantees and sureties to foreign subsidiaries, in the amount of US$ 202.9 million (US$ 142.0 million at December 31, 2010). e) Management compensation Compensation paid to the Board of Directors and Executive Board members amounted to R$ 1,180 and R$ 11,446, respectively, for services rendered, representing a total amount of R$ 12,626. As long as the result of activity on capital invested is at least 10%, interest to be paid to management is expected to range from 0% to 2.5% of net income. The provision is recognized in P&L for the period, in the amount of R$ 3,680, under other operating expenses. Board members and officers receive additional corporate benefits, as follows: Health and dental assistance, life insurance, supplementary pension benefits, among others. 9. Deferred taxes - IRPJ/CSLL Deferred income and social contribution tax credits and debts were determined in accordance with pronouncement issued by the Brazilian Institute of Independent Auditors (IBRACON), approved by CVM Ruling No. 371/02 and CVM Rule No. 599/09, which approved Accounting Pronouncement CPC 32 on income taxes. a) Balance breakdown: 09/30/11 COMPANY 12/31/10 CONSOLIDATED 09/30/11 12/31/10 Non-current assets 647 602 103,846 78.810 IRPJ tax losses CSLL tax losses Temporary differences: Provision for contingencies Taxes questioned in court Losses on receivables from customers Losses on no moving inventories Indemnification from labor and contract terminations Freight and sales commissions Accounts payable (electric energy, technical assistance and other) Employee profit sharing Other temporary additions 532 115 - 8,943 1,195 4,580 986 475 127 25,947 9,099 1,991 5,169 8,864 4,938 11,198 12,483 14,019 24,239 9,482 1,814 3,128 6,259 2,772 7,052 5,412 13,086 Non-current liabilities 3,787 3,820 411,545 415.318 Accelerated depreciation incentive – Law No. 11196/05 Fixed assets deemed cost Transition tax regime adjustment Other temporary exclusions 3,746 41 - 3,797 23 - 2,912 350,951 56,277 1,405 2,835 371,463 38,880 2,140 b) Estimated realization term Management estimates that deferred assets arising from temporary differences will be realized in proportion to realization of contingencies, losses and projected obligations. In relation to deferred tax credits calculated on income and social contribution tax losses, management estimates that they will be realized within the next 3 years. Page 34 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Notes to Financial Statements 10. Investments 10.1 Investments in subsidiaries Adjusted equity P&L for the period Investment in capital (%) 09/30/11 Direct Indirect WEG Equipamentos Elétricos S.A. RF Reflorestadora S.A. RF Reflorestadora Ltda WEG Tintas Ltda. WEG Amazônia S.A. WEG Administradora de Bens Ltda. WEG Logística Ltda. WEG Linhares Equips Elétricos S.A. WEG Drivers e Controls Ltda WEG Partner Aerogeradores Ltda Hidráulica Indl.S.A. Ind. e Com. Agro Trafo S.A. Sensores Eletrônicos Instrutech Ltda. Logotech Sensores Eletrônicos Ltda. Equisul Indústria e Comércio Ltda WEG Equipamientos Electricos S.A. WEG Chile S.A. WEG Colômbia Ltda. WEG Eletric Corp. WEG Service CO. WEG Overseas S.A. WEG México S.A. de C.V. WEG Transformadores México S.A. de C.V. Voltran S.A de C.V. WEG Indústrias Venezuela C.A. Zest Electric Motors (Pty) Ltd. WEG Nantong CO Ltd. WEG Middle East Fze. WEG Industries (Índia) Private Ltd. WEG Electric (India) Private Limited WEG Electric Motors Japan CO. Ltd. WEG Singapore Pte. Ldt. WEG Germany Gmb. WEG Benelux S.A. WEG Ibéria S.L. WEG France S.A.S WEG Electric Motors (UK) Ltd. WEG Itália S.R.L. WEG Euro Ind. Electrica S.A. WEG Electric CIS WEG Scandinavia AB. WEG Austrália Pty Ltd. Pulverlux S.A. EPRIS Argentina S.R.L. 2,570,123 235,825 10 63,984 41,345 15,389 91 40,012 10 10 50,397 246 1,157 474 5,673 41,250 19,085 8,964 84,486 (578) 22 77,471 29,296 36,344 2,239 103,258 16,972 441 109,474 342 733 120 37,076 25,063 711,696 5,044 7,516 7,462 31,450 475 2,781 19,964 993 489 359,083 11,622 13,379 2,722 8,314 (12) (3,726) 2,484 (36) 627 194 (2,443) 6,997 1,896 1,743 12,228 (636) (42) 4,764 (1,227) (4,593) (2,323) 5,329 (3,765) (22) (4,909) (14) 284 (128) 5,892 5,437 52,735 1,710 739 45 2,781 550 (583) 1,673 (207) - 100.00 99.99 100.00 99.91 0.02 99.00 0.01 0.10 0.12 10.44 8.00 1.00 0.79 100.00 0.00 4.99 0.00 0.07 5.74 - 0.01 0.09 99.98 100.00 100.00 99.99 1.00 99.90 61.92 99.99 99.99 99.90 99.88 89.55 92.00 99.00 99.21 100.00 99.99 60.00 60.00 99.99 50.68 100.00 100.00 99.99 94.99 100.00 100.00 100.00 99.99 100.00 100.00 100.00 99.93 94.26 100.00 100.00 100.00 100.00 100.00 12/31/10 Direct Indirect 99.95 99.95 99.91 0.02 0.01 0.10 10.44 8.00 0.99 0.79 100.00 4.99 0.07 5.74 - TOTAL 0.04 99.98 100.00 100.00 99.99 60.94 99.99 99.99 99.90 89.55 92.00 99.00 99.21 100.00 99.99 60.00 60.00 99.99 50.68 100.00 100.00 99.99 94.99 100.00 100.00 100.00 99.99 100.00 100.00 100.00 99.93 94.26 100.00 100.00 100.00 - Equity pickup 09/30/11 355,994(*) 11,617 13,367 1 (3) 758 142 16 97 (41) (5) 151 382,094 Investment book value 09/30/10 09/30/11 12/31/10 345,910 25,076 2,165 1 (1) 800 311 14 94 (9) 234 374,595 2,570,123 235,825 10 63,925 7 10 7 4,307 1,527 90 666 22 17 5 1,806 2,878,347 2,459,328 247,730 56,062 6 3,324 1,562 65 499 61 1 21 5 1,622 2,770,286 (*) Equity pickup adjusted by unearned income. 10.2. RF Reflorestadora S.A. At the Special General Meeting of RF Reflorestadora S.A., held on September 12, 2011, the partial spin-off of this company was approved (manufacturing activity), with the consequent merger of the spun-off portion into RF Reflorestadora Ltda. The objective is to segregate the operation into two different activities, as follows: Real estate: Including prospecting of reforestation areas, particularly pine and eucalyptus trees, with previous cover in growth or in the cutting phase, prospecting of areas with potential for implementation of reforestation projects and exercise of Page 35 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Notes to Financial Statements possession, control and/or ownership of such properties, for whatever purposes, the management of which is line with the business purpose; Manufacturing: Including forestry, cut and processing of wood from current reserves, research and development of packages and use of waste from processes. The spin-off occurred on October 1, 2011. 10.3. Other investments These refer to other investments recorded at cost of acquisition in the amount of R$ 933 at September 30, 2011 (R$ 601 at December 31, 2010). 11. Property, plant and equipment Until September 30, 2011, the Company capitalized borrowing costs in the amount of R$ 909 (R$ 285 at December 31, 2010) referring to construction in progress, in accordance with CVM Rule No. 577/09. The costs are capitalized until the moment of transfer of construction in progress to property, plant and equipment in use. Land, construction and facilities Equipment Furniture and fixtures Hardware Construction in progress Reforestation Other Subtotal Accumulated depreciation/depletion Construction and facilities Equipment Furniture and fixtures Hardware Reforestation Other TOTAL 09/30/11 15,973 15,973 COMPANY 12/31/10 15,973 15,973 (3,952) 12,021 (3,740) 12,233 Annual depreciation rate (%) 02 to 03 05 to 20 07 to 10 20 to 50 - CONSOLIDATED 09/30/11 12/31/10 1,058,987 993,110 2,376,248 2,304,279 60,040 60,199 67,349 60,125 65,722 52,011 48,324 47,552 36,619 84,500 3,713,289 3,601,776 (164,567) (1,052,017) (27,575) (52,588) (7,055) (11,567) 2,397,920 (150,504) (964,644) (26,863) (45,634) (5,911) (12,645) 2,395,575 a) Summary of changes in property, plant and equipment: Class of PPE Land, construction and facilities Equipment Furniture and fixtures Hardware Construction in progress Reforestation Other TOTAL 12/31/2010 842,606 1,339,635 33,336 14,491 52,011 41,641 71,855 2,395,575 Transfer between Acquisitions classes 52,426 11,111 37,389 52,981 (1,423) 3,361 837 3,190 (34,524) 48,131 771 (54,705) 5,268 124,813 Writeoffs (43) (1,799) (40) (44) (538) (2,464) Deprec. and depletion (14,365) (98,537) (2,533) (4,318) (1,143) (1,541) (122,437) Exchange 09/30/11 effect 2,685 (5,438) (236) 605 104 4,713 2,433 894,420 1,324,231 32,465 14,761 65,722 41,269 25,052 2,397,920 b) Amounts provided as collateral – PPE items were provided as collateral for loans, financing, labor claims and tax suits in the amount of R$ 14,333 – consolidated at September 30, 2011 (R$ 14,810 at December 31, 2010). Page 36 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Notes to Financial Statements 12. Intangible assets - Consolidated Amortization/years Projects: - Development of products and processes - Information technology Software license Other Subtotal Goodwill on acquisition of subsidiaries TOTAL 5 5 5 5 - Cost Accumulated amortization 69,505 79,441 52,451 27,798 229,195 165,420 394,615 a) Summary of changes in intangible assets: 12/31/10 Projects: - Development of products and processes - Information technology Software license Other Subtotal Goodwill on acquisition of subsidiaries TOTAL · 6,379 19,239 8,164 10,088 43,870 140,125 183,995 Additions 5,132 458 5,590 4,095 9,685 Amortiza tion (4,784) (8,183) (2,764) (1,225) (16,956) (16,956) (67,910) (68,385) (41,996) (18,558) (196,849) (21,386) (218,235) 09/30/11 1,595 11,056 10,455 9,240 32,346 144,034 176,380 12/31/10 6,379 19,239 8,164 10,088 43,870 140,125 183,995 Exchange effect (77) (81) (158) 7,037 8,227 Other (*) (7,223) (7,223) 09/30/11 1,595 11,056 10,455 9,240 32,346 144,034 176,380 Reclassification of credit right on acquisition of subsidiary ZEST Electric Motors (Pty) Ltd., formerly recognized as goodwill. b) Schedule of amortization of intangible assets (except goodwill): 2011 2012 2013 2014 2015/2016 TOTAL 6,932 12,905 3,685 2,796 6,028 32,346 c) Goodwill on acquisition of subsidiaries is no longer amortized for accounting purposes. As such, deferred income tax liability was recognized by the Company (Note 9). 13. Loans and financing At September 30, 2011, financing raised in foreign currency comprises Advances on Exchange Contracts (ACC’s), BNDESFINEM in currency basket, BNDES-FINEM in dollar and IFC in dollar (+) LIBOR. Financing taken by foreign subsidiaries for working capital purposes is denominated in US dollars and/or in the currency of each country, amounting to R$ 430.7 million in the short term (R$ 258.6 million at December 31, 2010) and R$ 32.8 million in the long term (R$ 88.3 million at December 31, 2010), corresponding to US$ 249.9 million (US$ 208.0 million at December 31, 2010). Page 37 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Notes to Financial Statements Financing is secured by sureties and chattel mortgage. Type Annual charges In Brazil Short term Working capital (ACC’s) Working capital Working capital Working capital Working capital Working capital Property, plant and equipment NDF – Non Deliverable Forwards Interest of 0.9% to 3.9% p.a. (+) exchange variation TJLP (+) 1.4% to 5.0% p.a. Currency (+) 0.8% to 2.5% p.a. Interest of 4.0% to 7.0% p.a. US dollar (+) 1.4% to 1.8% p.a. US dollar (+) Libor (+) 3.25% p.a. TJLP (+) 1.0% to 5.0% p.a. Foreign exchange variation 1,366,561 623,896 329,572 216 388,472 15,217 3,588 5,345 255 760,349 276,411 388,700 2,470 82,560 4,801 67 5,340 - TJLP (+) 1.4% to 2.0% p.a. UFIR (+) 1.0% to 4.0% p.a. Currency basket (+) 0.8% p.a. Interest of 4.5% to 9.0% p.a. TJLP (+) 1.0% to 5.0% p.a. US dollar (+) 1.4% to 1.8% p.a. US dollar (+) Libor (+) 3.25% p.a. Foreign exchange variation 1,458,929 639,288 51,132 233 632,478 14,513 59,480 43,269 18,536 1,311,643 488,272 41,500 424 662,216 17,700 59,876 41,655 - Long term Working capital Property, plant and equipment Working capital Working capital Property, plant and equipment Working capital Working capital Export prepayment - PPE CONSOLIDATED 09/30/11 12/31/10 Overseas Short term Working capital Working capital Working capital Working capital Working capital Working capital EURIBOR (+) 1.2% to 1.6% p.a. LIBOR (+) 0.9% to 2.5% p.a. 90% of PBOC (4.5% to 5.0%) p.a. BBSY (+) 1.3% to 1.5% p.a. JIBAR (+) 3.0% to 3.5% p.a. Interest 1.8% to 14.4% p.a. 430,661 121,516 103,970 64,131 27,073 4,012 109,959 258,646 40,524 72,358 8,059 18,277 14,058 105,370 Long term Working capital Working capital Working capital Working capital 90% of PBOC (4.5% to 5.0%) p.a. BBSY (+) 1.3% to 1.5% p.a. JIBAR (+) 3.0% to 3.5% p.a. Interest 5.0% to 11.7% p.a. 32,836 10,784 309 21,743 - 88,305 51,079 302 32,338 4,586 1,797,222 1,491,765 1,018,995 1,399,948 09/30/11 55,382 812,454 350,778 137,325 135,826 1,491,765 12/31/10 637,061 429,750 159,226 96,443 77,468 1,399,948 TOTAL SHORT TERM TOTAL LONG TERM Maturity of long-term financing and loans: 2012 2013 2014 2015 2016 onwards TOTAL 14. Provisions The Company and its subsidiaries are parties to administrative and judicial proceedings of labor, civil and tax nature arising from the normal activities of their businesses. The respective provisions were set up for proceedings the likelihood of loss of Page 38 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Notes to Financial Statements which was rated as “probable” based on the estimate of value at risk determined by the Company’s legal counsel. The Company's management estimates that the provision for contingencies set up is sufficient to cover any losses from the proceedings in progress. a) Balance of provision for contingencies: (i) Tax: - IRPJ and CSLL - INSS - Other (i.1) (i.2) COMPANY 09/30/11 12/31/10 1,565 1,397 1.565 1,397 - CONSOLIDATED 09/30/11 12/31/10 37,735 37,018 10,049 10,049 22,115 21,007 5,571 5,962 (ii) Labor - - 33,918 29,189 (iii) Civil - - 60,145 58,182 229 229 3,005 1,995 1,794 1,626 134,803 126,384 524 524 - 321 321 - 22,105 17,980 4,125 20,575 16,755 3,820 (iv) Other TOTAL (v) Judicial deposits - Tax - Other b) Statement of changes in the period - consolidated 12/31/10 a) Tax b) Labor c) Civil d) Other TOTAL 37,018 29,189 58,182 1,995 126,384 Additions 5,950 4,326 11,175 1,410 22,861 Interest 398 1,149 205 1,752 Writeoffs (5,354) (3,949) (400) (9,703) Reversals (277) (746) (5,468) (6,491) 09/30/11 37,735 33,918 60,145 3,005 134,803 c) The provisions set up refer substantially to: (i) Tax contingencies (i.1) The Company maintains a provision for the proceeding referring to IPC difference (51.82%) of January 1989 – “Plano Verão” (Summer Plan). The decision is favorable to the limit of the index of 35.58%. (i.2) This refers to social security contribution taxes payable. The litigation refers to social security charges levied on the private pension plan, profit sharing, education funding tax, among others. (iii) Labor contingencies The Company and its subsidiaries are defendants in labor claims primarily involving health and risk exposure, among others. Based on payment history and the legal counsel’s opinion, the provision of R$ 33,918 at September 30, 2011 (R$ 29,189 at December 31, 2010) is deemed sufficient to cover probable losses. (iii) Civil contingencies These correspond primarily to civil lawsuits, including personal injury, aesthetic damage, occupational diseases and indemnities arising out of occupational accidents. Based on the legal counsel’s opinion, the Company management set up provision of R$ 60,145 at September 30, 2011 (R$ 58,182 at December 31, 2010), which is deemed sufficient to cover probable losses. Page 39 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Notes to Financial Statements (iv) Restricted judicial deposits IRPJ/CSLL on “Plano Verão” Other TOTAL RESTRICTED JUDICIAL DEPOSITS - Non-restricted judicial deposits TOTAL JUDICIAL DEPOSITS 09/30/11 524 524 524 COMPANY 12/31/10 321 321 321 CONSOLIDATED 09/30/11 12/31/10 13,195 13,195 8,910 7,380 22,105 20,575 1,721 1,122 23,826 21,697 The judicial deposits not restricted to the contingencies are awaiting a decree allowing withdrawal thereof. d) Contingencies classified as possible losses At September 30, 2011, the Company and its subsidiaries are parties to other suits, the likelihood of loss of which are rated as “possible”, for which no provision for contingencies was set up. The estimated amount of such litigation relates to the tax proceedings totaling R$ 2,115 (R$ 2,258 at December 31, 2010). In addition to the above contingencies, the Company is analyzing the following lawsuits: • In August 2011, the Labor Department of Justice filed a public civil suit against the Company referring to indemnity for collective personal injury, arising from contamination of water for consumption in one of the production plants, to the amount of R$ 50.0 million. • In September 2011, the Company was served a summons from the Brazilian IRS, stating that WEG Equipamentos Elétricos S.A. was prepared in order to enable that taxable profit be computed as a percentage of gross sales in calendar year 2006. This litigation is estimated at R$ 40.0 million. The Company, through its legal counsel, is taking the legal measures to challenge these lawsuits. In accordance to CVM regulation, the Company initially considers the probability of loss as possible, and as of September 30, 2011, no provision for contingencies was set up. 15. Equity a) Capital The Company capital is represented by 620,905,029 common registered book shares, with voting rights and no par value, including 500,000 treasury stock, as per Note 16. b) Shareholders’ remuneration – Interest on equity capital On September 20, 2011, the Company declared interest on equity capital in the gross amount of R$ 51,092 (R$ 43,428 net) corresponding to R$ 0.07 per share, net of 15% withholding income tax, pursuant to paragraph 2, article 9 of Law No. 9249/95, except for corporate shareholders that are already exempt from the mentioned tax. Under the terms of article 37 of the Articles of Incorporation and article 9 of Law No. 9949/95, interest on equity capital will be attributed to mandatory dividends and paid for capital represented by 620,405,029 shares as from March 14, 2012. c) Stock option plan The Stock Option Plan was approved at the Special General Meeting held on February 22, 2011 (“Plan”). The purpose of the Plan, to be managed by the Board of Directors, is to grant options to purchase WEG S.A. (“Company”) shares to statutory officers of the Company and its subsidiaries located in Brazil, with the objective of attracting, motivating Page 40 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Notes to Financial Statements and retaining them, in addition to aligning their interests to those of the Company and its shareholders. The Plan may be extinguished, suspended or changed, at any time, based on proposal approved by the Company’s Board of Directors. The Board of Directors may approve, on a half-yearly basis, Stock Option Programs ("Programs”), whereby the participants, number of options, strike price, distribution of options, effectiveness date and other specific rules are defined, with observance of the basic guidelines of the Plan. The complete Plan is disclosed in the Company’s Reference Form. Stock Option Programs Program Strike price 1H11 2H11 21.01 17.45 Approval Number of options 274,678 274,678 Shares acquired Option rights 47,953 19,072 93,006 37,894 According to calculations made, no significant amounts arise from pricing of options granted. 16. Treasury stock As per the minutes of the Board of Directors’ meeting held on April 26, 2011 and with the objective of supporting the Stock Option Plan, the Company was authorized to acquire up to 500,000 common shares issued thereby. Up to September 30, 2011, 500,000 common shares were acquired in the amount of R$ 10,055, at the average cost of R$ 20.11 per share Shares acquired will be held in treasury for use in connection with exercise of share purchase options by beneficiaries of the Company’s Stock Options Plan or subsequent cancellation or disposal. 17. Operating revenue CATEGORY OF GROSS REVENUE Sale of products Sale of services Present value adjustment Other sales Total gross revenue BREAKDOWN OF NET REVENUE CONSOLIDATED 09/30/11 09/30/10 4,293,935 129,664 (38,281) 20,139 4,405,457 3,742,248 59,083 (37,228) 14,024 3,778,127 CONSOLIDATED 09/30/11 09/30/10 Gross operating revenue Domestic market Foreign market 4,405,457 2,752,439 1,653,018 3,778,127 2,539,462 1,238,665 Deductions (taxes and returns) (684,599) (644,583) Net operating revenue 3,720,858 3,133,544 Page 41 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Notes to Financial Statements 18. Operating expenses by nature The Company elected to present the consolidated income statement by function. As required by IFRS, the Company details below the consolidated income statement by nature: CONSOLIDATED 09/30/11 09/30/10 NATURE OF EXPENSE Depreciation and amortization Personnel expenses Raw materials and materials for use and consumption Freight and insurance expenses Other expenses (3,240,753) (139,393) (841,988) (1,695,419) (91,216) (472,737) (2,697,614) (135,920) (728,539) (1,332,603) (75,418) (425,134) FUNCTION OF EXPENSE Cost of products and services sold Selling expenses General and administrative expenses Management fees Other operating expenses Equity pickup (3,240,753) (2,610,493) (368,222) (176,608) (12,626) (72,804) - (2,697,614) (2,137,892) (314,914) (182,012) (12,035) (52,448) 1,687 19. Other operating revenues/expenses The amounts recorded refer to the share in net income, reversal/(provision) of tax proceedings and others, as follows: CONSOLIDATED 09/30/11 09/30/10 11,145 16,172 11,145 16,172 (83,949) (68,620) (64,452) (53,462) (3,720) (4,189) (3,680) (2,027) 2,460 2,223 (2,126) (960) (1,193) (11,471) (9,972) (72,804) 52,448 OTHER OPERATING REVENUES - Other OTHER OPERATING EXPENSES - Employee profit sharing - Employee profit sharing – foreign subsidiaries - Managing officer profit sharing - Provision/reversal of tax suits - Tax debts – REFIS IV - Tax incentives – Rouanet Law - Other TOTAL NET 20. Financial income (expenses), net COMPANY 09/30/11 09/30/10 FINANCIAL INCOME Interest income Foreign exchange variation Present value adjustment - customers PIS/COFINS on interest on equity capital Other income FINANCIAL EXPENSES Interest on loans and financing Foreign exchange variation Present value adjustments - suppliers Other expenses FINANCIAL INCOME (EXPENSES), NET CONSOLIDATED 09/30/11 09/30/10 53,009 61,452 3 (8,723) 277 5,385 14,069 (8,942) 258 359,327 226,778 86,476 33,960 (8,723) 20,836 (148) (148) 52,861 (33) (33) 5,352 (285,357) (105,962) (132,812) (13,879) (32,704) 73,970 250,732 144,011 52,643 39,310 (8,942) 23,710 (163,840) (83,412) (47,469) (8,727) (24,232) 86,892 Page 42 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Notes to Financial Statements 21. Provision for income and social contribution taxes The Company and its subsidiaries in Brazil determine income and social contribution taxes whereby taxable profit is based on accounting records, except for WEG Administradora de Bens Ltda., WEG Drives e Controls Ltda., Instrutech Ltda., Logotech Ltda. and Agro Trafo Administradora de Bens S.A., which determine taxable profit as a percentage of gross sales. Provision for income tax was set up at the rate of 15%, plus 10% surtax, whereas social contribution tax was calculated at 9%, pursuant to current legislation. Provision for taxes of foreign companies is set up according to each country’s legislation. Reconciliation of income and social contribution taxes: Income before income taxes Nominal rate IRPJ and CSLL at nominal rate 09/30/11 COMPANY 09/30/10 CONSOLIDATED 09/30/11 09/30/10 431,966 34% 377,340 34% 554,075 34% 522,822 34% (146,868) (128,296) (188,386) (177,759) 129,912 15,844 (166) 126,983 1,904 343 (329) 1,771 22,709 47,916 5,485 (1,783) (4,746) 15,613 34,786 (2,099) (1,278) (1,355) 77 934 64 870 (110,834) (136,398) 25,564 (135,988) (116,719) (19,269) Adjustments to calculate effective income and social contribution taxes: Investments in subsidiaries Difference in tax rates on income abroad Tax incentives Interest on equity capital Other adjustments IRPJ and CSLL on income Current tax Deferred tax 22. Pension plan The Company and its subsidiaries are sponsors of WEG Seguridade Social – Pension Plan, whose main objective is to supplement the official pension plan provided by the social security system. This plan, administered by WEG Seguridade Social, provides the benefits of monthly income, sickness allowance supplementation, disability retirement supplementation, lump sum payment due to disability, death benefit, lump sum payment due to death, deferred proportional benefit and self-sponsorship. The number of participants at September 30, 2011 is of 19,679 (17,929 at September 30, 2010). The Company and its subsidiaries made contributions amounting to R$ 13,590 until September 2011 (R$ 12,010 until September 2010). Based on actuarial calculations made by independent actuaries, according to procedures established by CVM Rule No. 371/2000, no significant net actuarial liability was identified. 23. Insurance coverage The WEG Group is continuously working on identification, analysis and management of risks, both in Brazil and in foreign subsidiaries, seeking the best way to manage the risk transfer, absorption or sharing in the global insurance and reinsurance markets. One of the tools used in this risk analysis process is risk inspection conducted annually in all production units and some sales offices of the WEG Group. When necessary, WEG is assisted by external consulting firms in identifying and managing risk. The business unit in Brazil is responsible for managing the insurance portfolio of the WEG Group in Brazil and abroad, and it Page 43 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Notes to Financial Statements continuously prepares, together with the executive committee, risk policies for the WEG Group in order to protect its assets. The risk analysis assumptions adopted, given their nature, are not part of the scope of the audit of financial statements, and were therefore not examined by our independent auditors. In 2010, the Company began the process of implementation of the Worldwide Insurance Program (WIP), whereby local insurance policies will be replaced by worldwide policies, in compliance with the laws and standards effective in each country. Some of the worldwide insurance policies successfully implemented by the WEG Group are highlighted below: Transportation risk (export, import and domestic), civil liability for products, civil liability for management (D&O), surety bond and general civil liability. The above program should be completed by mid-2012, when all local policies will have been replaced by worldwide policies, and risk management of the Group will be aligned and in conformity with the risk management policy outlined by the WEG Group's executive board. Insurance policies are issued only by multinational first-tier insurance companies that are able to provide services to the WEG Group in all countries where it operates. The financial strength and sustainability of these insurance companies are continuously monitored by the corporate unit in Brazil. Some of our policies and related capital are shown below: • Operating risks (assets): R$ 70 million; • Loss of profits: R$ 20 million; • Civil liability: USD 25 million; • Civil liability - products: USD 100 million; • Transportation: USD 4 million per shipment (export and import) and R$ 6 million (domestic). 24. Financial instruments In compliance with CVM Rule No. 604, of November 19, 2009, which approved Accounting Pronouncements CPC 38, CPC 39 and CPC40 and OCPC 03, of November 19, 2009, which revoked CVM Rule No. 566, of December 17, 2008, the Company and its subsidiaries carried out an assessment of their financial instruments, including derivatives, recorded in the financial statements at September 30, 2011, presenting the following book and market values: BOOK VALUE 09/30/11 12/31/10 Cash and banks Short-term investments: - In local currency: - In foreign currency: - NDF – Non Deliverable Forwards Trade accounts receivable Trade accounts payable Loans and financing: - In local currency - In foreign currency NDF – Non Deliverable Forwards MARKET VALUE 09/30/11 12/31/10 104,334 53,971 104,334 53,971 3,192,116 19,258 4,126 1,162,056 317,125 2,454,303 44,722 1,044,712 242,300 3,192,116 19,258 4,126 1,162,056 317,125 2,454,303 44,722 1,044,712 242,300 2,060,800 1,227,932 255 1,686,288 732,655 2,367 2,060,800 1,227,932 255 1,686,288 732,655 2,367 Page 44 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Notes to Financial Statements Risk factors of the financial instruments are primarily related to: (i) Financial risks Foreign currency risks The Company conducts export and import operations in several currencies and manages and monitors financial exposure, with a view to balancing its financial assets and liabilities within the limits set out by management. The financial exposure limit (balance sheet) corresponds to four months of revenue in foreign currency, as defined by the Company’s Board of Directors. The Company conducted exports in the amount of US$ 605.4 million up to September 30, 2011, representing a natural hedge (US$ 451.6 million up to September 30, 2010). Risk of debt charges These risks derive from the possibility of the subsidiaries incurring losses on account of fluctuations in interest rates or other debt indices, which increase financial expenses related to loans and financing raised in the market, or reduce interest income of subsidiaries. The Company continuously monitors market interest rates in order to assess the need for protection against risk of volatility of such rates. Derivative financial instruments The Company only conducts operations with Non Deliverable Forward (NDF) derivative financial instruments at September 30, 2011, in the notional amount of: a) US$ 16.7 million, held by the foreign subsidiary Zest Electric Motors (Proprietary) Limited, for the purpose of protecting its import operations against risks of exchange rate fluctuations; and b) US$ 10.0 million, held by the subsidiary WEG Equipamentos Elétricos S.A., for the purpose of protecting export prepayment contracts to be disbursed in future dates against risks of exchange rate fluctuations. Management of the Company and its subsidiaries permanently monitor derivative financial instruments engaged through their internal controls. The sensitivity analysis table should be read in conjunction with other financial assets and liabilities denominated in foreign currency existing at September 30, 2011, as the effect of the estimated impacts of exchange rates on NDFs presented below will be offset, if effected, in whole or in part, against devaluations of all assets and liabilities. In preparing the table below, management defined that exchange rates used for MTM of financial instruments should be considered for the probable scenario (market value), valid at September 30, 2011. Such rates represent the best estimate of future behavior of prices and the value by which positions could be settled at the maturity. Unrealized gains and losses on derivative operations are recorded as loans and financing (losses) or short-term investments (gains), against foreign exchange gains (losses) in P&L. The table below presents the effect of “cash and expense” effects of the results of financial instruments in each of the scenarios in reais. Risk Fall in US$ Increase in US$ Counterparty First National Bank Bradesco Notional value Market value at 09/30/11 Amount in Average quote R$ US$ 16.7 million US$ / ZAR 8.1775 4.126 Possible scenario – 25% Remote scenario – 50% Amount in Amount in Average quote R$ Average quote R$ US$ / ZAR 6.1332 (7.824) US$ / ZAR 4.0888 (15.648) US$ 10,0 million US$ / R$ 1.8898 US$ / R$ 2.3522 (255) (4.724) US$ / R$ 2.8347 (9.449) Page 45 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Notes to Financial Statements The recording was based on the market price at September 30, 2011 on an accrual basis. Such operations had a positive net impact at September 30, 2011 of R$ 6,349, recognized as financial income. The Company does not have margins given in guarantee for derivative financial instruments outstanding at September 30, 2011. (ii) Operating risks Credit risk Credit risk arises from the possibility of the subsidiaries not receiving amounts from sales operations or credits held with financial institutions resulting from short-term investments. To mitigate the risk arising out of sales operations, the Company’s subsidiaries adopt the practice of analyzing the financial position of their customers, establishing a credit limit and constantly monitoring their debt balances. In connection with financial institutions, the Company and subsidiaries only invest in low credit risk institutions. 25. Government subsidies and assistance The Company was granted subsidies in the amount of R$ 1,570 arising from tax incentives, recognized in P&L for the period: a) WEG Amazônia S.A. - ICMS incentive credit of 90.25% - 75% reduction in IRPJ 1,104 857 247 b) WEG Linhares S.A. - ICMS incentive credit of 90.25% 466 466 26. Segment information Management has defined operating and geographic segments of the Company based on reports used internally to make strategic business decisions. The Company's management is structured and systematized with information on operations, considering the segments of industry, energy, overseas and consolidated. Brazil Revenue from sale of products and/or services Income before income taxes Depreciation/amortization/depletion Identifiable assets Identifiable liabilities Industry 09/30/11 09/30/10 2,256,102 1,903,081 575,410 513,083 89,212 84,534 09/30/11 12/31/10 2,640,848 2,514,308 576,355 515,647 Energy 09/30/11 09/30/10 936,410 895,197 178,825 241,005 30,676 36,805 09/30/11 12/31/10 1,228,753 1,210,811 369,013 324,043 Eliminations and adjustments Overseas 09/30/11 1,391,716 79,716 19,505 09/30/11 1,408,010 284,779 09/30/10 985,979 44,624 14,581 12/31/10 1,171,664 275,180 09/30/11 (863,370) (279,876) 09/30/11 (179,608) (163,615) 09/30/10 (650,713) (275,890) 12/31/10 (184,664) (171,627) Consolidated 09/30/11 3,720,858 554,075 139.393 09/30/11 5,098,003 1,066,532 09/30/10 3,133,544 522,822 135.920 12/31/10 4,712,119 943,243 Industry: three phase and single phase motors of low and average voltage, drives & controls, industrial automation equipment, paints and varnish. Energy: electric generators for hydraulic and thermal power plants (biomass), hydro turbines (PCH – small hydroelectric plants), transformers, substations, control panels and system integration services. Overseas: Consists of operations conducted through subsidiaries located in several countries. The column of eliminations and adjustments includes eliminations applicable to the Company in the context of consolidated financial statements under IFRS. Page 46 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Notes to Financial Statements All operating assets and liabilities are presented as identifiable assets and liabilities. 27. Earnings per share - base and diluted The Company presents the same value of base and diluted profit since it does not have potentially diluting common shares: Profit attributable to the Company shareholders Weighted average number of common shares held by shareholders (shares/thousand) Earnings per share - base and diluted - R$ 09/30/11 430,688 620,405 0.6942 09/30/10 378,274 620,905 0.6092 28. Statement of comprehensive income The cumulative translation adjustments are presented as other comprehensive income. These amounts are not subject to taxation. The presentation of the statement of comprehensive income is required by CPC 26 - Presentation of Financial Statements, and includes other comprehensive income, corresponding to revenues and expenses not recognized in the income statement, as required or permitted by the pronouncements, interpretations and guidance issued by Brazilian FASB (CPC). Page 47 of 48 ITR – Quarterly Information – 09/30/2011 – WEG S.A. Version 1 Opinions and statements / Special Review Report - Unqualified The Shareholders and Board of Directors WEG S.A. Jaraguá do Sul, SC Introduction We have reviewed the interim, individual and consolidated financial information of WEG SA, contained in the Quarterly Information Form - ITR for the quarter ended September 30, 2011, which comprises the balance sheet and related income statement and statement of comprehensive income for the quarter and nine month period then ended, and the statements of changes to equity and cash flows statements for the nine month period then ended, including the resume of the principals accounting policies and other explanatory notes. Management is responsible for the preparation of the interim individual financial information in accordance with CPC 21 – Interim Financial Reporting, and of the interim consolidated financial information in accordance with CPC 21 and with IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), as well as for the fair presentation of this information in conformity with the standards issued by the Brazilian Securities and Exchange Commission (CVM) applicable to the preparation of Quarterly 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 Engagements (NBC TR 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, 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 International 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 individual interim financial information Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim individual financial information included in the quarterly information referred to above is not fairly presented, in all material respects, in accordance with CPC 21 applicable to the preparation of quarterly information (ITR) and presented consistently with the standards issued by the Brazilian Securities and Exchange Commission (CVM) applicable to quarterly information. 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 interim consolidated financial information included in the quarterly information referred to above is not fairly presented, in all material respects, in accordance with CPC 21 and IAS 34 applicable to preparation of quarterly information (ITR) and presented consistently with the standards issued by the Brazilian Securities and Exchange Commission (CVM) applicable to quarterly information. Other matters Interim statements of value added We have also reviewed the individual and consolidated interim statements of value added for the nine-month period ended September 30, 2011, prepared under administration responsability whose presentation in the interim financial information is required by rules issued by the Brazilian Securities and Exchange Commission (CVM) applicable to preparation of quarterly information (ITR), and as supplementary information under IFRS, which do not require SVA presentation. These statements were submitted to the same review procedures described above and, based on our review, we are not aware of any facts that would lead us to believe that they are not presented fairly, in all material respects, in accordance with the overall individual and consolidated interim financial information. Blumenau (SC), October 14, 2011. ERNST & YOUNG TERCO Auditores Independentes S.S. CRC-2-SP 015.199/O-6 F- SC Marcos Antonio Quintanilha Accountant CRC-1-SP 132.776/O – 3 -T - SC Page 48 of 48
