BNDES Participações S.A. BNDESPAR (Convenience Translation into English from the Original Previously Issued in Portuguese) Financial Statements for the Years Ended December 31, 2011 and 2010 and Independent Auditor’s Report Deloitte Touche Tohmatsu Auditores Independentes (Convenience Translation into English from the Original Previously Issued in Portuguese) BNDES PARTICIPAÇÕES S.A. - BNDESPAR BALANCE SHEETS AS AT DECEMBER 31 (In thousands of Brazilian reais – R$) Note 2011 2010 2,662,137 2,928,994 1,126,479 6 1,126,473 CURRENT ASSETS CASH AND CASH EQUIVALENTS Cash and cash equivalents Banco do Brasil’s exclusive funds 5 6.4 217,630 34 217,596 SECURITIES Designated debentures Shares and subscription bonus Derivatives 6 6.3 9.1 20 282,358 3,907 132,946 145,505 182,221 260 81,464 100,497 2,162,149 226,132 (15,039) 9,347 (2,147) 1,137,629 375,404 428,479 2,344 1,620,294 236,147 (541) 67,915 (1,219) 725,545 261,359 328,097 2,991 OTHER RECEIVABLES Credit sale of securities Allowance for losses - credit sale of securities Receivables Allowance for losses - receivables Dividends and interest on capital receivable 7 7.3 7 7.3 8 12.1 Recoverable and prepaid taxes Escrow deposits Other 107,996,146 NONCURRENT ASSETS 6 6.3 6.3.3 6.3 6.3.4 9.1 6.5 20 SECURITIES Loans and receivables – simple debentures Allowance for credit risk – simple debentures Designated debentures Debentures available for sale Shares and subscription bonus Investment fund shares Derivatives OTHER RECEIVABLES Credit sale of securities Allowance for losses - credit sale of securities Receivables Allowance for losses - receivables Tax credits Tax incentives Dividends and interest on capital receivable 86,015,375 2,844,124 (12,794) 10,063,285 340,129 70,229,043 2,124,340 427,248 104,463,409 1,058,443 (342) 12,044,076 89,167,652 2,022,829 170,751 2,648,579 1,137,683 (75,663) 37,232 (8,553) 715,394 181,781 660,705 4,789,645 1,135,545 (2,603) 1,608,348 (28,877) 651,140 242,244 1,183,848 7 7.3 7 7.3 12.2 8 9.2 INVESTMENTS Investments in associates TOTAL ASSETS 19,332,192 19,332,192 13,641,374 13,641,374 110,658,283 125,823,422 The accompanying notes are an integral part of these financial statements. 3 122,894,428 (Convenience Translation into English from the Original Previously Issued in Portuguese) BNDES PARTICIPAÇÕES S.A. - BNDESPAR BALANCE SHEETS AS AT DECEMBER 31 (In thousands of Brazilian reais – R$) Note CURRENT LIABILITIES 2011 2010 2,402,600 3,201,313 PAYABLES RELATED TO ISSUED DEBENTURES 11 955,897 306,224 ONLENDINGS BNDES 10 10 46,106 46,106 872,280 872,280 1,400,597 982,544 128,291 43,331 3 4,969 6,172 13,151 96,338 125,798 2,022,809 983,048 349,295 33,500 5,830 4,186 5,326 7,531 483,569 150,524 27,485,043 36,120,164 OTHER PAYABLES Dividends Taxes on income Other taxes Provision for labor and civil lawsuits Actuarial liability - FAMS Accounts payable - FAPES Provision for employee termination program Derivatives Other 14 12.1 13 17 17 19 20 NONCURRENT LIABILITIES PAYABLES RELATED TO ISSUED DEBENTURES 11 4,822,300 5,693,542 ONLENDINGS BNDES National Treasury 10 11,588,225 8,703,375 2,884,850 13,403,679 10,819,150 2,584,529 OTHER PAYABLES Accounts payable - FAPES Actuarial liability - FAMS Provision for employee termination program Provision for labor and civil lawsuits Deferred taxes 17 17 19 13 12.2 11,074,518 118,366 132,287 562,234 10,261,631 17,022,943 114,030 113,705 12,226 535,027 16,247,955 SHAREHOLDERS' EQUITY 14 80,770,640 86,501,945 57,428,861 2,947,631 92,993 3,205,307 1,299,469 226,021 1,679,817 17,095,848 16,816,716 279,132 46,304,356 5,124,505 92,993 5,776,729 1,084,074 191,649 1,551,864 2,949,142 29,203,362 29,414,287 (210,925) Capital Capital increase in progress Capital reserve Earnings reserves Legal reserve Tax incentive Reserve for compliance with accounting policies Additional proposed dividends Valuation adjustments to equity Own assets Associates’ assets 110,658,283 TOTAL LIABILITIES The accompanying notes are an integral part of these financial statements. 4 125,823,422 (Convenience Translation into English from the Original Previously Issued in Portuguese) BNDES PARTICIPAÇÕES S.A. - BNDESPAR INCOME STATEMENTS FOR THE YEARS ENDED DECEMBER 31 (In thousands of Brazilian reais – R$) Note OPERATING REVENUES EQUITY INTERESTS Equity in investees Income from sales of variable income securities Gains (losses) on derivatives Interest on capital Dividends 9 FINANCIAL TRANSACTIONS Loans Securities Fixed income securities Interest on cash and cash equivalents Gains (Losses) on disposal of fixed income securities OPERATING EXPENSES EQUITY INTERESTS 9 Equity interest expenses Recognition of allowance for losses in permanent investments Expenses on acquisition of equity interests FINANCIAL TRANSACTIONS Financial charges on payables: . Issued debentures . BNDES . National Treasury Reversal of allowance for losses 15 16 OTHER OPERATING INCOME/EXPENSES Tax expenses Officers’ compensation Personnel expenses Provision for civil and labor lawsuits Inflation adjustment of assets and liabilities, net - SELIC Administrative expenses Other 2011 8,624,157 8,239,148 7,216,892 1,923,733 1,705,143 (23,485) 2,440,348 1,171,153 6,835,684 1,240,776 3,014,903 351,346 1,593,457 635,202 1,407,265 201,757 1,225,374 (31,885) 12,019 1,403,464 157,373 819,440 4,280 (122,084) 544,455 (2,454,739) (2,654,275) (762,116) (710,498) (50,143) (1,475) (975,617) (801,427) (174,188) (2) (1,692,623) (1,678,658) (682,370) (1,112,799) (300,320) 402,866 (491,093) (992,542) (230,010) 34,987 (610,080) (257,439) (442) (277,852) (21,519) 66,544 (111,097) (8,275) (380,222) (167,046) (409) (281,471) 1,685 146,326 (77,863) (1,444) 5,559,338 INCOME BEFORE TAXES ON INCOME 12 12 12 Income tax Social contribution tax Deferred taxes (577,456) (202,631) (439,079) 4,340,172 INCOME BEFORE PROFIT SHARING Profit sharing (32,277) NET INCOME EARNINGS PER SHARE - R$ 5,204,651 (958,430) (369,581) (161,406) 3,715,234 (46,199) 4,307,895 3,669,035 4,307,895,000 3,669,035,000 The accompanying notes are an integral part of these financial statements. 5 2010 (Convenience Translation into English from the Original Previously Issued in Portuguese) BNDES PARTICIPAÇÕES S.A. - BNDESPAR STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31 (In thousands of Brazilian reais – R$) 2011 2010 4,307,895 3,669,035 (12,037,932) (4,078,820) (172,743) - 10,708 (149) Realization of adjustment at fair value of securities - own, net of tax effetcs (3) (386,896) (1,159,919) Cumulative translation adjustment of associates (4) (196,403) (36,499) 675,752 335,285 (7,799,619) (1,271,067) Net income Adjustment at fair value of securities available for sale - own, net of tax effects (1) Adjustment at fair value of financial instruments, net of tax effects (2) Adjustment at fair value of securities available for sale of associates Other comprehensive income of associates (4) Total comprehensive income (loss) (1) R$6,201,359 thousand as at December 31, 2011 and R$2,101,210 thousand as at December 31, 2010 (2) R$88,988 thousand as at December 31, 2011 (3) R$199,310 thousand as at December 31, 2011 and R$597,534 thousand as at December 31, 2010 (4) Includes the effects from prior-years adjustments, in the amount of R$(198,449) thousand as at December 31, 2010. The accompanying notes are an integral part of these financial statements. 6 (Convenience Translation into English from the Original Previously Issued in Portuguese) BNDES PARTICIPAÇÕES S.A. - BNDESPAR STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2011 (In thousands of Brazilian reais – R$) Capital Increase in progress Capital st Capital Reserve Tax Incentive Reserve Tax Incentive Reserve Legal Reserve 1,084,074 191,649 Earnings reserves Reserve for compliance with accounting policies As at January 1 , 2011 46,304,356 5,124,505 92,993 Capital increase (Note 14) 11,124,505 (5,124,505) - - - 1,551,864 - Valuation adjustments to equity Additional proposed dividends Of Own assets 2,949,142 - 29,414,287 (210,925) - 86,501,945 - - 6,000,000 - - - (2,949,142) - (12,107,514) - - - - - - Valuation adjustments to equity - - - - - - - Net income - - - - - - - - - 4,307,895 Allocation of net income . Legal reserve . Reserve for compliance with accounting policies . Tax incentive . Dividends . Capital Increase - - - (215,395) (127,953) (34,372) (982,544) (2,947,631) As at December 31, 2011 57,428,861 - 2,947,631 92,993 215,395 - 34,372 - 127,953 - - 1,299,469 226,021 1,679,817 - The accompanying notes are an integral part of these financial statements. 7 Total - Dividends - 2010 2,947,631 (2,949,142) Retained earnings Of Associates (12,597,571) 16,816,716 490,057 279,132 - 4,307,895 (982,544) 80,770,640 (Convenience Translation into English from the Original Previously Issued in Portuguese) BNDES PARTICIPAÇÕES S.A. - BNDESPAR STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2010 (In thousands of Brazilian reais – R$) Capital Increase in progress Capital st As at January 1 , 2010 30,704,356 Capital increase 15,600,000 5,124,505 Capital Reserve Tax Incentive Reserve 92,993 Tax Incentive Reserve Legal Reserve 793,454 Earnings reserves Reserve for compliance with accounting policies 153,918 Valuation adjustments to equity Additional proposed dividends Of Own assets - - - - - - - - Valuation adjustments to equity - - - - - - - Net income - - - - - - - Allocation of net income . Legal reserve . Reserve for compliance with accounting policies . Tax incentive . Dividends . Additional proposed dividends - - - As at December 31, 2010 46,304,356 5,124,505 92,993 290,620 - 37,731 - 1,551,864 - 2,949,142 1,084,074 191,649 1,551,864 2,949,142 The accompanying notes are an integral part of these financial statements. 8 Retained earnings Of Associates 34,677,427 (335,515) (5,263,140) 124,590 2,143,370 15,600,000 - (5,138,550) - 3,669,035 - - (290,620) (1,551,864) (37,731) (983,048) (2,949,142) (210,925) 73,354,508 - - 29,414,287 Total - 3,669,035 (983,048) 86,501,945 (Convenience Translation into English from the Original Previously Issued in Portuguese) BNDES PARTICIPAÇÕES S.A. - BNDESPAR STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 (In thousands of Brazilian reais – R$) 2011 2010 4,307,895 737,296 3,669,035 (200,486) Reversal of the allowance for impairment losses Recognition (reversal) of provisions for labor and civil contingencies Equity in associates Adjustments to fair value of securities Adjustment at fair value on exchange of shares Adjustment of debt from issued debentures Depreciation Gain or loss on investments sales Realization of valuation adjustments to equity Recognition of the provision for current and deferred income tax and social contribution, net Recognition of the allowance for investment losses Gain (loss) on derivatives (402,866) 21,519 (1,213,235) 712,221 (357,293) 680,447 8,190 (4,481) 1,219,166 50,143 23,485 (34,987) (1,685) (439,349) 330,618 479,673 6,358 (1,056,349) 692,393 174,188 (351,346) Changes in assets and liabilities . Decrease in receivables from credit sale of securities and other receivables, net . Increase in securities, net . Increase in other assets, net . Increase (decrease) in borrowings and onlendings, net . Increase in other liabilities, net . Dividends and interest on capital of associates received . Interest on borrowings and onlendings . Income tax and social contribution paid (306,311) 2,108,589 (4,976,100) (553,781) 3,399,660 (311,463) 553,175 (41,288) (485,103) (6,804,561) 367,223 (4,106,090) (747,248) (1,684,955) 91,222 495,108 (79,778) (1,140,043) Net cash provided by (used in) operating activities 4,738,880 (3,336,012) Cash flows from investing activities . Sale of investments . Purchase of investments 15,882 (720,406) 1,565,129 (33,428) Net cash provided by (used in) investing activities (704,524) 1,531,701 Cash flows from financing activities . Repayment of debt from debentures issued . Issuance of debentures . Dividends paid Net cash provided by (used in) financing activities (902,015) (4,041,190) (4,943,205) (104,156) 2,025,000 (934,944) 985,900 (908,849) (818,411) Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by (used in) operating activities: Decrease in cash and cash equivalents Changes in financial position At the beginning of the year Cash and cash equivalents balance (1) 1,126,479 1,126,479 1,944,890 1,944,890 At the end of the year Cash and cash equivalents balance (1) 217,630 217,630 1,126,479 1,126,479 Decrease in cash and cash equivalents (908,849) (818,411) Non-cash transactions (Note 24) . Capital increase . Financed acquisition of securities 6,000,000 - 15,600,000 22,408,490 (1) Includes Cash and cash equivalents and Banco do Brasil exclusive investment fund shares The accompanying notes are an integral part of these financial statements. 9 (Convenience Translation into English from the Original Previously Issued in Portuguese) BNDES PARTICIPAÇÕES S.A. - BNDESPAR STATEMENTS OF VALUE ADDED FOR THE YEAR ENDED DECEMBER 31 (In thousands of Brazilian reais – R$) 2011 2010 REVENUES Financial transactions Other operating income Reversal (recognition) of the allowance for losses 3,528,539 1,407,265 1,718,408 402,866 4,951,014 1,072,847 3,843,180 34,987 EXPENSES Financial transactions Other expenses 2,097,041 2,095,489 1,552 1,743,486 1,713,645 29,841 131,414 8,743 72,528 50,143 205,268 10,443 50,430 144,395 1,300,084 3,002,260 8,190 8,190 6,358 6,358 1,291,894 2,995,902 4,824,736 1,213,235 3,611,501 2,668,008 439,349 2,228,659 6,116,630 5,663,910 INPUTS PURCHASED FROM THIRD PARTIES Materials, electric power and other Outside services Loss of assets GROSS VALUE ADDED RETENTIONS Depreciation WEALTH CREATED BY THE ENTITY WEALTH RECEIVED IN TRANSFER Equity in associates Dividends and interests on capital WEALTH FOR DISTRIBUTION WEALTH DISTRIBUTED Employees and related taxes - Direct compensation - Benefits - FGTS - Others Taxes and contributions - Federal - Municipal Rental Dividends Retained earnings 6,116,630 269,750 167,944 79,606 17,951 4,249 1,517,426 1,515,552 1,874 21,559 982,544 3,325,351 100.0% 4.4% 24.8% 0.4% 16.1% 54.3% The accompanying notes are an integral part of these financial statements. 10 5,663,910 287,167 166,120 99,440 17,365 4,242 1,697,122 1,695,154 1,968 10,586 983,048 2,685,987 100.0% 5.1% 30.0% 0.2% 17.4% 47.3% BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2010 and 2011 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) 1. General Information 1.1) History BNDES Participações S.A. (“Company”) is a publicly-held company headquartered in Brasilia, Federal District, Setor Comercial Sul, BNDES Building, Group 1, Block “J”, 12th and 13th floor. It was organized in 1982 and is a wholly-owned subsidiary of Banco Nacional de Desenvolvimento Econômico e Social (BNDES). Its operations are based on the strategic guidelines established together with the BNDES and directed towards supporting capitalization and development of local companies, which is achieved basically by holding noncontrolling and temporary interest and strengthening and modernizing the securities market. On January 13, 1998, BNDESPAR obtained the publicly-held company registration from the Brazilian Securities and Exchange Commission (CVM), enabling it to trade its own securities in the organized over-the-counter market. 1.2) Current purposes • • • • • • 2. Strengthen corporate capital structures and support new investments in the economy; Support industrial restructuring through mergers and acquisitions; Support the development of emerging companies; Support the development of small and medium-sized businesses; Develop private equity funds industry; and Contribute to the development of capital markets. Basis of Preparation and Presentation of Financial Statements The financial statements of BNDESPAR have been prepared in accordance with Brazilian Corporate Law, with the pronouncements, interpretations and guidelines issued by the Accounting Pronouncements Committee, with the standards established by the Brazilian Securities and Exchange Commission (CVM) and, when applicable, with the standards followed by its controlling shareholder, the Banco Nacional de Desenvolvimento Econômico e Social (BNDES). These financial statements were approved by the Board of Directors on February 7, 2012. 11 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) 3. Summary of significant accounting policies The main accounting practices used in the preparation of these financial statements are defined below. These policies have been applied consistently over all reported periods, except as otherwise indicated. 3.1) Basis of presentation The financial statements have been prepared based on the historical cost, except for financial assets available for sale and financial assets and liabilities (including derivatives) measured at fair value through profit or loss, which were measured at fair value. The preparation of the financial statements in accordance with Brazilian Corporate Law requires the adoption of certain accounting estimates by Management. The areas involving the judgment or use of estimates that are relevant to the financial statements are stated in Notes 6.3, 7.3, 9.3 and 13. 3.2) Investments in associates Associates are all entities in which BNDESPAR has the power to take part in the investee’s financial and operational decisions, without individually or jointly controlling these policies. Significant influence is presumed when BNDESPAR holds 20% or more of the investee’s voting capital. However, this presumption of influence is ignored when BNDESPAR does not take part in the investee’s decisions, although it holds 20% or more of the voting capital. Management understands that certain equity interests held by BNDESPAR representing over 20% of voting capital does not give significant influence on such entities mainly because BNDESPAR does not participate in the preparation of the investee’s operational and financial policies. On the other hand, Management understands that BNDESPAR exercises significant influence in entities in which it holds less than 20% of the voting capital since it influences the operational and financial policies of these entities. Investments in associates are recorded under the equity method and initially recognized at cost and their carrying amount will be increased or decreased based on the recognition of BNDESPAR's share in the investees’ changes in equity following the acquisition. BNDESPAR’s share in the profits or losses of its associates is recognized in the income statement and its share in their other comprehensive income (loss) is recognized directly in shareholders' equity. With respect to the adoption of the Equity Method of Accounting, BNDES uses the associates’ financial statements ended 60 (sixty) days in advance, as prescribed by the Brazilian Corporate Law and based on the accounting pronouncements, because of the impossibility to use the financial statements on the same reporting date. This occurs 12 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) because the associates are not part of the BNDES System, with non-integrated accounting, which requires time for closing purposes; therefore, information cannot be provided on a timely basis. For those cases in which BNDESPAR’s share in the losses of an associate is equivalent to or greater than the carrying amount of the investment, including any long-term assets which, in the essence, are part of the investment in the associate, BNDESPAR does not recognize additional losses, unless it had assumed legal or constructive (not formalized) obligations to make the payments on behalf of the associate. The associates’ financial statements were adjusted, when applicable, to ensure the consistency between the accounting practices adopted by the associates and those adopted by BNDESPAR. Gains and losses on dilution of or increase in equity interest are recognized in the income statement when incurred. The investment in associates includes the goodwill calculated on acquisition, less any impairment losses. Goodwill is determined by the difference between the amount paid (or commitment to pay) and the share in the fair value of net acquired assets. The bargain purchase (negative goodwill) determined on the acquisition of an associate is recognized in the income statement on acquisition date. After applying the equity method of accounting, BNDESPAR assesses the need to recognize any additional impairment loss on the total net investment in each associate, including goodwill, if any, by comparing its carrying amount and its recoverable amount (net sales value less the higher of selling costs or value in use). Investments are tested for impairment semiannually or when there is any indication that the investment might be impaired. To determine the recoverable amount, the net sales value of each associate is determined based on a) the trading price on the BM&FBovespa, less probable selling costs, for investments in companies whose shares are listed on stock exchanges; or b) pricing models based on multiples or discounted cash flows, for investments in companies whose shares are not listed on stock exchanges. The value in use is determined by calculating the present value of expected earnings (dividends and interest on capital), plus the expected residual value for future sale of the associate. The associates' summarized financial information recorded under the equity method is presented in Note 9. There is no significant restriction that could limit the ability of the associates to transfer funds to BNDESPAR as dividends or make payments of loans and/or advances. 13 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) 3.3) Operating segments Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker, responsible for the allocation of funds and evaluation of performance of operating segments, represented by Management. 3.4) Translation of foreign currency-denominated balances (a) Functional and presentation currency The financial information was prepared based on the functional currency, which is the currency of the main economic environment in which BNDESPAR operates. The financial statements are presented in Brazilian reais, which is the Company’s functional and reporting currency. (b) Transactions and balances Foreign currency-denominated transactions are recorded, upon initial recognition, at the Company’s functional currency, subject to the spot foreign exchange rate between the functional currency and foreign currency on the transaction date. Exchange rate changes arising from the settlement of these transactions and the translation of the monetary assets and liabilities into foreign currencies at closing exchange rates are recognized as gain or loss in the income statement. 3.5) Financial assets 3.5.1) Classification BNDESPAR classifies its financial assets in the following categories: measured at fair value through profit or loss, loans and receivables, held-tomaturity and available-for-sale. The classification depends on the purpose for which the financial assets have been obtained. Management determines the classification of its financial assets upon initial recognition and revaluates this classification at the six-month period or annual balance sheet dates. (a) Financial assets measured at fair value through profit or loss This category includes financial assets held for trading and those classified, upon the initial recognition, as measured at fair value through profit and loss (fair value option). The financial assets are classified as held for trading when they are acquired for such purpose, mainly in the short term (this category includes 14 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) mainly government securities and derivatives); or, upon initial recognition, when they are part of a portfolio of identified financial instruments collectively managed by the Company and for which there is a recent actual pattern of short-term profit taking; or when it is a derivative not designated as accounting hedge instrument. A financial asset other than those held for trading can be stated at fair value through profit or loss upon initial recognition if: • This designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or • The financial asset is part of a group of financial assets, financial liabilities or both and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy of BNDESPAR, and information about the group is provided internally on that basis; or • It is part of a contract containing one or more embedded derivatives, and CPC 38 - Financial Instruments: Recognition and Measurement permits that the combined contract as a whole (assets or liabilities) be designated at fair value through profit or loss. Financial assets at fair value through profit or loss are stated at fair value and any gains or losses are recognized in the income statement. Net gains or losses recognized in income statement include dividends or interest earned by the financial asset, and are included under caption “Other gains and losses” in the income statement. BNDESPAR elected to state the following financial instrument at fair value through profit or loss: Debentures with option for conversion or exchange into shares A portion of the portfolio of debentures held by BNDESPAR has embedded derivatives (option for conversion or exchange into shares) which significantly affect its cash flows. For some debentures with option for conversion or exchange, BNDESPAR understands that it is not possible to measure the embedded derivative separately. Accordingly, the Company opted for the designation on transition date and upon initial recognition, when applicable, at fair value through profit or loss of these debentures as a whole, without segregating embedded derivatives. 15 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) (b) Loans and receivables Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are measured at amortized cost using the effective interest method, less the allowance for impairment losses. Interest income is recognized by applying the effective interest rate, except for short-term receivables, when the recognition of interest is immaterial. They are classified as current assets, except those with maturities exceeding 12 months after the balance sheet date, which are classified as noncurrent assets. BNDESPAR’s loans and receivables comprise sales in installments of securities, receivables and simple debentures. In BNDESPAR, sales in installments of securities, receivables and simple debentures represent financial support and are classified in accordance with Management’s judgment in terms of risk level, considering the economic scenario, past experience and specific risks related to the transaction, borrowers and guarantors. (c) Held-to-maturity financial assets Correspond to non-derivative financial assets with fixed or determinable payments, with defined maturities, for which Management has the positive intent and ability to hold to maturity. Held-to-maturity investments are recorded at amortized cost under the effective interest rate method, less impairment losses, when applicable, and revenues are recognized based on effective compensation. (d) Available-for-sale financial assets Correspond to non-derivative financial assets held for an indefinite period which may be sold in response to liquidity requirements or changes in interest rates, exchange rates or stock prices. They are classified as noncurrent assets, unless Management intends to dispose of the investment within up to 12 months after the balance sheet date. This category is mainly comprised of government securities, investment fund units and shares issued by publicly traded or not publicly traded companies. 16 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) Gains and losses arising from the changes in the fair value are recognized in other comprehensive income, under “Valuation adjustments to equity”, net of taxes, except for impairment losses, interest calculated based on the effective interest rate method and exchange gains and losses on monetary assets, which are recognized directly in the income statement. When the investment is sold or is impaired, the gain or loss previously recorded under “Valuation adjustments to equity” is reclassified to the income statement. Dividends on available-for-sale equity instruments are recognized in income statement when BNDESPAR has the right to receive them. 3.5.2) Initial recognition and measurement The financial assets are recognized when BNDESPAR becomes a party to the underlying contracts. All financial assets are initially recognized on the transaction date, when BNDESPAR agrees to purchase or sell the instrument, except for loans, advances and regular purchase and sale transactions which require delivery on the date established based on market practices which is recognized as the settlement date. The financial assets measured at fair value through profit or loss are initially measured at fair value and the related transaction costs and origination revenues are directly recorded in the income statement. The other financial assets are originally measured at fair value, plus transaction costs and origination revenues. 3.5.3) Subsequent measurement Financial assets classified as available for sale and as measured at fair value through profit or loss are subsequently measured at fair value. Financial assets classified as loans and receivables and held to maturity are measured at amortized cost based on the effective interest rate method. The effective interest rate method is used to calculate the amortized cost of a financial asset or liability and allocate interest income or expense in the proper accrual period. The effective interest rate is the discount rate applied on future payments or receipts estimated over the estimated life of the financial instrument. When calculating the effective interest rate, BNDESPAR estimates the cash flows considering all contractual terms of the financial instrument but without taking into account future losses on collection of receivables. The calculation includes possible transaction costs, origination revenues and other premiums or discounts. When the amount of an asset or group of similar financial assets is reduced due to impairment losses, interest income is 17 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) recognized based on the effective interest rate, which is used to discount future cash flows for purposes of measuring impairment. Gains or losses arising from changes in the fair value of financial assets measured at fair value through profit or loss are recorded in the income statement when incurred. Gains or losses arising from changes in the fair value of financial assets classified as available for sale are recognized directly in a specific line item in shareholders’ equity until the financial asset is written off or an allowance for impairment is recognized. In this case, the gain or loss recorded in a specific line item in shareholders’ equity is transferred to income or loss for the period. However, interest calculated based on the effective interest rate method and exchange gains and losses on monetary assets classified as available for sale are recognized in the income statement when they incurred. The dividends on equity instruments classified as available for sale are recognized in income or loss when the entity is eligible for receiving them. 3.5.4) Write off Financial assets are written off when the rights on the receipt of cash flows expire or when BNDESPAR substantially transfers all risks and rewards related to the ownership of a financial asset. 3.5.5) Reclassification of financial assets: (a) From available for sale to held to maturity There is no condition. The reclassification occurs provided that the asset is in accordance with the requirements for classification as held-to-maturity. (b) From held to maturity to available for sale It may occur under rare circumstances, based on specific, unusual, nonrecurring and unexpected reason after the classification date. If a reclassification take place, except for the cases described above, all instruments classified as held to maturity will be reclassified to available for sale. Additionally, new instruments will not be classified under this category during the year of such reclassification and the two subsequent years. 18 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) (c) From held for trading to held to maturity Under rare circumstances and only in cases of assets that are no longer held for trading and comply with the requirements for classification as held to maturity. (d) From held for trading to available for sale Under rare circumstances and only in cases of assets that are no longer held for trading. (e) From held for trading to loans and receivables Under rare circumstances and only in cases of assets that are no longer held for trading and comply with the requirements for classification as loans and receivables. (f) From available for sale to loans and receivables It may occur under rare circumstances and only in cases of assets that are initially designated under this category and comply with the requirements for classification as loans and receivables. BNDESPAR does not reclassify the financial instruments from other categories to held for trading or stated at fair value through profit or loss, as well as it does not reclassify financial instruments initially stated at fair value through profit or loss to another category. There were no reclassifications of financial assets during the period. 3.5.6) Impairment of financial assets (a) Assets stated at amortized cost BNDESPAR assess, at each balance sheet date, the existence of any objective evidence that an asset or a group of financial assets, stated at amortized cost, could be impaired. An asset or group of financial assets is impaired and impairment losses are incurred when there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset ("impairment event") and if this event (or events) has a future impact on the estimated cash flows that can be reliably estimated. 19 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) BNDESPAR considers the following items as objective evidence of impairment: • • • default equal to or greater than 90 days; customer’s bankruptcy or business reorganization; and judicial recovery. Additionally, the following qualitative items should be monitored because they may evidence impairment: • • • • decrease in the risk classification prepared internally; fraud; renegotiation affecting the original cash flow from operating activities (reduction); loss of contractual warranties. The estimated period between the event of loss and its identification is set by Management based on the materiality of the credit, which corresponds to six months for material credits and twelve months for immaterial credits, and any extraordinary event in the market that Management considers as impairment loss on the asset. Firstly, BNDESPAR assess the existence of objective evidence of impairment for financial assets that are individually relevant. If there is no objective evidence of impairment, the financial asset is included in a group of financial assets with similar credit risks and assessed collectively. The assets assessed individually and subject to impairment losses are not included in the collective assessment. The calculation of the present value of estimated future cash flows of financial assets, for which there is a guarantee, reflects the cash flows that might result from the execution of the guarantee, less the costs to obtain and sell the guarantee, if the execution of the guarantee is probable or remote. For purposes of collective impairment evaluation, the financial assets are grouped based on similar credit risk characteristics. The future cash flows of the group of financial assets that are collectively assessed for impairment purposes are estimated based on the contractual cash flows and past losses for those assets with similar credit risk characteristics. The past losses are adjusted to reflect the effects of current conditions which did not affect the period in which the past losses were based and to exclude the effects of conditions in the past period not currently existing. 20 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) The methodology and assumptions used to estimate future cash flows are reviewed by BNDESPAR on a regular basis to reduce any difference between estimated losses and current losses. If impairment losses are reduced in a subsequent period and such reduction is objectively related to an event occurred after the recognition of the impairment loss, the loss previously recognized is reversed with a contra entry to the reduction. The reversal amount is recognized in the income statement. (b) Assets classified as available for sale BNDESPAR determines, at each balance sheet date, the existence of objective evidence that an asset or a group of financial assets available for sale is impaired. With respect to the debt instruments, BNDESPAR adopts the same criteria applicable to financial assets stated at amortized cost. In the case of equity instruments classified as available for sale, in addition to the criteria applicable to financial assets stated at amortized cost, the objective evidence of impairment losses also include the significant or continuing decrease in the fair value of an instrument below its cost. When there is that kind of objective evidence of impairment for available-for-sale financial assets, the accumulated loss - measured as the difference between the acquisition cost and the fair value on the base date, less any impairment loss previously recognized for this financial asset - is transferred from shareholders’ equity to income or loss. The impairment losses recognized in income or loss for an investment in an equity instrument classified as available for sale are not subsequently reversed through profit or loss, while, in the case of a debt instrument, if its fair value increases and such increase relates to an event occurred after the recognition of the impairment loss, this loss is reversed through profit or loss. 3.6) Financial liabilities Financial liabilities are initially recognized at their fair value, plus transaction costs directly attributable to their acquisition or issuance. After initial recognition, the balance is measured at amortized cost using the effective interest rate method. 3.6.1) Classification BNDESPAR classifies its financial liabilities in the following categories: at fair value through profit and loss and at amortized cost. Derivatives are basically measured at fair value through profit or loss. Payable related to debentures issued, borrowings and onlendings and other payables are measured at amortized cost. 21 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) 3.6.2) Initial recognition and measurement The financial liabilities are recognized when BNDESPAR becomes a party to the underlying contracts. The financial liabilities measured at fair value through profit or loss are initially measured at fair value and the related transaction costs are directly recorded in income or loss. The financial liabilities measured at amortized cost are initially measured at fair value, plus/less transaction costs, premiums and discounts. 3.6.3) Subsequent measurement Financial liabilities measured at fair value through profit or loss are subsequently measured at fair value. Financial liabilities measured at amortized cost are subsequently measured at amortized cost based on the effective interest rate method. 3.6.4) Write off Financial liabilities are written off when the related obligations are eliminated, cancelled or terminated. 3.7) Presentation of financial instruments based on the net position of assets and liabilities Financial assets and financial liabilities are recorded in the balance sheet at their net amount only when BNDESPAR has a legally enforceable right and the intent to offset the receivables against the payables and settle them on a net basis or sell the asset and settle the liability simultaneously. 3.8) Derivatives BNDESPAR, when applicable, uses derivatives for hedge purposes in order to adjust its composition of financial assets and financial liabilities, manage the profile of products and fulfill other purposes in line with its institutional goals, seeking to obtain financial management efficiency. BNDESPAR does not use derivatives for speculative purposes which would intentionally generate unsecured positions. The hedge strategy consists of covering, either fully or partially, the risks arising from the changes in fair or market value or the cash flow of any financial asset or financial liability. 22 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) Derivatives are initially recognized at fair value on the date they are contracted and subsequently measured at their fair value at the end of each reporting period. Possible gains or losses are immediately recognized in income or loss. A derivative with positive fair value is recognized as an asset while a derivative with negative fair value is recognized as a liability. A derivative is classified as noncurrent asset or liability if its remaining term is greater than 12 months and it is not expected that it will be sold or settled in a shorter period. Other derivatives are stated as current assets and liabilities. Moreover, BNDESPAR uses financial instruments classified as embedded derivatives as part of some variable income transactions. Such derivatives, such as options for conversion/exchange of debentures into shares, are embedded in legal instruments related to the portfolio of securities. These derivatives, when applicable, are segregated from the main agreements and are also classified as financial assets measured at fair value through profit and loss. 3.9) Classes of financial instruments BNDESPAR classifies its financial instruments in classes in accordance with their nature and characteristics. The classes are as follows: A) Financial assets A-1) Measured at fair value through profit or loss A-1.1) Held for trading government securities; and derivatives. A-1.2) Stated at fair value through profit or loss: Debentures A-2) Loans and receivables: credit sale of securities; receivables; dividends and interest on capital receivable; debentures. A-3) Held-to-maturity securities: government securities. A-4) Available-for-sale securities: shares and subscription bonus; investment fund units; and government securities. B) Financial liabilities B-1) Measured at fair value through profit or loss: Derivatives. B-2) Measured at amortized cost: 23 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) B-2.1) Funding: Debentures; and BNDES and National Treasury onlendings B-2.2) Other financial liabilities 3.10) Revenue recognition (a) Interest income and expenses Interest income and expenses for all financial instruments subject to interest are recognized under “financial income” and "financial expenses" in the income statement based on the effective interest rate method, except for those held for trading or measured at fair value through profit or loss. (b) Revenues from fees and commissions Revenues from fees and commissions are generally recognized on the accrual basis when services are provided. However, revenues from commissions identified as revenues from origination of financial instruments classified as loans and receivables, available-for-sale and held-to-maturity are added to the initial fair value of the related financial instruments and recorded in the income statement under the effective interest rate method, recognized in the related line items of interest income and expense, as applicable. (c) Dividend income Dividend income is recognized in income statement when the right to receive the dividend is established. 3.11) Impairment of financial assets Non-financial assets with indefinite useful lives, such as goodwill, are not subject to amortization and are annually tested for impairment. Assets are reviewed for indicators of impairment whenever significant events or changes in circumstances indicate that their carrying amounts may not be recoverable. An impairment loss is recognized when the carrying amount of the asset exceeds its recoverable amount. The latter is the highest value between the asset’s fair value less costs to sell and its value in use. For purposes of impairment testing, assets are grouped at the lowest levels for which there are separately identifiable cash flows (Cash-generating Units - CGU). Goodwill on the acquisition of an associate is tested for impairment value together with the investment calculated under the equity method. 24 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) The allowance for impairment on non-financial assets, except for goodwill, is reviewed to determine a potential reversal on the reporting date. 3.12) Cash and cash equivalents For purposes of the statement of cash flows, cash and cash equivalents include available funds, short-term repurchase agreements and any other highly liquid shortterm investments, immediately convertible into a known cash amount and which are not subject to a material risk of change in value. Short-term transactions comprise those maturing within three months or less as of the acquisition date. 3.13) Provisions for labor and civil contingencies The recognition, measurement, and disclosure of contingent assets and contingent liabilities are made according to the criteria set forth by Resolution CMN no 3823/09 and CVM Resolution no 594/09, which approved CPC 25, issued by the Accounting Pronouncements Committee (CPC). Basically, this standard requires the following with respect to contingent assets, contingent liabilities, and the provision for labor and civil contingencies: • Contingent assets: are not recognized in the financial statements unless the realization of income is virtually certain, and the related asset no longer is a contingent asset and its recognition is required. • Contingent liabilities: are not recognized in the financial statements and instead a brief description should be disclosed for each type of contingent liability and, where practicable: (i) an estimate of its financial effect, (ii) an indication of the uncertainties relating to the amount or timing of any outflow; and (iii) the possibility of any reimbursement. Contingent liabilities for which the possibility of any outflow in settlement is remote are not disclosed. • Provision: it is a present obligation recognized as a liability, provided that a reliable estimate can be made and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. Considering the nature of lawsuits, past experience with similar cases, complexity, previous court decisions and procedural phase, lawsuits are classified into three risk categories: maximum, medium and minimum, taking into account the likelihood of loss, based on the opinion of in-house and outside legal counsel. 25 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) Based on the expected loss, the policy adopted to classify ongoing lawsuits is as follows: Minimum risk – all lawsuits in lower courts and all appealed favorable lower court and first appellate court decisions, depending on the appealed issue, are classified in this category. Medium risk – all lawsuits with unfavorable lower court and first appellate court decisions but, depending on the appealed issue, with possibility of reversal of outcome, are classified in this category. Maximum risk – all lawsuits with unfavorable lower court or first appellate court decision, and other lawsuits whose outcome, in light of the issue appealed, will be hardly reversed, are classified in this category. In order to align the Bank’s policy with the standards described above, the following adjustments were made: Legal criteria Minimum risk Medium risk Maximum risk Likelihood of loss Remote Possible Probable Accounting impact n/a Disclose Accrue 100% Contingent assets are not recognized in BNDESPAR’s financial statements and are disclosed only when management is certain of their realization or a favorable final and unappealable court decision is issued or the possibility of an inflow of economic benefits is high. 3.14) Employees’ benefits (a) Pension plan BNDESPAR offers a supplementary pension plan. The plan is funded by contributions to a trust fund, calculated using periodic actuarial calculations. The plan is a defined benefit plan. Actuarial assets, determined by the actuarial advisors, are not recognized as sponsor’s assets because these values cannot be offset against future contributions, as set forth in the pension plan regulation. The liability recognized in balance sheet is the present value of the defined benefit obligation at the balance sheet date, less the fair value of plan assets, as adjusted by actuarial gains or losses and unrecognized past service costs. The defined benefit obligation is calculated annually by independent actuaries based on the Projected Unit Credit Method. The present value of the defined benefit obligation is determined by discounting estimated future cash outflows, using 26 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) interest rates consistent with market yields, which are denominated in the currency the benefits will be paid and whose maturities are those of the related pension plan obligation. Debts contracted between BNDESPAR and the pension plan are considered in the determination of an additional liability related to the future contributions that are not recoverable. Actuarial gains and losses arising from adjustments based on the experience and changes in actuarial assumptions, that exceed 10% of the amount of the plan’s assets or 10% of the plan’s liabilities, are deducted from or credited to income or loss over the expected remaining service period of the employees. (b) Medical care plan BNDESPAR offers a post-retirement health care benefit to their employees. The right to these benefits is usually contingent to their remaining in employment until the retirement age and the completion of a minimum length of service. The expected costs of these benefits are accumulated during the employee period, and are calculated using the same accounting method used for defined benefit pension plans. Actuarial gains and losses arising from adjustments based on the experience and changes in actuarial assumptions, that exceed 10% of the amount of the plan’s assets or 10% of the plan’s liabilities, are deducted from or credited to income or loss over the expected remaining service period of the employees. These obligations are annually valued by qualified independent actuaries. (c) Severance benefits BNDESPAR recognizes severance benefits when it can be evidenced that it is committed to the dismissal of current employees according to a detailed formal plan, which cannot be suspended or canceled, or the grant of severance benefits as a result of an offer made to encourage voluntary dismissal. (d) Profit sharing BNDESPAR recognizes a profit sharing liability and expense (recorded under “Profit sharing” in the income statement) based on a formula that takes into account the income attributable to the single shareholder, BNDES, after certain adjustments. BNDESPAR recognizes a reserve when it is contractually obliged or when there is a past practice that created a constructive obligation. 27 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) 3.15) Current and deferred income tax and social contribution Current and deferred income tax and social contribution are recognized in the income statement, except for the proportion related to items recognized directly in shareholders’ equity. In this case, taxes are recognized directly in shareholders’ equity. a) Current income tax and social contribution Current income tax and social contribution are calculated based on book income, adjusted by additions and deductions established by tax law, at the rates effective on the calculation period. Current income tax and social contribution are calculated using the laws and regulations enacted at the balance sheet date, pursuant to Brazilian tax regulations. b) Deferred income tax and social contribution Deferred income tax and social contribution are recognized on the liability method on temporary differences arising from differences between asset and liability tax basis and the respective accounting values in the financial statements. Deferred income tax and social contribution are calculated using the tax rates (and the tax law) enacted or substantially enacted on the balance sheet date and that must be applied when the corresponding deferred income tax and social contribution assets are realized or deferred income tax and social contribution liabilities are settled. The main temporary differences arise from the revaluation of certain financial assets and liabilities, including derivative agreements, provisions for pension plans and other provisions and post-employment benefits; with respect to acquisitions, the difference between the fair value of net assets acquired and their tax basis. However, they are not recorded when resulting from the initial recognition of an asset or liability related to a transaction which is not a business combination, which, on the transaction date, does not affect equity or book income, actual income or tax loss carryforwards. Deferred taxes are also recognized on temporary differences arising from investments in associates provided that it is probable that the temporary difference will not be reversed in a foreseeable future. With respect to the resulting assets, the recognition takes place when it is probable that future taxable income will be available to be used for temporary differences. Deferred income tax and social contribution, when related to the measurement of fair value of available-for-sale financial assets, directly debited from or credited to shareholders' equity, are also deducted from or credited to shareholders' equity 28 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) and, subsequently recognized in income or loss together with deferred gains and losses from other comprehensive income when realized. In order to calculate current income tax and social contribution, the Company adopted the Transitional Tax Regime (RTT), as prescribed by Law 11941/09, i.e., in computing taxable income the Company adopted the accounting criteria of Law 6404/76, prior to the amendments prescribed by Law 11638/07. Taxes on temporary differences arising from adopting the new Brazilian corporate law were accounted for as deferred tax assets and liabilities. 3.16) Capital Common stock dividends The distribution of dividends to a single shareholder is recognized as a liability in the financial statements at the end of the reporting period, based on the mandatory minimum amount set forth in BNDESPAR’s bylaws, which corresponds to 25% of the adjusted net income after recognition of the legal reserve, tax incentive reserve and the accounting practice adjustment reserve. Any amount above the minimum mandatory dividend is only accrued on the date it is approved by the Board of Directors. 4. Fair value of financial assets and financial liabilities Financial instruments measured at fair value In order to determine and disclose the fair value of financial instruments BNDESPAR adopts the following hierarchy: Level 1: quoted prices in active markets for identical assets and liabilities. Level 2: quoted prices in active markets for similar instruments or valuation techniques for which all material inputs are based on observable market data. Level 3: valuation techniques for which any material input is not based on observable market data. There was no transfer between levels. 29 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) Measurement at fair value at the end of the periods is as follows: R$ thousand Financial assets Level 1 Cash and cash equivalents Exclusive investment fund units Securities Designated debentures Available-for-sale debentures Shares Investment fund units Derivatives Call options Put options Total Financial liabilities 12/31/2011 Level 2 Level 3 Total - 217,596 - 217,596 61,526,280 - 7,755,148 340,129 8,316,260 2,124,340 2,312,044 419,448 - 10,067,192 340,129 70,261,988 2,124,340 61,526,280 93,891 478,862 19,326,226 2,731,492 93,891 478,862 83,583,998 Level 1 Derivatives Call options Total Level 2 - Level 3 96,338 96,338 Total - 96,338 96,338 R$ thousand Financial assets Level 1 Cash and cash equivalents Exclusive investment fund units Securities Designated debentures Shares Investment fund units Derivatives Call options Put options Total Financial liabilities 12/31/2010 Level 2 Level 3 Total - 1,126,473 - 1,126,473 77,793,235 - 10,448,439 11,116,726 2,022,829 1,595,897 337,807 - 12,044,336 89,247,768 2,022,829 77,793,235 41,346 229,902 24,985,715 1,933,704 41,346 229,902 104,712,654 Level 1 Derivatives Call options Total Level 2 - 483,569 483,569 Level 3 Total - 483,569 483,569 Total financial assets do not include the value of shares measured at cost. The balances of these shares totalize R$100 as of December 31, 2011 (R$1.3 as of December 31, 2010). The fair value of the financial instruments traded in active markets (such as held-for-trading and available-for-sale securities) is based on market prices at balance sheet date. A market is considered active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. These instruments are included in Level 1, which is mainly comprised of shares issued by publicly-traded companies. The fair value of financial instruments not traded in active markets is determined using valuation techniques. These valuation techniques make maximum use of market inputs, 30 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) where the instrument is available, and rely as less as possible on entity specific estimates. If all relevant inputs required for the fair value of an instrument are adopted by the market, the instrument will be included in Level 2. If one or more relevant inputs are not based on data adopted by the market, the instrument will be included in Level 3. Specific valuation techniques used to measure financial instruments include: - Quoted market prices or quotations of financial institutions or brokers for similar instruments. - The fair value of debentures with option for conversion/exchange into shares is calculated based on the projected credit flow at the rates contracted, less the projected flow at present value at a discount rate comprised of: spread equivalent to risk-free rate + market risk spread; - The fair value of European options, whose underlying assets are traded in stock exchanges, is calculated based on the following models: (i) Black-Scholes-Merton, whose main assumptions are: a. b. c. d. e. f. g. Initial date: refers to the valuation date, i.e., the closing date of each quarter; Closing date: maturity date; Asset price: last average quotation of the underlying asset determined through the end of the first 15-day period of the base month; Strike price: projected option strike price on the closing date in accordance with contractual conditions; Risk-free rate: fixed nominal rate for government securities issued by the National Treasury with term compatible with that of the asset under valuation; Dividend yield: calculated on a case by case basis; generally, defined as the average over the last years; Volatility: the annualized volatility based on the daily fluctuation of the underlying asset over the last four years was adopted as standard. (ii) Monte Carlo Simulation: - the fair value of the other options/derivatives whose underlying asset is not traded in a stock exchange is measured at the fair value of the option based on the difference between the fair value of the underlying asset - determined on pricing models based on multiples or discounted cash flow - and the debt balance of the debenture contract on the base date. - the fair value of American options, whose underlying assets are not traded in a stock exchange, is calculated based on the portfolio valuation model. 31 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) 5. Cash and cash equivalents R$ thousand 12/31/2010 12/31/2011 Cash and cash equivalents Securities Banco do Brasil’s exclusive funds* 34 6 217,596 1,126,473 217,630 1,126,479 *Note 6.4 6. Securities 6.1) Breakdown by category, nature and issuer R$ thousand 12/31/2011 Without maturity Up to 3 months 3 to12 months 1 to 3 years 3 to 5 years 5 to 15 years Over 15 years Total a) Financial instruments at fair value Public: Debentures Private: Debentures Available-for-sale financial instruments Public: Shares Private: Debentures Shares Quotas of mutual investment funds Loans and receivables Public: Debentures Private: Debentures Derivatives - - - 167,476 - - - 167,476 - 273 273 3,634 3,634 2,162,296 2,329,772 2,742,126 2,742,126 3,305,881 3,305,881 1,685,506 1,685,506 9,899,716 10,067,192 38,029,283 - - - - - - 38,029,283 32,332,706 70,361,989 - - 340,129 340,129 - - - 340,129 32,332,706 70,702,118 2,124,340 2,124,340 - - - - - - 2,124,340 2,124,340 - - - 8,633 268,234 358,565 - 635,432 - - - 8,633 722,345 990,579 1,486,347 1,844,912 - 2,208,692 2,844,124 145,505 - - 427,248 - - - 572,753 72,849,430 273 3,634 2,923,802 4,444,257 5,055,960 1,685,506 86,310,527 Allowance for impairment – debentures – private sector (12,794) Total 86,297,733 Current Noncurrent Total 282,358 86,015,375 86,297,733 32 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) R$ thousand 12/31/2010 Without maturity Up to 3 months 3 to12 months 1 to 3 years 3 to 5 years 5 to 15 years Over 15 years Total Financial instruments at fair value through profit or loss Public: Debentures Private: Debentures Available-for-sale financial instruments Public: Shares Private: Shares Quotas of mutual investment funds - - - 145,725 - - - 145,725 - 260 260 - 1,396,492 1,542,217 3,356,050 3,356,050 2,611,252 2,611,252 4,534,557 4,534,557 11,898,611 12,044,336 48,230,144 - - - - - - 48,230,144 41,018,972 89,249,116 - - - - - - 41,018,972 89,249,116 2,022,829 91,271,945 - - - - - - 2,022,829 91,271,945 - - - - 47,554 469,976 - 517,530 - - - - 540,913 588,467 469,976 - 540,913 1,058,443 100,497 - - 170,751 - - - 271,248 91,372,442 260 - 1,712,968 3,944,517 3,081,228 Loans and receivables Public: Debentures Private: Debentures Derivatives – Private sector Allowance for impairment – debentures – private sector 4,534,557 104,645,972 (342) Total 104,645,630 Current Noncurrent Total 182,221 104,463,409 104,645,630 6.2) Cost and fair values and breakdown by issuer R$ thousand 12/31/2010 12/31/2011 Cost Fair value Cost Fair value a) Financial instruments at fair value through profit or loss Public: Debentures Private: Debentures 137,973 167,476 137,973 145,725 10,363,958 10,501,931 9,899,716 10,067,192 12,162,856 12,300,829 11,898,611 12,044,336 28,921,039 38,029,283 29,011,438 48,230,144 601,860 16,959,941 46,482,840 340,129 32,332,706 70,702,118 - - 15,608,630 44,620,068 41,018,972 89,249,116 2,124,340 48,607,180 2,124,340 72,826,458 2,022,829 46,642,897 2,022,829 91,271,945 635,432 635,432 517,530 517,530 2,208,692 2,844,124 2,208,692 2,844,124 540,913 1,058,443 540,913 1,058,443 - 572,753 61,953,235 86,310,527 (12,794) (12,794) (342) 61,940,441 86,297,733 60,001,827 Available-for-sale financial instruments Public: Shares (*) Private: Debentures Shares (*) Quotas of mutual investment funds (Note 6.5) Loans and receivables Public: Debentures Private: Debentures Derivatives Gross Total Allowance for impairment – debentures – private sector Total net of allowance (*)The composition of these shares is described in Note 9.3 33 60,002,169 271,248 10,645,972 (342) 104,645,630 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) 12/31/2011 Summary per issuer Public Private Total 38,832,191 47,465,542 86,297,733 R$ thousand 12/31/2010 48,893,399 55,752,231 104,645,630 6.3) Debentures Debentures with embedded derivatives were classified as financial instrument at fair value through profit or loss and simple debentures were classified as loans and receivables as follows: 12/31/2011 R$ thousand 12/31/2010 Financial instruments at fair value Available-for-sale financial instruments Loans and receivables Gross amount Allowance for impairment Total 10,067,192 340,129 2,844,124 13,251,445 (12,794) 13,238,651 12,044,336 1,058,443 13,102,779 (342) 13,102,437 Current Noncurrent Total 3,907 13,234,744 13,238,651 260 13,102,177 13,102,437 12/31/2011 R$ thousand 12/31/2010 ¹see Note 9.2.1 6.3.1) Gross portfolio per sector Public sector Private sector Industry Other services Total 802,908 663,255 5,041,798 7,406,739 12,448,537 6,428,836 6,010,688 12,439,524 13,251,445 13,102,779 6.3.2) Gross portfolio per maturity R$ thousand 12/31/2011 Falling due: 2012 2013 2014 2015 2016 After 2016 Total 3,907 1,818,938 859,596 3,150,429 582,277 6,836,298 13,251,445 R$ thousand 12/31/2010 Falling due: 2011 2012 2013 2014 2015 After 2015 Total 260 7,545 1,534,673 12,004 3,932,513 7,615,784 13,102,779 34 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) 6.3.3) Reconciliation of changes in impairment 12/31/2011 (342) (12,452) (12,794) Balance at the beginning of period Recognition (reversal) * Balance at the end of period R$ thousand 12/31/2010 (76) (266) (342) *The effect on the statement of income is shown in Note 16. 6.3.4) Debentures portfolio The main debentures are listed below by classification and fair value. Management calculates the fair value of debentures based on assumptions and judgments that, although being periodically reviewed, can differ from the actual value Classification Loans and receivables Debentures with loan features Available for sale Debentures mandatorily convertible into shares Stated at fair value through profit or loss (Note 20) Debentures convertible into/exchangeable for shares listed in stock exchanges Debentures convertible into/exchangeable for shares not listed in stock exchanges Total debentures 12/31/2011 R$ thousand 12/31/2010 2,844,124 1,058,443 340,129 - 7,755,148 2,312,044 10,067,192 10,448,439 1,595,897 12,044,336 13,251,445 13,102,779 6.4) Banco do Brasil exclusive investment fund The Fund is classified as a financial instrument at fair value through profit or loss held for trading. The Fund’s portfolio consists basically of government securities issued by the National Treasury and under the custody of Special Settlement and Custody System - SELIC. The breakdown of the Fund’s portfolio is as follows: 12/31/2011 R$ thousand 12/31/2010 BB Extramercado Exclusive Fund ASSETS Cash and cash equivalents Repurchase agreements Treasury bills - LFT Tradable securities Treasury bills - LFT Other LIABILITIES Payables TOTAL 35 2 1,997 15,721 186,946 201,904 1 217,628 937,656 1 1,126,600 (32) (32) (127) (127) 217,596 1,126,473 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) Breakdown of the securities included in the Funds’ assets by maturity: R$ thousand 12/31/2011 Number BB Extramercado Exclusive Fund Repurchase agreements Treasury bills – LFT Tradable securities Treasury bills – LFT Up to 3 months 3 to12 months 1 to 3 years 3 to 5 years 4 15,721 - - 40,211 15,721 - 114,222 114,222 Total Market 5 to 15 years Total Cost - 15,721 15,721 30,127 57,555 30,127 57,555 201,904 217,625 201,892 217,613 - R$ thousand 12/31/2010 Fundo BB Extramercado Exclusivo Repurchase agreements Treasury bills – LFT Tradable securities Treasury bills – LFT Number Up to 3 months 3 to12 months 1 to 3 years 41,636 186,946 - - 208,468 1,565 188,511 62,677 62,677 289,966 289,966 3 to 5 years 541,978 541,978 5 to 15 years Total Market - 186,946 186,946 937,656 1,124,602 937,650 1,124,596 41,470 41,470 Total Cost 6.5) Investment fund shares These investments are managed by private financial institutions. Shares of these funds are valued based on the share value disclosed by the fund manager on the balance sheet date. Fund - PROT – Fundo de Investimento em Participações - Brasil Energia – Fundo de Investimentos em Participações - Fundo de Investimento em Direitos Creditórios – Corporativo Brasil - InfraBrasil – Fundo de Investimentos em Participações - AG Angra Infra-Estrutura – Fundo de Investimento em Participações - Fundo de Investimentos Cia. Paulista Trens Metropolitanos - Logística Brasil – Fundo de Investimento em Participações - Fundo de Invest. Em Partic. Governança e Gestão – FIPGG - Fundo de Investimento em Participações Caixa Modal Oleo e Gas - FIP Terra Viva - Fundo de Investimento em Participações - Fundo Brascan de Petróleo e Gás - Brasil Mezanino Infra-estr fdo. Inv. em Participações - Fundo Mútuo Invest em Empresas Emergentes CRIATEC - Fundo de Investimento em Participações Caixa Ambiental - BR Educacional Fundo de Investimento em Participações - CRP VI Venture Fundo Mútuo de Invest. Empr. Emergentes - RB Cinema I – Fundo Financiamento Ind. Cinematográfica Nacional - Fundo Brasil Agronegócio - Fundo de Investimento em Participações - Vale Florestar Fundo de Investimento em Participações - Fundo Brasil Sustentabilidade - Fundo Empreendedor Brasil - Other Total Manager Mellon Serviços Financeiros Distribuidora de Títulos Mobiliários S.A. Banco Bradesco S.A Credit Suisse Brasil Banco ABN Amro Real S.A. Banco Bradesco S.A Banco Bradesco S.A Banco Bradesco S.A. Governança & Gestão Investimentos Caixa Econômica Federal DGF Gestão de Fundos Ltda Banco Brascan S.A. Darby Stratus Administração de Investimentos Ltda BNY Mellon Serviços Financeiros Distribuidora de Títulos e Valores Mobiliários S.A Caixa Econômica Federal BEM - Distribuidora de Títulos e Valores Mobiliários Ltda. CRP Companhia de Participações S.A Rio Bravo Investimentos S.A. Banco Bradesco S.A Citibank Distribuidora de Titulos e Valores Mobiliários S.A BEM - Distribuidora de Títulos e Valores Mobiliários Ltda. BEM - Distribuidora de Títulos e Valores Mobiliários Ltda. 36 R$ thousand 12/31/2011 12/31/2010 555,565 668,473 306,672 285,665 187,929 150,033 40,561 56,316 31,606 32,738 29,712 14,665 41,865 315,427 298,196 151,751 82,253 55,412 56,889 38,778 18,502 29,494 16,728 22,550 35,551 22,803 35,266 42,798 33,953 10,464 21,552 61,868 34,289 14,522 100,750 2,124,340 31,522 36,074 12,203 11,413 6,880 36,248 3,111 10,626 97,496 2,022,829 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) The mutual investment fund in emerging companies Brasil 21 – Fundo Mútuo de Investimento em Empresas Emergentes – was established as a closed fund, with capital contributions from BNDESPAR only and duration term of eight years. This fund is in divesture process. 7. Credit sale of securities and receivables Information on credit sale of securities and receivables is summarized as follows: 12/31/2011 R$ thousand 12/31/2010 Credit sale of securities Allowance for impairment 1,363,815 (90,702) 1,273,113 1,371,692 (3,144) 1,368,548 Receivables Allowance for impairment 46,579 (10,700) 35,879 1,676,263 (30,096) 1,646,167 218,293 1,090,699 1,308,992 302,302 2,712,413 3,014,715 Current Noncurrent Total 7.1) Distribution of the gross portfolio of credit sales of securities and receivables per sector 12/31/2011 Public sector (*) Private sector Industry Other services Total R$ thousand 12/31/2010 217,007 91,770 957,449 235,938 1,193,387 1,264,567 1,691,618 2,956,185 1,410,394 3,047,955 (*) Includes the amount of R$86.9 (R$91.8 as of December 31, 2010) of operations with the controlling shareholder – BNDES, see note 15. 7.2) Distribution of the gross portfolio of credit sales of securities and receivables by maturity date R$ thousand 12/31/2011 2,631 Past due Falling due: 2012 2013 2014 2015 2016 After 2016 Total 232,848 252,253 334,092 117,505 140,545 330,520 1,410,394 37 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) R$ thousand 12/31/2010 Falling due: 2011 2012 2013 2014 2015 After 2015 Total 304,062 290,038 345,258 464,221 158,974 1,485,402 3,047,955 7.3) Reconciliation of the changes in impairment of credit sales of securities and receivables: a) Credit sale of securities 12/31/2011 (3,144) (87,558) (90,702) Balance at the beginning of period Recognition (reversal) Balance at the end of period R$ thousand 12/31/2010 (14,669) 11,525 (3,144) a) Receivables 12/31/2011 (30,096) 19,396 (10,700) Balance at the beginning of period Recognition (reversal) Balance at the end of period R$ thousand 12/31/2010 (4,815) (25,281) (30,096) The effect on the statement of income is shown in Note 16. 8. Dividends and interest on capital receivable In accordance with the Material Fact Notice disclosed on January 22, 2010, Eletrobrás reported to the market that its Advisory Board approved the settlement of the special reserve balance related to undistributed mandatory dividends arising from net income between 1979 and 1998, in the total amount of R$10,285, whose payments are scheduled to be made in four annual installments from June 30, 2010 to June 30, 2013. BNDESPAR was entitled to receive the gross amount of R$2,171. Through December 31, 2011, R$850 had been paid and the outstanding balance amounted to R$1,321. 38 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) As at December 31, 2011, the balance adjusted based on the SELIC rate fluctuation, net of taxes, is broken down as follows: 12/31/2011 9. R$ thousand 12/31/2010 Dividends receivable – Eletrobrás Other companies Current 660,705 476,924 1,137,629 591,924 133,621 725,545 Dividends receivable – Eletrobrás Noncurrent 660,705 660,705 1,183,848 1,183,848 Dividends receivable – Eletrobrás Other companies Total 1,321,410 476,924 1,798,334 1,775,772 133,621 1,909,393 Investments The portfolio of equity investments consists of associates, on which BNDESPAR has significant influence, and other companies on which it has no influence. The interest in associates is presented as investments under caption “Interest in associates”, and the interest in companies measured at fair value is presented as securities under caption “Shares and subscription warrants”, defined as “available for sale” by CPC 38. The components of the equity investments portfolio of BNDESPAR - associates and available-for-sale financial instruments - arise from financial support transactions of the BNDES System, whose general focus is a long-term perspective. In order to present these assets as they are managed, we provide below the breakdown of these investments as a portfolio of equity interests. 9.1) Breakdown 12/31/2011 Associates accounted for under the equity method R$ thousand 12/31/2010 19,332,192 13,641,374 132,946 81,464 Securities – companies at fair value (available for sale) – noncurrent assets 70,229,043 89,167,652 Total investments 89,694,181 102,890,490 Securities – companies at fair value (available for sale) – current assets 9.2) Investments - Associates accounted for under the equity method The companies where BNDESPAR has the power to take part in financial and operational decisions, without individually or jointly controlling these policies (significant influence) are accounted for under the equity method. 39 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2010 and 2011 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) 9.2.1) Associates portfolio R$ thousand Equity in subsidiaries Investimento 12/31/2011 Number of shares held (in thousands) Investees Brasiliana COPEL Fibria JBS Rio Polímeros Telemar Part. Base date 10.31.2011 10.31.2011 10.31.2011 10.31.2011 Capital Common Preferred % equity investment 2,960,708 6,910,000 8,379,397 21,506,247 300,000 38,299 142,360 931,070 50,000 27,282 - 53,85 23,96 30,45 31,41 Subtotal 12/31/2011 Goodwill a Allowance for losses b 760,816 311,033 82,688 99,219 1,253,756 320,733 207,331 109,389 22,628 (231,412) (68,782) 359,887 2,391,431 2,840,937 4,705,596 6,554,280 16,492,244 908,847 908,847 a (40.521) 79,462 1.763.429 167,672 256,463 (88,791) 1,076,519 a b Other Companies Total 12/31/2010 Book value of investment 12/31/2010 1,213,235 439,349 18,255,673 Total Total 2,391,431 2,840,937 4,705,596 7,463,127 17,401,091 1,646,789 2,275,172 4,703,324 4,083,577 12,708,862 1.931.101 932.512 19,332,192 13,641,374 • The reporting date indicates the investee’s shareholders' equity date used in the last calculation of equity in investees. The effects of material events that occurred after the reporting date, as well as the effects of Law nº 11638/07 and CPC Technical Pronouncements on the associates’ financial statements have been recognized. The information on associates described in item 9.2.2 below already includes those effects. • In 2010 BNDESPAR sold all shares of Rio Polímeros and a portion of its shares of Telemar Participações; therefore, it lost significant influence over the latter. The remaining investment in Telemar Participações was classified as “Securities available for sale”. • As at December 31, 2010, investments were measured based on the balance sheet of associates as at October 31, 2010 and, through that date, public utility companies did not fully adopt the CPC, in particular ICPC 01 – Concession Arrangements, and did not report the potential effects from applying OCPC 05 – Concession Arrangements, approved by CVM Resolution 657/10, of December 28, 2010. Beginning December 31, 2010, the aforementioned companies restated their 2010 interim financial statements upon the full adoption of the CPCs, whose impacts on BNDESPAR were the increase in shareholders' equity and increase in net income (loss) by approximately R$755 and R$23, respectively. These effects were not considered as material in respect of BNDESPAR’s shareholders’ equity. • Effects from changes in interest in associates were recorded under profit or loss. • Regardless of the fact that BNDESPAR holds 53.85% interest in Brasiliana’s capital, it holds less than 50% of its voting capital and does not govern Brasiliana’s operating and financial policies; therefore, it does not hold the controlling stake. • In July 2011 BNDESPAR converted debentures issued by JBS held by it into 493,968 thousand shares of this associate, equivalent to R$3,478, thus increasing its stake from 17.60% to 31.35%. The increase in the number of shares held in treasury by the associate in the 4th quarter of 2011 raised the percentage interest, used to calculate equity in subsidiaries, to 31.41%. • Investments in associates have been tested for impairment as at December 31, 2011, in accordance with CPC 01 - Impairment of Assets. In the year ended December 31, 2011, the Company recognized R$124 thousand as revenue from reversal of the allowance for impairment losses on investments in associates, net of expenses on the recognition of allowance of R$35. In the year ended December 31, 2010, the Company recognized an expense of R$28. The recoverable value of an asset is the higher of its fair value and value in use. • The carrying amount of the investment in JBS S/A includes the goodwill from expected future earnings in the amount of R$909. The recoverable amount of the investment, including goodwill, was determined based on the value in use, calculated using the residual value that is expected from the sale of the investment, which is obtained by means of the investee’s projected cash flow models for the next five years, based on the consolidated financial statements for the 3rd quarter of 2011, adjusted to present value at the entity’s weighted average capital cost. Cash flow was projected using own and market assumptions, the investee’s past performance and future economic expectations. No impairment losses were identified since the value in use is higher than the carrying amount of the investment. • In accordance with CPC 18, in the year ended December 31, 2011, BNDESPAR no longer recognized losses on investments in associates with shareholders’ deficit, in the amount of R$21 (R$7 in the year ended December 31, 2010). Unrecognized accumulated losses amounted to R$117 as at December 31, 2011 (R$96 as at December 31, 2010). No reserve was recognized since BNDESPAR has no legal or constructive obligation to settle the associates’ potential liabilities. 40 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2010 and 2011 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) 9.2.2) Information on associates Carrying amount - R$ thousand – Reporting Date: 10/31/2011 (1) Investees Brasiliana (2) COPEL Fibria JBS Subtotal Other companies Total (1) (2) Assets 5,714,647 13,237,532 27,510,856 34,196,278 80,659,313 10,132,577 90,791,890 Liabilities 1,273,416 1,382,870 12,055,031 13,329,333 28,040,650 4,918,611 32,959,261 Shareholders’ equity 4,441,231 11,854,662 15,455,825 20,866,945 52,618,663 5,213,966 57,832,629 Revenue 1,239,565 2,491,666 4,763,097 13,271,227 21,765,555 4,085,434 25,850,989 Income or loss 1,133,635 1,322,647 269,593 (226,194) 2,499,681 71,002 2,570,683 Fair value of investments in listed associates 12/31/2011 2,310,303 1,958,793 5,660,903 9,929,999 562,532 10,492,531 Carrying amounts adjusted for the calculation of equity in investees, as mentioned in item 9.2.1. Not listed company. 9.3) Securities – investments in companies stated at fair value (available for sale) CPC`s Technical Pronouncements approved by the Brazilian Securities and Exchange Commission, following the International Financial Reporting Standards (IFRS), establish that the equity interests in entities that are not subsidiaries, jointly controlled entities or associates must be treated as financial instrument, through the adoption of the fair value method for measurement purposes. After initial recognition, BNDESPAR classifies equity interests in other companies as “Available for sale” and measures the investment at fair value on the trading date, plus transaction costs directly attributable to the acquisition or issuance of the instrument. After the initial recognition, these investments are measured at their fair values, without any deduction of the transaction costs that might be incurred on sale or disposal. Changes in the fair value of equity interests in other companies are recognized directly in BNDESPAR’s shareholders’ equity, in line item “Valuation adjustments to equity”. These changes in fair value correspond to unrealized economic gains or losses, recognized in the statement of comprehensive income. BNDESPAR considers the following hierarchy to determine and disclose the amount of equity investments classified as “Available for sale”: • Level 1: applied to companies whose shares are listed in a stock exchange, the fair value of which is based on the average closing price in the last trading session of the reference month; • Level 2: applied to holding companies whose shares are not listed in a stock exchange, but whose main asset is represented by shares of listed companies, the fair value of which is based on the average closing price in the last trading session of the stock exchange on which the company’s assets were traded, adjusted for other assets, liabilities, and low liquidity, if applicable; • Level 3: applied to companies whose shares are not listed in a stock exchange, the fair value of which is determined, on the reference date, using pricing models based on market multiples or the discounted cash flow; 41 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) • Value at cost: applied to companies whose shares are not listed in a stock exchange and that present a wide range of possible fair values acceptable for the reference date in the context of the valuation effort set out in Level 3, when it is not possible to determine the probability associated to the estimates that form such range, to which the acquisition cost is attributed. 9.3.1) Portfolio of securities – Investment in available-for-sale shares R$ thousand Number of shares held (in thousands) as of 12/31/2011 Common Preferred interest on capital as of 12/31/2011 - % 12/31/2011 12/31/2010 778,961 87,456 291,398 604,560 575,684 717,792 382,390 308,031 474,696 2,113,874 3,711,994 462,835 767,796 164,655 381,117 694,436 885,259 405,851 164,409 147,074 32,641,969 338,215 115,281 276,869 187,191 189,573 11,250,504 59,119,870 2,406,410 61,526,280 1,270,009 7,352 305,196 609,657 903,633 789,571 310,601 505,190 848,988 1,686,318 4,742,631 470,390 923,975 153,164 445,071 634,267 780,192 97,083 738,919 278,230 251,633 41,865,559 408,564 161,236 281,730 169,760 354,521 15,434,023 75,427,463 2,365,772 77,793,235 8,316,260 11,116,726 LEVEL 3 – Unlisted companies (fair value) 419,448 337,807 Cost – Unlisted companies (value at cost) 100,001 1,348 TOTAL 70,361,989 89,249,116 Current Noncurrent 132,946 70,229,043 81,464 89,167,652 INVESTEES LEVEL 1 – Listed companies AMÉRICA LATINA LOGÍSTICA S.A. – ALL BANCO DO BRASIL S.A. BRADESCO BRASIL FOODS BRASKEM S.A. CEG CEMIG CESP CIA SIDERÚRGICA NACIONAL CPFL ELETROBRÁS EMBRAER GERDAU IOCHPE ITAÚ UNIBANCO HOLDING KLABIN LIGHT LLX MARFRIG PARANAPANEMA PDG REALTY PETROBRAS REDE ENERGIA TELE NORTE LESTE PARTICIPAÇOES TOTVS TRACTEBEL USIMINAS VALE Subtotal Level 1 Other companies – Level 1 Total Level 1 (1) 83,940 3,696 16,761 17,944,799 485 31,774 81,053 180,758 39,762 37,917 6,419 30,632 48,201 54,986 24,718 173,400 775 8,344 6,225 218,386 9,523 44,317 11,147 9,348 18,691 21,218 11,259 87,903 1,341,349 67,643 5,627 18,549 68,276 12,21 0,13 0,25 1,92 5,53 34,56 1,70 2,85 2,18 8,42 14,75 5,37 3,44 6,77 0,25 9,58 15,02 13,89 17,23 2,20 11,61 15,86 1,34 5,23 0,95 1,83 5,34 LEVEL 2 – Unlisted holding companies (1) Although interest percentage exceed 20% of capital, there is no significant influence on the management of these investees. 10. Onlendings 10.1) Breakdown R$ thousand 12/31/2011 Local currency BNDES STN Total 8,710,955 2,884,850 11,595,805 Foreign currency 38,526 38,526 Total 8,749,481 2,884,850 11,634,331 46,106 11,588,225 11,634,331 Current Noncurrent Total 42 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) R$ thousand 12/31/2010 Local currency BNDES STN Total 11,642,000 2,584,529 14,226,529 Foreign currency 49,430 49,430 Total 11,691,430 2,584,529 14,275,959 872,280 13,403,679 14,275,959 Current Noncurrent Total Onlendings from the BNDES are subject to monetary adjustment based on the TJLP (long-term interest rate), exchange variation or the IGP-M (General Market Price Index) plus annual interest of up to 10.09%. The major maturity term is in 2018. Onlendings from the National Treasury are subject to monetary adjustment based on SELIC and its major maturity term is in December 2017. 10.2) Onlendings from the BNDES and the National Treasury (STN) by maturity: R$ thousand 12/31/2011 Falling due: 2012 2013 2014 2015 2016 After 2016 Total 46,106 1,309,230 2,297,645 2,293,372 2,293,372 3,394,606 11,634,331 R$ thousand 12/31/2010 Falling due: 2011 2012 2013 2014 2015 After 2015 Total 872,280 15,183 1,431,261 2,678,716 2,674,920 6,603,599 14,275,959 11. Issued debentures In December 2006, BNDESPAR issued 600,000 simple, registered, book-entry, nonconvertible debentures of a single series, without guarantee or preference (nonprivileged), with a unit par value of R$1,000.00 on the issue date, totaling R$600. This public distribution took place under the First Program of Public Distribution of Debentures of the Issuing Company, filed at the Brazilian Securities and Exchange Commission (CVM), on December 19, 2006, under nº CVM/SRE/PRO/2006/0011. 43 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) Debentures were subscribed and paid up at the price of R$898.33 each (eight hundred and ninety-eight Brazilian reais and thirty-three centavos), corresponding to a unit par value of R$1,000.00, adjusted considering a 10.167% discount determined during the book building process. The unit par value of debentures will be adjusted from the date of subscription and payment, based on the IPCA (broad consumer price index), calculated and released by the Brazilian Institute of Geography and Statistics (IBGE). The result of the adjustment is automatically added to the par value, under the formulas set forth in the indenture. Debentures will pay interest of 6% per year on their adjusted par value, at the end of each capitalization period. The interests were paid on January 15, 2009, January 15, 2010, January 15, 2011, and the last payment will be on January 15, 2012, as established in the indenture. The amortization will be paid in a single installment, on the maturity date, January 15, 2012. In the second distribution, made on July, 2007, BNDESPAR issued 1,350,000 simple, registered, book-entry, nonconvertible debentures in two series, of which 550,000 debentures of the First Series and 800,000 debentures of the Second Series, with no guarantee nor preference (that is, ordinary or non-privileged), with a unit par value of R$1,000.00 on the issuance date, totaling R$1,350. These debentures were subscribed and paid up at their unit par value. In December 2009, under the scope of the Second Distribution Program, filed at CVM on July 29, 2008, under CVM/SER/PRO/2008/007, the fourth public offer of simple debentures issued by BNDESPAR was completed. BNDESPAR issued 1,250,000 simple debentures, in the same type and class of the previous issues, in two series, of which 640,000 debentures of the First Series and 610,000 debentures of the Second Series, with par unit of R$1,000.00, on issuance date, totaling R$1,250. These debentures were also subscribed and paid at their unit par value. The unit par value of the First Series debentures of the Distributions made in 2007 and 2009 is not adjusted, bearing only fixed interest that are paid together with the amortization on the maturity dates as shown in the table below The interest and the amortization of the debentures of the First Series issued in 2007, as well as its amortization, were fully paid on January 3, 2011. The unit par value of the Second Series debentures issued in 2007 and 2009 is adjusted based on the IPCA (broad consumer price index), calculated and released by IBGE. The result of the adjustment is automatically added to the par value, under the formulas set forth in the Supplemental Indenture. Over the unit par value of the Second Series debentures of 2007 and 2009, adjusted for inflation, is added a fixed interest, since subscription and payment date, or the previous payment date of the Second Series Interest, as applicable, until the date they are effectively paid. Second Series interest of both issuances are calculated according to the formula set forth in the Indenture. 44 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) The first, second and third interest payments for the Second Series of the 2007 issue were made on August 17, 2009, August 16, 2010, and August 15,2011, respectively, and the other payments will be made on August 15, 2012 and on the maturity date, August 15, 2013, when it will be repaid in one single installment. The interest payments for the Second Series of the 2009 issue will be made annually beginning on January 15, 2012 until January 15, 2015, when it will be repaid in one single installment. In December 2010, it was conducted the fifth public offering of BNDESPAR debentures, the first under the Third Distribution Program. Three series were issued, a fixed rate series (First Series), a quarterly floating rate series (Second Series), and a series indexed to IPCA (Third Series). The first, second, and third series were approved by and registered with CVM on December 10, 2010 under the following identification CVM/SRE/DEB/2010/033, CVM/SRE/DEB/2010/034, and CVM/SRE/DEB/2010/035, respectively. The offering was closed on December 17, 2010, with the distribution of 2,025,000 simple, registered, book-entry, nonconvertible, unsecured debentures, in the total nominal amount of R$2,025. The distribution consisted of 500,000 First Series debentures, 1,000,000 Second Series debentures, and 525,000 Third Series debentures. The unit face value of the debentures in the First and Second Series are not adjusted and are subject to fixed-rate interest (First Series) and quarterly floating rate interest (Second Series). The yield of both series as well as their amortization will be paid in full at the related maturity dates. The Second Series will yield floating interest consisting of a fixed three-month rate reset on a quarterly basis using the surcharge of 0.30% per year to be added to the interest rate of Interbank deposits (DI) futures contracts (traded on the BM&FBOVESPA) applicable to each quarterly capitalization period. The capitalization periods and the interest calculation formula of the Third Series are set forth in the Indenture. The unit face value of the Third Series debentures of this last issuance will be adjusted using the IPCA fluctuation, and the adjustment will be automatically added to the face value with the formula set forth in the Indenture. This unit face value adjusted for inflation is subject to fixed-rate interest from the date of subscription and payment or the previous date of Third Series Interest payment, as applicable, to the date of actual repayment. The Third Series interest will be determined in accordance with the formula set forth in the Indenture. Interest payments for the Third Series of the 2010 issue will be made annually from January 15, 2013 until January 15, 2017, when it will be repaid in a single installment. The adjusted amount of liabilities arising from the issuance of debentures, the maturity dates, and the interest corresponding to each series are as follows: 45 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) Maturity First distribution - First Program Adjusted principal (IPCA) Accrued interest (6% p.y.) Discount Accumulated amortization of discount (1) 12/31/2011 R$ thousand 12/31/2010 01.15.2012 782,234 44,828 (61,002) 60,018 826,078 734,784 42,109 (61,002) 48,211 764,102 - 550,000 240,141 1,016,421 25,795 1,042,216 954,766 23,975 1,768,882 640,000 176,562 640,000 84,288 699,321 104,024 1,619,907 656,901 47,833 1,429,022 500,000 66,246 500,000 3,384 1,000,000 125,334 1,000,000 5,571 561,320 37,096 2,289,996 527,269 1,536 2,037,760 Total 5,778,197 5,999,766 Current Noncurrent Total 955,897 4,822,300 5,778,197 306,224 5,693,542 5,999,766 Second distribution 1st series Principal Accrued interest (11.2% p.y.) 2nd series Adjusted principal (IPCA) Accrued interest (6.8% p.y.) 01.01.2011 08.15.2013 First distribution - Second Program 1st series Principal Accrued interest (12.74% p.y.) 2nd series Adjusted principal (IPCA) Accrued interest (7.078% p.y.) 01.01.2013 01.15.2015 First distribution – Third Program 1ª series Principal Accrued interest (12.51% p.y) 2ª series Principal Accrued interest (DI Futures 3 month + 0.30% p.y) 3ª series Adjusted principal (IPCA) Accrued interest (6.2991% p.y) (1) 01.01.2014 01.01.2014 01.15.2017 Discount amortization is calculated on the straight-line basis over the period from December 2007 to January 2012. 12. Taxes on Income 12.1) Current BNDESPAR calculates income and social contribution taxes on annual taxable income and is subject to monthly payments on an estimated basis, whenever the tax suspension/reduction is not applicable, as provided for in Articles 27 to 35 of Law nº 8981/95 and other applicable legislation. As of December 31, 2011, BNDESPAR recorded provisions for social contribution (at a 9% rate) and income tax (at a 15% rate, plus a 10% surtax). Such provisions were calculated on income before deduction of income tax and social contribution expenses. 46 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) Income tax and social contribution were calculated as follows: R$ thousand Accumulated 12/31/2011 Income tax Income before taxes Profit sharing Tax basis Total income tax and social contribution expenses (credit) at the rates of 25% and 9% Effect of additions (deductions) on tax calculation: • Allowance for losses (BACEN Resolution nº 2682/99) • Actuarial liabilities - FAMS • Dividends from investments • Receivables written off as losses • Equity in investees • Exchange of securities • Goodwill amortization, net of realization • Allowance for depreciation of securities • Labor and Civil provisions • Planned employee termination program • Grants – tax incentives • JSCP – Investment (-) • Deferral of taxation on sale of permanent assets • Negative goodwill amortization • Effect of adjustment to CPCs (RTT) • Other additions (deductions), net Income tax and social contribution for the period Adjustment of provision for income tax and social contribution – previous years Income tax and social contribution accumulated Social contribution 12/31/2010 Income tax Social contribution 5,559,338 (32,277) 5,527,061 5,559,338 (32,277) 5,527,061 5,204,651 (46,199) 5,158,452 5,204,651 (46,199) 5,158,452 1,381,765 497,435 1,289,613 464,261 54,617 4,841 (292,788) 1,266 (303,309) 19,662 1,743 (105,404) 456 (109,191) (43,561) 2,677 (158,801) 3,941 (109,837) (15,682) 964 (57,168) 1,419 (39,541) (27,386) (26,597) (93,305) 5,345 (1,652) (8,753) 24,547 (40,586) 3,697 (9,859) (181) (33,590) 1,924 (594) (3,093) 8,837 (14,611) 1,331 (11,001) 4,039 20,414 (972) (2,906) (9,433) 12,385 (52,164) 29,374 (3,960) 2,000 7,349 (350) (1,046) (3,396) 4,459 (107,513) (6,184) 568,005 9,451 (38,705) 1,848 218,008 (15,377) (11,212) (8,414) 954,142 4,288 (4,036) 2,483 368,330 1,251 577,456 202,631 958,430 369,581 Effective rate is as follows: 12/31/2011 Income before income tax and social contribution Current income tax and social contribution Deferred income tax and social contribution Total Effective rate R$ thousand 12/31/2010 5,527,061 780,087 439,079 1,219,166 5,158,452 1,328,011 161,406 1,489,417 22,06% 28,87% Breakdown of taxes payable is as follows: 12/31/2011 Taxes on income: Provision: Income tax Social contribution Prepayments: Income tax Social contribution Taxes payable 47 R$ thousand 12/31/2010 568,005 218,008 786,013 954,142 368,330 1,322,472 (473,602) (184,120) (657,722) (698,543) (274,634) (973,177) 128,291 349,295 10,574 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) Recoverable and prepaid taxes are as follows: R$ thousand 12/31/2010 12/31/2011 Withholding income tax (IRRF) on fixed income Withholding income tax on variable income IRRF - interest on capital Prepayments – audiovisual Other Total Current Noncurrent Total 111,590 1,650 260,251 640 1,273 375,404 120,935 112 132,968 6,072 1,272 261,359 375,404 375,404 261,359 261,359 12/31/2011 R$ thousand 12/31/2010 12.2) Tax credits . Breakdown of deferred tax assets: Goodwill amortization Credits written off as losses Provision for medical expenses – FAMS Allowance for depreciation of securities Labor and civil provisions Provision for employee profit sharing Planned employee termination program Derivatives - options Adjustment to fair value – Debentures Sub-total 13,921 30,480 9,198 40,823 190,688 10,974 4,471 32,755 293,096 626,406 58,044 13,313 7,631 201,823 183,490 15,708 6,718 164,413 651,140 88,988 88,988 - 715,394 651,140 Deferred taxes on mark-to-market of available-for-sale securities: Income tax and social contribution Sub-total Total deferred taxes 12/31/2011 . Breakdown of deferred tax liabilities: Discount amortization Capital gain on long-term sale of permanent asset Mark-to-market - financial instruments Bargain purchase gain Write-off of discount - CPC Derivatives - option Sub-total R$ thousand 12/31/2010 (7,621) (126,139) (398,745) (349,928) (432,317) (194,736) (1,509,486) (8,054) (52,164) (155,427) (349,928) (437,344) (92,224) (1,095,141) (8,752,145) (8,752,145) (15,152,814) (15,152,814) (10,261,631) (16,247,955) Deferred taxes payable on mark-to-market of available-for-sale securities: Income tax and social contribution Sub-total Total deferred taxes payable 48 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) Under CVM Resolution no 599/09 deferred tax assets and liabilities were recognized on temporary additions and deductions that in the future will be deductible and taxable in the income tax and social contribution tax basis. Through the balance sheet date, the Company has budgets and expects to generate taxable income for the foreseeable future. The Company does not expect to offset deferred tax credits after five years, except for those recognized prior to CMN Resolution no 3059/2002, in line with the policy adopted by the parent company (BNDES). Deferred tax liabilities are recognized regardless of their expected realization. As at December 31, 2011, the contra entry to the provision for deferred income tax and social contribution was: 12/31/2011 (315,837) (123,242) (439,079) Income tax Social contribution Total R$ thousand 12/31/2010 (132,890) (28,516) (161,406) Basically, deferred tax assets on temporary differences arise from: a) Credits written off as loss: refer to allowance for losses recorded on credit sale of securities and receivables which are past due for more than 360 days or that had their maturity accelerated due to noncompliance with contract clauses. Such receivables may be under amicable collection by the receivable recovery department, or otherwise subject to court collection. b) Labor and Civil provisions: refer to labor (Note 13.a) and civil (Note 13.b) contingencies. c) Allowance for losses on investments: equity interests accounted for at cost or under the equity method. d) Goodwill amortization: goodwill arising from subscription of shares in cash, conversion of debentures or exchange of shares or receivables. e) Planned retirement employee program: estimated costs of the plan which provides incentives to employees who qualify for retirement for length of service (Note 20). f) Derivatives - options: refer to the fair value of options pegged to shares in the investment portfolio. g) Provision for medical care expenses - FAMS: refers to provision for medical care expenses accounted for as prescribed by CVM Resolution nº 600/09. h) Adjustment to fair value: refers to the mark-to-market of debentures. 49 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) Deferred taxes payable arising from temporary differences are basically originated by: a) Mark-to-market - financial instruments: refers to the mark-to-market of debentures, securities classified as available for sale and other investments in associates when the significant influence has been lost; b) Bargain purchase gain: income recognized on the acquisition of associates because the fair values proportional to net assets of such associates are higher than the consideration paid in exchange for these associate’s equity; c) Write-off of discount - CPC: discount recognized before 2009 written off as a result of the first-time adoption of CPCs. Tax credits and taxes payable on temporary additions and deductions are realized upon payment, utilization, reversal, sale or write off of the related differences. The amounts recognized and written off are as follows: 12/31/2010 Recognition Realization R$ thousand 12/31/2011 Tax credits: . Allowance for losses on securities . Receivables written off as losses . Goodwill amortization . Provision for medical expenses – FAMS . Labor and Civil provisions . Provision for employee profit sharing 201,823 13,313 58,044 7,631 183,490 17,384 39,094 1,567 9,138 (178,384) (21,927) (44,123) (1,940) 15,708 6,718 164,413 651,140 10,974 293,096 371,253 (15,708) (2,247) (131,658) (395,987) 10,974 4,471 32,755 293,096 626,406 - 88,988 88,988 - 88,988 88,988 651,140 460,241 (395,987) 715,394 (8,054) (52,164) (155,427) (349,928) (437,344) (92,224) (1,095,141) (73,975) (735,567) (102,512) (912,054) 433 492,249 5,027 497,709 (7,621) (126,139) (398,745) (349,928) (432,317) (194,736) (1,509,486) Sub-total (15,152,814) (15,152,814) - 6,400,669 6,400,669 (8,752,145) (8,752,145) Total (16,247,955) (912,054) . Planned employee termination program . Derivatives - option . Adjustment to fair value – Debentures Subtotal 40,823 30,480 13,921 9,198 190,688 Deferred taxes payable on mark-to-market of available-for-sale securities: Income tax and social contribution Sub-total Total Taxes payable:: Discount amortization Capital gain on long-term sale of permanent asset Adjustment of debentures to fair value - Financial instruments Bargain purchase gain Write-off of discount - CPC Derivatives - option Subtotal Deferred taxes payable on mark to market of available-for-sale securities: Income tax and social contribution 6,898,378 (10,261,631) The amount of tax credits not recorded as of December 31, 2011 totaled R$122 (R$105 as of December 31, 2010). This amount refers basically to credits written off as losses and the provision for medical expenses – FAMS. 50 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) The expected realization of tax credits and tax payable are as follows: Tax credits: Allowance for losses on securities Receivables written off as losses Goodwill amortization Planned employee termination program Provision for employee profit sharing Provision for medical expenses – FAMS Labor and Civil provisions Derivatives - option Adjustment to fair value – Debentures Sub-total . Deferred taxes on mark-to-market of available-for-sale securities: Income tax and social contribution Sub-total Total deferred taxes 2012 2013 8,503 27,018 58 4,471 10,974 1,690 1 52,715 8,601 3,075 310 1,778 919 14,683 - 88,988 88,988 52,715 2014 2015 2016 After 2016 R$ thousand Total 5,968 4,042 387 343 1,843 1,854 1,912 882 228 32,755 - 293,096 41,802 301,508 3,812 1,533 1,964 188,658 195,967 9,897 9,834 19,731 40,823 30,480 13,921 4,471 10,974 9,198 190,688 32,755 293,096 626,406 - - - 88,988 88,988 103,671 41,802 301,508 195,967 19,731 715,394 - Taxes payable: . Discount amortization Capital gain on long-term sale of permanent asset . Adjustment of debentures to fair value – Financial instruments . Bargain purchase gain . Write-off of discount - CPC . Derivatives - option Sub-total - - - - - (7,621) (126,139) (398,745) (349,928) (432,317) (194,736) (1,509,486) (7,621) (126,139) (398,745) (349,928) (432,317) (194,736) (1,509,486) Income tax and social contribution Sub-total (45,202) (45,202) - - - - (8,706,943) (8,706,943) (8,752,145) (8,752,145) Total deferred taxes payable (45,202) - - - (10,216,429) (10,261,631) Deferred taxes payable on mark to market of available-forsale securities: - 13. Civil and Labor Provisions BNDESPAR is a party to labor, social security, civil and tax lawsuits arising from the normal course of its business. The provision recognized is considered by Management as sufficient to cover probable losses. 51 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) The provisions, categorized by their nature, are as follows: 12/31/2011 R$ thousand 12/31/2010 Labor lawsuits Civil lawsuits Total 6,017 556,220 562,237 10,681 530,176 540,857 Current Noncurrent 3 562,234 562,237 5,830 535,027 540,857 Total The expected schedule of disbursements for lawsuits is as follows: R$ thousand Labor lawsuits 2012 2013 2014 2015 2016 2017 2018 2019 2020 3 2,702 1,204 669 48 1,326 65 6,017 Civil lawsuits 1,391 554,829 556,220 a) Labor lawsuits Provisions for labor contingencies reflect the classification of probable losses on 19 lawsuits in progress, basically related to overtime previously contracted (terminated after the enactment of Law nº 10566/2002) and the Amnesty Law (Collor Administrative Reform). Changes in labor provision in the period are as follows: 12/31/2011 10,681 (4,525) (139) 6,017 Balance at beginning of period Recognition Reversal Payments Balance at end of period R$ thousand 12/31/2010 10,040 2,845 (2,204) 10,681 As at December 31, 2011, BNDESPAR is a party to 2 ongoing lawsuits, whose likelihood of loss is assessed as possible, in the estimated amount of R$18 thousand (R$640 thousand as at December 31, 2010), which discuss the supplementation of retirement, administrative reform of Collor’s administration and overtime. 52 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) b) Civil lawsuits Provision for civil contingencies reflects the risk classification as probable loss on 2 lawsuits, the most important of which are related to privatization transactions carried out by the Federal Government and implemented by BNDES as the manager of the National Privatization Program (PND), and also to contractual matters. One of the main claims refer to a lawsuit filed in 1995, arising from a privatization auction conducted in 1989, where a lower court decision favorable to BNDESPAR was reversed; the judgment of the appeals filed are pending. Changes in civil provision in the period are as follows: 12/31/2011 530,176 26,044 556,220 Balance at beginning of the period Recognition Reversal Payments Balance at end of period R$ thousand 12/31/2010 534,705 (4,529) 530,176 As at December 31, 2011, the Company is a party to 10 ongoing lawsuits, whose likelihood of loss is assessed as possible, in the estimated amount of R$807 (R$572 as at December 31, 2010), of which 6 lawsuits in the amount of R$197 refer to tax issues and discuss the refund of shares (arising from debentures issued), collection of IPTU and contractual issues. 14. Shareholders’ equity As of December 31, 2011, subscribed and paid-up capital totals R$57,428.8 million and it is represented by a single registered common share, without par value, held by BNDES. The Board of Directors of BNDES, through its decisions listed below, approved capital increases in BNDESPAR as follows: • • Decision nº 521/2011, as of May 31, 2011, approved the capital increase in the amount of R$5,125. The capital balance rose from R$46,304 as of December 31, 2010 to R$51,429, through the capitalization of profits recorded in 2009 and 2008, in the amounts of R$2,754 and R$2,341, respectively, and the remaining prior-years retained earnings in the amount of R$30. Decision nº 1278/2011, as of December 13, 2011, approved the capital increase in the amount of R$6,000. The capital balance rose from R$51,429 to R$57,429, through the partial conversion of receivables held by BNDES against BNDESPAR. 53 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) Allocation of profit The allocation of profits for 2011 and 2010 is as follows: R$ thousand As of December 31 2011 2010 Profit (loss) for the year Prior-years adjustment (1) Amounts allocated 4,307,895 4,307,895 3,669,035 2,143,370 5,812,405 215,395 34,372 127,953 982,544 2,947,631 290,620 37,731 1,551,864 983,048 2,949,142 - Allocations Legal reserve - 5% (2) Tax incentive reserve Reserve for adjustments to accounting practices Mandatory minimum dividend - 25% (3) Contribution to capital (1) Adjustment arising from application of CPCs. (2) Limited to 20% of capital or, at the discretion of BNDES, when this reserve balance plus capital reserves reaches 30% of capital. (3) 25% of adjusted net income after the recognition of the legal reserve, tax incentives reserve and accounting practice adjustment reserve. Payment of dividends In 2011 dividends were paid in the amount of R$4,041, embracing 2010 mandatory dividends in the amount of R$1,009 and 2010 supplementary dividends in the amount of R$3,032, adjusted based on SELIC rate. 2011 Amount declared Amount paid (*) Event - R$ thousand R$ thousand Payment date Payment method Mandatory dividends – Fiscal year 2010 983,048 1,008,706 04/26/2011 In cash Supplementary dividends – Fiscal year 2010 2,949,142 3,032,484 05/04/2011 In cash Total payments 3,932,190 4,041,190 (*) Includes adjustment using the SELIC rate from the end of profits’ fiscal year until the date of payment. 2010 Amount declared Amount paid (*) Event - R$ thousand R$ thousand Payment date Payment method Mandatory dividends – Fiscal year 2009 917,865 934,944 03/24/2010 In cash (*) Includes adjustment using the SELIC rate from the end of profits’ fiscal year until the date of payment. Tax incentive reserve After the enactment of Law nº 11638/07, tax incentives started to pass through profit or loss and to be allocated as earnings reserve. 54 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) Reserve for adjustment to accounting practices Corresponds to a bylaw reserve recognized to include earnings arising from accounting practices different from those adopted by the sole shareholder (BNDES). Under the bylaw, the amount allocated to this reserve is deducted from the mandatory minimum dividend calculation basis. The maximum amount of this reserve is within the overall limit of earnings reserves in relation to capital, as prescribed by article 199 of Law nº 6404/76. Valuation adjustments to equity The contra entries to increases or decreases in the amounts attributable to asset or liability components, net of taxes, as a result of their measurement at fair value, are accounted for under this line item. These adjustments are broken down as follows: 12/31/2011 R$ thousand 12/31/2010 Adjustment - accumulated translation - reflex from associate Adjustment - other comprehensive income - reflex from associate Measurement at fair value of securities classified as available for sale (1) Own securities Assets from associates and subsidiaries (1) (277,684) 545,817 16,827,715 16,816,716 10,999 (81,281) (129,935) 29,414,578 29,414,287 291 Total 17,095,848 29,203,362 (1) CPC 38, incorporated to Central Bank of Brazil’s standards under Letters nº 3068/2001 and nº 3082/2002, requires the mark-tomarket of the portfolio of equity investments classified as available for sale. 15. Related Parties BNDESPAR operates and conducts transactions with entities qualifying as related parties under Technical Pronouncement nº 5, of the Accounting Pronouncements Committee (CPC), approved by CVM Resolution No 560/08. 15.1) Transactions with the parent company Transactions conducted with the parent company are summarized below, and the related terms and conditions are described in Note 10.1: 12/31/2011 Assets Credit sale of securities Local currency 86,932 Liabilities Onlendings Local currency Foreign currency Dividends payable 55 R$ thousand 12/31/2010 91,770 8,749,481 8,710,955 38,526 11,691,430 11,642,000 49,430 982,544 983,048 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) 12/31/2011 Income: Credit sale of securities Local currency Expenses: Onlendings Local currency Foreign currency R$ thousand 12/31/2010 6,361 38,931 (1,102,895) (9,904) (1,112,799) (990,696) (1,846) (992,542) 15.2) Transactions with the National Treasury – the BNDES’ sole shareholder The terms and conditions for these transactions, detailed in Note 10, are summarized below: R$ thousand 12/31/2010 12/31/2011 Liabilities Onlendings 2,884,850 R$ thousand 12/31/2010 12/31/2011 Expenses: Onlendings 2,584,529 (300,320) (230,010) 15.3) Transactions with other governmental entities: In addition to the transactions with its sole shareholder, BNDESPAR conducts, in the course of its operations, transactions with other governmental entities, therefore under common control, such as Banco do Brasil, Eletrobrás and Petrobras. The balances of the significant transactions conducted with these entities are summarized below: 12/31/2011 Assets Funds and debentures 438,363 56 R$ thousand 12/31/2010 1,345,022 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) 15.4) Transactions with Welfare and Pension Plan Foundation of the BNDES – FAPES Transactions with Pension Plan and with Health Care and Welfare Fund (FAMS), administered by FAPES, summarized below, are detailed in Note 18: 12/31/2011 R$ thousand 12/31/2010 124,538 137,256 119,356 117,891 Liabilities Payables – FAPES – Pension Fund Actuarial liability - FAMS – Health Care Plan 12/31/2011 Expenses Pension Plan Health Care Plan (19,006) (19,365) R$ thousand 12/31/2010 (21,260) (10,708) 15.5) Transactions with associates BNDESPAR holds investments in associates, as detailed in note 9.2. In addition to the capital contributions to the investees and the receiving of dividends and interest on capital, BNDES and its subsidiaries have other credit granting transactions with these entities. These transactions with the investees are conducted under the same terms and conditions as those conducted with unrelated parties and do not generate different effects on the BNDESPAR’s income and financial position as compared to transactions with unrelated parties. Balances of significant transactions with these entities are summarized below: 12/31/2011 Assets Receivables Provision R$ thousand 12/31/2010 2,631 (2,631) - 1,488 540 Dividends receivable from associates 15.6) Employees’ and management compensation BNDESPAR does not grant loans to key management personnel, i.e., directors and members of the Advisory Board and Fiscal Council. BNDESPAR does not grant either share-based payments or any other long-term benefits to its key management personnel. Post-employment benefits are granted only to employees. 57 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) Costs on compensation and other benefits granted to the key management personnel of the BNDESPAR are as follows: R$ thousand 12/31/2010 12/31/2011 Short-term benefits: Payroll and related taxes 542,44 500,73 Compensation paid to management and employees is as follows: Highest salary(*) Lowest salary (*) Average salary(*) 12/31/2011 Management Employees 5,39 44,92 4,95 1,81 5,09 21,97 R$ thousand 12/31/2010 Management Employees 4,95 41,21 4,60 1,69 4,72 20,57 (*)Contractual compensation 16. Income (expenses) on allowance for losses Breakdown of income from reversal of allowance for losses: R$ thousand 12/31/2010 12/31/2011 Reversal (recognition), net: Debentures Credit sale of securities Receivables Recovery of receivables written off from assets(*) Net income (expense) recognized (12,452) (87,558) 19,396 483,480 402,866 (266) 11,525 (25,281) 49,009 34,987 (*) Refers basically to the recovery of receivables from two entities totaling R$430, accounting for 90% of the amount recovered. 17. Pension Obligations The obligations recognized in balance sheets related to the supplementary pension and medical care plans are as follows: 12/31/2011 Payables - FAPES Actuarial liabilities - FAMS Total Current Payables - FAPES Actuarial liabilities - FAMS Noncurrent Payables - FAPES Actuarial liabilities - FAMS 58 R$ thousand 12/31/2010 124,538 137,256 261,794 119,356 117,891 237,247 6,172 4,969 11,141 5,326 4,186 9,512 118,366 132,287 250,653 114,030 113,705 227,735 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) 17.1) Pension plan Welfare and Pension Plan Foundation of the BNDES (FAPES) is a private pension plan entity. Its main purpose is to provide benefits that supplement the social security benefits granted by the National Institute of Social Security (INSS) to the employees of its sponsors: BNDES, FINAME, BNDESPAR and FAPES itself. FAPES has a defined benefit plan and uses the capitalization financial system to measure its provisions. The sponsors guarantee the transfer to FAPES, when necessary, of the funds intended to cover possible deficits identified by an actuarial valuation, as set forth by the plan’s bylaw and current legislation. The actuarial commitment was valued by an independent actuary using the Projected Unit Credit method (PUC). The adjustments of the amounts for specific dates were based on interest equivalent to the interest paid by National Treasury Notes - series B (NTN-B). The table below shows the results of the actuarial valuation of the supplementary pension plan: Present value of actuarial obligation Fair value of plan assets Present value of obligations not covered by assets/(excess coverage) Unrecognized actuarial gains Actuarial liability (asset) Assets limit Additional liability before the Interpretation A (*) Additional liability - Interpretation A (*) Net liabilities (*) 12/31/2011 R$ thousand 12/31/2010 1,288,621 (1,123,397) 165,224 (167,036) (1,812) 1,812 1,147,360 (1,049,754) 97,606 (98,843) (1,237) 1,237 - - 124,538 124,538 119,356 119,356 Interpretation A (The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction), equivalent to IFRIC 14 of IASB, is a part of CPC 33 (Decision CVM nº 600/2009). Additional liability The additional liability refers to debt acknowledgment contracts entered into with the sponsors, with a settled amortization period, through monthly payments, totaling thirteen installments per year, calculated using the Price System and subject to annual interest equivalent to the 6% actuarial rate plus the administrative costing rate and inflation adjustment, which occurs at the same time and proportion of the sponsors’ employees’ salary increases or general changes. Therefore, the contracted debt is recognized as an additional liability when the net liability is determined. 59 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) The balance of these debts is as follows: R$ thousand 12/31/2010 12/31/2011 Contracts of 2002 (a) Contracts of 2004 (b) Total 93,431 31,107 124,538 87,484 31,872 119,356 Current Noncurrent Total 6,172 118,366 124,538 5,326 114,030 119,356 (a) This refers to the agreement between the BNDES System and their employees regarding the recognition of changes in working hours, pursuant to Law nº 10556, as of November 13, 2002, which resulted in a 16.67% increase in the participants’ contribution salary, directly impacting the benefit plan’s mathematical provisions. For partial coverage of the increase in such reserves in 2002, contracts establishing the debt repayment in 390 installments were entered into. The payment began in January 2003. (b) This refers to conversion of the mathematical provisions to be recognized (in compliance with the Central Bank of Brazil’s recommendation), which were being amortized on a monthly basis since November 1998 through extraordinary contributions, into debt acknowledged by the sponsors, due in November 2018. The first installment was paid in December 2004. Changes in present value of the defined benefit obligation: 12/31/2011 Present value at beginning of period Cost of current service Interest cost Unrecognized actuarial losses (gains) Benefits paid Present value at end of period 1,147,360 10,035 116,965 80,790 (66,529) 1,288,621 R$ thousand 12/31/2010 969,476 8,375 95,860 135,402 (61,753) 1,147,360 Changes in fair value of plan assets: 12/31/2011 Balance at beginning of period Expected return on plan assets Unrecognized actuarial gains (losses) Contributions received from employer Contributions received from plan’s participants Benefits paid Balance at end of period 1,049,754 106,221 12,599 18,635 2,717 (66,529) 1,123,397 R$ thousand 12/31/2010 993,927 99,465 (624) 15,755 2,984 (61,753) 1,049,754 BNDESPAR expects to contribute approximately with R$19 to the supplementary pension plan in the next twelve months. 60 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) The amounts recognized in the income statement are follows: R$ thousand 12/31/2010 12/31/2011 Cost of current services Interest expense Expected return on the plan assets Total 10,035 116,695 (106,221) 20,509 8,375 95,860 (99,465) 4,770 The expected income of plan assets was determined based on the same assumptions used for the adjustment of liabilities, using actuarial interest equivalent to the interest paid by National Treasury Notes - series B (NTN-B). The main categories of plan assets, as a percentage of total plan assets, are as follows: Em (%) 12/31/2011 Balanced funds Shares Real estate investments Other Total 79.7 5.0 8.2 7.1 100.0 12/31/2010 80.2 5.6 5.7 8.5 100.0 MPS/CNPC Resolution nº 8 as of October 31, 2011, which addresses the accounting procedures of closed-end supplementary pension plans, approved the appendices that provide for the standard accounting planning, models and instructions for the preparation of financial statements. The main categories of the plan assets were presented in accordance with said resolution. The actual return on the plan assets accumulated through December 31, 2011 was R$119 (R$99 as at December 31, 2010). The table below shows the estimated benefits payable for the next three years as at December 31, 2011: R$ thousand 12/31/2012 12/31/2013 12/31/2014 69,748 72,887 76,167 17.2) Medical care plan BNDESPAR, as a wholly-owned subsidiary of BNDES, sponsors FAMS (Health Care and Welfare Fund), created primarily to provide the plan’s participants and dependents with benefits that supplement or are similar to those granted by the INSS. These benefits, which include healthcare, hospital and dental care services under free or directed-choice systems, have been provided to the employees since 1976, under the BNDES’ Board of Directors Resolution nº 933/98, also applicable to the BNDES’ subsidiaries. 61 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) FAMS beneficiaries are active and retired employees of the BNDES and its subsidiaries and their dependents; in the event of death of the principal beneficiary, the dependent is assured of his/her right to the benefits over a maximum of 24 months. FAMS receives funds from BNDESPAR to attain its purposes. These funds are managed by FAPES - Fundação de Assistência e Previdência Social of BNDES, which is also responsible for the preparation of the annual budget and breakdown of operational costs necessary to FAMS. FAMS is not covered by guarantors’ assets. Benefit prepayment is made by BNDESPAR based on the budgets presented by FAPES, which reports the costs incurred on a monthly basis through the Statement of Rendering of Accounts. As of December 31, 2011, the amount of the actuarial obligation to covered participants and active participants for the average future time of service was recorded based on the update of the actuarial valuation made by an independent actuary. The amounts recorded in balance sheet are as follows: Present value of unfunded obligations Unrecognized actuarial losses Net actuarial liability 12/31/2011 R$ thousand 12/31/2010 173,184 (35,928) 137,256 162,079 (44,188) 117,891 The changes in the present value of the defined benefit obligation are as follows: 12/31/2011 162,079 1,927 16,729 (2,191) (5,360) 173,184 Balance at beginning of period Cost of current service Interest cost Unrecognized net actuarial gains (losses) Benefits paid Balance at end of period R$ thousand 12/31/2010 130,380 1,448 13,006 23,252 (6,007) 162,079 Amounts recognized in the income statement: 12/31/2011 Cost of current service Interest cost Unrecognized net actuarial gains (losses) Total 1,927 16,729 6,069 24,725 R$ thousand 12/31/2010 1,448 13,006 2,260 16,714 BNDESPAR expects to contribute approximately R$6 to the medical care plan in the next twelve months. 62 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) A one percentage point change in medical care cost rates would have the following impacts: R$ thousand One percentage point increase Effect on aggregate cost of current service and interest cost Effect on defined benefit obligation 3,004 26,151 One percentage point decrease (2,459) (21,542) 17.3) Actuarial and economic assumptions All actuarial calculations involve future projections for some parameters, such as: salaries, interest, inflation, variation of INSS benefits, mortality, disability, etc. No actuarial outcome can be analyzed without the prior knowledge of the assumptions scenario used in the valuation. The following economic assumptions were used in the valuations: Benefits considered Actuarial valuation method Qualified mortality table Disability mortality table Disability Actual salary increase expected for active participants Nominal discount rate Inflation rate Expected return on supplementary pension plan assets Real trend rate of medical costs December 31, 2011 All regular benefits Projected Unit Credit AT 2000 AT 49 worsened by 100% Álvaro Vindas Technical group (3.1100% p.y.) and support group (2.5397% p.y.) 10.288% p.y. 4.5% p.y. December 31, 2010 All regular benefits Projected Unit Credit AT 2000 AT 49 worsened by 100% Álvaro Vindas Technical group (2.9546% p.y.) and support group (2.4426% p.y.) 10.4909% p.y. 4.5% p.y. 10.288% p.y. 5% p.y. 10.4909% p.y. 5% p.y. 18. Other benefits The BNDESPAR grant the following benefits to their active employees: 12/31/2011 Transportation ticket Meal ticket Education bonus Total 54 9,629 2,477 12,160 R$ thousand 12/31/2010 79 7,223 2,195 9,497 19. Planned employee termination program After the decision of the STF (Federal Supreme Court) which established that the voluntary retirement of employees does not automatically terminate the employment contract, a large number of employees remained working at BNDESPAR while receiving the retirement benefit, which impaired the expected renewal of its personnel. 63 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) The Planned Retirement Program which is an incentive for the retirement of employees who are eligible to full or early retirement through December 31, 2012 was approved under the scope of the Collective Bargaining Agreement, to ensure the renewal of personnel, without prejudice to the dissemination of the retirees’ experience to new employees. According to FAPES estimate, 27 BNDESPAR’s employees will be eligible to the Program, corresponding approximately to 1.0% of the current headcount of the BNDES System. The estimated disbursement as at December 31, 2011, as a result of the program implementation, is approximately R$13 and it is recorded in current liabilities due to its termination by 2012. 20. Financial instruments: embedded derivatives, simple derivatives In light of the corporate purpose of BNDESPAR, some equity investment transactions presents a structure that generate embedded derivatives in debenture contracts. These derivatives do not have a hedging purpose and are not speculative. These derivatives are options for the conversion into or exchange for shares of underlying debentures. Thus, these derivatives do not pose any risk of loss to BNDESPAR. CPC´s technical pronouncements addressing the matter, which were issued in 2009, were adopted in accordance with CVM Resolution nº 603/2009. Accordingly, CPC 38 (Financial instruments: Recognition and Measurement), CPC 39 (Financial instruments: Presentation) and CPC 40 (Financial instruments: Disclosure), which require the measurement and recognition of these derivatives at fair value, were adopted. These debentures were stated at fair value through profit or loss (Note 6.3.4). Debentures convertible into/exchangeable for shares listed in stock exchanges Debentures convertible into/exchangeable for shares not listed in stock exchanges Total 12/31/2011 7,755,148 2,312,044 10,067,192 R$ thousand 12/31/2010 10,448,439 1,595,897 12,044,336 BNDESPAR is a party to structured option agreements linked to variable income investments as follows: Derivatives Call option (liability) Put option (asset) Redemption of shares (asset) 12/31/2011 R$ thousand 12/31/2010 Black-Scholes / Merton (96,338) (483,569) Black-Scholes / Merton Black-Scholes / Merton 478,862 93,891 572,753 229,902 41,346 271,248 Type Pricing methodology American option European option European option Management did not identify any market risk operation deemed relevant that could result in material losses to the Company. 64 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) 21. Risk management and sensitivity analysis In compliance with internal and external regulations and the objectives set by the high management, BNDES Risk Management Area is responsible for: a) setting and proposing to the Advisory Board the general risk management and internal control guidelines for the BNDES and its subsidiaries; b) monitoring the risk exposure levels; c) analyzing and monitoring the regulatory capital requirements; d) analyzing the changes in allowances for doubtful accounts and their impacts on the profit or loss of the BNDES and its subsidiaries; e) assessing the quality of internal control in place at the BNDES System, the assignment of responsibilities, the segregation of duties, involved risks, and the compliance of processes with internal and external guidelines by proposing measures for their improvement; and f) disseminating a group-wide internal control and risk management culture. BNDES risk management is an ongoing process. The work is performed so as to allow consistency in terms of risk management policies, processes, criteria and methodologies. The following comprise the risk management and internal control structure of BNDES: Advisory Board; Board of Directors; Risk Management Committee; Market, Credit and Operational Risk Management and Internal Control Subcommittees; and units dedicated to risk management. • Internal Controls Internal controls are procedures that are present at all entity’s levels, which are designed to mitigate risks and provide reasonable assurance that the following objectives will be met: − Compliance: performance of activities in accordance with internal and external guidelines that regulate such activities; − Performance: process efficiency and effectiveness, with no significant costs and asset hedging; − Information: disclosure of reliable, precise and timely information to support the decision-making process. BNDES promotes the continuous improvement of internal controls, based on the foundations set out in CMN Resolution nº 2554/98 and the Corporate Internal Control 65 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) Policy. In this context, activities are performed to check the compliance with internal and external regulations and assess internal controls and risks of work processes. The reports containing the conclusions on these evaluations are submitted to the Internal Control and Operational Risk Management Subcommittee, Risk Management Committee and the high Management. Compliance with the recommendations presented to the units involved is continuously monitored. The continuous dissemination of the internal control culture is based on a communication process to clarify the role of each professional in the Internal Control System and emphasize the importance of ethics and transparency. In addition to disseminating the Corporate Internal Control Policy and making available information related to this subject on the intranet, the Bank holds lectures for new employees as part of the current headcount renewal process to highlight the importance of internal control. The highlights in 2011 were as follows: − compliance monitoring work and assessment of process internal control, as established in the annual plan of the Internal Control Unit; − implementation of the continuous monitoring project for internal control evaluation; − compliance agent project; and − approval, by the Advisory Board, of the Internal Control Report for the second six-month period of 2010 and first six-month period of 2011, as set forth in CMN Resolution 2554/98. Operational Risk Operational Risk is the possibility of incurring in losses due to failure or inappropriateness of internal processes, people and systems, or external events. The concept includes legal risk, associated to unsuitability or weaknesses in contracts entered into by the institution, as well as penalties due to noncompliance with rules, and compensation paid for damages caused to third parties as a result of the activities conducted by the Bank. Differently from the market and credit risks, its management and mitigation involves all functions of the Bank. The unit responsible for operational risk is in charge of assisting the other units in identifying and assessing these risks. To this end, the principles set out in the Corporate Operational Risk Management Policy, as well as those set out in the Business Continuity Management Corporate Policy are followed. Both policies set out the set of principles, actions, roles and responsibilities relating to the issues in the financial institution. As regards the regulatory capital, BNDES currently uses the Basic Indicator Approach to calculate the Required Regulatory Capital (PRE) related to the operational risk (POPR). This portion is being periodically calculated and reported to the BACEN as an integral part of the Statement of Operational Limits (DLO). 66 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) In order to disseminate the operational risk culture in the Bank, a specific module on this theme was included in the new employee training program. Operational Risk information is also available on the intranet to our internal audience. In 2011, with respect to the continuous assessment and mitigation of operational risk, special attention was directed in improving the risk assessment methodology and operational loss database. In respect of the development and implementation of a Business Continuity Management System (SGCN) for BNDES, a bid process was completed to hire a technical consulting firm specialized on the matter, and the project began in September 2011. Additionally, the Incident Management Plan (PGI) of BNDES is being reviewed. Market and liquidity risk The market risk is the risk of financial losses resulting from changes in the fair values of the asset and liability positions held by the Bank, including the risks of fluctuation in foreign exchange rates, the interest rates, equity prices, and the commodity prices. BNDESPAR is exposed to currency fluctuations arising from foreign currency-denominated transactions, with respect to which the currency risks are daily monitored through the determination of currency exposure. This activity is controlled for BNDES Consolidated, which comprises BNDESPAR’s positions, through the operation in the foreign exchange derivatives market. The mismatch risk between indices and rates is monthly monitored and is subject to the limits approved by the Risk Management Committee (CGR). The limits are established for each of the companies and Consolidated. BNDES’s Liquidity and Market Risk Management area monitors the figures related to BNDESPAR’s equity investments in publicly-held companies with shares listed in Bovespa, privately-held companies and investment funds, performing marked-to-market activities of the stock portfolio of publicly-held companies. The monitoring of the stock risk progress is supported by indicators, including the parametric VaR, which is measured by company and/or sector through the supplementary VaR analysis for the entire portfolio. Liquidity risk is the risk arising from mismatches between tradable assets and payable liabilities – mismatches between payments and receipts - that might affect the payment ability of the Company, taking into consideration the different currencies and settlement terms of its assets and liabilities. BNDESPAR, due to its nature directed to capital contribution, has low liquidity risk. The Company's liquidity risk management is controlled through BNDES Consolidated, by analyzing on a quantitative basis the financial instruments included in the tradable assets or payable liabilities, for 30, 60 and 90 days. The Corporate Market and Liquidity Risk Management Policy of BNDES and its subsidiaries defines the set of methodologies, procedures, limits, instruments, and responsibilities applicable to permanent control of the Bank’s internal processes to ensure an appropriate risk management. 67 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) The risk management monitors the portion of capital requirements resulting from the trading and non-trading portfolios to ensure that the risks inherent to these transactions are consistent with the desirable risk appetite of the Bank. The trading portfolio consists of all transactions conducted with financial instruments, including derivatives, held with the intent of being actively and frequently traded or used for hedge purposes, and not subject to trading restrictions. Transactions held for trading are those intended for (i) resale; (ii) obtain benefits from changes in effective or expected prices; or (iii) arbitration. BNDESPAR’s trading portfolio is currently comprised of investment funds managed by the security underwriter. Most of the trading portfolio is comprised of government bonds, whose yield is pegged to the DI rate, resulting in market risk at relatively low amounts when compared to the other portions comprising the Company's Required Regulatory Capital. The non-trading portfolio corresponds basically to BNDESPAR’s investments in floating income securities, private securities with or without option and funding. This portfolio includes interest rate, price, and currency risks. Some BNDES’ shares are accounted for under the equity method. Market risk measurement procedures The measurement procedures adopted to measure and control market risks are described below: (a) Value at Risk VaR is a risk measure based on statistics of potential losses on portfolios of investments due to adverse changes in market variables. VaR determines BNDESPAR’s maximum losses considering a confidence level of 99%. Therefore, there is a probability of 1% that the actual losses may be greater than the estimated VaR. This model assumes a tenday period for the maintenance of the positions. Moreover, such model also assumes that the changes over this period will comply with a standard similar to the changes over the prior ten-day period. VaR is adopted to assess the risk of financial operations in the trading portfolio subject to fixed interest rates denominated in Brazilian reais and also the risk of the portfolio of shares held by publicly-held companies. (b) Net Interest Income The Net Interest Income (NII) variation is a risk measurement which determines the possible losses from the Bank’s net interest rate. Therefore, a GAP is adopted for the non-trading portfolio in BNDES system’s operational records (loan portfolio, debentures and portfolio of government bonds). The GAP analysis measures the interest rate risk exposure specifically applicable to operations with fixed income instruments. 68 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) This methodology determines the estimated losses from net interest revenues based on the GAP analysis and stresses on the portfolio's risk factors for one-year holding period. (c) Stress test The stress tests provide an indication of the potential losses which could result from extreme market conditions. With respect to the trading portfolio, the stress tests are carried out by the Fund Manager (BB DTVM), in which BNDES System holds interest, and are monitored by the Market Risk Department. With respect to the non-trading portfolio, stress tests are performed monthly to determine the interest rate risk. Sensitivity analysis of financial instruments pursuant to CVM Normative Instruction 475/08 and CVM Resolution 604/09 We present below the sensitivity analysis of the financial instruments comprising the BNDESPAR’s operations, including derivatives, which describes the risks inherited to these operations and which could result in financial/economic losses against the Company. In the preparation of the sensitivity analysis, the Company adopted the following assumptions, as defined in the abovementioned rules: i) Identify the market risks that can result in material losses to the Company. ii) Define a probable scenario, as set forth in CVM Resolution 604/09, for the risk behavior supported by an independent outside source for a one-year period. iii) Define two additional scenarios, as set forth in CVM Instruction 475/08, with stresses of at least 25% and 50% in the risk variable considered (Scenario II and Scenario III, respectively). iv) Determine the effects of the scenarios on the fair value of the financial instruments managed by the Company and the effects on income or loss and shareholders’ equity; and v) The probable and stress scenarios (I and II) were compared with the current scenario for each type of financial instrument. In order to determine the sensitivity analysis of fixed income transactions and exchange rates, the probable scenario, evaluated internally, considers the expected behavior of rates for the next 12 months, which may result in gains or losses to the Company. Scenarios II and III are applicable to stresses of 25% and 50% (directed to losses) on market data, as at December 31, 2011. The probable scenario for variable income transactions (shares) was calculated based on the portfolio beta and internal evaluations to determine the risk-free rate for one-year period and the market risk premium, based on the Capital Asset Pricing Model (CAPM). As at December 31, 2011, the share portfolio amount was used to support the current scenario. The shares evaluated under the equity method were not included in such analysis. 69 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) We present below the sensitivity analysis for the operations with financial instruments which affected the Bank’s income statement and shareholders’ equity. The sensitivity analysis considered the tax effects at the rate of 34% levied on income/loss of fixed or variable income operations. Instrument Selic / DI TJLP Fixed rate IGPM IPCA TR USD Shares and equivalents Instrument Debentures with option Shareholding interest with option Risk Effect Selic increase / DI Income (loss) TJLP increase Income (loss) Decrease in fixed rate from repricing Income (loss) IGPM decrease Income (loss) IPCA decrease Income (loss) TR increase Income (loss) BRL/USD exchange decrease Income (loss) Stock price decrease Shareholders’ equity FLOATING INCOME DERIVATIVES Risk Income (loss) Probable scenario - Income (loss) - Effect Decrease in asset price (shares) Increase/decrease in asset price (shares) Probable scenario 3,359 20,155 (272) 3 (2,450) (1,682) (1,902) 7,019,392 R$ thousand Scenario II Scenario III (22,555) (45,110) (33,418) (66,837) (377) (628) (1) (2) (7,980) (13,301) (369) (737) (5,672) (9,454) (12,696,876) (25,393,752) Scenario II Scenario III (414,338) (742,083) (197,870) (381,157) The term “shares and equivalents” used in the table above refers to the portfolio of investment in non-associates (“shares”) and financial instruments with equity instrument characteristics (“equivalents”), classified as available for sale in the balance sheet. With respect to conversable/exchangeable debentures, should the conversion/exchange option is not exercised, BNDESPAR will remain with the fixed income of the debentures and will receive the compensation and/or return of the principal from such instrument. With respect to the analyzed derivatives, the price risk of underlying asset to such financial instruments may be considered as the most relevant, whose variation may be equivalent to the greater portion of the adjustment to the fair value of these floating income instruments in a specific period. Therefore, two prices were defined based on the same models used to determine the fair value recorded in the balance sheet, considering, as input, the effects from stresses on the spot price of the underlying asset at the ratio of 25% and 50%, as set forth in CVM Instruction nº 475/08 CVM. For purposes of CVM Resolution nº 604/09 and CVM Instruction nº 475/08, this sensitivity analysis considered as probable scenario the fair value already recorded since this value already reflects Management’s expectation for the probable situation and is based on external sources with respect to the risk variables comprising the pricing models adopted for calculation of fair value. This scenario was the basis for the stress scenario of 25% and 50% of the main risk variable considered, which was the spot price of the instrument. Potential losses indicated in the years of risk variable impairment considered in the sensitivity analysis in accordance with CVM Instruction nº 475/08, including those related to derivatives arising from financial support operations through variable income 70 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) instruments, do not fairly reflect BNDESPAR’s market risks in terms of structuring and contracting of operations, do not correspond to the Bank's probable financial and economic burden and do not represent probable effects on BNDES System’s performance. With respect to the derivatives included in this analysis, it is important to consider the economic effect difference in two time frames: (i) the full term of the derivative; and (ii) in the interim periods during the derivative term mentioned in item (i). In case of a full term, between the derivative acquisition date and its maturity (item i), there is no risk of financial loss on the Bank’s profit or loss, since the fair value of this instrument is initially equivalent to zero, without any corresponding disbursement as premium. In the case of interim periods (item ii), there is a risk of loss on derivatives’ value due to potential negative fluctuations in the fair value of these instruments. Such fluctuations in these periods impact the Bank’s equity. With respect to the put options held and call options assigned by BNDESPAR, the effects from financial exposures do not represent potential losses against the Company, since, on an economic point of view, the impairment of such options is compensated by the appreciation of the market value of the respective underlying shares included in BNDESPAR’s portfolio, representing a type of “natural hedge”. Credit risk The credit risk is the risk associated to the possibility of incurring losses due to borrower or counterparty default of agreed financial obligations, the depreciation of a credit agreement due to the downgrading of the borrowers’ risk ratings, the decrease in gains or returns, the advantages granted in renegotiations, and the costs of recovery. The main purpose of BNDES’s credit risk management is to properly measure the risk of financial losses on the Bank’s portfolio. Currently, the standard methodology is adopted to calculate the Regulatory Capital in accordance with the rules issued by the National Monetary Council. Similarly to the method applicable to the BNDES’s portfolio of assets, BNDESPAR’s assets, including derivatives, recognize regulatory capital, in accordance with the rules established by BACEN Circular BACEN nº 3360/07. The unit responsible for the credit risk management of the BNDES System already performs estimates for the different risk components of the credit portfolio for future implementation of the advanced model in accordance with Basel guidelines. Therefore, the risk of the portfolio comprised of direct borrowings and onlending is determined based on estimates for the following components: (i) the probable lack of payment by the borrower or counterparty (PD); (ii) the exposure with the borrower or counterparty on the delinquent date (EAD); and (iii) losses from the lack of payment (LGD). However, in order to determine the estimates in accordance with the Basel guidelines, the measurements must reflect the expected losses (estimated loss model) while the estimates in accordance with CPC 38 must consider the losses incurred. In view of this, the unit 71 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) responsible for the credit risk management currently considers the database and separated analysis for Basel and CPC purposes. Particularly with respect to the estimates set forth by the new accounting standards, several segregations and specific treatments are adopted, including the calculation and analysis of the risk parameters verified separately for the BNDESPAR’s portfolio. 22. Guarantees The Company offered in guarantee 7,744,038 registered preferred shares issued by Petróleo Brasileiro S/A - PETROBRAS (subsequently reversed into 61,952,304 preferred shares) and 28,083.251,230 registered common shares issued by Centrais Elétricas Brasileiras S/A – ELETROBRAS (subsequently grouped into 56,166,502 common shares), as a contra entry to the National Treasury for sureties and loans, in the amount of US$ 600 million, raised abroad by its sole shareholder - BNDES. Out of these shares, 61,952,304 preferred shares issued by Petrobras and 1,510,070 common shares issued by Eletrobrás are still under custody. 23. Segment reporting The Business Segment Report is presented in conformity with the internal report provided to the “main manager of operating decisions”, responsible for identification and allocation of proceeds, in addition to the performance evaluation of the operating segments. The definition of “main manager of operating decisions, in accordance with CPC Accounting Pronouncement 22, includes the management activities performed by the executive officers, comprising the Company's management. BNDESPAR analysis its business mainly considering the financial support through fixed income instruments (fixed income segment) and variable income instruments (variable income segment). The financial support through fixed income instruments comprises the acquisitions of debentures, also those conversable or exchangeable, provided that not quoted in active market, and the sales in installments of securities. The financial support through variable income instruments comprises the acquisitions of equity interest in associates (in which the Company exercises significant influence) or other companies stated at fair value. This type of support is mainly funded by its own capital, and possible insufficient funds are supplemented by the funds provided by its sole shareholder, through loan agreements The accounting policies adopted in the evaluation of information per operating segment are in accordance with the accounting policies adopted in the presentation of the financial statements. BNDESPAR evaluates the performance of these segments based on net operating profit. Income tax is monitored on a centralized basis and, therefore, was not allocated to any segment. Operating revenues are fully generated from foreign customers and, therefore, there are no operations between the operating segments. 72 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) The information per business segment was analyzed and is presented as follows: R$ thousand December 31, 2011 Fixed income Variable income Other segments Unallocated Total OPERATING INCOME Interest income Gain (loss) on investment funds Income (loss) from sale of variable income securities Dividends and interest on capital Derivative transactions Equity in subsidiaries Other Revenues OPERATING EXPENSES Interest income Income (loss) from sale of variable income securities Dividends and interest on capital Derivative transactions OTHER OPERATING INCOME (EXPENSES) Net inflation adjustment of assets and liabilities Reversal (creation) of provision for contingencies Personnel expenses Depreciation and amortization Other operating income (expenses) INCOME BEFORE TAXES ON INCOME AND PROFIT SHARING Taxes on income Profit sharing NET INCOME 1,372,043 1,339,834 32,209 (1,692,623) (2,075,767) 402,866 (19,722) 183 183 - 7,185,007 (31,885) 1,705,143 3,611,501 (23,485) 1,923,733 (762,116) (710,498) (50,143) (1,475) 193,500 193,500 - 67,107 67,107 - (803,763) (127,139) (21,519) (277,852) (8,190) (369,063) 8,624,157 1,406,941 (31,885) 1,705,143 3,611,501 (23,485) 1,923,733 32,209 (2,454,739) (2,075,767) (710,498) 352,723 (21,197) (610,080) 66,544 (21,519) (277,852) (8,190) (369,063) (320,397) 6,616,391 67,107 (803,763) 5,559,338 (320,397) 6,616,391 67,107 (1,219,166) (32,277) (2,055,206) (1,219,166) (32,277) 4,307,895 ASSETS AS OF DECEMBER 31, 2011 Investments in associates (MEP) 14,984,767 - 93,752,485 19,332,192 217,630 - 1,703,401 110,658,283 - 19,332,192 R$ thousand December 31, 2010 Fixed income OPERATING REVENUES Interest income Income (loss) from sale of variable income securities Dividends and interest on capital Gains (losses) on derivatives Equity in subsidiaries Adjustments to market value of securities Gain on disposal of fixed income securities Other Revenues OPERATING EXPENSES Interest expenses Equity in subsidiaries Impairment losses Other expenses OTHER OPERATING INCOME (EXPENSES) Net inflation adjustments to assets and liabilities Reversal (creation) of provision for contingencies Personnel expenses Depreciation and amortization Other operating income (expenses) INCOME BEFORE TAXES ON INCOME AND PROFIT SHARING Taxes on income Profit sharing NET INCOME Unallocated Total 6,775,598 2,892,819 2,228,659 351,346 1,240,776 61,998 (1,966,313) (990,696) (801,427) (144,395) (29,795) 159,625 159,625 - 125,403 125,403 - (539,935) (13,299) 1,685 (281,471) (6,358) (240,492) 8,239,148 917,968 2,892,819 2,228,659 351,346 1,240,776 61,998 4,280 541,302 (2,654,275) (1,692,957) (801,427) (109,408) (50,483) (380,222) 146,326 1,685 (281,471) (6,358) (240,404) 650,273 4,968,910 125,403 (539,935) 5,204,651 4,968,910 (1,489,417) (46,199) 125,403 (2,075,551) (1,489,417) (46,199) 3,669,035 3,534,105 - 73 Other segments 1,338,147 792,565 4,280 541,302 (687,962) (702,261) 34,987 (20,688) 88 88 650,273 ASSETS Investments in associates (MEP) Variable income 119,677,009 1,126,479 13,641,374 - 1,485,825 - 125,823,422 13,641,374 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) The presentation of information per segments above already includes the reconciliation of the amounts of items (revenues, expenses, income, loss, among others) of the operating segments disclosed with the respective total amounts disclosed in the financial statements, recorded under “unallocated ". 24. Non-cash transactions In 2011 and 2010, BNDESPAR carried out financing activities not involving cash, as detailed below, therefore, these transactions are not reflected in the statement of cash flows: 2011 The Board of Directors approved a capital increase through the partial conversion of credits held by BNDES in the amount of R$6,000. 2010 The Board of Directors approved a capital increase in the amount of R$15,600 through the conversion into capital of receivables held by BNDES. Financed acquisition of securities by means of a loan from BNDES in the amount of R$22,409 in 2010. 25. Event after the Reporting Period On January 16, 2012, the fourth interest coupon in the gross amount of R$ 78.090783 per debenture and the amortization in the gross amount of R$1,306.850920 per debenture relating to the first public offering of BNDESPAR were paid, according to the Notice to Debentureholders disclosed on January 12, 2012. The amounts as at December 31, 2011, described in Note 11, totaled R$826. 74 BNDES PARTICIPAÇÕES S.A. - BNDESPAR NOTES TO THE FINANCIAL STATEMENTS For the years ended December 31, 2011 and 2010 (Amounts in millions of Brazilian reais - R$, except otherwise indicated) ADVISORY BOARD: FERNANDO DAMATA PIMENTEL LUCIANO GALVÃO COUTINHO ALESSANDRO GOLOMBIESWSKI TEXEIRA JOÃO PAULO DOS REIS VELLOSO ROBERTO TEIXEIRA DA COSTA FISCAL COUNCIL: CLEBER UBIRATAN DE OLIVEIRA RICARDO SCHAEFER CLÁUDIO DE ALMEIDA NEVES ANDRÉ PROITE – Alternate FÁBIO ESTORTI DE CASTRO – Alternate JORGE KALACHE FILHO – Alternate BOARD OF DIRECTORS LUCIANO GALVÃO COUTINHO – President JOÃO CARLOS FERRAZ – Vice-President Director ELVIO LIMA GASPAR – Director JULIO CESAR MACIEL RAMUNDO – Director LUIZ EDUARDO MELIN DE CARVALHO E SILVA – Director LUIZ FERNANDO LINCK DORNELES – Director MAURÍCIO BORGES LEMOS – Director ROBERTO ZURLI MACHADO – Director CHIEF FINANCIAL OFFICER SELMO ARONOVICH HEAD OF ACCOUNTING DEPARTMENT: CARLOS FREDERICO RANGEL DE CARVALHO SILVA - CRC-RJ 087956/O-8 75