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Saraiva.com.br Editora
SaraivaSaraivaJurEnglish
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 Saraiva S.A. Livreiros Editores Listed company Notes to the financial statements
The main business of Saraiva S.A. Livreiros Editores (Editora) is publishing books in the following areas: primary and secondary school books, auxiliary textbooks, law books and books on economics and administration. Editora’s operating cycle presents large seasonal fluctuations during the year, 80% of sales being concentrated between the last quarter of the year and the first quarter of the following year. This concentration of sales is due to two factors: (a) the “back to school” period in the first quarter; and (b) the sale of primary school textbooks to the government in the fourth and first quarters of each year. 2 Presentation the of financial statements The financial statements were drawn up based on the accounting practices established by Brazilian corporate legislation and the norms of the Securities Commission (Comissão de Valores Mobiliáros - CVM). Description of the main accounting practices a. Calculation of results The result of operations is calculated in accordance with the accrual accounting regime. b. Accounting estimates Accounting estimates are revised annually and take into consideration the management’s best judgement in order to determine the proper value to be registered in the financial statements. The settlement of transactions involving these estimates may result in different values, due to imprecisions inherent in the process of determining these estimates. • Financial investments Booked at cost, with the addition of the yield earned up to the date of the balance sheet, which does not exceed market value. • Provision for doubtful receivables Constituted in an amount considered sufficient to provide for any losses in the realization of accounts receivable from clients and checks receivable. Credits that are considered unrecoverable are booked directly in the statement of income. • Inventories Valued at the average cost of acquisition or production, which does not exceed market value. • Other current and long-term assets Presented at the net realizable value. d. Fixed assets • Investments The investments in subsidiaries are valued by the equity method and other investments are valued at cost, with the deduction of a provision for devaluation. • Property, Plant & Equipment Booked at acquisition, formation or construction cost. Depreciation is calculated on a straight-line basis, at rates that take into account the useful life of the assets. Booked at acquisition and formation cost; refers to a premium to be amortized, and pre-operating expenses with commercial assignments and expenses incurred prior to the start-up of operations at new stores. The amortization of pre-operating expenses is effected over a period of 5 years, or in accordance with rental contract provisions, as from the beginning of commercial operations at the stores. The premium to be amortized, resulting from the acquisition of a shareholder participation, had as an economic foundation the expectation of future returns, based on the projected capacity to generate future profits in the time foreseen for the return on the investment; it was transferred from the investment to deferred assets as a result of the absorption of the investment in August 1999, and is being amortized on a straight-line basis in 60 monthly installments, calculated in accordance with the results projected for the five-year period counted from January, 2000. e. Current and long-term liabilities • Copyright payments These are credited when sales are effected and, in some cases, when publishing rights are acquired. In the first case, the rights are considered sales expenses and booked in the statement of income, and in the second they are included in production costs. • Other current and long-term liabilities These are shown at the known or calculable values, with the addition, when applicable, of the corresponding charges and monetary and/or exchange-rate variations incurred up to the date of balance sheets. f. Provisions Provisions are booked based on the best estimates of the risk involved. Taxes on the year’s profit or loss comprise current and deferred amounts. The income tax and the social contribution for the year are calculated, respectively, at the rate of 15% on the taxable profit, plus the additional 10% levy, and at the rate of 9% on the adjusted book profit. The consolidated financial statements correspond to the financial statements of Saraiva S.A. Livreiros Editores and its subsidiaries, as follows:
The consolidated financial statements were prepared in accordance with the provisions of the Corporations Act (Lei das Sociedades por Ações) and of the norms issued by the Securities Commission, and according to the main procedures adopted for consolidation, which comprise the following: • The elimination of rights and obligations, as well as revenues, costs and expenses, resulting from transactions effected among the companies included in the consolidation;
5 Inventories
6 Investments
The participation in subsidiaries is represented by the investment in Livraria e Papelaria Saraiva S.A. and Formato Editorial Ltda. The premium was based on the expectation of future returns, founded on the projected capacity to generate future profits in the time foreseen for the return on the investment, and will be transferred to deferred assets as of February 4, 2004 and amortized on a straight-line basis, as from that date, in 60 monthly installments. The main details of the investments are as follows:
The result of Formato Editorial Ltda. recognized by Editora refers to the period from August 26 to December 31, 2003. The statements of income of the subsidiary Livraria e Papelaria Saraiva S.A. for the years ending on December 31, 2003 and 2002 are shown separately below:
7 Property, Plant & Equipment
8 Deferred items
9 Loans and finance
The breakdown of long-term operations, per year of maturity, is as follows:
The overdraft loans are subject to financial charges calculated on the basis of the CDI (inter-bank CD) rate. The loans referring to on-lending of funds raised abroad, in accordance with Central Bank Resolution no. 2770, are linked to interest-rate swap operations equivalent to the CDI rate (Note 15) and are guaranteed by promissory notes. Annual interest at a rate of 4.20%, on average, is charged on the principal restated by the variation in the dollar exchange rate, in accordance with contracts. The finance from the IFC, which is subject to the variation of the US dollar exchange rate, incurs annual interest at a rate of 3% over LIBOR. The loan contract is free of any real guarantees; however, until it is fully repaid, Editora will hold its present shareholder participation in Livraria e Papelaria Saraiva S.A., and the controlling shareholders will hold, together, at least 50% of the common (voting) shares in Editora. The contract also provides for the fulfillment of performance indicators relating to: a) Current liquidity; b) Degree of indebtedness; and c) Interest coverage ratio. During the year under analysis, Editora registered performance indicators in accordance with the specific obligations provided in the contract. The BNDES – FINEM financing was allocated to the acquisition and implementation of an Integrated Corporate Management System (“ERP”) and to the construction of a Distribution Center. The financing obtained by Editora from the International Finance Corporation (IFC) and by the subsidiary from the BNDES – FINEM program were allocated to the project for investment in “Mega Stores” and to the modernization of conventional stores belonging to the subsidiary. During the year, the subsidiary Livraria e Papelaria Saraiva S.A. received two additional amounts, equivalent to R$ 2,308, under the contract with the BNDES – FINEM program. Transactions among related parties comprise commercial purchase and sale operations with Livraria e Papelaria Saraiva S.A., and consignment and inter-company loan operations with Formato Editorial Ltda. These transactions were carried out under usual market conditions.
The origins of the deferred income tax and social contribution are as follows:
The reconciliation of the expense calculated by using the combined tax rates and the income tax and social contribution expense debited in the statement of income is shown below:
CVM Instruction no. 371, dated June 27, 2002 The controlling company and its subsidiary Livraria e Papelaria Saraiva S.A., based on: a) the expected generation of future taxable profits and positive cash-flows, brought to the present value; and b) the measures that are being taken by the subsidiary’s management in order to reverse the loss situation observed in the last three years, which have resulted in a 38% reduction in the loss booked in the year here analyzed, in relation to the loss booked in the previous year; thus complying with the provisions and conditions established by CVM Instruction no. 371/02, have maintained, in their financial statements, the deferred tax assets constituted on the basis of long-term liabilities, represented by lawsuits questioning federal taxes and, in the case of the subsidiary, also on the balance of tax losses and negative social contribution bases. The estimated realization of the subsidiary’s deferred tax assets is concentrated in the next four years, as follows:
12 Provision for contributions and taxes Editora and its subsidiary Livraria e Papelaria Saraiva S.A. are questioning in the Courts the legality of taxes in the federal sphere, namely PIS, COFINS, IT (income tax) and CSLL. The breakdown of the residual contingent liability is as follows:
13 Shareholders’ equity At an Extraordinary General Shareholders Meeting held on April 24, 2003, an increase in the capital stock in the amount of R$ 2,841 was approved, with the incorporation of profit reserves, and with no alteration in the number of shares. The Company’s capital, fully paid up, amounting to R$ 39,721 (R$ 36,880 in 2002), is represented by 23,269,203 shares, of which 9,622,313 are common shares and 13,646,890 preferred shares with no face value. Editora is authorized to increase its capital stock, without altering its by-laws, up to the limit of 33,769,203 shares. The preferred shares cannot exceed 2/3 of the total shares issued; do not carry voting rights, except in the cases provided by Law or by the By-laws; are not convertible into common shares; and give the shareholder the following advantages: a) differentiated treatment in the event of sale of the control of Editora, as provided in the By-laws; b) dividends equal to those attributed to the common shares; and c) participation in the distribution of stock dividends resulting from the capitalization of reserves, retained earnings and any other funds, under the same conditions as those enjoyed by shareholders holding common shares. All shares have the right to receive a minimum dividend of 25% of the adjusted net profit for each year. The remaining balance of retained earnings is prior to Law no. 6.404/76. At a meeting of the Board of Directors on August 21, 2002, based on the By-laws, it was decided to authorize the acquisition of 500,000 book-entry preferred shares issued by Editora, to be held in Treasury. During the year, 46,200 shares were acquired in the months of January and February, as shown below:
The market value of these shares, calculated on the basis of the latest quotation prior to the closing date of the year, amounts to R$ 3,308,000 (R$ 9.95 per share). At a meeting held on March 10, 2004, the Board of Directors approved capital remuneration amounting to R$ 10,414 (R$ 0.45403857 per share), herein including the minimum obligatory dividend of R$ 3,545. The remuneration will be paid within a period to be established by the Annual General Shareholders Meeting.
The interest on equity was calculated in accordance with article 9 of Law no. 9.249/95 with the changes introduced by Law no. 9.430/96, the amount being booked, for tax purposes, under financial expenses and later removed from the statement of income and posted to shareholders’ equity, in accordance with Decision no. 207/96 of the Securities Commission - CVM. The effect on the calculation of income tax and social contribution provisions for the year was a reduction of R$ 3,478 (R$ 2,877 in 2002). 15 Financial Instruments Derivatives operations Editora effects operations, booked in the balance sheet, whose objectives are to meet its operating needs and to reduce exposure to currency and interest-rate fluctuation risks. The operations are carried out with financial institutions of recognized soundness, and are managed by the financial area, which defines position and exposure limits and monitors the risks involved. The derivatives operations effected by Editora during the year were the following: a. Exchange-rate hedge contracts (“swap without cash”), in order to cover the installments to be amortized of the International Finance Corporation (IFC) financing. Contracts for the operations were signed in April, 2002, maturing in June, 2003; January and March, 2003, maturing in December, 2003; and September, 2003, maturing in June, 2004. The assets involved amounted to approximately US$ 3,760 and the net loss booked in the year amounted to R$ 2,235 (R$ 254 posted as financial revenues and R$ 2,489 as financial expenses); and b. Interest-rate swap contracts linked to the loans obtained under Central Bank Resolution no. 2770 (Note no. 9). The financial expenses booked in the year amounted to R$ 2,772, which correspond to the CDI rate. Other financial instruments In compliance with CVM Instruction no. 235/95, the book balances and the market values of financial instruments included in the consolidated balance sheet dated December 31, 2003 are identified as follows:
a. Deferred income tax and social contribution The market value for deferred income tax and social contribution was calculated on the basis of the present value, reckoned by applying the Long Term Interest Rate (TJLP) to the future cash-flows. b. Loans and financing The book balances of loans and financing correspond substantially to the finance obtained from the BNDES and the IFC. The market values for these operations are identical to the book balances, since there are no similar instruments in the national market with comparable maturities and interest rates. The market values were estimated at a specific time, based on “relevant market information”. Changes in the assumptions may significantly affect the estimates shown. The breakdown of the item “Other financial expenses” is as follows:
As of December 31, 2003, Editora and its subsidiaries had insurance coverage against fire and diverse risks for property, plant and equipment and for inventories, for amounts considered sufficient to cover possible losses. Board of Directors Jorge Eduardo Saraiva Henriqueta da Fonseca Saraiva Alberto Ribeiro Guth Ruy Mendes Gonçalves Executive Committee Jorge Eduardo Saraiva José Luiz Machado Alvim de Próspero Wander Soares Henrique José B.B.Farinha Antônio Luiz de Toledo Pinto Sônia Regina Alves dos Santos João Luís Ramos Hopp Davi Hernandes Garcia |
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