Demonstra

(A free translation of the original in Portuguese)
Klabin S.A.
Financial statements at December 31, 2013 and 2012 and independent auditor's report
PricewaterhouseCoopers Auditores Independentes
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MANAGEMENT REPORT MESSAGE FROM MANAGEMENT For Klabin, 2013 was a year of important decisions that represent the beginning of a new growth cycle for the Company. Our shareholders' meetings held in November approved the proposals necessary for a successful fund-raising for the construction of new pulp mill in the city of Ortigueira, Paran. The so-called Puma Project will be the largest investment in our history, totaling R$5.8 billion, excluding forestry assets, improvements in infrastructure, and taxes. As a result, the Company will double its production volume in just three years. With the support of our shareholders, the Board of Directors approved the issue of convertible debentures worth R$1.7 billion, which was concluded on January 6. The meetings also approved the alteration of Klabin's Articles of Incorporation in accordance with the regulations of special Corporate Governance Level 2 of the BM&FBovespa, in line with best corporate governance practices. In addition, our shareholders now have 100% tag-along rights for all share classes, a mechanism that ensures greater alignment of interests among potential investors, shareholders and other stakeholders. In parallel to the changes undergone by the Company, our business continued to thrive and Klabin posted a new EBITDA record of R$1.6 billion, 16% higher than in 2012. At the close of 2013, Klabin completed 10 consecutive quarters of EBITDA growth. This excellent performance reflects our commercial approach, which is aligned with the domestic and export markets involving a correct mix of products, an ongoing cost reduction process in all areas and investments in production with high returns. To meet growing demand from our clients in the Northeast, we have invested over R$400 million in the expansion of the Goiana Unit, in Pernambuco state, including doubling the capacity of the corrugated cardboard plant to 146 thousand tonnes/year with the installation of new corrugators and printers. The production capacity of the Unit's industrial bags also doubled from 7 million bags/month to 14 million bags/month. By the end of 2014, the plant is expected to produce 20 million bags/month. The investment in a new sack kraft machine was concluded in 4Q13. Installed in the Correia Pinto Unit, in Santa Catarina, the machine performed exceptionally well at the end of the year, even exceeding production expectations in December. In 2013 we also approved the investment in a new recycled paper machine, for the Goiania unit with a production capacity of 110 thousand tonnes. This growth is directly related to Klabin's commitment to sustainable development since its inception, which is supported by the recognition we have received from the market. Last year we were included in BM&FBovespa's Corporate Sustainability Index (ISE). This achievement reinforces our belief that sustainability is present throughout our value chain, from the forest base to our relationship with our business partners. Based on an evaluation methodology developed by the Getlio Vargas Foundation, Klabin was assigned the top score (A) for all qualitative performance criteria. This positions the Company above average among the best companies adopting sustainable management practices. WWF, one of the world's largest organizations dedicated to environmental conservation, has also included Klabin in its 2013 Environmental Performance Report. The Company performed exceptionally well in research, with an index of 74.5%, covering issues such as its influence on forest ecosystems, greenhouse gas emissions and water pollution during the production process and the Environmental Management System. Our management seeks integrated and responsible growth, which combines profitability, social development and environmental commitment. Therefore, in addition to being a signatory of the UN Global Compact and the Brazilian Business Pact for Integrity and Against Corruption, in 2013 Klabin has also joined the National Pact for the Eradication of Slave Labor. 2
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To ensure that our business partners follow the same ethical values, transparency and respect for sustainability principles, we have improved the management of our supply chain by including in our Third Party Hiring Policy criteria related to human rights and labor practices, in addition to compliance with environmental legislation. We have also updated our Code of Conduct in order to reinforce the values and commitments to different stakeholders. In recognition, we received 12 awards in the year, including highlight in the sector for the first time in the Exame Sustainability Guide. The Company also won important awards in the market for the second consecutive time, including Best Company in the Pulp and Paper Segment in 2013, according to the Melhores e Maiores guide, published by the Exame Magazine, the most admired Company in the pulp and paper industry in the 16th edition of the Most Admired Companies in Brazil yearbook, published by the Carta Capital magazine, and first place in the Pulp and Paper category of the Melhores da Dinheiro ranking of the Isto magazine. Klabin is a 115 year-old Company that has energy enough to reinvent itself, grow and open new markets. The ongoing changes are the result of the will of men and women who share our values and believe that the future is in the sustainable balance between growth, value creation and respect for natural resources and people. We would like to thank our customers, suppliers, investors, business partners and employees who participated in all these achievements throughout 2013. The Management
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INITIAL REMARKS 2013 Summary The year 2013 remained challenging for the world economy, despite increased optimism in regions such as the United States, Japan and the Eurozone. Given this scenario, in a year marked by the depreciation of the real and concession of infrastructure works, Brazil has sought to create conditions to attract and generate investments in order to boost competitiveness. Despite the poor performance of the Brazilian GDP, consumption indicators remained high and the packaging paper markets recorded higher-than-expected growth, also impacted by the devaluation, which inhibited packaged product imports. For Klabin, 2013 was a very important year, marked by yet another consecutive improvement in results and the beginning of a new growth cycle. Sales volume of papers grew by 4% in the year compared to 2012 and, favored by a scenario of strong international prices, depreciation of the real against the U.S. dollar and increase in sales of converted products, the Company's net revenue climbed 10% over the past year. The Company maintained its efforts to reduce costs throughout the year, which led to significant results in the Forestry Unit. Consequently, the upturn in the unit cash cost continued to lag the increase in Brazilian inflation, despite the dollar appreciation, leading to an EBITDA growth of 16% over 2012. The Company has outlined its growth strategy, which involved the expansion of conversion capacity, new kraft paper machines for bags and recycled products and debottlenecking of existing machines. When concluded, these projects will increase the current paper production capacity by about 15%. In addition, in June, the Board of Directors approved the construction of a new plant in the city of Ortigueira (PR), with annual capacity of 1.5 million tonnes of pulp. The Puma Project will call for investments of R$5.8 billion in industrial equipment, which will be financed by equity and debt. Convertible debentures worth R$1.7 billion were issued in early 2014 to fund this project. Additionally, BNDES has approved a financing line of up to R$4.2 billion. Klabin also took an important step in terms of corporate governance by migrating to BM&FBovespa's Level 2 listing segment, bringing the tag-along rights of all classes of shares to 100% and creating a Units program, in which one unit is equivalent to one common share and four preferred shares. The goal is to further align its interests with the capital market, preserving and enhancing the value of the organization. Also in 2013, the Company was recognized for its great respect and concern for sustainability, having been included in BM&FBovespa's ISE portfolio in December. Among the main operating and financial results for the year are the sales volume of 1.8 million tonnes of paper and packaging, net revenue of R$4.6 billion and EBITDA of R$1.6 billion, all of which are a record in the Company's history. Puma Project In June, the Board of Directors approved the construction of a new pulp plant, with production capacity of 1.5 million tonnes, approximately 1.1 million tonnes of which comprising hardwood pulp and 400 thousand tonnes of softwood pulp and fluff.
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The Puma Project is different from other pulp projects in execution due to the production of two types of pulp in one plant and because it provides fluff pulp, which is currently imported, to the Brazilian market. Additionally, it will be possible to lower the two fibers' production costs and benefit from excellent inbound and outbound logistics and produce 150 MWh of surplus energy. The implementation of this project, which will come into operation around the end of the first quarter of 2016, represents an important step for Klabin, as it will significantly increase production capacity to meet the demand from the pulp markets and enable expansion of packaging paper machines. In addition to the R$1.7 billion funding concluded in January 2014, the project will be financed by the BNDES and multinational export agencies (ECAs). BUSINESS PERFORMANCE Forestry Business Unit Throughout of the year, exports of wood products to Klabin's clients were driven by the dollar appreciation and the increase in the construction industry indices in North America. Klabin handled approximately 10.2 million tonnes of pine and eucalyptus logs and chips and waste for energy production in 2013. Of this total, 2.9 million tonnes were sold to sawmills and planer mills, stable in relation to 2012, with the remainder being transferred to the plants located in Paran, Santa Catarina and So Paulo. Log sales were concentrated in the second half of the year, offsetting the weak performance in the first months of 2013, when heavy rains hampered wood harvesting. Despite the stable sales volume, net revenue from wood sales came to R$316 million, 8% up on 2012. In December 2013, the Company had a total of 494 thousand hectares, 242 thousand of which of planted forests and 211 thousand hectares of preserved native forests. In 2013, 21 thousand hectares were planted, 15 thousand of which in own land and through partnerships, and 6 thousand hectares in third party land (development program). Paper Business Unit The Paper Business Unit closed the year with a sales volume of kraftliner and coated boards of 1,052 thousand tonnes, stable in relation to 2012. Net revenue totaled R$2,206 million, 9% more than in the prior year, impacted by the improved sales mix, higher international prices and the depreciation of the real. In 2013, the strategy to increase kraftliner transfers for the production of converted products, offset by improvements in the market and product mix, and the slight expansion in capacity of the new machine in the last quarter resulted in kraftliner sales of 377 thousand tonnes, 2% lower than in 2012, and net revenue of R$598 million, 13% up on 2012. In addition to the improvement in the sales mix, revenue was impacted by the increase in the kraftliner list prices, which climbed 8% in euros compared with 2012 according to FOEX Indexes Ltd, and by the dollar appreciation. In the domestic market, scrap prices were pressured by solid demand and limited supply, which boosted competitiveness of virgin fiber paper. 5
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According to the Brazilian Association of Pulp and Paper Producers (Bracelpa), domestic demand in the coated board market, excluding liquid packaging boards, moved up by 5% over 2012. Klabin's sales volume, including liquid packaging boards, totaled 675 thousand tonnes in 2013, 1% up on 2012, considering that the Company reached the limit of its coated boards production capacity. Net revenue from coated board sales came to R$1,608 million, 7% up year-on-year, once again reflecting heated sales in the domestic market and the impact of the dollar appreciation on exports in 2013. In 2013 the expansion of board Machine 9 of the Monte Alegre (PR) Unit was approved. Scheduled to start up in 2Q14, the project will add 50 thousand tonnes/year to the coated board capacity, a significant volume to meet the demand of a booming market in Brazil. Conversion Business Unit Converted products performed very well in 2013, with sales volume of 693 thousand tonnes, 9% more than in 2012, and net income of R$2,017 million, up by 13%. To achieve this significant growth, Klabin maintained its strategy of transferring a higher paper volume to its conversion units. According to preliminary data released by the Brazilian Corrugated Boxes Association (ABPO), Brazilian shipments of corrugated boards totaled approximately 3.4 million tonnes from January through December 2013, 3% more than in the previous year. Driven by a 44% increase in scrap prices in Brazil in 2013, prices from the sale of corrugated also increased, positively impacting the Company's revenue in this segment. In regard to Klabin's industrial bag unit, Brazilian cement sales increased by 2% in 2013 compared with 2012, according to the National Cement Industry Association (SNIC). In November 2013, a new sack kraft machine became operational in Correia Pinto (SC), which will produce papers with lower density, reducing volumes in the production of paper bags and manufacturing these products for new markets. In both the industrial bag and corrugated box markets, Klabin took advantage of its solid positioning in regions with growth above the national average, particularly in the Northeast, where the Goiana (PE) plant is located. In addition to producing industrial bags and corrugated boxes, this unit has a strong presence in the fruit market.
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FINANCIAL PERFORMANCE R$ Million Sales Volume (thousand tonnes) Domestic Market Exports % Domestic Market Gross Revenue Net Revenue Domestic Market Exports % Domestic Market Variation in the fair value of biological assets Cost of Products Sold Gross Profit Gross margin Selling Expenses General& Administrative Expenses Other Revenues (Expenses) Total Operating Expenses EBITDA EBITDA Margin Net Income Stockholder's Equity Net Debt Net debt/EBITDA 2013 1,788 1,235 553 69% 5,554 4,599 3,424 1,175 74% 336 (3,207) 1,729 38% (363) (281) 11 (632) 1,562 34% 290 5,395 3,984 2.6x 2012 1,727 1,183 544 69% 4,997 4,164 3,169 995 76% 886 4% 4% 2% 0 p.p. 11% 10% 8% 18% -2 p.p. -62%
(2,823) 14% 2,227 -22% 53% -15 p.p. (345) 5% (274) 2% 10 11% (608) 4% 1,352 16% 32% 2 p.p. 752 -61% 5,421 0% 3,278 22% 2.4x
Notes: Due to rounding, some figures in tables and graphs may not result in a precise sum. EBITDA margin is calculated over a pro-forma net revenue, which includes revenues from Vale do Corisco. Operating Result In 2013, sales volume (excluding wood) totaled 1,788 thousand tonnes, 4% up on 2012, led by a 9% upturn in sales volume of converted products. Kraftliner exports climbed 4%, in line with the Company's positioning to take advantage of the real/dollar exchange rate in the year. Net revenue (including wood) came to R$4,599 million, growing by 10% from 2012. The domestic market accounted for 74% of total net revenue in the year, 2 p.p. lower than in the prior year. The non-cash net effect of the variation in the fair value of biological assets (variation in the fair value of forests less depletion) on EBIT was a loss of R$132 million, versus a gain of R$567 million in 2012. The reduction was chiefly due to the negative impact of the discount rate used by the Company for discounted cash flow in the fair value calculation. Cost of goods sold was R$3,207 million in 2013, 14% more than in 2012, impacted by the upturn in the sales volume, in particular converted products. Unit cash cost, including selling and general and administrative expenses, came to R$1,718/t, 5% up year-on-year, below the 5.9% inflation in the period, reflecting the cost reduction programs implemented by Klabin.
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Selling expenses amounted to R$363 million in 2013, 5.3% up on 2012. Despite the higher nominal amount in comparison with 2012, selling expenses, which are mainly variable, feel in percentage terms. Selling expenses represented 7.8% of 2013 net revenue, versus 8.3% in 2012. General and administrative expenses totaled R$281 million in 2013, 2% up year-on-year. Operating cash flow (Adjusted EBITDA) was R$1,562 million in 2013, a historical record, representing a 16% growth over 2012 and accompanied by an EBITDA margin of 34%, 2 p.p. higher year-on-year. Financial result and indebtedness Consolidated gross debt stood at R$6,964 million at the close of the year, with short-term debt (16% of gross debt) accounting for R$1,125 million of total debt. Cash and financial investments came to R$2,979 million on December 31, 8% more than in the prior year, due to the contracting of financing lines at the end of 2013. Consolidated net debt amounted to R$3,985 million, mainly impacted by the foreign exchange variation on the dollar-denominated debt, investments and payment of dividends in 2013. The net debt/EBITDA ratio stood at 2.6x in December. Net Income Net income, also impacted by the dollar's appreciation against the real in 2013, totaled R$290 million. CAPITAL EXPENDITURE
R$ million Forestry Maintenance Special Projects Expansion Project Puma Total 2013 86 283 50 381 99 899 2012 93 298 107 157 655
Capital expenditure totaled R$899 million in 2013. The Company focused mainly on capacity expansion projects, which totaled R$381 million and included the construction of a machine to produce paper for industrial bags in Correia Pinto (SC) and a recycled paper machine at the Goiana Unit (PE).
On November 12, the new MP 23 paper machine began operations in the Correia Pinto Unit (SC), producing its first jumbo roll. Ramp up was considered a success with better performance than expected. The new machine will increase Klabin's annual paper-making capacity by 80 thousand tonnes. In the Northeast, the foundations of the new recycled paper machine at the Goiana Unit have already been laid and the project remains on schedule and within budget. Investments in the Ortigueira (PR) plant for the installation of a 1.5 million tonnes pulp line, the socalled Puma Project, totaled R$99 million in 2013, with a focus on the earthmoving works and preparation of the site.
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CAPITAL MARKET Klabin's preferred shares (KLBN4) depreciated by 4% in 2013, while the benchmark Ibovespa Index recorded a 15% slide. Average daily trading volume came to R$33 million, 33% more than in 2012. On March 15, 2013, the risk rating agency Standard & Poors assigned the Company a "BBB-" investment grade rating in the global scale and upgraded the national rating from "brAA+" to "brAAA", with a stable outlook, in recognition of its high liquidity, solid cash position and appropriate indebtedness in historical terms. This confirms the "BBB-" rating assigned to Klabin by Fitch Ratings in June 2012. The Extraordinary Board of Directors' Meeting held on December 9, 2013, authorized a Preferred Share Buyback Program involving up to 45.1 million Company shares. The program will be effective for 365 days, i.e. until December 9, 2014. During the year, the Company repurchased 723 thousand shares, ending December with 31 million preferred shares in treasury, which is equivalent to 5% of total preferred stock. In 2013, Klabin paid supplementary dividends of R$76 million and interim dividends of R$225 million for fiscal year 2013, totaling R$301 million. Klabin's management will submit for approval of the Annual Shareholders Meeting to be held on March 20, 2014, a proposal for the payment of supplementary dividends for fiscal year 2013 in the amount of R$90 million. At the close of 2013, Klabin's capital stock was represented by 918 million shares with no par value, consisting of 317 million common shares and 601 million preferred shares. SUBSEQUENT EVENTS On January 7, 2014 the Company published a Material Fact detailing the effectiveness of the resolutions approved by the Extraordinary Shareholders' Meeting of November 28, 2013, corresponding to: Conclusion of the 6th Debenture Issue The 27,200,000 debentures issued through private placement with a nominal unit value of R$62.50, totaling R$1.7 billion, were fully subscribed and paid in. The debentures, maturing on January 8, 2019, are mandatorily convertible into share certificates of deposit ("Units"), will yield 8% p.a. plus the Real/U.S. Dollar exchange variation, and will be entitled to participate in any distribution of results to the Company's shareholders. Conversion may take place at any time during the validity of the debentures following the 18-month lock-up period as of the issue date. The proceeds from the issue will be used to build the Puma Project pulp plant. Given the nature of these instruments, the issue will be recognized as a hybrid instrument, partly as a liability, corresponding to the present value of the interest until conversion, and the remainder under shareholders' equity.
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CORPORATE GOVERNANCE Fully committed to transparency before the market and the equitable treatment of its shareholders, on January 9, 2014, Klabin was listed on the special Corporate Governance Level 2 trading segment of the So Paulo Securities, Commodities and Futures Exchange (BM&FBovespa), which contains the shares of companies who adopt differentiated governance practices. The Company's shares have been traded on the BM&FBovespa for more than 30 years. In accordance with best management practices, Klabin guarantees tag along rights to holders of common and preferred shares who are not part of the controlling block. Such shareholders are entitled to receive 100% of the amount paid for common shares in the controlling block in the case of disposal of the Company's control. Issue of New Shares As a result of the restructuring of the controlling shareholders Klabin Irmos & Cia ("KIC") and Niblak Participaes ("Niblak"), 28,274,611 new common Klabin shares were issued and assigned to the controlling shareholders. Alteration to the Bylaws Alterations of the Bylaws were approved to take account of the items mentioned above, as well as a change in authorized capital, which now totals 1,120,000,000 shares, the elimination of the additional 10% dividends for preferred shareholders, and the granting of voting rights to preferred shareholders, as approved by the Extraordinary Meeting of Preferred Shareholders held on November 29, 2013. Share Certificates of Deposit ("Units") The Company implemented its program to issue share certificates of deposit ("Units"), each unit comprising one (1) common share (ON) and four (4) preferred shares (PN). The Units began trading on January 10, 2014 and the shareholders voluntarily requested the issue of Units pegged to this share multiple. The conversion period was concluded on February 5, 2014 and approximately 106 million Units were created under the ticker KLBN11. SOCIAL AND ENVIRONMENTAL RESPONSIBILITY In 2013, the Company was recognized for its social and environmental management practices, which is the result of the work carried out by the committee and commission for sustainability, and, for the first time was included in BM&FBovespa's Corporate Sustainability Index (ISE). Klabin was also assigned the top score (A) in all qualitative performance criteria in an evaluation based on the Getlio Vargas Foundation methodology. This positions the Company above average among companies with best sustainable management practices. WWF, one of the world's largest organizations dedicated to environmental conservation, has also included Klabin in its 2013 Environmental Performance Report. The Company performed exceptionally well in research, with an index of 74.5%, covering issues such as its influence on forest ecosystems, greenhouse gas emissions and water pollution during the production process and the Environmental Management System. The Company was also recognized as a highlight in the sector for the first time by the Exame Sustainability Guide. 10
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Environmental Responsibility Environmental preservation is addressed by Klabin on various fronts. In its business units, the Company applies a strict policy to minimize the impacts of its operations, besides promoting the efficient management of natural resources. In this regard, it operates based on the concept of the 3Rs, Reduce, Reuse and Recycle. Klabin was the first pulp and paper company in the Americas to receive the International Certification by the Forest Stewardship Council (FSC), in 1998. Three years later, it completed the cycle with the certification of the chain of custody of non-wood products, generating opportunities for the sale of plant products with the stamp of FSC. The subject of climate changes is considered strategic for Klabin, which constantly invests in a sustainable energy matrix, prioritizing the use of renewable natural resources. Furthermore, it is a signatory of the main initiatives in this area, such as the Empresas pelo Clima (EPC) program, a platform of the Sustainability Studies Center of the Getulio Vargas Foundation for the creation of regulatory bases for the economic adaptation process. Research and development The growth of Klabin is supported by pillars, among which is the Research and Development area, which is assisted by a Competence Center located in Jundia (SP), and by highly capable professionals. The work focus on the constant search for innovation and improvement of the industrial and forestry processes, to ensure more competitive products and the decrease of operating costs. The area has been investing in the development of paper and cardboard with lower weights, which can improve the quality standard established by the Company. For a more efficient operation, the R&D area maintains partnerships with equipment and inputs suppliers, and also has the support of research institutes and universities in Brazil and abroad. The investments in the development of new species of pine and eucalyptus are being reflected in the improved yield of Klabin's forests. Social The Company assists several entities of the regions in which it operates, such as orphanages, homes for senior citizens, hospitals, class associations, military and civil police and firefighters, through financial and material donations. In 2013, we highlight the participation of Klabin, through the donation of corrugated cardboard boxes to the Cold Relief Program 2013, promoted by the Solidarity Social Fund of the State of So Paulo.
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Personnel management Klabin considers that business success is directly related to the competence and professionalism of its employees. Their work is based on ethical values widely disclosed and clearly addressed in the Company's Code of Conduct. Klabin's Development Program aims at training the officers (directors, managers and coordinators) according to the corporate objectives and goals. Accordingly, it offers tools capable of promoting the development of such professionals, taking into consideration the individual aspects and the progress of the group. The Company expects to monitor the career of the professionals and identify successors for key positions. The Company had 15,549 employees at the end of 2013, of which 10,566 were its own employees, 4,284 outsourced employees and 699 temporary workers.
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Independent auditor's report

To the Board of Directors and Stockholders Klabin S.A. We have audited the accompanying financial statements of Klabin S.A. (the "Company" or "Parent Company"), which comprise the balance sheet as at December 31, 2013 and the statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. We also have audited the accompanying consolidated financial statements of Klabin S.A. and its subsidiaries ("Consolidated"), which comprise the consolidated balance sheet as at December 31, 2013 and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management's responsibility for the financial statements Management is responsible for the preparation and fair presentation of the parent company financial statements in accordance with accounting practices adopted in Brazil, and for the consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and accounting practices adopted in Brazil, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Brazilian and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of the accounting practices used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
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Klabin S.A.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion on the parent company financial statements In our opinion, the parent company financial statements referred to above present fairly, in all material respects, the financial position of Klabin S.A. as at December 31, 2013, and its financial performance and its cash flows for the year then ended, in accordance with accounting practices adopted in Brazil. Opinion on the consolidated financial statements In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Klabin S.A. and its subsidiaries as at December 31, 2013, and their financial performance and their cash flows for the year then ended, in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and accounting practices adopted in Brazil. Emphasis of matter As discussed in Note 2.1 to these financial statements, the parent company financial statements have been prepared in accordance with accounting practices adopted in Brazil. In the case of Klabin S.A., these practices differ from IFRS applicable to separate financial statements only in relation to the measurement of investments in subsidiaries, associates and jointly-controlled entities based on equity accounting, while IFRS requires measurement based on cost or fair value. Our opinion is not qualified in respect of this matter. Other matters Supplementary information - statements of value added We also have audited the parent company and consolidated statements of value added for the year ended December 31, 2013, which are the responsibility of the Company's management. The presentation of these statements is required by the Brazilian corporate legislation for listed companies, but they are considered supplementary information for IFRS. These statements were subject to the same audit procedures described above and, in our opinion, are fairly presented, in all material respects, in relation to the financial statements taken as a whole. So Paulo, February 11, 2014
PricewaterhouseCoopers Auditores Independentes CRC 2SP000160/O-5
Tadeu Cendn Ferreira Contador CRC 1SP188352/O-5 14

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BALANCE SHEET AT DECEMBER 31, 2013 AND 2012 All amounts in thousands of reais
Parent company 12/31/2012 Consolidated 12/31/2012
Note ASSETS Current assets Cash and cash equivalents Marketable securities Accounts receivable: . Trade receivables . Provision for impairment of trade receivables . Related parties Inventories Taxes recoverable Prepaid expenses - related parties Prepaid expenses - third parties Other assets Total current assets Non-current assets Long-term receivables Related parties Judicial deposits Taxes recoverable Other assets
12/31/2013
12/31/2013
4 5 6 6 7 8 9 7
2,401,822 249,511 981,039 (47,153) 373,637 457,636 113,687 5,297 22,490 56,972 4,614,938
2,157,148 240,077 801,004 (45,187) 402,798 438,091 130,441 7,775 14,557 60,465 4,207,169
2,729,872 249,511 1,192,452 (47,298) 495,852 120,050 5,297 22,570 57,842 4,826,148
2,517,312 240,077 1,027,649 (45,663) 473,658 135,310 7,775 14,557 61,415 4,432,090
7 16 9
1,526 89,537 123,684 167,001 381,748
1,687 85,691 128,402 151,864 367,644
90,969 123,684 171,322 385,975
146 87,123 128,402 158,374 374,045
Investments: . Investments in subsidiaries . Other Property, plant and equipment Biological assets Intangible assets Total non-current assets Total assets
11 12 13
1,134,094 11,542 5,670,990 2,819,598 9,133 9,645,357 10,027,105 14,642,043
1,267,255 11,542 5,003,707 2,944,187 8,486 9,235,177 9,602,821 13,809,990
455,039 11,542 5,909,507 3,321,985 9,300 9,707,373 10,093,348 14,919,496
450,651 11,542 5,379,426 3,441,495 8,654 9,291,768 9,665,813 14,097,903
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BALANCE SHEET AT DECEMBER 31, 2013 AND 2012 All amounts in thousands of reais
Parent company 12/31/2012 Consolidated 12/31/2012
Note LIABILITIES AND EQUITY Current liabilities Borrowings Trade payables Tax obligations Provision for income tax and social contribution Social security and labor obligations Related parties Enrollment in Tax Recovery Program (REFIS) Other payables and provisions Total current liabilities Non-current liabilities Borrowings Deferred income tax and social contribution Provisions for tax, social security, labor and civil contingencies Payables - Investors in Special Partnership Companies (SPCs) Enrollment in Tax Recovery Program (REFIS) Other payables and provisions Total non-current liabilities Total liabilities Equity Share capital Capital reserves Revaluation reserve Revenue reserves Carrying value adjustments Treasury shares Total equity Total liabilities and equity
12/31/2013
12/31/2013
14 15
1,126,153 342,126 37,899 16,860 125,415 52,912 50,400 48,082 1,799,847
1,120,770 313,559 52,919 54,553 123,934 9,665 39,383 39,699 1,754,482
1,124,976 345,384 43,298 18,209 127,356 3,437 50,400 66,453 1,779,513
1,120,770 318,077 57,095 54,387 125,807 2,693 39,383 49,177 1,767,389
10 7 16
14 10 16
5,842,135 1,045,201 95,904 393,492 72,797 7,449,529 9,249,376
4,914,334 1,190,673 83,189 389,793 56,598 6,634,587 8,389,069
5,838,621 1,220,187 95,905 125,767 393,492 73,344 7,747,316 9,526,829
4,914,334 1,392,257 83,189 69,214 389,793 60,806 6,909,593 8,676,982
16
17
2,271,500 4,419 49,269 2,159,949 1,065,437 (157,907) 5,392,667 14,642,043
2,271,500 1,423 49,980 2,170,215 1,081,379 (153,576) 5,420,921 13,809,990
2,271,500 4,419 49,269 2,159,949 1,065,437 (157,907) 5,392,667 14,919,496
2,271,500 1,423 49,980 2,170,215 1,081,379 (153,576) 5,420,921 14,097,903
The accompanying notes are an integral part of these financial statements.
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STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 All amounts in thousands of reais, except for basic/diluted earnings per share
Parent company 12/31/2012 4,038,936 353,794 (2,794,971) 1,597,759 Consolidated 12/31/2012 4,163,670 885,988 (2,823,148) 2,226,510
Note Net sales revenue Change in the fair value of biological assets Cost of products sold Gross profit Operating income (expenses) Selling expenses General and administrative expenses Other, net 18 13 19
12/31/2013 4,489,717 309,474 (3,174,847) 1,624,344
12/31/2013 4,599,337 336,289 (3,206,917) 1,728,709
19 19 19
(331,518) (273,267) 10,289 (594,496) 90,440
(287,152) (268,701) 21,074 (534,779) 385,429
(362,638) (280,526) 11,472 (631,692) 22,235
(344,574) (273,918) 10,373 (608,119) 25,827
Equity in the results of investees Profit before finance result and taxes Finance result Finance income Finance costs
11
1,120,288
1,448,409
1,119,252
1,644,218
20 20
265,461 (1,017,098) (751,637) 368,651
301,179 (824,495) (523,316) 925,093
276,015 (1,015,049) (739,034) 380,218
310,523 (858,285) (547,762) 1,096,456
Profit before taxation Income tax and social contribution . Current . Deferred
10 10
(231,083) 152,529 (78,554) 290,097
(77,472) (95,656) (173,128) 751,965
(241,442) 151,321 (90,121) 290,097
(133,945) (210,546) (344,491) 751,965
Profit for the year Basic and diluted earnings per common share - R$ Basic and diluted earnings per preferred share - R$
22 22
0.3072 0.3379
0.7964 0.8760
0.3072 0.3379
0.7964 0.8760
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STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 All amounts in thousands of reais
Parent and consolidated 12/31/2013 Profit for the year Other comprehensive income: . Foreign currency translation adjustments . Actuarial liability restatement Total comprehensive income for the year, net of taxes (6,871) (9,791) 273,435 (2,072) 749,893 290,097 12/31/2012 751,965
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STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 All amounts in thousands of reais
Parent and consolidated Revaluation reserve Revenue reserves
Share capital 2,271,500 50,691 9,783 1,219,591 79,998 383,170 1,085,045
Capital reserves Own assets Legal
Tax incentives
Biological assets
Proposed dividends
Investment and working capital
Carrying value adjustments
Treasury shares (141,476)
Retained earnings 751,965
Total 4,958,302
At December 31, 2011
(711)
(2,072) (2,072)
(16,682)
751,965 711
1,423 (2,291) 697 (79,998) 37,598 (100,752) (125,254) 233,504 351,248 76,002 85,332 2,271,500 1,423 49,980 47,381 1,578,337 76,002 468,495 1,081,379 (7)
2,291 2,291
751,965 (2,072) 749,893 (16,682) 3,714 697 (80,005) (37,598) 100,752 125,254 (233,504) (351,248) (194,998) (76,002) (85,332) (153,576) 290,097 (194,998) 5,420,921
Profit for the year Other comprehensive income for the year Total comprehensive income for the year Realization of revaluation reserve Purchase of treasury shares Stock option plans 2011: . Treasury shares sold . Award of treasury shares . Recognition of the stock option plan compensation Complementary dividends for 2011 - approved at the General Meeting of Stockholders Allocation of profit for the year: . Legal reserve . Realization of biological assets reserve (own) . Realization of biological assets reserve (subsidiaries) (*) . Biological assets reserve (own) . Biological assets reserve (subsidiaries) (*) . Dividends prepaid in the year . Complementary dividends for 2012 - proposed . Reserve for investment and working capital
(711)
(16,662) (16,662)
290,097 711 (76,002) (67) (8,821)
290,097 (16,662) 273,435 -
2,996 (2,590) 3,310 14,505 (290,029) 204,253 3,500 5,583 90,006 37,985 2,271,500 4,419 49,269 61,886 5,583 1,496,061 90,006 506,413 1,065,437
1,900 2,590
(76,069) (8,821) 4,896 3,310 (14,505) 290,029 (204,253) (3,500) (5,583) (225,005) (90,006) (37,985) (157,907) (225,005) 5,392,667
Profit for the year Other comprehensive income for the year Total comprehensive income for the year Realization of revaluation reserve Complementary dividends for 2012 - approved at the General Meeting of Stockholders Purchase of treasury shares Stock option plan: . Treasury shares sold . Award of treasury shares . Recognition of the stock option plan compensation Allocation of profit for the year: . Legal reserve . Realization of biological assets reserve (own) . Biological assets reserve (own) . Biological assets reserve (subsidiaries) (*) . Constitution of tax incentive reserve . Dividends prepaid in the year . Complementary dividends for 2013 - proposed . Reserve for investment and working capital
(*) Included in equity in results of investees.
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STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2013 and 2012 All amounts in thousands of reais
12/31/2013 Parent company 12/31/2012 12/31/2013 Consolidated 12/31/2012
Net cash provided by operating activities 929,137 483,490 1,032,322 933,894 Cash provided by operations 1,030,631 891,007 1,064,600 982,556 Profit for the year 290,097 751,965 290,097 751,965 Depreciation and amortization 245,755 218,751 237,241 228,512 Change in the fair value of biological assets (309,474) (353,794) (336,289) (885,988) Depletion of biological assets 496,785 172,543 529,312 364,165 Deferred income tax and social contribution (152,529) 95,656 (151,321) 210,546 Interest and exchange variations on borrowings 934,678 732,145 934,217 732,145 Payment of interest on borrowings (306,533) (295,335) (306,533) (295,335) Accrued interest - REFIS 39,973 44,398 39,973 44,398 Result on sale of assets and subsidiaries 2,258 527 2,258 527 Equity in the results of investees (90,440) (385,429) (22,235) (25,827) Income tax and social contribution paid (115,283) (73,579) (149,719) (120,005) Other. (4,656) (16,841) (2,401) (22,547) Changes in assets and liabilities (101,494) (407,517) (32,278) (48,662) Trade receivables and related parties (150,874) (238,233) (164,803) (172,710) Inventories (19,545) 26,856 (22,194) 35,210 Taxes recoverable 136,755 46,752 169,697 93,664 Securities (9,434) (18,817) (9,434) (18,817) Prepaid expenses (5,455) (2,371) (5,535) 53 Other assets (15,329) (19,669) (13,075) (18,612) Trade payables 65,522 (29,499) 64,262 (33,100) Tax obligations (52,713) 55,108 (49,975) 14,204 Social security and labor obligations 1,481 22,311 1,549 22,686 Other liabilities 27,736 (95,132) (2,770) 28,760 Transfer of balances - merger of subsidiary (i) (79,638) (154,823) Net cash used in investing activities (684,501) (485,785) (865,358) (604,269) Purchase of property, plant and equipment (i) (727,282) (536,815) (818,316) (539,314) Planting cost of biological assets (i) (59,520) (67,221) (81,095) (114,332) Proceeds from sale of assets and subsidiaries 16,203 50,224 16,203 50,224 Acquisition of investments and payment of capital in subsidiaries (12,297) (3,855) (847) Dividends received from subsidiaries 98,395 71,882 17,850 Net cash provided by (used in) financing activities 38 12,987 45,596 (153,377) New borrowings 1,411,497 1,371,165 1,407,193 1,371,165 Repayment of borrowings (1,106,458) (1,070,207) (1,106,384) (1,070,207) Purchase of treasury shares (8,821) (16,682) (8,821) (16,682) Disposal of treasury shares 4,894 3,714 4,894 3,714 Entry of investors - SPCs 50,000 25,000 Withdrawal of investors - SPCs (212) (191,364) Dividends paid (301,074) (275,003) (301,074) (275,003) Increase in cash and cash equivalents 244,674 10,692 212,560 176,248 Cash and cash equivalents at the beginning of the year 2,157,148 2,146,456 2,517,312 2,341,064 Cash and cash equivalents at the end of the year 2,401,822 2,157,148 2,729,872 2,517,312 (i) Net of recoverable taxes (ii) Corresponding to the SPC dissolution and the merger of the subsidiaries Centaurus Holdings and Klabin Celulose, mentioned in Notes 1 and 3.
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STATEMENT OF VALUE ADDED FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 All amounts in thousands of reais
12/31/2013 Revenue . Sales of products . Change in the fair value of biological assets . Other revenue . Provision for impairment of trade receivables Inputs acquired from third parties . Cost of products sold . Materials, electricity, outsourced services and others Gross value added Retentions . Depreciation, amortization and depletion Net value added generated by the Company Value added received through transfer . Equity in the results of investees . Finance income, including exchange variations Total value added to distribute Distribution of value added: Personnel . Direct compensation . Benefits . Government Severance Indemnity Fund for Employees (FGTS) Taxes and contributions . Federal . State . Municipal Remuneration of third-party capital . Interest Remuneration of own capital . Dividends . Profits reinvested 5,658,120 309,474 16,203 (1,966) 5,981,831 (942,159) (1,958,201) (2,900,360) 3,081,471 Parent company 12/31/2012 5,082,280 353,794 50,224 (11,522) 5,474,776 (1,196,364) (1,769,690) (2,966,054) 2,508,722 12/31/2013 5,788,689 336,289 16,203 (1,635) 6,139,546 (946,497) (2,001,629) (2,948,126) 3,191,420 Consolidated 12/31/2012 5,224,634 885,988 50,224 (11,873) 6,148,973 (1,021,686) (1,848,962) (2,870,648) 3,278,325
(742,540) 2,338,931
(391,294) 2,117,428
(766,553) 2,424,867
(592,677) 2,685,648
90,440 265,461 355,901 2,694,832
385,429 301,179 686,608 2,804,036
22,235 276,015 298,250 2,723,117
25,827 310,523 336,350 3,021,998
524,268 124,739 39,833 688,840 517,305 173,501 7,991 698,797 1,017,098 1,017,098 225,005 65,092 290,097 2,694,832
457,066 99,760 38,149 594,975 561,002 63,618 7,981 632,601 824,495 824,495 271,000 480,965 751,965 2,804,036
539,175 125,262 39,933 704,370 532,109 173,501 7,991 713,601 1,015,049 1,015,049 225,005 65,092 290,097 2,723,117
469,222 100,175 38,261 607,658 732,491 63,618 7,981 804,090 858,285 858,285 271,000 480,965 751,965 3,021,998
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Notes to the financial statements (presented in thousands of reais, unless otherwise indicated)
1 GENERAL INFORMATION
Klabin S.A. (the "Company") and its subsidiaries operate in segments of the paper and pulp industry to serve domestic and foreign markets, supplying wood, packaging paper, paper sacks, and corrugated cardboard boxes. Their operations are fully integrated, from forestation to the production of the final products. Klabin S.A. is a publicly held corporation whose shares are traded on BM&FBovespa S.A. - Securities, Commodities and Futures Exchange. The Company is domiciled in Brazil and headquartered in So Paulo. The Company also has investments in Special Partnership Companies (SPCs) for the specific purpose of raising funds from third parties for reforestation projects. The Company, as an ostensible partner, has contributed forest assets, mainly forests and land, by means of the granting of the right to use, whereas the other investing stockholders have contributed cash to these SPCs. The SPCs give Klabin S.A. a preemptive right to acquire forestry products at market prices and conditions. The Company also has holdings in other companies (Notes 3 and 11), whose operational activities are related to the Company's business objectives. These financial statements were approved for disclosure by the Board of Directors on February 11, 2014. 1.1 Corporate restructuring of subsidiaries At the Extraordinary General Meeting of Stockholders held on May 31, 2012, the stockholders of the subsidiary Centaurus approved a partial split-off with the transfer of part of its equity relating to Florestal Vale do Corisco S.A. ("Vale do Corisco"). As a result, the stockholders Klabin and Arauco now hold direct and joint interests in Vale do Corisco, of 51% and 49%, respectively. As a consequence of the reorganization, Centaurus started to be fully consolidated as from that date, whereas the jointly-controlled subsidiary Vale do Corisco is currently accounted for using the equity accounting method. 1.2 Creation of SPC CG Forest On October 19, 2012, the Company established a new SPC denominated CG Forest, with the specific purpose of raising funds from third parties for reforestation projects. The Company, as an ostensible partner, contributed R$ 53 million in forest assets and the right to use land for the constitution of this new SPC, whereas the other investing stockholders contributed R$ 25 million in cash. The SPC ensures Klabin S.A. a preemptive right to acquire forestry products at market prices and conditions. 1.3 Dissolution of SPC Leal The operations of SPC Leal were terminated on December 31, 2012. On the dissolution, SCP Leal paid R$ 162 million to the investing stockholders according to their participations. The remaining assets and liabilities, mainly comprised of land and forests, were merged into the parent company Klabin S.A.
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1.4 Approval of pulp project ("Puma Project") The Board of Directors, on October 21, 2013, decided to proceed with the Company's capitalization process to facilitate the construction of a new pulp plant in the City of Ortigueira (PR), with a capacity of 1.5 million metric tons per annum, which was approved by management on June 11, 2013, as disclosed in the Significant Event Notices published on these dates. The estimated cost of the project is R$ 5.8 billion. In addition, R$ 0.8 billion will be paid in recoverable taxes on machinery and equipment and R$ 0.6 billion on infrastructure construction, also recoverable through Value-added Tax on Sales and Services (ICMS) credits, according to the agreement with the Government of the State of Paran. The funds for the project will be obtained through the issue of shares or bonds convertible into shares, or both, after the approval of the applicable agencies. The remainder of the funds will be obtained with a borrowing line from the National Bank for Economic and Social Development (BNDES) as well as from multinational import agencies. The approved proposal for the project contemplates the Company being listed in the Level 2 segment of BM&FBovespa as well as the granting of tag-along rights of 100% to non-controlling common stockholders and holders of preferred shares. 1.5 Creation of SPC Monte Alegre On September 18, 2013, the Company established a new SPC denominated Monte Alegre, with the specific purpose of raising funds from third parties for reforestation projects. The Company, as an ostensible partner, contributed R$ 122 million in forest assets and the right to use land for the constitution of this new SPC, whereas the other investing stockholders contributed R$ 50 million in cash. The SPC ensures Klabin S.A. a preemptive right to acquire forestry products at market prices and conditions. 1.6 Merger of the subsidiaries Centaurus Holdings S.A. and Klabin Celulose S.A. At the Extraordinary General Meeting held on December 27, 2013, the stockholders approved the merger of the subsidiaries Centaurus Holdings S.A. ("Centaurus") and Klabin Celulose S.A. ("Klabin Celulose"), with no increase in the subscribed capital. The respective subsidiaries were wholly-owned subsidiaries of the Company. The equity of Centaurus on the date of the merger corresponded to R$ 151 million, comprising mainly forestry assets (land and forests) held by the subsidiary, whereas the equity of Klabin Celulose corresponded to R$ 215 thousand, both merged into the Company's individual balance sheet. The aforementioned corporate restructuring aimed at aligning the Company's structure with its strategy. 2 BASIS OF PRESENTATION OF THE SIGNIFICANT ACCOUNTING POLICIES FINANCIAL STATEMENTS AND
2.1 Basis of presentation of the financial statements The Company presents the consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB), and accounting practices adopted in Brazil, based on the technical pronouncements issued by the Brazilian Accounting Pronouncements Committee (CPC) in convergence with the IFRS, as well as the standards established by the Brazilian Securities Commission (CVM).
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The parent company financial statements have been prepared in accordance with accounting practices adopted in Brazil, which differ from the practices adopted in the consolidated information, only with respect to the measurement of investments in subsidiaries using the equity accounting method, instead of at cost or fair value, as required by the IFRS. 2.2 Summary of significant accounting practices adopted The main accounting practices adopted by the Company and its subsidiaries are defined below and were consistently applied to the years presented. a) Functional currency and translation of foreign currencies The financial statements are presented in Brazilian reais (R$), which is the functional and presentation currency of the Company and its subsidiaries, except for the subsidiary Klabin Argentina (Note 3), which has as its functional currency the Argentine Peso (A$). (i) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing as at the dates of the transactions. Foreign exchange gains and losses resulting from the difference between the translation of assets and liabilities in foreign currency at the end of the reporting period are recognized in the Company's statement of income. (ii) Foreign subsidiaries Foreign subsidiaries with the characteristics of a branch have the same functional currency as the Company. The exchange differences arising in the subsidiary which has a different functional currency, resulting from the translation of its financial statements, are recorded separately in an equity account, denominated "carrying value adjustments" (comprehensive income). On the sale of a foreign subsidiary, the accumulated deferred amount recognized in equity relating to this foreign subsidiary is recognized in the statement of income. The assets and liabilities of this foreign subsidiary are translated using the exchange rate prevailing at the end of the reporting period. Income and expenses are translated at the exchange rates prevailing at the dates of the transactions. b) Cash and cash equivalents Cash and cash equivalents comprise cash, bank deposits and highly-liquid short-term investments, which are readily convertible into a known amount of cash and subject to an immaterial risk of change in value. c) Financial instruments Financial instruments are initially recognized at fair value plus, in the case of financial assets or financial liabilities not carried at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. They are subsequently measured at the end of each reporting period based on the classification of financial instruments in the following categories: 1) financial assets: (i) measured at fair value through profit or loss, (ii) loans and receivables, and (iii) available for sale; 2) financial liabilities: (i) measured at fair value through profit or loss, and (ii) other financial liabilities.
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(i) Marketable securities Marketable securities are considered as available-for-sale and are recognized at fair value. (ii) Borrowings The balance of borrowings corresponds to the amount of funds raised, plus interest and charges proportional to the period incurred, less installments paid, and includes the exchange variations on the liability, if applicable. d) Trade receivables Trade receivables are stated at the original amounts of the invoices for the sales of products, plus exchange variations, when applicable. The provision for the impairment of trade receivables is recorded based on an individual analysis of the receivables and at an amount considered by management as sufficient to cover probable losses on their realization, which can be modified as a result of the recovery of receivables from defaulting customers or a change in a customer's financial situation. The adjustment to present value of trade receivables is not significant due to the short period up to realization. e) Inventories Inventories are stated at average purchase cost, net of taxes to be offset, when applicable, and the fair value of biological assets at the reporting date, which are both lower than net realizable values. Inventories of finished products are valued based on the cost of processed raw materials, direct labor and other production costs. When necessary, inventories are reduced by a provision for losses, which is constituted in cases of inventory devaluation, obsolescence of products and physical inventory losses. In addition, because of the nature of the Company's products, obsolete finished products could be recycled for reutilization in production. f) Income tax and social contribution The Company calculates current and deferred corporate income tax (IRPJ) and social contribution on net income (CSLL) based on the rate of 15%, plus a 10% surcharge on taxable profit exceeding R$ 240, for income tax and 9% on taxable profit for social contribution. The balances are recognized in the Company's results on an accrual basis. The amounts of deferred income tax and social contribution are recorded net in the balance sheet, in non-current assets or liabilities. Subsidiaries have their taxes calculated and accrued in accordance with the legislation of their country and/or their specific tax system, including, in some cases, deemed profit. The provision for current income tax and social contribution for the period is stated in the balance sheet net of tax prepayments made during the period.
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g) Investments These refer to investments in subsidiaries and jointly-controlled subsidiaries accounted for in the parent company financial statements using the equity accounting method, based on the Company's ownership interest in these investees. The financial statements of subsidiaries and jointly-controlled subsidiaries are prepared for the same reporting period as that adopted by the Company. When necessary, adjustments are made to bring their accounting policies into line with those adopted by the Company. Unrealized gains and losses resulting from transactions between the Company and its subsidiaries and jointly-controlled subsidiaries are eliminated for equity accounting purposes in the parent company balance sheet, as well as for consolidation purposes. At the end of each reporting period, the Company determines if there is objective evidence that the investments in the subsidiaries or jointly-controlled subsidiaries are impaired. If there is an indication of impairment, the Company calculates the amount of the impairment loss and recognizes it in the statement of income. Exchange variations on investments in foreign subsidiaries, recognized in "Comprehensive income (loss)", are classified as carrying value adjustments and are realized on the disposal of the related investments. In the consolidated financial statements, the investors' interest in SPCs (Notes 3 and 11) is presented in the balance sheet in liabilities, under "Other payables - investors in SPCs", as it refers to financial liabilities, and not to equity instruments, in accordance with CPC 39 - Financial instruments: presentation. The Company's management treats Special Partnerships as independent entities with characteristics of subsidiaries, which are recorded in the parent company financial statements under the equity accounting method. h) Property, plant and equipment Property, plant and equipment are stated at acquisition or construction cost, less recoverable taxes, when applicable, and accumulated depreciation. Based on the option exercised by the Company on the first-time adoption of IFRS, the deemed cost of property, plant and equipment (land) was utilized. Depreciation is calculated on the straight-line basis taking into consideration the estimated useful lives of the assets, based on the expected future economic benefits, except for land, which is not depreciated. The estimated useful lives of the assets are reviewed annually and adjusted, if necessary, and could vary based on the technological status of each unit. The useful lives of the Company's assets are disclosed in Note 12. Costs of maintenance of the Company's assets are allocated directly to the results for the period when incurred. Finance charges are capitalized to PP&E, when incurred on construction in progress, if applicable. i) Impairment of assets Property, plant and equipment and other assets are tested for impairment on an annual basis or whenever significant events or changes in circumstances indicate that their carrying amounts may not be recoverable. When this is the case, the recoverable amount is calculated to determine if assets are impaired. 12 of 49
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The recoverable amount of an asset is the higher of the net sales price and the value in use of the asset or its Cash-Generating Unit (CGU), and is determined individually for each asset, unless the asset does not generate cash inflows that are independent from those of other assets or groups of assets. In estimating the value in use, estimated future cash flows are discounted to their present values, using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount, which is the higher of the net sales price and the value in use of that asset. j) Biological assets Biological assets refer to eucalyptus and pine forests, which are used for the production of packaging paper, paper sacks and corrugated cardboard boxes as well as for sales to third parties. Harvesting and replanting have an approximate cycle of 7 - 14 years, which varies based on the forest and genetic material. Biological assets are measured at fair value, less estimated selling costs, at the time of harvest. The significant assumptions for determining the fair value of biological assets are disclosed in Note 13. The valuation of biological assets is carried out on a quarterly basis by the Company, and any gain or loss is recognized in the statement of income in the period in which it occurs, in the specific line "Change in fair value of biological assets". The depletion of biological assets is measured based on the amount of wood cut, evaluated at fair value. k) Non-current assets and liabilities Non-current assets and liabilities comprise receivables and payables maturing more than 12 months after the end of the reporting period, plus corresponding charges and monetary variations incurred, if applicable, through the end of the reporting period. l) Provisions Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. The expense related to any provision is charged to the statement of income, net of any reimbursement. If the time effect of the amount is material, the provision is discounted using a discount rate that reflects the risks specific to the obligation, if applicable. The Company records provisions for tax, social security, labor and civil claims, which are accrued when lawsuits are assessed by the Company's legal counsel and management as likely to result in losses. This assessment considers the nature of the lawsuits, similarities with prior lawsuits and the progress of pending litigation. When the Company expects that the amount of a provision will be fully or partially reimbursed, this asset is recognized but only when realization is considered certain, with no recognition of assets in scenarios of uncertainty. m) Sales revenue Sales revenue is stated net of taxes, discounts and rebates, and is recognized when all the risks and rewards of ownership of the product are transferred to the buyer, to the extent that it is probable that economic benefits will be generated and will flow to the Company and its subsidiaries and 13 of 49
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jointly-controlled subsidiaries, and when it can be reliably measured based on the fair value of the consideration received or receivable, net of discounts, rebates and taxes or charges on sales. n) Employee benefits and private pension plan The Company grants employee benefits such as life insurance, health care, profit sharing and other benefits, which are recognized on an accrual basis and are discontinued at the end of the employment relationship with the Company. Additionally, the Company grants a private pension and health care plan to former employees who retired up to 2001. In relation to these benefits, the Company adopts practices for the recognition of the liability and the result based on an actuarial valuation by an independent expert. Gains and losses on the actuarial valuation of benefits generated by changes in actuarial assumptions and commitments on the actuarial liability are recognized in equity under "Carrying value adjustments (comprehensive income (loss))", as required by CPC 33 (R1) - Employee benefits. o) Stock option plan The stock option plan offered by the Company is measured at fair value on the date of the grant and the related expense is recognized in the statement of income during the vesting period, against equity in the "Carrying value adjustments" group. p) Significant accounting judgments, estimates and assumptions In preparing the financial statements, judgments, estimates and assumptions are utilized to account for certain assets, liabilities, income and expenses for the periods. The accounting judgments, estimates and assumptions adopted by management are made utilizing the best information available at the financial statement reporting date, involving experience of past events, forecasts of future events and the assistance of experts, when applicable The financial statements include various estimates, including, but not limited to, the realization of deferred tax assets, the fair value measurement of biological assets, and the provision for tax, social security, civil and labor claims. Actual results may differ from these estimates, and the Company could be exposed to additional losses, which could be material. q) Statement of value added The Brazilian corporate legislation requires listed companies to present the statement of value added as part of the basic set of the financial statements of a company. This statement is intended to show the wealth created by a company and its distribution during the periods presented. The IFRS do not require the presentation of this statement. Consequently, this statement is presented as supplementary information, and not part of the required set of financial statements. 2.3 Adoption of new technical pronouncements, revisions and interpretations issued The following new technical pronouncements, revisions and interpretations adopted by the Company, effective as of January 1, 2013, were approved by IASB and regulated by CPC and CVM: - CPC 18/ IAS 28 (R2) - Investment in associates, subsidiaries and joint ventures - CPC 26/ IAS 1 (R1) - Presentation of financial statements - CPC 33/ IAS 19 (R1) - Employee benefits - CPC 36/ IFRS 10 (R3) - Consolidated statements 14 of 49
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- CPC 45/ IFRS 12 - Disclosure of interests in other entities - CPC 46/ IFRS 13 - Fair value measurement The effects of the adoption of some of them are highlighted below: a) CPC 33/ IAS 19 (R1) - Employee benefits Although the accounting practice used by the Company was to record actuarial gains and losses using the "corridor method", the total amounts involved are not significant. With the revision of the pronouncement, the actuarial gains and losses are fully recognized in equity in the group "carrying value adjustments (comprehensive income (loss))". Therefore, the adoption of the pronouncement did not have any material impact on the Company's financial information. b) CPC 46/ IFRS 13 - Fair value measurement The new pronouncement basically determines new disclosure criteria for the measurement at fair value of the Company's assets and liabilities, such as the hierarchical level at which the calculation of fair value, calculation assumptions and sensitivity analysis are classified. 2.4 New technical pronouncements, revisions and interpretations that are not yet effective Up to the disclosure of these financial statements, new technical pronouncements, revisions and interpretations were approved and issued by IASB, which are not effective for the year ended December 31, 2013 and were not early adopted by the Company. Presented below is a list of new pronouncements, revisions and interpretations issued: Pronouncement IFRS 9 - Financial instruments IFRIC 21 - Levies Contents Changes in the fair value measurement options adopted for financial liabilities. This interpretation establishes the criteria for the recognition of the obligations for payment of levies according to legislation. Clarifications regarding the concept of offset of financial assets and liabilities.
IAS 32 - Offset of financial assets and liabilities 3
CONSOLIDATION OF THE FINANCIAL STATEMENTS
Subsidiaries are fully consolidated as from the date of acquisition of control and continue to be consolidated until the date on which such control ceases to exist, except for joint ventures, which are accounted for using the equity accounting method both in the parent company and in the consolidated financial statements. The financial statements of subsidiaries are prepared for the same reporting period as that of the parent company, utilizing accounting policies consistent with the policies adopted by the parent company. The following criteria are adopted for consolidation purposes: (i) investments in subsidiaries and equity in the results of investees are eliminated; and (ii) profits from intercompany transactions and the related assets and liabilities are also eliminated. The consolidated financial statements comprise Klabin S.A. and its subsidiaries as at December 31, 2013 and 2012, as follows:
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Country Subsidiaries: Klabin Argentina S.A. Klabin Ltd. . Klabin Trade Klabin Forest Products Company IKAP Empreendimentos Ltda. Klabin do Paran Produtos Florestais Ltda. Klabin Florestal Ltda. Centaurus Holdings S.A. (i) SPCs: Correia Pinto Leal (ii) CG Forest (iii) Monte Alegre (iii) Joint ventures (not consolidated) Florestal Vale do Corisco S.A. (i) Argentina Cayman Islands England United States of America Brazil Brazil Brazil Brazil Brazil Brazil Brazil Brazil Brazil
Activity Industrial sacks Sale of products in the foreign market Sale of products in the foreign market Hotel Manufacture of phytotherapic products Forestry Investment in companies Reforestation Reforestation Reforestation Reforestation Reforestation
Interest Direct/indirect
Ownership interest - % 12/31/2013 12/31/2012 100 100 100 100 100 100 100 91 67 65 51 100 100 100 100 100 100 100 100 91 68 51
Investments in other companies Direct Indirect Direct Direct Direct Direct Direct Direct Direct Direct Direct Direct
(i) Merged subsidiaries, as detailed in Note 1. (ii) The operations of the subsidiary were terminated, as disclosed in Note 1. (iii) New subsidiary constituted, as disclosed in Note 1.
Investment in joint venture The investment in Florestal Vale do Corisco S.A., considering its characteristics, is classified as a joint venture, and is not consolidated under the proportional consolidation method. The investment is recorded under the equity accounting method as from the date when joint control was acquired. 4 CASH AND CASH EQUIVALENTS
In accordance with its policy, the Company has made low-risk investments, involving no significant risk of change in value, with financial institutions considered by management as prime banks both in Brazil and abroad, based on their ratings from risk rating agencies. Management considers these financial assets as cash and cash equivalents due to their immediate liquidity with financial institutions and immaterial risk of change in value.
12/31/2013 27,453 2,374,369 2,401,822 Parent company 12/31/2012 14,366 2,142,782 2,157,148 12/31/2013 130,895 2,521,195 77,782 2,729,872 Consolidated 12/31/2012 41,940 2,238,192 237,180 2,517,312
Cash and banks Financial investments in local currency Financial investments in foreign currency
Financial investments in local currency, relating to Bank Deposit Certificates (CDB) and repurchase transactions, are indexed to the Interbank Deposit Certificate (CDI) rate with an average annual yield of 9.92% (7.01% at December 31, 2012), and financial investments in foreign currency, relating to time deposits in U.S. dollars, with an average annual yield of 0.21% (0.21% at December 31, 2012). The investments have daily liquidity guaranteed by the financial institutions. 5 MARKETABLE SECURITIES
These securities refer to National Treasury Bills (LFTs), with the yield indexed to the variation of the Special System for Settlement and Custody (SELIC) interest rate. At December 31, 2013, the balance of these securities was R$ 249,511 (R$ 240,077 at December 31, 2012). Management classified these securities as available-for-sale financial assets. The original maturities are through the end of 2015. However, there is an active trading market for these securities, considering their characteristics, and their fair value basically represents the principal plus interest as originally established. 16 of 49
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The marketable securities are included in Level 1 of the fair value measurement hierarchy, according to the hierarchy of CPC 46 (equivalent to IFRS 13) - Fair value measurement, since they are assets with prices quoted in the market. 6 TRADE RECEIVABLES
Parent company 12/31/2013 12/31/2012 Customers . Local . Foreign Total trade receivables Provision for impairment of trade receivables Past due % on total portfolio 1 to 10 days 11 to 30 days 31 to 60 days 61 to 90 days Over 90 days Not yet due Total portfolio 847,056 133,983 981,039 (47,153) 933,886 101,246 10.32% 8,213 23,982 13,613 3,364 52,074 879,793 981,039 785,853 15,151 801,004 (45,187) 755,817 64,569 8.06% 6,991 5,969 3,385 2,420 45,804 736,435 801,004 12/31/2013 847,103 345,349 1,192,452 (47,298) 1,145,154 116,419 9.76% 8,213 34,610 17,509 3,364 52,723 1,076,033 1,192,452 Consolidated 12/31/2012 785,927 241,722 1,027,649 (45,663) 981,986 71,804 6.99% 6,991 8,505 4,400 4,166 47,742 955,845 1,027,649
The average collection period of trade receivables is approximately 90 days for domestic market sales and approximately 120 days for foreign market sales, and interest is charged after the contractual maturity date. As mentioned in Note 24, the Company has rules for monitoring receivables and past-due notes as well as for the risk of not receiving the amounts arising from credit sale transactions. The provision for the impairment of trade receivables is considered sufficient to cover any losses on the outstanding receivables. The changes in the provision for the impairment of trade receivables were as follows:
At December 31, 2011 Provision for the year Reversals At December 31, 2012 Provision for the year Reversals At December 31, 2013 Parent company (33,665) (19,127) 7,605 (45,187) (7,442) 5,476 (47,153) Consolidated (33,791) (19,481) 7,609 (45,663) (7,566) 5,931 (47,298)
The balance of the provision for the impairment of trade receivables relates mainly to trade notes overdue for more than 90 days. The expense on the recognition of the provision for the impairment of trade receivables was recorded in the statement of income, under "Selling expenses".
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RELATED PARTIES
a) Balances and transactions with related parties

12/31/2013 Parent company 12/31/2012
Klabin Trade (i) Subsidiary BNDES (vi) Stockholder Other (viii) Total 365,844 48,017 3,514 804,591 (460) (5,716) (14,420) (27,894) (109,121) (4,485) 1,080 13,822 (33,554) 2,583 507 2,474 422,123 1,322,029 1,526 508 4,413 3,380 5,297
Type of relationship Balances Current assets Non-current assets Current liabilities Non-current liabilities
Klabin Argentina (i) Subsidiary
Soc. Conta de Participao Correia Pinto (ii) and (v) Subsidiary 378,934 1,526 476,212 1,325,543 819,493 (33,554) (109,581) (14,420) (38,095)
Monteiro Aranha S.A. (iii) Stockholder
Klabin Irmos & Cia. (iii),(iv), (viii) Stockholder
Total
410,573 1,687 369,177 1,225,793 819,224 (184,641) (121,618) (19,463) (34,180)
Transactions Sales revenue Purchases Interest expenses on financing Guarantee commission - expenses Royalty expenses
(i) (ii) (iii) (iv) (v) (vi) (vii) (viii)
Balance receivable from product sale transactions carried out under terms and conditions established between the parties. Purchase of timber under usual market prices, terms and conditions. Licensing for use of brand. Prepaid expenses for guarantee commission, calculated based on the BNDES financing balance at 1% semiannually. Supply of seedlings, seeds and services under usual market prices, terms and conditions. Loans raised under usual market conditions. Advance for future capital payment. Other.
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12/31/2013 Monteiro Aranha S.A. (i) Stockholder Klabin Irmos & Cia. (i), (ii), (iv) Stockholder 5,297 507 2,474 422,123 1,322,029 (109,121) (5,716) (14,420) (27,894) (4,485) 404
Consolidated 12/31/2012
Type of relationship Balances Current assets Non-current assets Current liabilities Non-current liabilities Transactions Interest expenses on financing Guarantee commission - expense Royalty expenses (i) (ii) (iii) (iv)
BNDES (iii) Stockholder
Other (iv)
Total
Total
5,297 425,508 1,322,029 (109,121) (14,420) (38,095)
7,775 146 362,205 1,225,793 (121,618) (19,463) (34,180)
Licensing for use of brand. Prepaid expenses for guarantee commission, calculated based on the BNDES financing balance at 1% semiannually. Loans raised under usual market conditions. Other.
b) Management compensation and benefits Management compensation is determined by the stockholders at the Annual General Meeting, in accordance with Brazilian corporate legislation and the Company's bylaws. Accordingly, at the Annual General Meeting held on April 2, 2013, the stockholders established the overall amount of the annual remuneration of the members of the Board of Directors and Statutory Audit Board at up to R$ 34,200 for 2013. The compensation approved for 2012 amounted to R$ 30,000. The table below shows the compensation of the members of the Board of Directors and Statutory Audit Board:
Short term 12/31/2013 12/31/2012 Board of Directors and Statutory Audit Board 27,914 29,251 Long term 12/31/2013 12/31/2012 769 814 Parent and consolidated Total benefits 12/31/2013 12/31/2012 28,683 30,065
Management compensation includes the fees of the Statutory Audit Board members, and the fees and variable compensation of directors. Long-term benefits relate to contributions made by the Company to the pension plan. These amounts are mainly recorded under "Operating expenses administrative". Additionally, the Company grants a stock option plan to the statutory directors and other executives, as described in Note 21.
INVENTORIES
Parent company 12/31/2013 12/31/2012 98,313 101,771 133,465 105,774 106,072 99,999 4,110 6,133 124,159 120,878 (21,780) (11,625) 13,297 15,161 457,636 438,091 12/31/2013 122,749 142,474 106,072 4,110 126,365 (21,780) 15,862 495,852 Consolidated 12/31/2012 123,358 115,924 99,999 6,133 122,355 (11,625) 17,514 473,658
Finished products Raw materials Timber and logs Fuel and lubricants Maintenance supplies Provision for losses Other
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Raw material inventories include paper rolls transferred from paper units to conversion units. The expense on the recognition of the provision for inventory losses is recorded in the statement of income under "Cost of products sold". During the years ended December 31, 2013 and 2012, the provision for inventory losses increased by R$ 10,155 and R$ 8,498, respectively. The Company does not have any inventory pledged as collateral. 9 TAXES RECOVERABLE
12/31/2013 Noncurrent assets 44,367 8,868 52,001 18,448 123,684 123,684 12/31/2012 Noncurrent assets 48,887 8,680 50,739 20,096 128,402 128,402
Current assets Value-added Tax on Sales and Services (ICMS) Excise Tax (IPI) Social Integration Program (PIS) Social Contribution on Revenues (COFINS) IRPJ / CSLL Other Parent company Subsidiaries Consolidated 58,184 357 2,102 9,672 9,811 33,561 113,687 6,363 120,050
Current assets 8,422 18,971 2,460 11,322 80,740 8,526 130,441 4,869 135,310
The Company recognized credits from taxes and contributions levied on purchases of property, plant and equipment, as permitted by prevailing legislation, which are being utilized for future offset against taxes payable, of the same nature or others. Based on analyses and the budget projections approved by management, the Company does not foresee any risks of non-realization of these tax credits. PIS/COFINS and ICMS in current assets are expected to be offset against the same taxes payable in the next 12 months, according to management's estimate. 10 INCOME TAX AND SOCIAL CONTRIBUTION
a) Nature and expected realization of deferred taxes The balances of deferred tax assets and liabilities at December 31, 2013 and 2012 were as follows:
Parent company 12/31/2013 12/31/2012 Provisions for tax, social security, labor and civil contingencies Write-off of deferred charges (adoption of the Transitional Tax System (RTT)) Income tax and social contribution losses Deferred exchange variations (*) Actuarial liability Other temporary differences Non-current assets Fair value of biological assets Revision of useful lives of property, plant and equipment (adoption of RTT) 28,526 12,096 354,658 19,492 47,827 462,599 670,564 229,008 24,394 14,957 203,894 12,964 41,403 297,612 710,421 178,248 Consolidated 12/31/2012 24,394 14,957 114 203,894 12,964 41,403 297,726 817,892 178,248
12/31/2013 28,526 12,096 100 354,658 19,492 47,826 462,698 773,030 229,008
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Parent company 12/31/2013 12/31/2012 Deemed cost of property, plant and equipment (land) Adjustment to present value of balances Asset revaluation reserve Other temporary differences Non-current liabilities Net balance in the balance sheet (liabilities) 493,122 47,897 25,382 41,827 1,507,800 471,515 46,366 25,749 55,986 1,488,285
12/31/2013 565,742 47,897 25,382 41,826 1,682,885
Consolidated 12/31/2012 565,742 46,366 25,749 55,986 1,689,983
1,045,201
1,190,673
1,220,187
1,392,257
(*) Management opted for the tax recognition of the exchange variations of its foreign currency receivables and payables on the cash basis, thereby generating temporary differences, which will be taxed according to the settlement of the receivables and payables.
In 2008, the Company adopted the RTT established by Law 11,941/09, for income tax and social contribution effects arising from the adoption of CPCs. Management, based on the budgets approved by the Board of Directors, estimates that tax credits arising from temporary differences will be realized as follows:
Parent company 71,529 72,800 79,253 66,858 172,159 462,599 12/31/2013 Consolidated 71,529 72,800 79,253 66,858 172,258 462,698
2014 2015 2016 2017 2018 onwards
The above projection, for the realization of the balance, may not materialize if the estimates utilized in the preparation of the budgets differ from the actual amounts. Information on the Company's taxes under litigation is disclosed in Note 16. b) Analysis of income tax and social contribution
Parent company 12/31/2013 12/31/2012 (249,004) (77,472) 17,921 (231,083) (77,472) 159,048 28,863 (50,707) (56,131) 44,188 (68,388) 152,529 (95,656) 12/31/2013 (259,363) 17,921 (241,442) 157,164 (50,707) 44,864 151,321 Consolidated 12/31/2012 (133,945) (133,945) 41,168 (56,131) (195,583) (210,546)
Current tax expense Prior-year adjustment Current Recognition and reversal of temporary differences Revision of useful lives of property, plant and equipment Variation in fair value and depletion of biological assets Deferred
c) Reconciliation of income tax and social contribution with the result of applying the statutory tax rate to the result
12/31/2013 Profit before taxation Parent company 12/31/2012 925,093 12/31/2013 380,218 Consolidated 12/31/2012 1,096,456
368,651
Income tax and social contribution at the statutory rate of 34% Tax effects on permanent differences: Difference in taxation - subsidiaries Equity in the results of investees Other effects
(125,341)
(314,532)
(129,274)
(372,795)
30,750 16,037 (78,554)
131,046 10,358 (173,128)
6,599 7,560 24,994 (90,121)
7,998 8,781 11,525 (344,491)
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12/31/2013 Income tax and social contribution . Current . Deferred Income tax and social contribution expenses in the result
Parent company 12/31/2012
12/31/2013
Consolidated 12/31/2012
(231,083) 152,529 (78,554)
(77,472) (95,656) (173,128)
(241,442) 151,321 (90,121)
(133,945) (210,546) (344,491)
d) Assessment of the impacts of Provisional Measure 627 On November 11, 2013, Provisional Measure (MP) 627 was published, revoking the Transitional Tax System (RTT), among other provisions. The MP is effective as from 2015, but may be early adopted in 2014. The Company prepared a study of the possible effects that may arise from the application of this new rule and concluded that its early adoption, or non-adoption, would not have significant impacts on its financial statements, primarily in relation to the dividends distributed up to the end of 2013, since the main effect of RTT, related to the fair value adjustment of biological assets, is also adjusted for the distribution of dividends and, therefore, does not cause impacts. Additionally, the Company did not distribute interest on capital in the past years. The Company's conclusions consider its best interpretation of the current text of the MP. Taking into consideration the high amount of amendments proposed up to date, it is possible that, when it is converted into Law, if this occurs, the text will be altered and the conclusions may be reviewed based on the definitive text.
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11
Klabin Ltd. (i) 39,740 (24,808) (2,644) (450,304) 450,304 347 450,651 (17,850) 22,238 (1,899) 1,590 (20,026) 18,568 429,510 52,736 92,578 54,001 149 (1,374,366) 239,405 (1,019) 8,491 7,313 (2,910) (218) 12,676 37,172 76,912 995 (60,519) 29,091 10,445 13,317 (222,992) 455,039 428,052 50,837 94,168 205,686 3,989 7,082 (2,072) 43,269 48,292 (47,074) 52,587 Other 9,510 Klabin Argentina S.A. 38,259 Centaurus Holdings S.A. (iii) 606,487 3,855 Florestal Vale do Corisco S.A. (iii) Soc. Conta de Partnership Correia Pinto 400,317 Soc. Conta de Partnership CG Forest (vi) Soc. Conta de Partnership Mt Alegre (vii) Soc. Conta de Partnership Leal 1,182,035
INVESTMENTS IN SUBSIDIARIES AND JOINTLY-CONTROLLED SUBSIDIARIES
At December 31, 2011 Acquisitions and capital contributions Dividends received Loss on variation in the percentage of participation Split-off/merger of subsidiary (iv) Merger due to dissolution of SPC (v) Equity in the results of investees (ii) Exchange variations on investment abroad At December 31, 2012 Acquisitions and capital contributions Dividends received Equity in the results of investees (ii) Merger due to dissolution of subsidiaries (viii) Exchange variations on investment abroad At December 31, 2013 46,479 (6,871) 46,843
Total 2,276,348 56,442 (71,882) (2,644) (1,374,366) 385,429 (2,072) 1,267,255 104,875 (98,395) 90,440 (223,210) (6,871) 1,134,094
Summary of financial information of subsidiaries at December 31, 2013:
Total assets 46,479 56,890 1,168,849 617,480 87,121 174,620 Total liabilities 9,570 276,616 138,660 13,156 30,453 Equity 46,479 47,320 892,233 478,820 73,965 144,167 Profit for the year 26,773 10,445 13,317 37,815 26,921 (1,899) 1,590 (i) Parent company of Klabin Trade. (ii) Includes the effects of variation in and realization of fair value of biological assets (Note 13). (iii) As mentioned in Notes 1 and 3, Centaurus Holdings S.A. was a jointly held subsidiary and parent company of Florestal Vale do Corisco up to May 2012, becoming the Company's wholly-owned subsidiary in June 2012. (iv) Corresponding to the corporate restructuring of subsidiaries, mentioned in Notes 1 and 3. (v) Corresponding to the SPC dissolution mentioned in Notes 1 and 3. (vi) Corresponding to the creation of the new subsidiary denominated SPC CG Forest, as mentioned in Notes 1 and 3. (vi) Corresponding to the creation of the new subsidiary denominated SPC Monte Alegre, mentioned in Notes 1 and 3. (viii) Corresponding to the merger of the subsidiaries Centaurus Holdings S.A. and Klabin Celulose S.A., mentioned in Notes 1 and 3.
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12
PROPERTY, PLANT AND EQUIPMENT
a) Composition
12/31/2013 Parent company Land Buildings and construction Machinery, equipment and facilities Construction in progress Other (i) Consolidated Land Buildings and construction Machinery, equipment and facilities Construction in progress Other (i) Cost 1,785,738 642,245 4,311,890 427,769 683,612 7,851,254 2,014,311 649,331 4,330,272 427,934 686,034 8,107,882 Accumulated depreciation (196,557) (1,799,209) (184,498) (2,180,264) (199,229) (1,812,814) (186,332) (2,198,375) Net 1,785,738 445,688 2,512,681 427,769 499,114 5,670,990 2,014,311 450,102 2,517,458 427,934 499,702 5,909,507 12/31/2012 Net 1,639,159 420,754 2,307,403 270,682 365,709 5,003,707 2,002,793 425,976 2,313,454 270,927 366,276 5,379,426
(i)
Refers to leasehold improvements, vehicles, furniture and fittings and IT equipment. It also includes the advances made to suppliers for the acquisition or construction of property, plant and equipment.
The information on property, plant and equipment pledged as collateral in transactions carried out by the Company is disclosed in Note 14, and information on the insurance coverage of assets is disclosed in Note 26. b) Summary of changes in property, plant and equipment
Parent company Buildings and construction 405,818 (65) (21,045) 36,213 (167) 420,754 (75) (22,539) 47,548 445,688 Machinery, equipment and facilities 2,197,031 (3,975) (176,531) 291,212 (334) 2,307,403 (3,122) (196,286) 405,169 (483) 2,512,681 Construction in progress 242,916 385,352 (353,331) (4,255) 270,682 480,745 (404,276) 84,402 (3,784) 427,769
At December 31, 2011 Additions Disposals Depreciation Merger due to dissolution of SPC (i) Internal transfers Other At December 31, 2012 Additions Disposals Depreciation Internal transfers Merger of subsidiaries (iii) Other At December 31, 2013
Land 966,697 671,676 786 1,639,159 (14) 146,593 1,785,738
Other 191,416 167,595 (110) (18,418) 25,120 106 365,709 209,582 (6,644) (23,805) (48,441) 2,027 686 499,114
Total 4,003,878 552,947 (4,150) (215,994) 671,676 (4,650) 5,003,707 690,327 (9,855) (242,630) 233,022 (3,581) 5,670,990
Consolidated Buildings and construction 411,463 1 (65) (21,240) 36,213 (396) 425,976 (75) (22,724) 47,547 (622) 450,102 Machinery, equipment and facilities 2,203,676 357 (3,996) (177,604) 291,655 (634) 2,313,454 352 (3,177) (197,326) 405,252 (1,097) 2,517,458 Construction in progress 242,917 386,111 (1) (353,808) (4,292) 270,927 565,177 (404,358) (3,812) 427,934
At December 31, 2011 Additions Disposals Depreciation Internal transfers Consolidation of subsidiary (ii) Other At December 31, 2012 Additions Disposals Depreciation Internal transfers Other At December 31, 2013
Land 1,867,086 3,856 (9) 131,860 2,002,793 3,967 (14) 7,565 2,014,311
Other 191,941 165,121 (116) (18,601) 25,949 1,982 366,276 211,865 (6,648) (23,969) (48,441) 619 499,702
Total 4,917,083 555,446 (4,178) (217,445) 131,860 (3,340) 5,379,426 781,361 (9,914) (244,019) 2,653 5,909,507
(i) Corresponding to the SPC Leal dissolution in December, mentioned in Notes 1 and 3. (ii) Corresponding to the consolidation of the subsidiary Centaurus Holdings S.A. as from June 2012, as mentioned in Notes 1 and 3. (iii) Corresponding to the merger of the subsidiaries Centaurus Holdings S.A. and Klabin Celulose S.A., mentioned in Notes 1 and 3.
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Depreciation was mainly allocated to the production cost for the year. c) Useful lives and depreciation method The table below shows the annual depreciation rates calculated under the straight-line method, which were applicable in the years ended December 31, 2013 and 2012, defined based on the economic useful lives of assets: Rate - % 2.86 to 3.33 2.86 to 10 (*) 4 to 20
Buildings and construction Machinery, equipment and facilities Other

(*) Prevailing rate of 6%
Management reviewed the useful lives of the Company's property, plant and equipment at the end of 2013 and decided to maintain the depreciation rates applied in 2012. d) Construction in progress The balance of construction in progress at December 31, 2013 refers to the following main projects: (i) remodeling of the lime kiln and power boiler at the Monte Alegre (PR) unit; (ii) ground-leveling work in the area of the pulp project; (iii) expansion of the evaporation system at the Otaclio Costa (SC) unit; (iv) biomass boiler at the Correia Pinto (SC) unit; (v) expansion project at Correia Pinto (SC) with the installation of a new paper machine; (vi) new recycled paper machine for the unit in Goiana (PE); and (vii) current investments in the continuing operations of the Company. e) Impairment of property, plant and equipment The Company did not identify indicators of impairment of its assets in the years ended December 31, 2013 and 2012.
13
BIOLOGICAL ASSETS
The Company's biological assets are comprised of the planting and growing of pine and eucalyptus trees for the supply of raw material to produce the pulp used in paper production and in sales of timber to third parties. Considering its interest in the forestry area of the jointly-controlled subsidiary Florestal Vale do Corisco, the Company owned 242 thousand hectares of planted areas at December 31, 2013 (242 thousand hectares as at December 31, 2012), not including the permanent preservation areas and legal reserve that should be maintained to comply with the Brazilian environmental legislation. The balance of the Company's biological assets consists of the cost to grow forests and the fair value difference on the growing cost, less the costs necessary to prepare the assets for use or sale, so that the balance of biological assets as a whole is recorded at fair value, as follows:
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Growing cost of biological assets Fair value adjustment of biological assets
12/31/2013 863,304 1,956,294 2,819,598
Parent company 12/31/2012 870,671 2,073,516 2,944,187
12/31/2013 1,064,325 2,257,660 3,321,985
Consolidated 12/31/2012 1,051,887 2,389,608 3,441,495
The fair value measurement of biological assets considers certain estimates, such as the price of wood, the discount rate, the harvesting plan for the forests and productivity level, all of which are subject to uncertainties, and could have impacts on the Company's future results due to their fluctuations. There are no biological assets pledged as collateral for transactions carried out by the Company and information on the insurance of biological assets and the financial risks of forestry operations are disclosed in Note 26. a) Assumptions regarding the recognition of the fair value of biological assets In accordance with CPC 29 (equivalent to IAS 41) - Biological Assets and Agricultural Products, the Company recognizes its biological assets at fair value adopting the following assumptions in its calculation: (i) Eucalyptus forests are maintained at historical cost through the third year from planting and pine forests through the fifth year from planting, based on management's understanding that during this period the historical cost of biological assets approximates their fair value. (ii) After the third and fifth years of planting, eucalyptus and pine forests, respectively, are measured at fair value, which reflects the sales price of the asset less the costs necessary to prepare the assets for the intended use or sale. (iii) The methodology used in the fair value measurement of biological assets corresponds to the discounted future cash flows estimated according to the projected productivity cycle of the forests, taking into consideration price variations and the growth of biological assets. (iv) The discount rate used for cash flows is the Company's Weighted Average Cost of Capital (WACC), which is periodically reviewed. (v) The projected productivity volumes of forests are determined using a stratification based on forest type, genetic material, handling system, productive potential, rotation and age. The set of these characteristics forms an index named Average Annual Growth (AAG), expressed in cubic meters per hectare/year utilized as a basis in the projection of productivity. The Company's harvesting plan varies from six to seven years for eucalyptus trees and 14 to 15 years for pine trees. (vi) The prices of biological assets, denominated in R$/cubic meter, are obtained using market price surveys disclosed by specialized firms and prices charged by the Company on sales to third parties. The prices obtained are adjusted by deducting the capital costs relating to land, since they refer to assets that contribute to the planting of forests, and other costs necessary to prepare the assets for sale or consumption. (vii) The costs of the development of biological assets. (viii) The depletion of biological assets is calculated based on the fair value of biological assets harvested in the period.
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(ix) The Company has decided to review the fair value of its biological assets on a quarterly basis, since it understands that this period is sufficiently short to prevent any significant gap in the fair value of the biological assets as recorded in its quarterly information. b) Reconciliation and movement in fair value variations
Parent company 1,361,751 67,221 (20,028) (152,515) 105,313 248,481 1,398,065 (64,029) (72) 2,944,187 59,520 (57,347) (439,438) 111,330 198,144 (121,463) 124,665 2,819,598 Consolidated 2,715,769 114,332 (45,289) (318,876) 290,705 595,283 86,921 2,650 3,441,495 81,095 (61,068) (468,244) 103,186 233,103
At December 31, 2011 Development costs Depletion: . Historical cost . Fair value adjustment Change in fair value due to: . Price . Growth Consolidation of subsidiary (i) Merger due to dissolution of SPC (ii) Capital increase in the new SPC (iii) Transfers At December 31, 2012 Development costs Depletion: . Historical cost . Fair value adjustment Change in fair value due to: . Price . Growth Capital increase in the new SPC (iii) Merger due to dissolution of subsidiaries (iv) Transfers At December 31, 2013
(i)
(7,582) 3,321,985
Corresponding to the consolidation of the subsidiary Centaurus Holdings S.A. as from June 2012, as mentioned in Notes 1 and 3. (ii) Corresponding to the SPC dissolution mentioned in Notes 1 and 3. (iii) Corresponding to the creation of the new subsidiaries denominated SPC CG Forest and SPC Monte Alegre, mentioned in Notes 1 and 3. (iv) Corresponding to the merger of the subsidiaries Centaurus Holdings S.A. and Klabin Celulose S.A., mentioned in Notes 1 and 3.
The variation in the fair value in 2013 was mainly due to the increase in the prices charged and the revision of the discount rate during the first quarter of the year, pursuant to an internal policy, which increased the discount rate utilized in calculating the discounted cash flow and decreased the fair value of assets, as reflected in the growth variation for the period. The depletion of biological assets in the years presented was mainly included in the production cost, after being allocated to inventories, through the harvesting of forests, since the assets were utilized either in the production process or in sales to third parties. c) Sensitivity analysis In accordance with the hierarchy of CPC 46 (equivalent to IFRS 13) - Measurements at fair value, the calculation of biological assets is classified as Level 3 due to its complexity and calculation structure. Assumptions utilized include sensitivity to the prices used in the evaluation and the discount rate used in the discounted cash flow. Prices refer to the prices obtained in the regions in which the Company is located. The discount rate corresponds to the average cost of capital, taking into consideration the basic interest rate (SELIC) and inflation levels.
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Significant increases (decreases) in the prices used in the appraisal would result in an increase (decrease) in the measurement at fair value of biological assets. The average price used in the valuation of the biological assets for the year ended December 31, 2013 was R$ 66.60/m3 (R$ 62.62/ m3 at December 31, 2012). The effects of a significant increase (decrease) in the discount rate used in the measurement of the fair value of biological assets would result in a decrease (increase) in the values measured. The Company's WACC is updated on an annual basis, and the new rate is applied as from the date of the first-quarter evaluation for each year, and this rate remains unchanged for the year. The discount rate used in the appraisal of the biological assets for the quarter ended December 31, 2013 was 5.7% in constant currency (5.5% at December 31, 2012). 14 BORROWINGS
a) Composition of borrowings
Annual interest rate - % Current In local currency . BNDES - Project MA1100 . BNDES - Other . Export credit notes (in R$) . Other In foreign currency (ii) . BNDES - Other . Export prepayments . Export credit notes Total consolidated Subsidiaries: . Export prepayments in subsidiaries (ii) Total parent company TJLP + 4.5 and basket (i) + 1.5 TJLP + 4.5 and basket (i) + 1.5 CDI + 0.6 1.0 to 6.8 258,936 145,554 10,581 42,534 457,605 17,633 541,694 108,044 667,371 1,124,976 NonCurrent 328,407 860,014 473,333 92,842 1,754,596 133,608 2,838,491 1,111,926 4,084,025 5,838,621 12/31/2013 Total 587,343 1,005,568 483,914 135,376 2,212,201 151,241 3,380,185 1,219,970 4,751,396 6,963,597
USD + 5.7 to 6.3% USD + Libor 6M + 1.1 to 6.4 USD + 3.9 to 8.1
USD + 3.1
1,177 1,126,153
3,514 5,842,135
4,691 6,968,288 12/31/2012
Annual interest rate - % Current In local currency . BNDES - Project MA1100 . BNDES - Other . Export credit notes (in R$) . Other In foreign currency (ii) . BNDES - Other . Export prepayments . Export credit notes TJLP + 4.8 and basket (i) + 2.0 TJLP + 4.8 and basket (i) + 2.0 CDI + 0.6 1.0 to 6.8 260,884 87,254 16,957 22,024 387,119 11,374 623,333 98,944 733,651 1,120,770 NonCurrent 639,174 507,390 50,000 82,098 1,278,662 79,229 2,510,326 1,046,117 3,635,672 4,914,334
Total 900,058 594,644 66,957 104,122 1,665,781 90,603 3,133,659 1,145,061 4,369,323 6,035,104
USD + 5.8 USD + Libor 6M + 1.1 to 6.4 USD + 3.9 to 8.1
Total parent company and consolidated (i) Currency basket basically comprising U.S. dollars (ii) In U.S. dollars TJLP - Long-term Interest Rate Libor - London Interbank Offered Rate
BNDES The Company has agreements with BNDES for the financing of industrial development projects, such as the construction of the new paper machine in Correia Pinto (SC), the construction of a new recycled paper machine in Goiana (PE) and the paper segment expansion project, referred as MA 1100, which will be settled up to January 2017. This financing is repaid monthly, along with the related interest.
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Export prepayments and export credit notes Export prepayment and credit note transactions were carried out with major banks for the purposes of working capital management and the development of the Company's operations. These agreements will be settled through May 2022. b) Schedule of non-current maturities The maturity dates of the Company's borrowings at December 31, 2013, classified in non-current liabilities, are as follows:
2022 and onwards 173,133
Year Amount
2015 1,102,235
2016 751,937
2017 1,010,686
2018 960,833
2019 898,182
2020 639,949
2021 301,666
Total 5,838,621
c) Summary of changes in borrowings

Parent company 5,297,336 1,371,165 310,775 421,370 (1,365,542) 6,035,104 1,411,497 315,406 619,272 (1,412,991) 6,968,288 Consolidated 5,297,336 1,371,165 310,775 421,370 (1,365,542) 6,035,104 1,407,193 315,333 618,884 (1,412,917) 6,963,597
At December 31, 2011 Borrowings Accrued interest Foreign exchange and monetary variations Repayments and payment of interest At December 31, 2012 Borrowings Accrued interest Foreign exchange and monetary variations Repayments and payment of interest At December 31, 2013
d) Guarantees The financing agreements with BNDES are guaranteed by the land, buildings, improvements, machinery, equipment and facilities of the plants in Correia Pinto (SC), and Monte Alegre (PR), of which the carrying amount, net of depreciation, was R$ 2,274,860 at December 31, 2013. The financing is also guaranteed by restricted deposits and sureties from the controlling stockholders. Export credits, export prepayments, and working capital loans are not collateralized. e) Restrictive covenants At the end of the reporting period, the Company and its subsidiaries did not have any financing agreements containing restrictive covenants requiring compliance with financial ratios on contracted transactions, where non-compliance could accelerate the maturity of the debt. 15 TRADE PAYABLES
12/31/2013 330,778 11,348 342,126 Parent company 12/31/2012 303,958 9,601 313,559 12/31/2013 331,386 13,998 345,384 Consolidated 12/31/2012 304,873 13,204 318,077
Local currency Foreign currency
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The Company's average payment term with suppliers is approximately 45 days. 16 PROVISION FOR TAX, SOCIAL SECURITY, LABOR AND CIVIL CONTINGENCIES
a) Provisioned risks Based on the individual analysis of lawsuits filed against the Company and its subsidiaries and the opinion of its legal counsel, a provision is recorded in non-current liabilities for losses considered as probable, as follows:
12/31/2013 In the parent company: Tax: . PIS/COFINS . IRPJ / CSLL . Other Labor Civil Provisioned amount (12,003) (652) (12,655) (74,879) (8,370) (95,904) Restricted judicial deposits 10,671 652 11,323 18,748 767 30,838 Net liability (1,332) (1,332) (56,131) (7,603) (65,066) Unrestricted judicial deposits 24,112 34,587 58,699 58,699
Subsidiaries: Other Consolidated
(1) (95,905)
30,838
(1) (65,067)
1,432 60,131
12/31/2012 In the parent company: Tax: . PIS/COFINS . IRPJ / CSLL . Other Labor Civil Provisioned amount (11,442) (3,291) (14,733) (61,479) (6,977) (83,189) Restricted judicial deposits 10,202 3,396 13,598 16,880 767 31,245 Net liability (1,240) 105 (1,135) (44,599) (6,210) (51,944) Unrestricted judicial deposits 24,446 469 29,531 54,446 54,446
Subsidiaries: Other Consolidated
(83,189)
31,245
(51,944)
1,432 55,878
The risks provisioned by the Company at December 31, 2013 relate to tax lawsuits, mainly challenges regarding income tax and social contribution on monetary restatements under Law 8,200/91, labor lawsuits filed by former employees of the Company's plants claiming labor rights (severance pay, overtime, hazardous duty and health hazard premiums), indemnities and joint liability, and civil lawsuits relating mainly to compensation claims for tangible damage and/or pain and suffering resulting from accidents.
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b) Summary of changes in the provisioned amount

Tax (1,135) (2,274) 2,077 (1,332) Labor (44,599) 1,868 (13,400) (56,131) Civil (6,210) (1,393) (7,603) Parent and consolidated Net exposure (51,944) (406) (12,716) (65,066)
At December 31, 2012 New lawsuits/increases and monetary restatements/derecognitions Reversals At December 31, 2013
c) Provisions for tax, social security, labor and civil contingencies not recognized At December 31, 2013, the Company and its subsidiaries had other tax, labor and civil proceedings involving risks of loss assessed as possible, which totaled approximately: tax - R$ 534,238, labor R$ 101,391 and civil - R$ 78,935 (R$ 508,462, R$ 74,754 and R$ 50,299 at December 31, 2012, respectively). Based on the individual analysis of lawsuits and the opinion of the Company's legal counsel, management understands that these lawsuits do not need to be provided for since the likelihood of loss is assessed as only possible. d) Lawsuits filed by the Company As at December 31, 2013, the Company was a plaintiff in lawsuits which were not recognized in its financial statements as assets. These will be recognized only after a final and unappealable decision is rendered and the gain is virtually certain. The Company's legal counsel assessed the likelihood of a favorable outcome in some of the lawsuits as "probable". These lawsuits relate to the requirement for deemed notional Excise Tax (IPI) credits on purchases of electric power, fuel oil and natural gas used in the production process. e) Enrollment in REFIS During the fourth quarter of 2013, the Company carried out a new enrollment in the Tax Recovery Program (REFIS), reopened by Law 12,865/13, aiming substantially to end the tax proceeding regarding the Excise Tax (IPI) credits on chippings. The ongoing proceeding amounted to R$ 50,491, due to the enrollment in the Tax Recovery Program and the option of paying the debt in 180 installments, the amount decreased to R$ 37,617. The expense is recognized in the period and the obligation payable according to maturity. The REFIS (Law 11,941/09 and Law 12,865/13) balance payable recorded in the parent company and consolidated totaled R$ 443,892 at December 31, 2013 (R$ 429,176 at December 31, 2012), which was restated at the effective interest rate, which based on future values and the SELIC variation. The balance is being paid in monthly installments. f) Commitments The Company and its subsidiaries did not have any material future commitments at the end of the reporting period other than those that have already been disclosed in the financial statements.
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17
EQUITY
a) Capital The Company's subscribed and paid-up capital was R$ 2,271,500 at December 31, 2013 and December 31, 2012, comprising 917,683,296 shares, without par value, held as follows:
Common shares 63,458,605 163,797,753 24,699,654 64,871,551 316,827,563 12/31/2013 Preferred shares 79,647,040 56,502,205 15,619,078 30,073,798 388,400,112 30,613,500 600,855,733 Common shares 63,458,605 163,797,753 24,699,654 64,871,551 316,827,563 12/31/2012 Preferred shares 79,647,040 56,246,305 20,650,016 30,103,191 383,420,181 30,789,000 600,855,733
Stockholders BNDESPAR The Bank of New York Department Monteiro Aranha S.A. Klabin Irmos & Cia Niblak Participaes S.A. BlackRock Inc. Other Treasury shares
The Company's authorized capital comprises 1,120,000,000 common shares (ON) and/or preferred shares (PN). b) Treasury shares The Extraordinary Meeting of the Companys Board of Directors held on December 9, 2013 approved the buyback of up to 45,154,823 preferred shares (equivalent to 10% of the shares of this class outstanding in the market at that date) in a 365-day period, to be held in treasury for subsequent sale or cancelation without a capital reduction. In May and December 2013, the Company bought back 222,800 and 500,000 of its own preferred shares, at the average price of R$ 13.46 and R$ 11.64 per share, totaling R$ 2,999 and R$ 5,822, respectively. In accordance with the stock option plan described in Note 21, granted as long-term remuneration to the Company's officers, 380,900 preferred treasury shares were sold in March and July 2013, and the right of use of 517,400 preferred shares was granted, which were written off from treasury shares. The Company maintained 30,613,500 preferred shares of its own issue in treasury at December 31, 2013. The price of this class of shares (PN) traded on the So Paulo Stock Exchange was R$ 12.26 each, as at December 31, 2013. c) Reserves Capital reserve The reserve was constituted through the result of the sale of shares held in treasury, which did not transit through the statement of income. The balance can be utilized to offset losses, repurchase shares or for the payment of dividends on preferred shares, or can be incorporated into capital. Revaluation reserve Based on CVM Resolution 27/86, this balance relates to the revaluation of property, plant and equipment in 1988, which is realized through the depreciation or sale of revalued assets. The balance is stated net of the applicable income tax and social contribution. 32 of 49
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Revenue reserves (i) Legal reserve Under Brazilian corporate legislation, the Company should allocate 5% of the annual profit to the legal reserve until the balance reaches 20% of capital. The Company need not constitute the legal reserve in a year in which the balance of this reserve, plus the amount of capital reserve, exceeds 30% of the capital. The purpose of the legal reserve is to protect the Company's capital and it can be used only to offset losses or increase capital, as determined at the Stockholders' Meeting. (ii) Investment and working capital reserve This statutory reserve, comprising the variable portion of annual profit adjusted as required by law and representing between 5% and 75% of profit according to the Company's bylaws, is intended to retain funds for investment in property, plant and equipment and to reinforce working capital. (iii) Biological assets reserve As required by the Company's bylaws, the biological assets reserve is appropriated from the profit for the year, net of taxes. It is constituted every year, with the appreciation in value arising from the fair value measurement of biological assets and reversed to retained earnings on the decrease in the fair value measurement of biological assets. The balance is realized through the depletion of the fair value of biological assets, limited to the existing balance in retained earnings. The biological assets reserve relates to the biological assets of the Company, as well as its subsidiaries and jointly-controlled subsidiaries, as reflected through equity accounting. (iv) Reserve for proposed dividends The reserve for proposed dividends was constituted based on management's proposal for dividend distribution exceeding the mandatory minimum dividend, which is contingent upon the approval of the General Meeting of Stockholders. d) Carrying value adjustments Created by Law 11,638/07, the group "Carrying value adjustments" in the Company's equity comprises adjustments in respect of increases and decreases in assets and liabilities, when applicable, that are not computed in the result for the year, up to their effective realization. The balance maintained by the Company corresponds to the adoption of the deemed cost of property, plant and equipment for the forest land, an option exercised on the initial adoption of the new accounting pronouncements in convergence with IFRS, at January 1, 2009; the foreign exchange variations of the subsidiary abroad with a functional currency different from the parent company (Note 1); balances relating to the stock option plan granted to executives (Note 21); and actuarial liability remeasurements (Note 25).
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Parent and consolidated 12/31/2013 12/31/2012 Deemed cost of property, plant and equipment (land) Foreign exchange variations - subsidiary abroad Actuarial liability Stock option plan 1,098,205 (22,099) (9,792) (877) 1,065,437 1,098,205 (15,230) (1,596) 1,081,379
e) Dividends Dividends represent the portion of the profits earned by the Company which is distributed to the stockholders as remuneration of invested capital in the fiscal years. All stockholders are entitled to receive dividends, proportionately to their ownership interest, as assured by Brazilian corporate legislation and the Company's bylaws. The bylaws also determine that management has the option to prepay interim dividends during the year, "ad referendum" of the Ordinary General Meeting held to examine the accounts for the year. The calculation basis of the mandatory dividends defined in the Company's bylaws is adjusted in accordance with the constitution, realization and reversal, in the related year, of the Biological Assets Reserve, entitling the Company's stockholders to receive, every year, a mandatory minimum dividend of 25% of the annual adjusted profit. The profit distribution in 2013 can be presented as follows:
Parent company (=) (-) (+) (-) (-) (-) (+) (=) (=) Profit for the year Legal reserve (5% of profit) Realization of biological assets reserve - own Biological assets reserve - own Biological assets reserve - subsidiaries (*) Constitution of tax incentive reserve Realization of revaluation reserve Basic profit for distribution of mandatory dividends Minimum mandatory dividends, according to the bylaws (25%) 290,097 (14,505) 290,029 (204,253) (3,500) (5,583) 711 352,996 88,249
Interim dividends distributed from the result for the year 2013 July (paid on August 15, 2013) . R$ 148.21 per thousand common shares . R$ 163,03 per thousand preferred shares October (paid on November 22, 2013) . R$ 89.98 per thousand common shares . R$ 98,98 per thousand preferred shares Proposal of supplementary dividends for 2013 to be approved at the OGM . R$ 98.33 per thousand common shares . R$ 98,33 per thousand preferred shares (**) (-) (-) Total dividends distributed on the 2013 result Reserve for investments and working capital
46,957 93,048 28,508 56,492 225,005 33,934 56,072 90,006 315,011 37,985 352,996
(*) Included in equity in results of investees. (**) Includes the elimination of the additional dividends of 10% to stockholders holding preferred shares, according to the corporate events mentioned in Note 27, since upon the approval at the Meeting to be held, the Company's new bylaws will already be effective.
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The Company's management will present at the Ordinary General Meeting to be held on March 20, 2014, together with the request for the approval of the accounts for the year, a proposal for distribution of supplementary dividends in respect of 2013 equivalent to R$ 90,006, corresponding to R$ 98.33 per thousand registered common shares (ON) and per thousand registered preferred shares (PN), distributed with a portion of the result for the year. The total dividends proposed in 2013 amount to R$ 315,011. The balance of supplementary dividends is maintained in a specific account in equity denominated "Reserve for dividends proposed" until its approval and payment. According to the stockholders' approval issued at the Annual General Meeting held on April 2, 2013, the Company distributed supplementary dividends for 2012 of R$ 76,069, corresponding to R$ 80,52 (in reais) per thousand registered common shares and R$ 88.57 (in reais) per thousand registered preferred shares, paid on April 23, 2013. During 2013, R$ 301,074 was effectively paid, R$ 225,005 related to interim dividends for 2013 and R$ 76,069 to supplementary dividends for 2012. 18 NET SALES REVENUE
The Company's net revenue is comprised as follows:

12/31/2013 5,418,244 (13,007) (915,520) 4,489,717 3,429,433 1,060,284 4,489,717 Parent company 12/31/2012 4,855,376 (9,002) (807,438) 4,038,936 3,183,441 855,495 4,038,936 12/31/2013 5,554,345 (18,549) (936,459) 4,599,337 3,424,195 1,175,142 4,599,337 Consolidated 12/31/2012 4,996,659 (7,948) (825,041) 4,163,670 3,168,637 995,033 4,163,670
Gross sales revenue Discounts and rebates Taxes on sales . Domestic market . Foreign market Net sales revenue
19
INCOME (EXPENSES) BY NATURE

12/31/2013 (1,679,579) (707,852) (742,540) (221,584) (9,257) (246,177) 16,203 (18,461) (160,096) (3,769,343) Parent company 12/31/2012 (1,662,210) (691,993) (391,294) (176,688) (2,439) (228,913) 4,502 (5,029) (175,686) (3,329,750) 12/31/2013 (1,646,025) (715,002) (766,553) (225,920) (33,323) (248,664) 16,203 (18,461) (200,864) (3,838,609) Consolidated 12/31/2012 (1,477,569) (698,983) (592,677) (203,752) (26,973) (231,225) 4,502 (5,029) (199,561) (3,431,267)
Variable costs (raw materials and consumables) Personnel Depreciation, amortization and depletion Freight Commissions Services contracted Revenue from sale of PP&E Cost on sale and write-off of PP&E Other
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20
FINANCE RESULT
12/31/2013 Parent company 12/31/2012 222,867 35,729 42,583 301,179 (310,775) (44,398) (40,854) (428,468) (824,495) (523,316) 12/31/2013 196,196 16,761 63,058 276,015 (310,314) (39,973) (7,330) (65,733) (591,699) (1,015,049) (739,034) Consolidated 12/31/2012 231,987 35,963 42,573 310,523 (310,775) (44,398) (40,456) (42,249) (420,407) (858,285) (547,762)
Finance income . Income from financial investments . Other . Exchange variations on assets Finance costs . Interest on financing . Interest on REFIS (Note 16) . Compensation of investors - SPCs . Other . Exchange variations on liabilities Finance result
185,765 16,682 63,014 265,461 (310,382) (39,973) (64,114) (602,629) (1,017,098) (751,637)
21
STOCK OPTION PLAN
The Extraordinary General Meeting of Stockholders held on July 10, 2012 approved the stock option plan as a benefit for the members of the Executive Board and the Company's key personnel. CVM authorized the Company, through the Circular Letter/CVM/SEP/GEA-2/221/2012, to realize the private transactions included in the incentive plan for its directors and employees, except for the controlling stockholders, by the private transfer of treasury shares. Pursuant to this plan, the Company established that its statutory and non-statutory directors can utilize a percentage of 25% to 70% of their variable remuneration for the acquisition of preferred treasury shares, and the Company will grant the right of use of the same amount of shares to the acquirers for three years, transferring to them the ownership of the shares after three years, provided that the clauses established in the plan are complied with. The plan does not establish the acquisition of shares by the Company's key personnel, but only the granting of the right to use a certain number of shares for three years, the ownership of which will be transferred to the beneficiary, provided the established clauses are complied with. The right of use grants to the beneficiary the right to the dividends distributed in the period during which the benefit is valid. The value of the acquisition of treasury shares by the beneficiaries of the plan will be obtained based on the lower of the average of the market value quotations in the last 60 trading sessions of the Company's preferred shares and their quotation on the acquisition date. The value of shares granted with right of use corresponds to the quotation of shares traded on the BM&FBovespa on the transaction date. The clauses that grant the transfer of shares establish the participation of the beneficiary in the Company and stipulate that the shares acquired on the adhesion to the plan may not be sold. The shares granted can be immediately assigned in the case of the termination of employment by the Company, or the retirement or death of the beneficiary, in which case the right to the shares becomes part of the estate of the deceased. The shares granted and the expense proportional to the grant term, recorded in the result, is accumulated in Equity in the "Carrying value adjustments" group, up to the end of the grant, which could occur due to the three-year maturity or any other clause of the plan that could terminate the grant.
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The table below presents the information on the plans agreed upon: a) Statutory and non-statutory directors
Start of the plan Final grant date Treasury shares acquired by the beneficiaries Purchase value per share (R$) Treasury shares granted with right of use Value of the right of use per share (R$) Accumulated expense of the plan Expense of the plan - 1/1 to 12/31/2013 Plan 2011 7/10/2012 7/10/2015 475,000 7.82 475,000 8.77 2,083 1,388 Plan 2012 3/1/2013 3/1/2016 380,900 12.84 380,900 13.36 1,414 1,414 Total 855,900 855,900 3,497 2,802
b) Key personnel
Start of the plan (i) Final grant date Treasury shares granted with right of use Value of the right of use per share (R$) Accumulated expense of the plan Expense of the plan - 1/1 to 12/31/2013 Plan 2012 3/1/2013 3/1/2016 136,500 13.36 507 507
(i) The 2012 plan was granted in June 2013 on a retrospective basis.
22
EARNINGS PER SHARE
Basic earnings per share are calculated by dividing the profit for the period attributable to holders of the Company's common and preferred shares by the weighted average number of common and preferred shares outstanding during the period. In the Company's case, diluted earnings per share are equal to basic earnings per share since it does not have potentially dilutive common or preferred shares. As mentioned in Notes 17 and 21, in March 2013, the Company sold and granted the right of use of 761,800 preferred shares. In May and December 2013, the Company acquired 222,800 and 500,000 preferred shares, respectively. In June 2013, the Company granted the right of use of 136,500 preferred shares, thus reducing the number of treasury shares to 30,613,500 (December 31, 2012 - 30,789,000). This transaction affected the weighted average number of preferred shares held in treasury in the calculations for the year ended December 31, 2013. The weighted average used in the calculation of basic and diluted earnings per share was determined as follows:
Weighted average number of preferred shares held in treasury - December 31, 2013 Jan to Feb 30,789,000 x 2/12 + Mar to Apr 30,027,200 x 2/12 May 30,250,000 + x 1/12 + Jun to Nov 30,113,500 x 6/12 Dec 30,613,500 + x 1/12 = 12M 2013 30,264,742
In January, February and December 2012, the Company bought back 1,739,000 of its own preferred shares and in July it sold and assigned the right of use of 950,000 preferred shares, thereby increasing the number of treasury shares to 30,789,000, in relation to the 30,000,000 previously held at December 31, 2011. These transactions affected the weighted average number of preferred shares held in treasury in the calculation for the year ended December 31, 2012. The weighted average utilized in the calculation of earnings per share was determined as follows:
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Weighted average number of preferred shares held in treasury - December 31, 2012 Jan Feb Mar to Jun Jul to Nov Dec 30,000,000 x 30,628,700 31,000,000 x 30,050,000 30,789,000 1/12 + x 1/12 + 4/12 + x 5/12 + x 1/12 = 12M 2012 30,472,308
The table below, presented in R$, reconciles the profit for the years ended December 31, 2013 and 2012 to the amounts utilized in the calculation of basic and diluted earnings per share:
Parent and consolidated From 1/1 to 12/31/2012 Preferred shares (PN) (*) Total 600,855,733 (30,472,308) 570,383,425 66.45% 499,655,328 570,383,425 0.8760 Parent and consolidated From 1/1 to 12/31/2013 Preferred shares (PN) (*) Total 600,855,733 (30,264,742) 570,590,991 66.45% 192,783,183 570,590,991 0.3379 917,683,296 (30,264,742) 887,418,554 100% 290,097,000 887,418,554 917,683,296 (30,472,308) 887,210,988 100% 751,965,000 887,210,988
Common shares (ON) Denominator Weighted average number of shares Weighted average number of treasury shares Weighted average number of outstanding shares % of shares in relation to the total (*) Numerator Profit attributable to each class of shares (R$) Weighted average number of outstanding shares Basic and diluted earnings per share (R$) 316,827,563 316,827,563 33.55% 252,309,672 316,827,563 0.7964
Common shares (ON) Denominator Weighted average number of shares Weighted average number of treasury shares Weighted average number of outstanding shares % of shares in relation to the total (*) Numerator Profit attributable to each class of shares (R$) Weighted average number of outstanding shares Basic and diluted earnings per share (R$) 316,827,563 316,827,563 33.55% 97,313,817 316,827,563 0.3072
(*) Preferred shares receive dividends 10% higher than those attributable to common shares.
23
OPERATING SEGMENTS
a) Criteria for identification of operating segments The Company's operating structure is divided into segments according to the manner in which management manages the business. The operating segments defined by management are as follows:
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(i)
Forestry segment - involves operations of planting and growing pine and eucalyptus trees to supply the Company's paper plants. Also involves selling timber (logs) to third parties in the domestic market.
(ii) Paper segment - mainly involves the production and sale of cardboard, kraftliner and recycled paper rolls in the domestic and foreign markets. (iii) Conversion segment - involves the production and sale of corrugated cardboard boxes, corrugated cardboard boards and industrial sacks in the domestic and foreign markets. b) Consolidated information on operating segments
Consolidated From 1/1 to 12/31/2013 Corporate/ eliminations Total (1,169) (1,169) (1,520,846) (1,522,015) 1,512,394 (9,621) (44,801) (54,422) 3,424,195 1,175,142 4,599,337 4,599,337 336,289 (3,206,917) 1,728,709 (609,457) 1,119,252
Forestry Net revenue: .Domestic market .Foreign market Revenue from sales to third parties Intersegment revenues Total net sales Changes in the fair value of biological assets Cost of products sold Gross profit Operating income (expenses) Operating result before finance result Sale of products (in metric tons) .Domestic market .Foreign market .Intersegment Sale of timber (in metric tons) .Domestic market .Intersegment 311,526 311,526 554,882 866,408 336,289 (1,015,765) 186,932 (24,585) 162,347
Paper 1,236,363 1,026,747 2,263,110 953,448 3,216,558 (2,063,597) 1,152,961 (328,261) 824,700
Conversion 1,877,475 148,395 2,025,870 12,516 2,038,386 (1,639,949) 398,437 (211,810) 186,627
2,868,568 7,299,983 10,168,551 138,711 (549,209) 6,274,960 1,564,995 4,709,965
574,909 520,344 709,742 1,804,995 577,644 (178,240) 4,699,130 502,737 4,196,393
660,066 32,912 1,900 694,878 80,786 (36,199) 1,087,233 175,732 911,501
(711,642) (711,642) (7,299,983) (7,299,983) 102,270 (2,905) 2,858,173 7,283,365 (4,425,192)
1,234,975 553,256 1,788,231 2,868,568 2,868,568 899,411 (766,553) 14,919,496 9,526,829 5,392,667
Investments in the year Depreciation, depletion and amortization Total assets - 12/31/2013 Total liabilities - 12/31/2013 Equity - 12/31/2013
Forestry Net revenue: .Domestic market .Foreign market Revenue from sales to third parties Intersegment revenues Total net sales Changes in the fair value of biological assets Cost of products sold Gross profit Operating income (expenses) Operating result before finance result Sale of products (in metric tons) .Domestic market .Foreign market .Intersegment Sale of timber (in metric tons) .Domestic market .Intersegment 306,498 306,498 486,806 793,304 885,988 (817,817) 861,475 (29,062) 832,413
Paper 1,201,132 866,962 2,068,094 881,455 2,949,549 (1,918,737) 1,030,812 (307,952) 722,860
Conversion 1,660,652 128,071 1,788,723 13,278 1,802,001 (1,454,305) 347,696 (211,436) 136,260
Consolidated From 1/1 to 12/31/2012 Corporate/ eliminations Total 355 355 (1,381,539) (1,381,184) 1,367,711 (13,473) (33,842) (47,315) 3,168,637 995,033 4,163,670 4,163,670 885,988 (2,823,148) 2,226,510 (582,292) 1,644,218
2,880,492 7,107,564 9,988,056 162,238 (391,170) 6,423,117 1,573,658 4,849,459
577,340 510,514 677,541 1,765,395 308,729 (167,514) 4,199,733 733,992 3,465,741
605,165 32,948 2,867 640,980 136,851 (28,502) 994,476 158,675 835,801
(679,561) (679,561) (7,107,564) (7,107,564) 46,675 (5,491) 2,480,577 6,210,657 (3,730,080)
1,182,505 543,462 847 1,726,814 2,880,492 2,880,492 654,493 (592,677) 14,097,903 8,676,982 5,420,921
Investments in the year Depreciation, depletion and amortization Total assets - 12/31/2012 Total liabilities - 12/31/2012 Equity - 12/31/2012
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The balance in the column Corporate/eliminations refers basically to the corporate unit's expenses which were not apportioned among the segments, and the eliminations refer to adjustments of operations among the segments. The information on the finance result and income tax was not disclosed in the segment reporting because management does not utilize such data on a segment basis, and the data is instead managed and analyzed on a consolidated basis. c) Information on net sales revenue The Company's net revenue from sales to foreign customers, in the consolidated result for the years ended December 31, 2013 and 2012, amounted to R$ 1,175,142 and R$ 995,033, respectively. The table below shows the distribution of net revenue by country:
Consolidated From 1/1 to 12/31/2013 Total revenue % of net (R$/million) revenue 475 10.3% 167 3.6% 153 3.3% 61 1.3% 55 1.2% 41 0.9% 32 0.7% 23 0.5% 17 0.4% 17 0.4% 134 2.9% 1,175 26%
Country Argentina China Singapore Spain Germany Italy France South Africa Venezuela Nigeria Other
Country Argentina China Singapore Italy Spain Ecuador Nigeria France Germany Belgium Other
Consolidated From 1/1 to 12/31/2012 Total revenue % of net (R$/million) revenue 323 7.8% 128 3.1% 97 2.3% 44 1.1% 41 1.0% 37 0.9% 36 0.9% 33 0.8% 29 0.7% 28 0.7% 199 4.8% 995 24%
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The Company's net revenue from sales to local customers, in the consolidated result for the years ended December 31, 2013 and December 31, 2012, amounted to R$ 3,424,195 and R$ 3,168,637, respectively. In the year ended December 31, 2013, a single customer for cardboard represented approximately 22% of the Company's net revenue, corresponding to approximately R$ 1,013,000 (R$ 893,000 for the year ended December 31, 2012). The remaining customer base is diluted as none of the other customers individually accounts for a material share (above 10%) of the Company's net sales revenue. 24 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
a) Risk management The Company and its subsidiaries enter into transactions involving financial instruments, all recorded in balance sheet accounts, in order to meet their operational needs and reduce exposure to financial risks, mainly relating to credit and the investment of funds, market risks (foreign exchange and interest rate risk) and liquidity risks, to which the Company understands that it is exposed based on the nature of its business and operating structure. These risks are managed through the definition of strategies prepared and approved by the Company's management, linked to the establishment of control systems and the determination of position limits. The Company does not enter into transactions involving financial instruments for speculative purposes. Management also carries out prompt assessments of the Company's consolidated position, monitoring the financial results obtained, analyzing future projections to ensure compliance with the business plan defined, and monitoring the risks to which it is exposed.
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The main risks to which the Company is exposed are described below: Market risk Market risk is the risk that the fair value of the future cash flows of a financial instrument fluctuates due to changes in market prices. Market prices are affected by two types of risk: interest rate and foreign exchange risk. The financial instruments affected by market risks are financial investments, trade receivables, trade payables, loans payable, available-for-sale and derivative financial instruments. (i) Foreign exchange risk The Company has transactions denominated in foreign currencies (mainly in U.S. dollars), which are exposed to market risks arising from fluctuations in foreign exchange rates. Any fluctuation in a foreign exchange rate could increase or reduce balances. The composition of this exposure was as follows:
12/31/2013 174,612 345,347 (9,940) (4,751,396) (4,241,377) Consolidated 12/31/2012 263,300 241,700 (1,300) (4,369,323) (3,865,623)
Bank deposits and financial investments Trade receivables (net of provision for impairment of trade receivables) and other assets Other assets and liabilities Export prepayments (financing) Net exposure
The aging of this net exposure at December 31, 2013 was as follows:
2021 and onwards (292,756)
Year Amount
2014 (157,351)
2015 (573,105)
2016 (504,342)
2017 (814,845)
2018 (699,089)
2019 (738,336)
2020 (461,553)
Total (4,241,377)
The Company did not have derivative contracts to hedge against long-term foreign exchange exposure at December 31, 2013. However, in order to hedge against this net liability exposure, the Company has a sales plan under which the projected flow of export revenue is approximately US$ 500 million annually and the associated receipts, if realized, would exceed, or approximate, the flow of payments of the related liabilities, offsetting the cash effect of this foreign exchange exposure in the future. (ii) Interest rate risk The Company has loans indexed to the variation of the TJLP, LIBOR and the CDI and financial investments indexed to the variation of the CDI and SELIC, which expose these assets and liabilities to fluctuations in interest rates as shown in the interest sensitivity analysis below. The Company does not have derivative contracts to swap/hedge against the exposure to these market risks. The Company's policy is to continuously monitor market interest rates in order to assess the need to contract derivatives to hedge against the risk of volatility. The Company considers that the high cost of entering into transactions at fixed interest rates in the Brazilian macroeconomic scenario justifies its choice of floating rates.
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The composition of the interest rate risk is as follows:

12/31/2013 2,521,195 249,511 2,770,706 (483,914) (1,592,911) (3,380,185) (5,457,010) Consolidated 12/31/2012 2,238,192 240,077 2,478,269 (66,957) (1,494,702) (3,133,659) (4,695,318)
Financial investments - CDI Financial investments - Selic Asset exposure Financing - CDI Financing - TJLP Financing - Libor Liability exposure
Risk relating to use of funds The Company is exposed to the risk relating to the use of funds, including deposits in banks and financial institutions, foreign exchange transactions, financial investments and other financial instruments contracted. The exposed amount refers mainly to financial investments and transactions with securities, which are described in Notes 4 and 5. In relation to the financial assets of the Company invested in financial institutions, an internal policy is used for the approval of the type of operation being agreed upon and for the analysis of the rating, according to the rating agencies, to assess the feasibility of the investment of the funds in a certain institution, provided that it meets the criteria of acceptance of the policy. The table below presents the cash, cash equivalents and marketable securities invested by the Company, classifying the amounts according to the national classification of the financial institutions by the rating agency Fitch:
12/31/2013 2,859,196 120,187 2,979,383 Consolidated 12/31/2012 2,590,109 167,280 2,757,389
National rating AAA (bra) (*) National rating AA+(bra)
(*) The Financial Treasury Bills (LFT) are included in this group due to the low risk linked to the operation.
Credit risk Credit risk is the risk that the counterparty of a transaction will not fulfill an obligation established in a financial instrument or contract with a customer, leading to a financial loss. The Company is exposed to credit risk in its operating activities (mainly in connection with trade receivables). The maximum amount exposed to credit risk at December 31, 2013 was the carrying amount of trade receivables shown in Note 6. The credit risk in the Company's operating activities is managed based on specific rules for the acceptance of customers, credit analysis and the establishment of exposure limits by customer, which are periodically reviewed. Past-due receivables are monitored regularly to ensure their realization. Liquidity risk The Company monitors the risk of a shortage of funds, managing its capital through a rolling liquidity planning tool, so that it has available funds for the fulfillment of its obligations, mainly concentrated in financing from financial institutions.
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The table below shows the maturity of the financial liabilities contracted by the Company and reported in the consolidated balance sheet, where amounts include principal and future interest on transactions, calculated using rates and indices prevailing at December 31, 2013:
2014 (345,384) (1,287,462) (1,632,846) 2015 (1,320,925) (1,320,925) 2016 (922,650) (922,650) 2017 (1,197,634) (1,197,634) 2018 (1,054,288) (1,054,288) 2019 (1,184,509) (1,184,509) 2020 (761,458) (761,458) 2021 onwards (587,476) (587,476) Total (345,384) (8,316,402) (8,661,786)
Trade payables Financing Total
The budget projection approved by the Board of Directors confirms the ability to meet these obligations, as they materialize. Capital management The Company's capital structure comprises net debt, consisting of borrowings (Note 14) less cash and cash equivalents and securities (Notes 4 and 5), and equity, including the balance of issued capital and all the constituted reserves. The Company's net indebtedness ratio is comprised as follows:
12/31/2013 2,979,383 (6,963,597) (3,984,214) 5,392,667 (0.74) Consolidated 12/31/2012 2,757,389 (6,035,104) (3,277,715) 5,420,921 (0.60)
Cash and cash equivalents and securities Borrowings Net indebtedness Equity Net indebtedness ratio
b) Financial instruments by category The Company has the following financial instruments by category:
12/31/2013 Assets - loans and receivables . Cash and cash equivalents . Total trade receivables(net of provision for impairment) . Other assets Assets - available for sale . Marketable securities Liabilities - at amortized cost . Borrowings . Trade payables . Other payables 2,729,872 1,145,154 348,000 4,223,026 249,511 249,511 6,963,597 345,384 712,893 8,021,874 Consolidated 12/31/2012 2,517,312 981,986 329,244 3,828,542 240,077 240,077 6,035,104 318,077 611,066 6,964,247
Loans and receivables and other financial liabilities at amortized cost The financial instruments included in this group refer to balances arising from normal transactions, such as trade receivables, trade payables, borrowings, financial investments and cash and cash equivalents. All of them are recorded at their notional amounts plus, when applicable, contractual charges and interest, for which the related income and expenses are recognized in profit (loss) for the period.
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Available-for-sale financial assets The Company classifies the securities that comprise LFTs (Note 5) as financial assets held for trading, since they can be traded in the future and were recorded at the invested amount plus interest on the transaction. Due to the liquidity of these assets, their fair value approximates the amortized cost, not generating an effect on the Company's equity. The balance of these securities at December 31, 2013 in the consolidated balance sheet was R$ 249,511 (R$ 240,077 at December 31, 2012). c) Sensitivity analysis The Company presents below the sensitivity analyses of foreign exchange and interest rate risks to which it is exposed, considering that any effects would impact future results, based on the exposure at December 31, 2013: (i) Foreign exchange exposure The Company had assets and liabilities indexed to foreign currency in the balance sheet as at December 31, 2013 and for sensitivity analysis purposes it adopted as scenario I the future market rate in effect at the end of the reporting period. For scenarios II and III this rate was adjusted by 25% and 50%, respectively. It is important to point out that most of the financing maturities will not occur in 2014 according to the maturity schedule shown in Note 14 and, therefore, exchange variations will not have an effect on the cash resulting from this analysis. On the other hand, the Company's exports should have the impact of the exchange variation on cash substantially during the year. The sensitivity analysis of the exchange variation is calculated on the net foreign exchange exposure (basically borrowings, trade receivables and trade payables in foreign currency), not considering the effect on the scenarios of projected export sales that, as previously mentioned, will offset any future exchange loss. Accordingly, the table below shows a simulation of the effect of the exchange variation on the future results for the next 12 months, if all other variables remain constant:
At 12/31/2013 US$ Assets Cash and cash equivalents Trade receivables, net of provision for impairment of trade receivables Other assets and liabilities Financing Net effect on finance result 74,538 147,420 (4,243) (2,028,257) Scenario I R$ gain (loss) 8,005 15,883 (456) (217,835) (194,403) Scenario II R$ gain (loss) 53,474 105,759 (3,044) (1,455,072) (1,298,883) Scenario III R$ gain (loss) 99,687 197,160 (5,675) (2,712,591) (2,421,419)
Rate 2.45 2.45 2.45 2.45
Rate 3.06 3.06 3.06 3.06
Rate
3.68 3.68 3.68 3.68
(ii) Interest rate exposure Financial investments and financing, except those subject to TJLP and LIBOR, are linked to the CDI floating interest rate. For sensitivity analysis purposes, the Company adopted rates prevailing at dates close to the reporting dates, utilizing the same rate for SELIC, Libor and CDI in the projection of scenario I because of their proximity. For scenarios II and III these rates were adjusted by 25% and 50%, respectively.
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Accordingly, the table below shows a simulation of the effect of the interest rate variation on the future results for the next 12 months:
At 12/31/2013 R$ Financial investments CDBs CDI LFTs SELIC Financing Export credit notes (R$) CDI BNDES TJLP Export prepayment LIBOR Net effect on finance result 2,521,195 249,511 (483,914) (1,592,911) (3,380,185) Scenario I R$ gain (loss) 18,909 1,871 (3,629) 365 17,516 Scenario II R$ gain (loss) 86,666 8,577 (16,635) (19,911) (2,471) 56,226 Scenario III R$ gain (loss) 154,423 15,283 (29,640) (39,823) (5,307) 94,936
Rate
Rate
Rate
10.00% 10.00% 10.00% 5.00% 0.34%
13.44% 13.44% 13.44% 6.25% 0.42%
16.13% 16.13% 16.13% 7.50% 0.50%
25
EMPLOYEE BENEFITS AND PENSION PLAN
The Company and its subsidiaries provide their employees with life insurance, healthcare and pension plan benefits. These benefits are recognized on the accrual basis and are discontinued at the end of the employment relationship. a) Private pension plan The pension plan of Klabin S.A. - the Prever Plan, administered by Ita Vida e Previdncia S.A. - was established in 1986 as a defined benefit plan. In 1998, the plan was restructured to become a defined contribution plan. In November 2001, a new pension plan was established, Plano de Aposentadoria Complementar Klabin (PACK) (a supplementary pension plan), administered by Bradesco Vida e Previdncia S.A. and structured as a Free Benefit Generating Plan (PGBL). The participants in the Prever Plan were offered the option to migrate to the new plan. In neither plan does the Company assume any responsibility for guaranteeing minimum benefit levels for retiring participants. b) Healthcare Under the agreement entered into with the So Paulo State Pulp and Paper Workers Union, the Company pays for a lifetime healthcare plan (Hospital SEPACO, main plan) for its former employees who retired up to 2001, as well as for their dependents until they reach adulthood and spouses. New beneficiaries are not permitted. The Company understands that this healthcare benefit is considered a defined benefit plan in accordance with accounting practices adopted in Brazil and, for this reason, maintains a provision for the estimated actuarial liability in the amount of R$ 57,328 at December 31, 2013 (R$ 38,130 at December 31, 2012), in non-current liabilities, under "Other payables and provisions". In the actuarial valuation, the following economic and biometric assumptions were utilized: nominal discount rate of 12.25% p.a., nominal growth rate of variable medical costs starting at 15.9% p.a. in 2014 and decreasing to 9.4% p.a. in 2027, long-term inflation of 5.4% p.a., and biometric mortality table RP2000. Actuarial restatements are maintained in equity in the group "Carrying value adjustments (comprehensive income (loss))", as required by CPC 33 (R1) - Employee benefits. An increase or decrease of one percentage point in the rates used in the actuarial calculations does not have material effects on the Company's financial statements.
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This plan does not have assets for disclosure.
c) Other employee benefits

The Company grants to its employees the following benefits: health care, day nursery reimbursement, assistance to parents with children with special needs, agreement for discount in drugstore, kit of school supplies, dental care plan, private pension plan and life insurance, in addition to the benefits established by law (meal vouchers, transportation vouchers, profit sharing and food purchase vouchers). Moreover, the Company has an organizational development program for its employees. For the year ended December 31, 2013, expenditures with training programs totaled R$ 5,993 (R$ 5,932 at December 31, 2012). All these benefits are recognized on an accrual basis and are discontinued at the end of the employment relationship with the Company. 26 INSURANCE
At December 31, 2013, the Company had insurance against fire, lightning, explosions, electrical damage and windstorms for its industrial and administrative facilities and inventory. The Company also has insurance coverage for general civil liability, responsibility of directors and officers, auto, and multiperil risks for its chattels, amounting to R$ 2,897,797. In view of the nature of its activities, the distribution of forests in different areas, and the preventive measures adopted against fire and other forest risks, the Company has decided to not contract insurance against damage caused to forests, opting for the adoption of protection policies that, historically, have proven to be highly effective and have not impaired the Company's activities or financial position. Consequently, management understands that its financial risk management structure related to forest activities is appropriate to ensure the Company's continuance as a going concern. 27 EVENTS AFTER THE REPORTING PERIOD
Significant event notice of January 7, 2014 On January 7, 2014, the Company disclosed to the market a Significant Event Notice regarding the effectiveness of the decisions approved at the Extraordinary General Meeting held on November 28, 2013, namely: Conclusion of the 6th issue of debentures The totality of 27,200,000 debentures issued in a private placement, with a unit par value of R$ 62.50, totaling R$ 1.7 billion was subscribed and paid up. The debentures issued are subordinated, issued in a single series and in local currency, without guarantees, and mandatorily convertible into shares. The debentures mature on January 8, 2019 and will be remunerated at 8% p.a., plus the variation of the Brazilian currency in relation to the U.S. dollar. They also are included in any profit distribution to the Company's stockholders. All the debentures issued will be mandatorily and automatically converted into Share Deposit Certificates ("Units"), comprising 1 (one) common share (ON) and 4 (four) preferred shares (PN) issued by the Company. The conversion will be carried out at any time during the effectiveness of the debentures, after the lock-up period of 18 months from the date of issue.
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The funds obtained in the issue of the debentures will be allocated to the construction of a pulp plant related to the Puma Project. Due to the nature of these instruments, they will be recorded as a hybrid instrument, with a portion in liabilities, equivalent to the present value of the interest up to conversion, and the remaining amount will be allocated to equity. Listing in the Level 2 segment of BM&FBovespa The Company started to integrate the special segment Level 2 of BM&FBovespa S.A. - Securities, Commodities and Futures Exchange. The Company's shares became book-entry shares and will be traded in this manner as from January 9, 2014. Issue of new shares With the corporate restructuring of the controlling stockholders Klabin Irmos & Cia ("KIC") and Niblak Participaes ("Niblak"), 28,274,611 new common shares of the Company were issued and attributed to the controlling stockholders. After this issue of new shares, the Company's fully subscribed and paid-up capital corresponds to 945,957,907 shares, of which 345,102,174 are registered common shares (ON) and 600,855,733 are registered preferred shares (PN). Changes in the bylaws Revisions and adjustments to the bylaws were approved due to the aforementioned items, in addition to the change in authorized capital to 1,120,000,000 shares, the elimination of the additional dividends of 10% granted to stockholders holding preferred shares and the granting of voting rights, as approved at the Special Meeting of Holders of Preferred Shares held on November 29, 2012. Share Deposit Certificates ("Units") The Company is implementing a program for the issue of Share Deposit Certificates ("Units"), comprising 1 (one) common share (ON) and 4 (four) preferred shares (PN). The trading of the Units will begin on January 10, 2014. The stockholders who wish to participate in the program, shall request the issue of Units backed by this multiple of shares. The conversion period was established from January 13 and February 5, 2014. The stockholders who do not agree with the changes relating to the replacement of the advantage granted to the preferred shares, as well as the changes in the Company's bylaws, may exercise their right to withdraw in relation to the common and preferred shares they held at the opening of the trading session of November 1, 2013, and which were held uninterruptedly up to the effective exercise of the right to withdraw. The amount of reimbursement per share will be R$ 6.1588 and the stockholders may exercise their right from January 7 to February 7, 2014.
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KLABIN S.A. National Corporate Taxpayers' Registry (CNPJ) 89.637.490/0001-45 Listed company BOARD OF DIRECTORS Chairman Israel Klabin Board Members Armando Klabin Celso Lafer Daniel Miguel Klabin Lilia Klabin Levine Miguel Lafer Olavo Egydio Monteiro de Carvalho Paulo Srgio Coutinho Galvo Filho Pedro Franco Piva Roberto Luiz Leme Klabin Rui Manuel de Medeiros D'Espiney Patrcio Vera Lafer STATUTORY AUDIT BOARD Alessandro Golombiewski Teixeira Joo Alfredo Dias Lins Lus Eduardo Pereira de Carvalho Vivian do Valle Souza Leo Mikui Wolfgang Eberhard Rohrbach
EXECUTIVE BOARD Fabio Schvartsman Antonio Sergio Alfano Paulo Roberto Petterle Francisco Cezar Razzolini Arthur Canhisares Cristiano Cardoso Teixeira Chief Operations Officer Financial and Investor Relations Officer Operations Officer Planning, Project and Industrial Technology Officer Industrial Officer Monte Alegre Officer
Pedro Guilherme Zan Controllership CT-CRC-1SP168918/O-9
Angel Alvarez Nez Accounting TC-CRC-1SP157878/O-3
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(A free translation of the original in Portuguese)

PricewaterhouseCoopers Auditores Independentes

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Independent auditor's report

PricewaterhouseCoopers Auditores Independentes CRC 2SP000160/O-5

Tadeu Cendn Ferreira Contador CRC 1SP188352/O-5 14

(A free translation of the original in Portuguese)

1,526 89,537 123,684 167,001 381,748

1,687 85,691 128,402 151,864 367,644

90,969 123,684 171,322 385,975

146 87,123 128,402 158,374 374,045

1,134,094 11,542 5,670,990 2,819,598 9,133 9,645,357 10,027,105 14,642,043

1,267,255 11,542 5,003,707 2,944,187 8,486 9,235,177 9,602,821 13,809,990

455,039 11,542 5,909,507 3,321,985 9,300 9,707,373 10,093,348 14,919,496

450,651 11,542 5,379,426 3,441,495 8,654 9,291,768 9,665,813 14,097,903

1,126,153 342,126 37,899 16,860 125,415 52,912 50,400 48,082 1,799,847

1,120,770 313,559 52,919 54,553 123,934 9,665 39,383 39,699 1,754,482

1,124,976 345,384 43,298 18,209 127,356 3,437 50,400 66,453 1,779,513

1,120,770 318,077 57,095 54,387 125,807 2,693 39,383 49,177 1,767,389

5,842,135 1,045,201 95,904 393,492 72,797 7,449,529 9,249,376

4,914,334 1,190,673 83,189 389,793 56,598 6,634,587 8,389,069

5,838,621 1,220,187 95,905 125,767 393,492 73,344 7,747,316 9,526,829

4,914,334 1,392,257 83,189 69,214 389,793 60,806 6,909,593 8,676,982

2,271,500 4,419 49,269 2,159,949 1,065,437 (157,907) 5,392,667 14,642,043

2,271,500 1,423 49,980 2,170,215 1,081,379 (153,576) 5,420,921 13,809,990

2,271,500 4,419 49,269 2,159,949 1,065,437 (157,907) 5,392,667 14,919,496

2,271,500 1,423 49,980 2,170,215 1,081,379 (153,576) 5,420,921 14,097,903

The accompanying notes are an integral part of these financial statements.

(A free translation of the original in Portuguese)

12/31/2013 4,489,717 309,474 (3,174,847) 1,624,344

12/31/2013 4,599,337 336,289 (3,206,917) 1,728,709

(331,518) (273,267) 10,289 (594,496) 90,440

(287,152) (268,701) 21,074 (534,779) 385,429

(362,638) (280,526) 11,472 (631,692) 22,235

(344,574) (273,918) 10,373 (608,119) 25,827

265,461 (1,017,098) (751,637) 368,651

301,179 (824,495) (523,316) 925,093

276,015 (1,015,049) (739,034) 380,218

310,523 (858,285) (547,762) 1,096,456

(231,083) 152,529 (78,554) 290,097

(77,472) (95,656) (173,128) 751,965

(241,442) 151,321 (90,121) 290,097

(133,945) (210,546) (344,491) 751,965

The accompanying notes are an integral part of these financial statements.

(A free translation of the original in Portuguese)

The accompanying notes are an integral part of these financial statements.

(A free translation of the original in Portuguese)

Share capital 2,271,500 50,691 9,783 1,219,591 79,998 383,170 1,085,045

Capital reserves Own assets Legal

Investment and working capital

Carrying value adjustments

Treasury shares (141,476)

Retained earnings 751,965