3Q13 Quarterly Financial Reports

(Convenience Translation into English from the Original Previously Issued in Portuguese)
Mills Estruturas e Servios de Engenharia S.A.

Presentation of Interim Financial Information for the Quarter Ended September 30, 2013 and Report on Review of Interim Financial Information
(Convenience Translation into English from the Original Previously Issued in Portuguese) REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION
To the Board of Directors and Shareholders of Mills Estruturas e Servios de Engenharia S.A. Rio de Janeiro RJ Introduction We have reviewed the accompanying interim financial information, of Mills Estruturas e Servios de Engenharia S.A. (Company) included in the Interim Financial Information Form (ITR), for the nine month period ended September 30, 2013, which comprises the balance sheet as of September 30, 2013 and the related statements of income and comprehensive income, for the three and nine-month periods then ended and the statement of changes in equity and statement of cash flows for the nine month period then ended, including the explanatory notes. The companys management is responsible for the preparation of interim financial information in accordance with technical pronouncement CPC 21 (R1) - Interim Financial Reporting and IAS 34 - Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), as well as for the presentation of such information in accordance with the standards issued by the Brazilian Securities and Exchange Commission (CVM), applicable to the preparation of Interim Financial Information (ITR). Our responsibility is to express a conclusion on this interim financial information based on our review. Scope of review We conducted our review in accordance with Brazilian and international standards on review of interim financial information (NBCTR 2410 and ISRE 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with the standards on auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion on the interim financial information Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial information included in the ITR referred to above was not prepared, in all material respects, in accordance with technical pronouncement CPC 21(R1) and international standard IAS 34, applicable to the preparation of Interim Financial Information (ITR), and presented in accordance with the standards issued by the CVM. Emphasis of Matter Restatement of values corresponding to the three and nine months periods ended September 30, 2012
Deloitte Touche Tohmatsu
As mentioned in Note 2.2, due to the adoption of the technical pronouncement CPC 31 - Noncurrent Assets Held For Sale and Discontinued Operations, the comparative values of the income statement, related to the periods of three and nine months ended September 30, 2012, have been reclassified and are being restated as required by CPC 23 - Accounting Policies, changes in Accounting Estimates and Errors and CPC 26 (R1) - Presentation of Financial Statements. Our conclusion does not contain changes related to this subject. Other matters Statements of value added We have also reviewed the interim statement of value added (DVA), for the nine month period ended September 30, 2013, prepared under the responsibility of the Company's management, the presentation of which is required by the standards issued by the CVM applicable to the preparation of Interim Financial Information (ITR), and considered as supplemental information for IFRS, which do not require the presentation of DVA. This statement was subject to the same review procedures described above, and, based on our review, nothing has come to our attention that causes us to believe that it was not prepared, in all material respects, consistently with the interim financial information taken as a whole. The accompanying interim financial information has been translated into English for the convenience of readers outside Brazil. Rio de Janeiro, November 6, 2013
DELOITTE TOUCHE TOHMATSU Auditores Independentes
Antnio Carlos Brando de Sousa Engagement Partner
(Convenience Translation into English from the Original Previously Issued in Portuguese) MILLS ESTRUTURAS E SERVIOS DE ENGENHARIA S.A. BALANCE SHEET AS AT SEPTEMBER 30, 2013 AND DECEMBER 31, 2012 (In thousands of Brazilian reais - R$) - Unaudited Note ASSETS CURRENT ASSETS Cash and cash equivalents Marketable securities Trade receivables Inventories Recoverable taxes Advances to suppliers Derivative financial instruments Assets held for sale Other assets NON-CURRENT ASSETS Trade receivables Recoverable taxes Judicial deposits 5 7 17 2,093 42,251 9,672 54,016 87,392 1,189,421 64,207 1,341,020 1,782,464 2,549 30,717 11,853 45,119 87,392 1,003,347 54,526 1,145,265 1,664,061 (continues) 9/30/2013 12/31/2012
3 4 5 6 7 25 8
45,735 174,125 30,939 31,278 325 438 95,233 9,355 387,428
44,200 159,606 194,778 26,938 35,021 6,682 6,452 473,677
Investments Property, plant and equipment Intangible assets
9 10 11
TOTAL ASSETS
(Convenience Translation into English from the Original Previously Issued in Portuguese) MILLS ESTRUTURAS E SERVIOS DE ENGENHARIA S.A. BALANCE SHEET AS AT SEPTEMBER 30, 2013 AND DECEMBER 31, 2012 (In thousands of Brazilian reais - R$) - Unaudited Note LIABILITIES AND EQUITY CURRENT LIABILITIES Trade payables Borrowings, financing and finance leases Debentures Payroll and related taxes Income tax and social contribution Tax debt refinancing program (REFIS) Taxes payable Profit sharing payable Dividends and interest on capital payable Derivative financial instruments Advance on assets held for sale Liabilities associated with assets held for sale Other liabilities NON-CURRENT LIABILITIES Borrowings, financing and finance leases Debentures Tax debt refinancing program (REFIS) Deferred taxes Provision for tax, civil and labor claims Other liabilities 9/30/2013 12/31/2012
12 13 16
15 25 8 8
61,100 14,536 110,033 25,899 9,761 945 7,085 15,007 20,421 25,207 14,644 3,087 307,725 20,814 448,044 9,527 962 10,441 42 489,830 797,555
47,784 41,796 12,994 27,585 907 18,597 20,142 36,170 800 7,752 214,527 30,203 537,459 9,823 2,381 9,919 423 590,208 804,735
12 13 16 17
TOTAL LIABILITIES EQUTY Issued capital Capital reserves Earnings reserves Equity valuation adjustments Retained earnings Total equity TOTAL LIABILITIES AND EQUITY
18 18 18 18
551,915 7,178 320,960 517 104,339 984,909 1,782,464
537,625 233 321,768 (300) 859,326 1,664,061
The accompanying notes are an integral part of this interim financial information.
(Convenience Translation into English from the Original Previously Issued in Portuguese) MILLS ESTRUTURAS E SERVIOS DE ENGENHARIA S.A. INCOME STATEMENT FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2013 AND 2012 (In thousands of Brazilian reais - R$) - Unaudited
Note 9/30/2013 ThreeNinemonth month period period 222.006 (93.543) 128.463 (56.042) 72.421 23 23 622.208 (249.233) 372.975 (165.815) 207.160 Restated 9/30/2012 ThreeNinemonth month period period 173.407 (61.652) 111.755 (40.270) 71.485 963 (9.809) (8.846) 477.958 (164.517) 313.441 (127.574) 185.867 2.960 (30.548) (27.588)
Net revenue from sales and services Cost of sales and services GROSS PROFIT General and administrative expenses OPERATING PROFIT Finance income Finance costs FINANCE COSTS, NET PROFIT BEFORE INCOME TAX AND SOCIAL CONTRIBUTION Income tax and social contribution PROFIT FROM CONTINUED OPERATIONS PROFIT (LOSS) FROM DISCONTINUED OPERATIONS PROFIT FOR THE PERIOD Basic earnings per share - R$ Diluted earnings per share - R$ EARNINGS PER SHARE FROM CONTINUIED OPERATIONS Basic earnings per share - R$ Diluted earnings per share - R$
21 22
22
2.485
(14.809) (12.324)
9.641
(42.954) (33.313)
16
60.097 (21.456)
173.847 (53.004)
62.639 (22.244)
158.279 (47.286)
38.641
120.843 6.136 126.979 1.00 0.99
40.395 (2.416) 37.979 0.30 0.30
110.993 (1.105) 109.888 0.87 0.87
8.2
20 (a) 20 (b)
1.004 39.645 0.31 0.31
20 (a) 20 (b)
0.30 0.30
0.95 0.94
0.32 0.32
0.88 0.88
(Convenience Translation into English from the Original Previously Issued in Portuguese) MILLS ESTRUTURAS E SERVIOS DE ENGENHARIA S.A. STATEMENT OF COMPREHENSIVE INCOME FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2013 AND 2012 (In thousands of Brazilian reais - R$) - Unaudited
Note 9/30/2013 ThreeNinemonth month period period 39,645 126,979 9/30/2012 ThreeNinemonth month period period 37,979 109,888
PROFIT FOR THE PERIOD OTHER COMPREHENSIVE INCOME Cash flow hedge TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
25
(2,368)
817
(847)
(1,848)
37,277
127,796
37,132 108,040
(Convenience Translation into English from the Original Previously Issued in Portuguese) MILLS ESTRUTURAS E SERVIOS DE ENGENHARIA S.A. STATEMENT OF CHANGES IN EQUITY FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2012 (In thousands of Brazilian reais - R$) - Unaudited
Earnings reserves Retained Equity earnings Earnings valuation (accumulated retention adjustments losses) Total 135,268 135,268 2,102 (1,848) 254 1,140 736,140 8,592 (23) 3,752 -
Subscribed capital AT JANUARY 1, 2012 Capital contribution - share issue Purchase / cancelation of treasury shares Stock option plan Realization of special reserve - tax amortization of Itapo merged goodwill Comprehensive income for the period - cash flow hedge Profit for the period Interest on capital proposed AT SEPTEMBER 30, 2012 527,587 8,592 536,179
Capital reserve
Legal Expansion 61,243 61,243
Special 2,329 (1,140)
(5,581) 13,192 (23) 3,752 -
1,189
(1,848) 109,888 109,888 (21,780) (21,780) 89,248 834,721
(1,852) 13,192
(Convenience Translation into English from the Original Previously Issued in Portuguese) MILLS ESTRUTURAS E SERVIOS DE ENGENHARIA S.A. STATEMENT OF CHANGES IN EQUITY FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2013 (In thousands of Brazilian reais - R$) - Unaudited
Earnings reserves Earnings Subscribed capital AT JANUARY 1, 2013 Capital contribution - share issue Stock option plan Realization of special reserve - tax amortization of Itapo merged goodwill Comprehensive income for the period - cash flow hedge Profit for the period Interest on capital proposed AT SEPTEMBER 30, 2013 537,625 14,290 551,915 Capital Special reserve 233 6,945 Legal Expansion 20,768 61,243 61,243 808 (808) Equity Retained earnings retention (accumulated adjustments losses) valuation 238,949 238,949 (300) 817 517 808 126,979 (23,448) 104,339
Total 859,326 14,290 6,945 817 126,979 (23,448) 984,909
7,178 20,768
(Convenience Translation into English from the Original Previously Issued in Portuguese) MILLS ESTRUTURAS E SERVIOS DE ENGENHARIA S.A. STATEMENT OF CASH FLOWS FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2013 AND 2012 (In thousands of Brazilian reais - R$) - Unaudited 9/30/2013 CASH FLOWS FROM OPERATING ACTIVITIES PROFIT FROM CONTINUED AND DISCONTINUED OPERATIONS BEFORE INCOME TAX AND SOCIAL CONTRIBUTION Adjustments: Depreciation and amortization Provision for tax, civil and labor claims Accrued expenses on stock options Profit sharing payable Gain on sale of property, plant and equipment and intangible assets Interest, indexation and exchange differences on borrowings, contingencies and judicial deposits Allowance for doubtful debts Changes in assets and liabilities: Trade receivables Inventories Recoverable taxes Judicial deposits Other assets Trade payables Payroll and related taxes Taxes payable Other liabilities Lawsuits settled Interest paid Income tax and social contribution paid Profit sharing paid NET CASH GENERATED BY OPERATING ACTIVITIES 9/30/2012
182,671
156,703
99,221 1,240 6,945 15,007 (38,149)
78,521 (2,844) 3,752 11,787 (22,279)
40,483 12,897
32,465 12,207
(31,245) (4,001) 27,728 2,181 2,799 (276) 12,958 (11,512) (6,104) (718) (35,062) (36,203) (20,102) 220,758
(40,962) (10,090) 12,922 (565) 5,681 (5,979) 12,213 1,830 1,717 (2,585) (24,514) (39,762) (7,917) 172,301
(continues)
(Convenience Translation into English from the Original Previously Issued in Portuguese) MILLS ESTRUTURAS E SERVIOS DE ENGENHARIA S.A. STATEMENT OF CASH FLOWS FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2013 AND 2012 (In thousands of Brazilian reais - R$) - Unaudited 9/30/2013 Cash flows from investing activities: Marketable securities Advance on assets held for sale Purchases of property, plant and equipment and intangible assets (*) Proceeds from sale of property, plant and equipment and intangible assets NET CASH USED IN INVESTING ACTIVITIES Cash flows from financing activities Capital contributions Purchase of treasury shares Dividends and interest on capital paid Repayment of borrowings Borrowings raised NET CASH GENERATED BY FINANCING ACTIVITIES INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS, NET CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD (NOTE 3) CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD (NOTE 3) 159,606 25,207 (395,738) 51,058 9/30/2012 (205,083) 27,729
(159,867)
(177,354)
14,290 (39,198) (35,486) 1,038
8,592 (23) (21,892) (25,548) 308,103
(59,356)
269,232
1,535
264,179
44,200
35,179
45,735
299,358
(*) PIS and COFINS credits are included in total purchases of property, plant and equipment and intangible assets.
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(Convenience Translation into English from the Original Previously Issued in Portuguese) MILLS ESTRUTURAS E SERVIOS DE ENGENHARIA S.A. STATEMENTS OF VALUE ADDED FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2013 AND 2012 (In thousands of Brazilian reais - R$) - Unaudited 9/30/2013 REVENUES: Sales of merchandise, products and services 993,868 Cancelations, discounts and waiver of debt (118,797) Other revenues (sale of assets) 4,781 Allowance for doubtful debts - Recognition (12,897) 866,955 INPUTS PURCHASED FROM THIRD PARTIES Cost of sales and services (38,996) Materials, energy, outside services and other (151,917) Write-off of leased assets (23,279) (214,192) Gross value added Depreciation, amortization and depletion Wealth created by the Company Wealth received in transfer: Finance income Wealth for distribution DISTRIBUTION OF WEALTH Personnel and payroll taxes Salaries and wages Benefits Severance Pay Fund (FGTS) Taxes and contributions Federal State Municipal Lenders and lessors Interest and exchange differences Leases Shareholders Interest on capital and dividends Retained earnings/loss for the period Wealth distributed 652,763 (99,221) 553,542
9/30/2012 737,273 (40,847) 2,675 (12,207) 686,894 (15,000) (92,692) (14,288) (121,980) 564,914 (78,521) 486,393
10,510 564,052 192,096 145,710 35,962 10,424 178,651 164,131 6,268 8,252 66,326 47,404 18,922 126,979 23,448 103,531 564,052
3,466 489,859 187,762 148,121 30,463 9,178 143,917 132,797 3,174 7,946 48,292 35,037 13,255 109,888 21,780 88,108 486,859
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(Convenience Translation into English from the Original Previously Issued in Portuguese) MILLS ESTRUTURAS E SERVIOS DE ENGENHARIA S.A. NOTES TO THE INTERIM FINANCIAL INFORMATION FOR THE QUARTER ENDED SEPTEMBER 30, 2013 (In thousands of Brazilian reais - R$, unless otherwise stated) - Unaudited 1. GENERAL INFORMATION Mills Estruturas e Servios de Engenharia S.A. ("Mills" or "Company") is a publicly-traded corporation with registered offices in the City of Rio de Janeiro, Brazil. The Company basically operates in the construction and industrial maintenance markets, engaging in the following principal activities: (a) Rental and sale, including export, of steel and aluminum structures for construction works, as well as reusable concrete forms, along with optional supply of related engineering projects, supervisory and assembly services. Rental, assembly, and dismantling of access tubular scaffolding in industrial areas. Performance of industrial painting, sand-blasting, heat insulation, boilermaker and refractory services, as well as other services inherent in such activities. Sale, lease and distribution of aerial work platforms and telescopic manipulators, as well as parts and components, and technical assistance and maintenance services for such equipment.
(b) (c) (d)
(e) Holding of interests in other companies, as partner of shareholder. The accounting information contained in this interim financial information was approved by the Companys Board of Directors and authorized for issue on October 30, 2013.
2.
PRESENTATION OF INTERIM FINANCIAL INFORMATION 2.1. Basis of presentation The Companys interim financial information comprises the interim financial statements and has been prepared in accordance with Accounting Pronouncement CPC 21 (R1), which addresses interim financial reporting, and in accordance with International Accounting Standard (IAS) 34. This interim financial information does not include all the information and disclosures required in annual financial statements and should, therefore, be read in conjunction with the financial statements of Mills for the year ended December 31, 2012, which have been prepared in accordance with accounting practices adopted in Brazil and International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Boards (IASB).
12
In compliance with Brazilian Securities Commission (CVM) Circular 003/2011, of April 28, 2011, we present below the notes to the most recent annual financial statements (for the year ended December 31, 2012), which, in view of the lack of significant changes this quarter, are not being reproduced in full in this interim financial information: The notes not included in the nine-month period ended September 30, 2013 are the Summary of significant accounting policies, Critical accounting judgments and key estimates and assumptions, Financial risk management, Capital management and Tax debt refinancing program (REFIS), represented, in the financial statements for 2012, by notes 2, 3, 4, 5 and 19, respectively.
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2.2. Restatement of the income statement for the period ended September 30, 2012 In conformity with CPC 31, the Company is restating the income statement for the three-month and nine-month periods ended June 30, 2012 to classify separately the profit (loss) from discontinued operations.
9/30/2012 Three-month period Original Balance 222,227 Reclassifications 48,820 Reclassified Balance 173,407 Original Balance 632,465 Nine-month period Reclassifications 154,507 Reclassified Balance 477,958
Net revenue from sales and services Cost of sales and
services
GROSS PROFIT General and administrative expenses OPERATING PROFIT Finance income Finance costs FINANCE COSTS, NET PROFIT BEFORE INCOME TAX AND SOCIAL CONTRIBUTION Income tax and social contribution PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS PROFIT (LOSS) FOR THE PERIOD FROM DISCONTINUED OPERATIONS PROFIT FOR THE PERIOD
(105,181) 117,046 (48,301) 68,745 1,056 (11,179) (10,123)
(43,529) 5,291 (8,031) (2,740) 93 (1,370) (1,277) (4,017) 1,601 (2,416) 2,416
(61,652) 111,755 (40,270) 71,485 963 (9,809) (8,846) 62,639 (22,244) 40,395 (2,416)
(290,758) 341,707 (153,385) 188,322 3,466 (35,085) (31,619) 156,703 (46,815) 109,888 109,888
(126,241) 28,266 (25,811) 2,455 506 (4,537) (4,031) (1,576) 471 (1,105)
(164,517) 313,441 (127,574) 185,867 2,960 (30,548) (27,588) 158,279 (47,286) 110,993
58,622 (20,643) 37,979 -
37,979
37,979
1,105 -
(1,105) 109,888
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2.3. Basis of preparation The accounting policies, calculation methods, significant accounting judgments, estimates and assumptions used in this interim financial information are the same used in the financial statements for the year ended December 31, 2012, disclosed in Notes 2 and 3. These financial statements were published on March 13, 2013 on the newspaper Valor Econmico and the Official Gazette of the State of Rio de Janeiro. Adoption of the new and revised International Financial Reporting Standards (IFRSs) without material impacts on the interim financial information The information related to the Accounting Pronouncements and Interpretations Recently Issued did not suffer significant changes in relation to that disclosed in Note 2.4 to the Financial Statements for the Year Ended December 31, 2012. Below is the list of new and revised standards and interpretations already issued but not yet adopted:
Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities (1); IFRS 9 Financial Instruments (2); (1) Effective for annual periods beginning on or after January 1, 2014. (2) Effective for annual periods beginning on or after January 1, 2015.
3.
CASH AND CASH EQUIVALENTS 9/30/2013 12/31/2012 Cash and banks Short-term investments 7,679 38,056 45,735 6,682 37,518 44,200
The balances recorded as cash and cash equivalents refer to deposits and highly liquid shortterm investments, readily convertible into a known amount of cash and subject to an insignificant risk of change in value. As at September 30, 2013, short-term investments refer to bank deposit certificates (CDBs) issued by Banco Santander and Banco do Brasil, with repurchase agreement and bearing interest at the average rate of 102.7% of the interbank deposit certificate (CDI) (103.5% as at December 31, 2012). 4. MARKETABLE SECURITIES The balance held as marketable securities refers to short-term investments with Banco Santander, through bank deposits, yielding 103.5% of the interbank deposit certificate (CDI) at December 31, 2012.
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5.
TRADE RECEIVABLES 9/30/2013 12/31/2012 Construction Division Jahu Division Industrial Services Division (*) Mills Rental Division Events Division (**) Allowance for doubtful debts (***) 59,470 93,688 4,728 63,989 3,943 225,818 (49,600) 176,218 174,125 2,093 52,867 66,585 59,041 51,290 4,247 234,030 (36,703) 197,327 194,778 2,549
Current Non-current (*)
As at September 30, 2013, the balance of R$39,457, of the Industrial Services Division, was reclassified to available-for-sale assets (Note 8).
(**) Amount receivable from sale of property, plant and equipment of the Events Division, which was discontinued in 2008. (***) The allowance for doubtful debts is calculated based on the amount considered sufficient to cover potential losses on the realization of receivables, considering an individual analysis of the Companys major customers. The receivables of the Jahu Division as at September 30, 2013 include R$16,741 (R$ 10,228 as at December 31, 2012) related to sales of raw materials to manufacturers of the Easyset, whose collection term, due to their characteristics, is longer than 120 days, longer, therefore, than the average of the other customers of such Division. As at September 30, 2013, trade receivables totaling R$49,600 (2012 - R$36,703) were accrued. The increase in the amount of this allowance refers basically to the accrual of the balance receivable from specific customers that during the nine months of 2013 were having difficulties to discharge their obligations. Mills holds receivables corresponding to assets of the Events Division, whose activities have been discontinued. Part of these assets was sold in the course of 2008 and 2009 under agreements for sale of chattels with reserve of title entered into on May 20, 2008 and February 18, 2009. The total amount will be received over a period not exceeding eight years, and the installments are adjusted using the percentage fluctuation of the Extended Consumer Price Index (IPCA). As at September 30, 2013, the asset is adjusted at present value and management, based on the collaterals provided for in the agreement, believes that the amount will be fully realized by the due date of the last installment. To determine whether or not trade receivables are recoverable, the Company takes into consideration any change in the customers creditworthiness from the date the credit was originally granted to the end of the reporting period. The credit risk concentration is limited because the customer base is comprehensive and there is no relationship between customers. The Company does not have any customer concentration in its revenue or trade receivables as no single customer or corporate group represents 10% or more of its trade receivables in any of its segments. 16
The aging list of the Companys trade receivables is as follows: 9/30/2013 Current Current (bills with original due dates extended) 1 to 60 days past due (*) 61 to 120 days past due (*) More than 120 days past due (*) Total 106,064 10,346 39,213 16,160 54,035 225,818 12/31/2012 130,420 11,688 40,577 15,359 35,986 234,030
(*) The analysis above was conducted considering the extended due dates of the bills.
6.
INVENTORIES 9/30/2013 Raw materials Finished goods Replacement parts and supplies Advances for inventories Other Total 6,983 12,413 8,866 2,070 607 30,939 12/31/2012 7,327 8,170 7,763 3,202 476 26,938
Inventories of raw materials, finished goods and advances for inventories are linked to madeto-order manufacturing processes to meet the demand of the Company and its customers. Inventories of spare parts are intended mainly for the access equipment. All inventories are stated at average cost.
7.
RECOVERABLE TAXES 9/30/2013 Taxes on revenue (PIS and COFINS) (*) Income tax (IRPJ) and social contribution (CSLL) State VAT (ICMS) Other 71,452 1,070 110 897 73,529 12/31/2012 54,724 6,453 3,618 943 65,738
17
Current Non-current
31,278 42,251
35,021 30,717
(*) PIS and COFINS credits refer basically to the amounts recoverable on purchases of property, plant and equipment and that will be offset against non-cumulative PIS and COFINS federal tax obligations. Mills expects that these credits will be realized by 2016.
8.
ASSETS AND LIABILITIES HELD FOR SALE
On July 10, 2013, the Company entered into an agreement for the sale of assets and liabilities of its Industrial Services business unit to FIP Leblon Equities Partners V, a fund managed by Leblon Equities Gesto de Recursos Ltda. through its subsidiary Albuquerque Participaes Ltda. The sales price, defined based as at May 31, 2013, negotiation base date, was R$102,000. This price shall be adjusted for inflation based on the CDI variation, adjusted by the partial performance and settled, after adjustments, in local currency. On the same date, the net assets to be transferred totaled R$88,449. The purchase price is being paid in six (6) installments, all restated by the CDI from May 31, 2013, asfollows: 1. The first of R$25,000 (R$25.207, considering the adjustment of the CDI until the date of payment) was paid on the date of signing the contract; 2. The second, of R$ 17,000 (R$17.463, considering the adjustment of the CDI until September 30, 2013) , is being paid by the partial performance of the business between June 1, 2013 and the closing date, as this represents cash generation from the business which is included in the Mills cash flow. If until the closing date, the partial performance of the business is less than the R$ 17,000 adjusted by CDI, the buyer will pay the difference, and if higher, the value will be offset from the other installments due. The accumulated value of the partial performance of the business between June 1 and September 30, 2013 was R$ 15.529. Thus, on September 30, the outstanding balance of the second tranche was therefore of R$ 1.934; 3. Four installments of $ 15,000 each, annually, from the date of signing the contract. The sale is subject to compliance with certain conditions precedent, among them the obtainment of governmental approvals. During the period of three years started on the closing date, the parties entered into a mutual non-compete agreement. Based on technical pronouncement CPC 31, on June 30, 2013, the Company reclassified these assets and liabilities that were held for sale, without any impact on profit as at that date. On July 12, 2013, pursuant to the agreement for sale of assets and liabilities, the company Mills SI Servios Industriais Ltda (Company) was established with subscribed and unpaid capital of R$1,000.
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8.1 Assets and liabilities held for sale
Industrial Services Division Current assets Trade receivables Other Non-current assets Property, plant and equipment Intangible assets Total available-for-sale assets
9/30/2013 39,457 217 39,674 55,484 75 55,559 95,233
Current liabilities Accrued vacation Accrued 13th month salary Total liabilities associated with available-for-sale assets
(9,949) (4,695) (14,644)
8.2 Income statement of the discontinued operations Pursuant to the agreement signed between the parties, the (loss) profit from discontinued operations, of R$6,136, was adjusted by the exclusion of R$4,223 relating to certain expenses linked to the sale of the IS - Industrial Services segment. 9/30/2013 Net revenue (-) Costs and expenses (-) Depreciation and amortization Operating profit Finance income Finance costs Profit before IRPJ/CSL (-) IRPJ/CSL Profit for the period 168,430 (145,579) (5,671) 17,180 687 (2,965) 14,902 (4,543) 10,359
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8.3 Statement of cash flows of the discontinued operations
Industrial Services Division Net cash generated by operating activities Net cash generated by investing activities
9/30/2013 37,462 7,361
9.
INVESTMENTS On February 8, 2011, the Company acquired 25% of the capital of Rohr S.A. Estruturas Tubulares (Rohr) for R$ 90,000. Rohr is a privately-held company specialized in access engineering and supplying construction solutions, which operates mainly in the heavy construction and industrial maintenance sectors. In 2011, the Company received R$2,608 in interest on capital related to prior years. This amount was recognized reducing the amount of the investment, as it referred to dividends derived from profits or reserves already existing at the time the shares were purchased. In the fourth quarter of 2011, there was an increase in the stake in Rohr S.A. Estrutura Tubulares (Rohr) from 25% to 27.47%, resulting from a buyback by Rohr of 9% of its shares, which are currently in its treasury and will be cancelled or proportionally distributed to its shareholders. The Company assessed its influence over the management of Rohr and concluded that, even though it holds 27.47% of the investees capital, such investment should be carried at acquisition cost, due to the following facts: Mills does not have power to influence Rohrs financial, operational and strategic policies, it does not control, either individually or jointly, such policies, and it is not represented in the investees management. Furthermore, there is no shareholders agreement that might give Mills the right to have influence over the investees management. Based on these factors, the Company concluded that it does not have significant influence in the investee and will keep the investment carried at acquisition cost. In December 2012 the Company recognized finance income of R$3,214 related to interest on capital of Rohr for the years 2011 and 2012.
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10. PROPERTY, PLANT AND EQUIPMENT

Equipment for rental and operational use Gross cost of PP&E Balances at December 31, 2012 Purchases Write-offs/disposals Adjustment for PIS and COFINS credits Reclassification to assets held for sale Transfers Balances at September 30, 2013 Accumulated depreciation Balances at December 31, 2012 Depreciation Write-offs/disposals Reclassification to assets held for sale Reclassification Balances at September 30, 2013 Annual depreciation rates - % Property, plant and equipment, net Balance at December 31, 2012 Balance at September 30, 2013 1,123,154 293,522 (32,837) (35,519) (102,164) 98,003 1,344,159 Rental equipment in progress 46,566 90,025 (97,395) 39,196 Total leased equipment 1,265,902 383,547 (43,187) (35,519) (102,164) 608 1,469,187 Leasehold Buildings Computers improvements and land and peripherals Vehicles 12,767 5,338 (648) (882) 16,575 25,156 (21) (1,005) 24,130 9,501 4,523 (5) (1,165) 12,854 4,274 554 (110) (853) 3,865 Furniture Construction and in Total assets fixtures progress in use 7,174 2,072 (5) (734) 8,507 1,691 1,129 (608) 2,212 62,020 14,620 (141) (4,591) (608) 71,300 Total PP&E 1,327,922 398,167 (43,328) (35,519) (106,755) 1,540,487
Leasing 96,182 (10,350) 85,832
Facilities 1,457 1,004 (186) 882 3,157
(295,534) (89,044) 14,716 49,076 30,735 (290,051) 10
(12,890) (4,712) 5,050 (30,735) (43,287) 10
(308,424) (93,756) 19,766 49,076 (333,338) -
(3,104) (1,106) 213 (3,997) 20
(1,080) (530) 307 (1,303) 4
(5,718) (1,232) 3 858 (6,089) 20
(2,522) (380) 7 496 (2,399) 20
(654) (115) 57 (712) 10
(3,073) (420) 265 (3,228) 10
(16,151) (3,783) 10 2,196 (17,728) -
(324,575) (97,539) 19,776 51,272 (351,066) -
827,620 1,054,108
83,292 42,545
46,566 39,196
957,478 1,135,849
9,663 12,578
24,076 22,827
3,783 6,765
1,752 1,466
803 2,445
4,101 5,279
1,691 2,212
45,869 53,572
1,003,347 1,189,421
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Rental equipment can be summarized as follows: access scaffolding (Mills and Elite tubular scaffolding), forms (Noe and Aluma forms), props (MillsTour and Aluma), aerial platforms (JLG and Genie) and telescopic manipulators. We highlight below the main purchases up to September 2013, by group of assets: Props Platforms Reusable concrete forms Suspended scaffolding and access structures Other Total purchases 86,127 218,727 32,128 37,604 23,581 398,167
As at September 30, 2013, depreciation for the period, allocated to direct costs of construction works and rentals and to general and administrative expenses, amounts to R$87,792 and R$5,755 (R$75,446 and R$2,347 as at September 30, 2012), respectively. Certain items of the Companys property, plant and equipment are pledged as collateral of borrowing and financing transactions (Note 12). Property, plant and equipment are measured at historical cost, less accumulated depreciation. Historical cost includes costs directly attributable to the acquisition of items and may also include transfers from equity of any gains/losses on cash flow hedges qualifying as referring to the purchase of property, plant and equipment in foreign currency. Review of estimated useful life Based on a valuation conducted by technical experts, the Company issued an internal report on the estimated useful life, dated December 31, 2012, which was approved at an executive boards meeting. In order to prepare the report, the technical experts also considered the Companys operational planning for the coming fiscal years, past experience, such as the level of maintenance and use of the items, external elements for benchmarking, such as available technologies, manufacturers recommendations and technical manuals, and the asset useful life rates. There was no change in the remaining estimated useful lives of property, plant and equipment items for 2012 and there were no events during the period ended September 30, 2013 that would affect the valuation undertaken in 2012. The Company concluded that there were no events or changes in circumstances that would indicate that such assets may be impaired.
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11. INTANGIBLE ASSETS Total intangible assets 62,691 11,438 (273) 73,856
Software Gross cost of intangible assets Balances at December 31, 2012 Purchases Reclassification to assets held for sale Balances at September 30, 2013 Accumulated amortization Balances at December 31, 2012 Amortization Reclassification to assets held for sale Balances at September 30, 2013 Annual amortization rates - % Intangible assets, net Balance at December 31, 2012 Balance at September 30, 2013 Allowance for impairment of goodwill 17,465 11,438 (236) 28,667
Trademarks and patents 932 (37) 895
Goodwill on investments 44,294 44,294
(3,811) (1,552) 198 (5,165) 20
(122) (130) (252) 10
(4,232) (4,232) -
(8,165) (1,682) 198 (9,649) -
13,654 23,502
810 643
40,062 40,062
54,526 64,207
Goodwill arose on the acquisition of Jahu in 2008 and the acquisition of GP Sul in 2011, these are considered business segments and cash-generating units (CGU) to which the entire goodwill is allocated. The recoverable amount of the Jahu CGU was determined based on the actual cash flow of this segment in 2011, before income tax and social contribution, projected for a ten-year period by the Company according to financial forecasts approved by management, at a discount rate of around 12% per year and without taking into consideration any growth rate. The recoverable amount of the GP Sul CGU was determined based on a report at market value issued by a specialized firm in August 2011. The recoverable amount of this asset was determined based on economic projections to determine the market value of GP Sul using the income approach by projecting discounted cash flows, in order to support the amount paid. The discount rate used to measure the recoverable amount was around 12% per year. Both projections were updated in 2012 and no need to recognize an allowance for impairment losses of this goodwill was identified. Management understands that any type of change reasonably possible in key assumptions, on which the recoverable amount is based, would not lead the total carrying amount to exceed the total recoverable amount of the cashgenerating unit. 23
12. BORROWINGS, FINANCING AND FINANCE LEASES Borrowings were contracted by Mills for purchase of equipment and are being indexed to the Interbank Deposit Certificate (CDI) rate or at the Long-term Interest Rate (TJLP). Borrowings indexed to the CDI rate bear interest of 1.70% to 4.5% per year, and principal and interest are amortized on a monthly basis. The financing agreements for rental equipment have been contracted at TJLP charges plus interest of 0.2% to 0.9% per year, with amortization on a monthly basis through June 2021. Borrowings, financing and finance leases are as follows: 9/30/2013 Current: Borrowings and financing Finance leases Non-current: Borrowings and financing Finance leases Total Borrowings and financing Current liabilities 9/30/2013 12/31/2012 Financing from financial institutions: Indexed to CDI plus interest of 1.70% to 4.5% per year Indexed to TJLP plus interest of 0.2% to 3.3% per year 4,935 4,935 27,323 4,349 31,672 4,935 9,601 14,536 19,679 1,135 20,814 12/31/2012 31,672 10,124 41,796 22,314 7,889 30,203
Non-current liabilities 9/30/2013 12/31/2012 Financing from financial institutions: Indexed to TJLP plus interest of 0.2% to 0.90% per year 19,679 22,314
The financial institutions with which the Company has borrowing and financing transactions as at September 30, 2013 are as follows: Santander Banco do Brasil Ita BBA HSBC Banco Alfa
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On May 27, 2011 the Company entered into a borrowing agreement with the Nassau Branch of Banco Ita BBA S.A. totaling US$15.8 million (equivalent to R$25.4 million). The borrowing was settled in a bullet payment on May 28, 2013 and interest was paid semiannually. In order to eliminate the foreign exchange risk on this borrowing, on the same date a swap was contracted with Banco Ita BBA S.A. in the amount of R$25.4 million so that the obligations (principal and interest) are fully converted into local currency and carried out on the same maturity dates. This instrument was also settled in May 2013. The table below shows a breakdown of the contractual guarantees outstanding on the indicated dates: 9/30/2013 12/31/2012 Guarantees provided: Receivables Collateral sale (*) Total collaterals Promissory notes 66,385 66,385 20,777 904 66,775 67,679 20,777
(*) Refer to equipment acquired under the Federal Equipment Financing Program (FINAME) and leases. The promissory notes are enforceable guarantees and serve as additional guarantees in relation to the borrowings and financing. The maturities of the non-current portions at September 30, 2013 are as follows: 2014 2015 2016 2017 2018 to 2021 1,069 3,541 3,138 3,138 8,793 19,679
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The Company's borrowings do not have covenants related to financial indices. Finance leases Refer basically to agreements for purchase of property, plant and equipment for rental for periods between 36 and 60 months, with maturities through 2015 and indexed to the CDI plus interest of 2.5% to 3.80% per year. These obligations are collateralized by the leased assets. The Company is not presenting the undiscounted debt payment cash outflows since payments are calculated at a floating rate basis according to CDI fluctuation. 9/30/2013 2013 2014 2015 Present value of minimum lease payments Current portion Non-current portion 5,504 4,947 285 10,736 10,736 9,601 1,135 12/31/2012 10,124 6,773 1,116 18,013 18,013 10,124 7,889
There are no significant differences between the present value of minimum lease payments and the market value of such financial liabilities. Interest charges are at floating rates and are recognized on a prorated basis. The Company has finance lease agreements with purchase option at the end of the contractual term. The purchase option is based on the guaranteed residual value that can be paid at the beginning of, end of or during the contractual term. There is also an option to renew the lease agreement for the period and under the terms agreed by the parties. The Company's current leases do not have covenants related to financial indices.
13. DEBENTURES 1st issue of debentures The first issue by the Company of a total of 27,000 unsecure, nonconvertible registered debentures in single series was approved on April 8, 2011, totaling R$270,000 and unit face value of R$10.00. These debentures mature on April 18, 2016 and pay interest equivalent to 112.5% of the CDI, payable semiannually, and will be amortized in three annual, consecutive installments, commencing on April 18, 2014. The transaction costs associated with this issue, in the amount of R$2,358, are being recognized as borrowing costs, in accordance with the contractual terms of the issue.
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2nd issue of debentures The second issue by the Company of a total of 27,000 unsecure, nonconvertible registered debentures in two series was approved on August 3, 2012, totaling R$270,000 and unit face value of R$10.00. The transaction costs associated with this issue, in the amount of R$1,810, are being recognized as borrowing costs, in accordance with the contractual terms of the issue. The debentures have their maturities according to the issue of each series, as follows: 1st series - 16,094 debentures of the first series, totaling R$160,940, with maturity on August 15, 2017, not subject to adjustment for inflation. The nominal amount of the debentures of the first series will be amortized in two annual installments as from the fourth year of their issue and interest paid semiannually will correspond to a surcharge of 0.88% p.a. levied on 100% of the accumulated variation of the DI rate; 2nd series - 10,906 debentures of the second series, totaling R$109,060, with maturity on August 15, 2017, subject to adjustment for inflation based on the accumulated variation of the IPCA index. The nominal amount of the debentures of the second series will be amortized in three annual installments as from the sixth year of their issue and interest paid semiannually will correspond to 5.50% p.a. of the amount adjusted for inflation as indicated above. As at September 30, 2013 the balance of debentures including transaction costs is R$110,773 in current liabilities and R$450,000 in non-current liabilities, and R$110,033 and R$448,044, net of transaction costs, respectively. (As at December 31, 2012 the balance of debentures is R$13,733 in current liabilities and R$540,000 in non-current liabilities, and R$12,994 and R$537,459, net of transaction costs, respectively.) Covenants The indentures of the debentures require the compliance of debt and interest coverage ratios under preset parameters, as follows: (1) (2) Net debt-to-EBITDA ratio equal to three (3) or less; and EBITDA-to-net financial expenses equal to two (2) or higher.
On the closing of the interim financial information for the quarter ended September 30, 2013 the Company was compliant with all ratios.
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14. RELATED PARTIES a) Transactions and balances There were no loans between the Company and any of its officers during the period. As at September 30, 2013 the Company had no service agreements with members of its Board of Directors. b) Management compensation The amounts relating to compensation paid to the members of the Companys management are as follows: 9/30/2013 ThreeNinemonth month period period 1,289 4,266 348 984 471 657 2,765 1,359 1,848 8,457 9/30/2012 ThreeNinemonth month period period 1,168 3,255 365 1,077 285 479 2,297 868 1,133 6,333
Salaries and payroll charges - officers Profit sharing Directors' fees Share-based payments Total
15. EMPLOYEE BENEFITS a) Employee profit sharing The provision for profit sharing of employees and executives is set up on an accrual basis and is accounted for as an expense. The determination of the amount, which is paid in the year following the year the provision is set up, takes into consideration the targets established together with the employees union under a collective labor agreement, in accordance with Law 10,101/00 and the Companys Bylaws. The Companys Board of Directors decided on March 27, 2012 that the amount of the profit sharing will no longer be set at 25% of profit and can vary between 20% and 30% (*) of the economic value added (EVA), which is calculated based on operating profit deducted from or added to non-recurring profits, less taxes and weighted average cost of capital. The metrics for this calculation is approved by the Companys management. The profit sharing is recognized over the year and paid in the following year. The amount recorded in current liabilities and profit as at September 30, 2013 is R$15,007 (December 2012 - R$20,142 in current liabilities and September 2012 - R$11,787 in profit).
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(*) The precise percentage within this band will be set by the last business day on the relevant year to generate the basis for the payment in the following year. The provision has been set up based on 25% of the EVA. b) Stock option plan The Company has stock option plans approved by the shareholders meeting aimed at integrating its executives in the Company development process over the medium and long terms. These plans are managed by the Company and the options granted are approved by the board of directors. The information related to the Company's stock option programs is summarized below:
Shares in thousands Plans Final exercise Grant date date 1/01/2008 7/10/2015 5/31/2010 4/16/2011 6/30/2012 4/30/2013 5/31/2016 4/16/2017 5/31/2018 4/30/2019 Shares granted 782 1,475 1,184 1,258 352 Shares Outstanding exercised shares (782) (1,043) (456) (214) 432 728 1,044 352
Top Mills Special Plan 2010 Plan 2010 Program 2011 Program 2012 Program 2013 Program
Plan pricing and accounting In order to price the cost of the portions of the plans relating to their equity component, the volatilities applicable to each one were determined at the risk-free rates and stock prices based on valuations of 6.6 times the EBITDA, less the net debt in the period of each plan, and the Company used the Black-Sholes model to calculate the fair values. The plans granted as from 2010 were classified as equity instruments and the weighted average fair value of the options granted was determined based on the Black-Scholes valuation model, considering the following assumptions:
Weighted average Weighted fair value average of the fair value share at by option - the grant R$ date - R$ 3.86 5.49 6.57 21.75 12.57 24.78 11.95 14.10 19.15 27.60 27.60 31.72
Program 2010 2010 2011 2012 2012 2013
Grant First Second Single Basic Discretionary Basic
Exercise price - R$ 11.50 11.50 19.28 5.86 19.22 6.81
Volatility 31.00% 31.00% 35.79% 37.41% 37.41% 35.34%
Dividend yield 1.52% 1.28% 1.08% 0.81% 0.81% 0.82%
Annual risk-free interest rate 6.60% 6.37% 6.53% 3.92% 3.92% 3.37%
Maximum exercise period 6 years 6 years 6 years 6 years 6 years 6 years
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The table below shows the accumulated balances of the plans in balance sheet accounts and the effects on profit for the period. 9/30/2013 2002 Plan Capital reserve Number of shares exercised (thousands) Top Mills, Special CEO and EX-CEO plans Capital reserve Number of exercisable options (thousands) Number of shares exercised (thousands) Mills Rental Executives Plan Capital reserve Number of shares exercised (thousands) 2010 Plan Capital reserve Number of exercisable options (thousands) Number of shares exercised (thousands) 2011 Program (2010 Plan) Capital reserve Number of exercisable options (thousands) Number of shares exercised (thousands) 2012 Program (2010 Plan) Capital reserve Number of exercisable options (thousands) Number of shares exercised (thousands) 2013 Program (2010 Plan) Capital reserve Number of exercisable options (thousands) Total recognized as equity (accumulated) Effect on profit 1,446 3,920 1,148 1,055 4,007 391 5,026 432 1,043 4,719 728 456 5,384 1,044 214 1,074 352 22,804 (6,945) 12/31/2012 1,446 3,920 1,148 95 960 4,007 391 3,825 768 670 3,280 1,011 125 2,153 1,258 15,859 (5,837)
(*) In the nine-month period ended September 30, 2012, the effect on profit was an expense of R$3,752.
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16. INCOME TAX AND SOCIAL CONTRIBUTION a) Reconciliation of the income tax and social contribution expense Reconciliation between the income tax and social contribution expense at the statutory and effective rates is as follows: Restated
9/30/2013 ThreeNinemonth month period period Profit before income tax and social contribution Statutory income tax and social contribution Income tax and social contribution at statutory rate Non-deductible provisions (*) and permanent differences Interest on capital - declared Other Total current and deferred income tax and social contribution Effective tax rate Current income tax Deferred income tax 60,097 34% (20,433) (1,854) 831 (21,456) 36% (24,761) 3,305 173,847 34% (59,108) (3,874) 7,503 2,475 (53,004) 30% (54,797) 1,793 9/30/2012 ThreeNinemonth month period period 62,639 34% (21,297) (1,076) 129 (22,244) 18% (17,122) (5,122) 158,279 34% (53,815) (1,764) 7,479 814 (47,286) 27% (44,197) (3,089)
(*)
Non-deductible provisions consist of stock option expenses, gifts, debt waivers, and fines for tax infractions.
b) Income tax and social contribution recognized in other comprehensive income The deferred tax recognized in other comprehensive income is a result of the provision for gains/losses on cash flow hedging instruments transferred to the opening carrying amounts of the hedged items. The total income tax and social contribution recognized in comprehensive income as at September 30, 2013 is R$266.
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c) Breakdown of deferred income tax and social contribution Deferred income tax and social contribution is broken down as follows:
Description Itapo goodwill Discount to present value Hedge on property, plant and equipment Other provisions Allowance for doubtful debts Finance leases Profit sharing Provision for tax, civil and labor claims Swap derivatives Accelerated depreciation Depreciation Discontinued Division (IS) GP Andaimes Sul Locadora Jahu goodwill Adjustment for inflation of judicial deposits Debentures
December 31 2012 Additions 681 129 1,252 470 6,059 -745 3,415 155 -190 -11,510 -987 -1,110 -2,381 -1,764 411 1,240 547 5,102 178 -266 -565 -829 -101 -1,439 2,514
Write-offs -681 -52 -1,252 745 -155 108 192 -1,095
September 30 2013 77 -1,764 881 7,299 547 5,102 3,593 -266 -565 -829 -291 -12,949 -879 -918 -962
The rationale and expectations for realization of the deferred income tax and social contribution are shown below: Nature Provision for tax, civil and labor claims Allowance for receivables impairment losses Finance leases Profit sharing Discount to present value Other provisions Accelerated depreciation Depreciation Discontinued Division (IS) Itapo goodwill Realization rationale Tax realization of loss Filing of lawsuits and past-due credits Realization over straight-line depreciation period of assets Payment Tax realization of loss/gain Payment Tax amortization over 5 years Transfer of control/ownership Tax amortization 32
Jahu goodwill/GP Sul goodwill Adjustment for inflation of judicial deposits Debentures Derivatives Cash flow hedge
Asset disposal/impairment Deposit withdrawal Amortization of borrowing cost Depreciation
The table below shows the expected realization of deferred income tax and social contribution as at September 30, 2013: Deferred IR and CSLL assets 2013 2014 2015 2016 2017 Beginning 2018 Total 5,766 2,479 2,479 2,479 2,479 1,816 17,498 Deferred IR and CSLL liabilities (942) (455) (630) (630) (1,195) (14,608) (18,460)
17. PROVISION FOR TAX, CIVIL AND LABOR CLAIMS AND JUDICIAL DEPOSITS The Company is a party to tax, civil and labor lawsuits that have arisen in the normal course of business, and is discussing these matters in both the administrative and legal spheres, which, when applicable, are backed by judicial deposits. Based on the opinion of its outside legal counsel, management understands that the proper legal steps and measures already taken in each situation are sufficient to cover potential losses and preserve the Companys net assets, being reassessed periodically. 9/30/2013 Tax (i) Civil (ii) Labor (iii) Success fees (iv) Total a) Breakdown of the provision for tax, civil and labor claims: (i) Refers basically to a writ of mandamus filed by the Company when challenging the increase in the PIS and COFINS rates (established by the non-cumulative regime of these contributions, with the enactment of Laws 10,637/2002 and 10,833/2003). The Company maintains a judicial deposit for this provision, related to the differences in rates. 33 3,711 456 3,611 2,663 10,441 12/31/2012 4,425 444 2,462 2,588 9,919
(ii)
The Company is a party to lawsuits filed against it relating to civil liability and compensation claims.
(iii) The Company is a defendant in several labor lawsuits. Most of the lawsuits involve claims for compensation due to occupational diseases, overtime, hazardous duty premium and salary equalization. (iv) The success fees are generally set in up to 10% of the amount pledged in each claim, payable to outside legal counsel depending on the success of the demand of each case. Payment is contingent upon favorable outcome in the lawsuits. (v) (vi) The Company does not have any contingent assets recorded. There was no significant change in the balance of tax, civil and labor risks as compared to the balance as at December 31, 2012.
b) Breakdown of judicial deposits: 9/30/2013 Tax (i) Labor (ii) Civil Total (i) 6,687 2,707 278 9,672 12/31/2012 8,440 2,858 555 11,853
In October 2001 the Company filed a lawsuit in the different cities where it operates aimed at recovering the ISS paid since 1991 on the rental of its chattels. The lawsuits are in progress, awaiting court decisions. After the enactment of Supplementary Law 116/2003 in August 2003, Mills discontinued the payment of ISS on such rentals, although it continues taxing the assignment of its scaffolding and other structures for temporary use. The judicial deposits are linked to various labor lawsuits in which the Company is the defendant. Most of the lawsuits involve claims for compensation due to occupational diseases, overtime, hazardous duty premium and salary equalization.
(ii)
The Company is a party to tax, civil and labor lawsuits involving risks of loss classified by management as possible based on the assessment of its legal counsel, for which no provision was recognized as estimated below: 9/30/2013 Tax Labor Civil Other Total 22,771 10,515 4,389 37,675 12/31/2012 13,218 6,791 596 5,000 25,605
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EQUTIY a) Subscribed capital The Companys fully subscribed and paid-in capital stock as at September 30, 2013 is R$551,915 (December 31, 2012 - R$537,625) represented by 127,314,000 registered common shares without par value (December 31, 2012 - 126,399,000). Each common share corresponds to the right to one vote in decisions made by the shareholders. Under the Companys bylaws, the Board of Directors may increase the capital up to a ceiling of 200,000,000 shares, regardless of amendment to the bylaws or approval by the shareholders, as well as stipulate the terms, issue price and form of payment of new shares to be issued. (a.2) Share issue The Company's share issue has occurred as approved by the Companys Board of Directors due to the exercise of stock options by beneficiaries. The shares issued in the period were fully subscribed and paid up by their respective beneficiaries and are as follows: Capital increase (in thousands) 8 38 1,819 169 2,973 2,920 143 3,073 40 1,299 1,180 41 587 14,290
Stock option plan 2010 Program 2010 Program 2011 Program Top Mills Plan 2010 Program 2011 Program 2012 Program 2012 Program Top Mills Plan 2010 Program 2011 Program 2012 Program 2012 Program
Approval by the Board of Directors 2/08/2013 2/08/2013 2/08/2013 4/10/2013 5/09/2013 5/09/2013 5/09/2013 5/09/2013 5/22/2013 8/15/2013 8/15/2013 8/15/2013 8/15/2013
Number of shares issued 600 3,050 88,574 66,903 230,481 138,185 24,372 153,265 15,512 101,395 55,952 7,148 29,335 914,772
Issue price 12.49 12.40 20.54 2.53 12.90 21.13 5.88 20.05 2.55 12.81 21.10 5.74 20.00
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The table below shows the shareholding structure at the reporting dates:
9/30/2013
Number of shares (in thousands) Shareholders Andres Cristian Nacht Snow Petrel S.L. HSBC Bank Brasil S.A. (*) Capital Group International, Inc (**) Other signatories of the Company's Shareholders' Agreement (***) Other 15,596 17,728 6,445 6,323 11,826 69,396 127,314 12.25% 13.92% 5.07% 5.01% 9.29% 54.46% 100.00% %
12/31/2012
Number of shares (in thousands) 15,596 17,728 6,323 11,826 74,926 126,399 % 12.34% 14.03% 5.00% 9.36% 59.27% 100.00%
(*) On October 2, 2012, started to hold a relevant interest according to information officially received by the Company and disclosed to CVM. (**) On July 15, 2013, started to hold a relevant interest according to information officially received by the Company and disclosed to CVM. (***) The other signatories of the Company's Shareholders' Agreement, all holders of individual interests of less than 5% of the Company's capital, are represented in the capacity as shareholders, including for voting right exercise purposes, by Andres Cristian Nacht. b) Earnings reserves (b.1) Legal reserve The legal reserve is set up annually by allocating 5% of profit for the year until it reaches a ceiling of 20% of the share capital. The purpose of the legal reserve is to ensure the integrity of share capital and it can only be used to offset losses and increase capital. (b.2) Expansion reserve The purpose of the expansion reserve is to provide funding to finance additional investments in fixed and working capital and expand corporate activities. Under the Companys bylaws, the ceiling of the expansion reserve is 80% of total subscribed capital. (b.3) Special reserve The Companys special reserve refers to the tax benefit generated by the corporate restructuring undertaken in 2009. 36
c) Capital reserve The capital reserve incorporates the transaction costs incurred in capital funding, amounting to R$15,068, net of taxes, related to the distribution of shares under the IPO, the premium reserve of the stock options amounting to R$22,804 related to the employees stock option plans, and the cost of the cancelled shares amounting to R$558, totaling R$7,178 as capital reserve as at September 30, 2013 (December 31, 2012 - R$233). d) Earnings retention This earnings retention reserve refers to the remaining balance of retained earnings used to fund the business growth project set out in the Companys investment plan, according to the capital budget proposed by management, to be submitted to and approved at a Shareholders Meeting, pursuant to Article 196 of the Brazilian Corporate Law. e) Equity valuation adjustment cash flow hedge The cash flow hedge reserve incorporates the effective portion of the cash flow hedges through September 30, 2013, amounting to R$517, net of taxes (December 31, 2012 R$300). f) Mandatory minimum dividends The Company's bylaws provide for the payment of mandatory minimum dividends equivalent to 25% of the profit for the year, after the respective allocations, pursuant to article 202 of the Brazilian Corporation Law (Law 6,404).
18. DIVIDENDS AND INTEREST ON CAPITAL PROPOSED The Board of Directors' meeting of June 21, 2013 approved the declared interest on capital as part of the minimum mandatory dividend in the amount of R$23,448 (R$20,421 net of taxes), equivalent to R$0.18 per share. The interest on capital proposed will be part of the compensation to be distributed at the end of 2013.
37
19. EARNINGS PER SHARE a) Basic Basic earnings per share are calculated by dividing the profit attributable to owners of the Company by the weighted average number of common shares issued during the period. Restated 9/30/2013 9/30/2012 ThreeNineThreeNinemonth month month month period period period period Profit attributable to owners of the Company 39,645 126,979 37,979 109,888 Weighted average number of common shares issued (thousands) 127,249 126,833 126,235 125,997 Basic earnings per share from continuing and discontinued operations 0.31 1.00 0.30 0.87 Basic earnings per share from continuing operations b) Diluted Diluted earnings per share are calculated by adjusting the weighted average number of common shares outstanding to assume conversion of all dilutive potential common shares. The Company has one category of dilutive potential common shares: stock options. A calculation is made for the stock options to determine the number of shares that would be acquired at fair value (determined as the annual average market price of the Companys share), based on the monetary amount of the subscription rights linked to the outstanding stock options. The number of shares calculated as described above is compared with the number of shares issued, assuming exercise of the stock options. 0.30 0.95 0.32 0.88
38
9/30/2013 ThreeNinemonth month period period Profit Profit used to determine diluted earnings per share Weighted average number of common shares issued (thousands) Adjustments for: Stock options (thousands) Weighted average number of common shares for diluted earnings per share (thousands) Basic earnings per share from continuing and discontinued operations Basic earnings per share from continuing operations 20. NET REVENUE FROM SALES AND SERVICES 39,645 127,249 1,017 128,266 126,979 126,833 1,141 127,974
Restated 9/30/2012 ThreeNinemonth month period period 37,979 126,235 1,332 127,567 109,888 125,997 828 126,825
0.31 0.30
0.99 0.94
0.30 0.32
0.87 0.88
The information on net revenue from sales and services below refers only to the nature of the revenue per type of service:
9/30/2013 ThreeNinemonth month period period Rentals Sales Technical assistance Indemnities and recoveries Total gross revenue Taxes on sales and services Cancelations and discounts Total net revenue 216,755 29,544 6,480 30,507 283,286 (21,859) (39,421) 222,006 613,839 66,907 22,609 67,479 770,834 (61,634) (86,992) 622,208
Restated 9/30/2012 ThreeNinemonth month period period 171,859 13,346 7,303 14,814 207,322 (16,516) (17,399) 173,407 475,909 32,824 14,835 34,184 557,752 (45,695) (34,099) 477,958
39
21. COST OF SALES AND SERVICES AND GENERAL AND ADMINISTRATIVE EXPENSES (BY NATURE) The costs refer mainly to personnel expenses for assembly and dismantling of Company-owned leased assets, when such assembly is carried out by Mills itself, the equipment sublet from third parties when the Companys inventory is insufficient to meet demand, fre ight for transportation of equipment between branches and occasionally to customers, and expenses on supplies consumed in the projects, from personal protective equipment (PPE) to wood, paint and thermal insulation. General and administrative expenses refer to the management of each Company contract, encompassing the project teams and sales function engineers, which correspond basically to salaries, payroll taxes and benefits, and other expenses on travel, representations and communications, as well as the administrative function overheads.
Restated September 30, 2012 - Three-month period Direct General and project and administrative rental costs expenses Total (11,730) (1,189) (3,115) (7,537) (650) (840) (10,936) (23,745) (1,658) (252) (61,652) (23,155) (4,482) (142) (978) (2,178) (2,416) (832) (538) (1,570) 5,050 (5,563) (3,466) (40,270) (34,885) (5,671) (3,257) (8,515) (2,828) (3,256) (10,936) (24,577) (1,658) (538) (1,570) 5,050 (5,563) (3,718) (101,922) Restated September 30, 2012 - Nine-month period Direct General and project and administrative rental costs expenses Total (31,649) (2,655) (8,506) (19,703) (2,570) (2,233) (24,185) (67,743) (4,568) (705) (164,517) (64,140) (12,109) (595) (2,584) (7,066) (6,884) (2,249) (9,331) (3,011) 3,990 (14,600) (8,995) (127,574) (95,789) (14,764) (9,101) (22,287) (9,936) (9,117) (24,185) (69,992) (4,568) (9,331) (3,011) 3,990 (14,600) (9,700) (292,091)
Nature Personnel Third parties Freight Construction/maintenance material and repair Equipment and other rentals Travel Cost of sales Depreciation and amortization Write-off of assets Allowance for doubtful debts Stock option plan Adjustment of provisions Profit sharing Other Total
September 30, 2013 - Three-month period Direct General and project and administrative rental costs expenses Total (15,697) (1,174) (4,108) (11,978) (1,503) (1,216) (22,080) (31,509) (3,419) (859) (93,543) (27,540) (5,153) (199) (1,736) (4,050) (3,002) (2,186) (5,222) (2,214) 388 (4,486) (642) (56,042) (43,237) (6,327) (4,307) (13,714) (5,553) (4,218) (22,080) (33,695) (3,419) (5,222) (2,214) 388 (4,486) (1,501) (149,585)
September 30, 2013 - Nine-month period Direct General and project and administrative rental costs expenses Total (42,525) (3,600) (11,012) (33,087) (4,356) (3,912) (55,035) (87,792) (6,544) (1,370) (249,233) (79,554) (15,016) (465) (4,681) (10,859) (8,691) (5,755) (12,319) (6,022) 228 (15,007) (7,674) (165,815) (122,079) (18,616) (11,477) (37,768) (15,215) (12,603) (55,035) (93,547) (6,544) (12,319) (6,022) 228 (15,007) (9,044) (415,048)
40
23. FINANCE INCOME (COSTS) a) Finance income Restated 9/30/2012 ThreeNinemonth month period period 408 536 14 5 963 919 1,774 260 5 2 2,960
9/30/2013 ThreeNinemonth month period period Interest income on past-due bills Income from short-term investments Discounts obtained Foreign exchange and inflation gains Other 620 874 102 886 3 2,485 2,538 5,311 188 1,461 143 9,641
b) Finance costs Restated 9/30/2012 ThreeNinemonth month period period (1,703) (174) (918) (6,846) (105) (1) (62) (9,809) (5,728) (622) (3,446) (19,081) (212) (13) (1,446) (30,548)
9/30/2013 ThreeNinemonth month period period Borrowing costs Inflation losses Interest on finance leases Interest - debentures Bank fees Tax on financial transactions (IOF) Other (1,264) (710) (337) (11,410) (121) (6) (961) (14,809) (3,983) (1,484) (1,068) (33,304) (261) (14) (2,840) (42,954)
24. SEGMENT REPORTING Information by operating segment is being presented in accordance with CPC 22 Operating Segments (IFRS 8). The Companys reportable segments are business units that offer different products and services and are managed separately since each business requires different technologies and market strategies. The main information used by management to assess the performance of each segment is as follows: total property, plant and equipment since these are the assets that generate the Companys revenue and the profit of each segment to evaluate the return on these investments. The information on liabilities by segment is not being reported since it is not used by the Companys chief decision makers to manage the segments. Management does not use analyses by geographic area to manage its businesses. 41
The Companys segments involve completely different activities, as described below, and thus their assets are specific for each segment. The assets have been allocated into each reportable segment according to the nature of each item. The Companys operations are segmented according to the organization and management model approved by the Board of Directors, containing the following divisions: Construction Division This division provides specific engineering and equipment solutions, specifically in relation to concrete forms and props used in the construction of large structures, planning, design, technical supervision, equipment and related services. Jahu Division This division supplies forms and concrete, props and scaffolding in the context of the services performed, involving specialized engineering construction solutions, with emphasis on the residential and commercial construction sector, by supplying planning, design, technical supervision, equipment and related services. Industrial Services Division This division supplies structures developed to permit access of personnel and supplies during the equipment and tubular scaffolding assembling phases, as well as for preventive and corrective maintenance in large plants, including industrial painting, surface treatment and insulation services. On July 10, 2013 the Company entered into an agreement for sale of assets and liabilities of this business unit (see note 8). Rental Division This division supplies motorized access equipment (aerial working platforms) and telescopic manipulators for lifting personnel and carrying loads at considerable heights. The accounting policies for the operating segments are the same described in the summary of significant accounting policies. The Company assesses the performance by segment based on pretax profit or loss as well as on other operating and financial indicators.
42
Income statement by business segment - Nine-month period
Construction 9/30/2013 9/30/2012 9/30/2013
Jahu 9/30/2012
Industrial Services 9/30/2013 9/30/2012
Rental 9/30/2013 9/30/2012 9/30/2013
Total 9/30/2012
Net revenue (-) Costs and expenses (-) Depreciation and amortization Operating profit Finance income Finance costs Profit before IRPJ/CSL (-) IRPJ/CSL Profit for the period
158,307 (79,466) (21,968) 56,873 2,441 (9,846) 49,468 (15,082) 34,386
126,761 (62,568) (18,116) 46,077 619 (7,661) 39,035 (11,661) 27,374
203,722 (127,031) (28,739) 47,952 3,411 (15,585) 35,778 (10,909) 24,869
171,940 (84,606) (22,285) 65,049 1,023 (11,124) 54,948 (16,415) 38,533
168,430 (150,330) (5,671) 12,429 869 (4,474) 8,824 (2,688) 6,136
154,507 (143,523) (8,529) 2,455 506 (4,537) (1,576) 471 (1,105)
260,179 (115,001) (42,843) 102,335 3,789 (17,523) 88,601 (27,013) 61,588
179,257 (74,925) (29,591) 74,741 1,318 (11,763) 64,296 (19,210) 45,086
790,638 (471,828) (99,221) 219,589 10,510 (47,428) 182,671 (55,692) 126,979
632,465 (365,622) (78,521) 188,322 3,466 (35,085) 156,703 (46,815) 109,888
43
Income statement by business segment - Three-month period
Construction 9/30/2013 9/30/2012 9/30/2013
Jahu 9/30/2012
Industrial Services 9/30/2013 9/30/2012
Rental 9/30/2013 9/30/2012 9/30/2013
Total 9/30/2012
Net revenue (-) Costs and expenses (-) Depreciation and amortization Operating profit Finance income Finance costs Profit before IRPJ/CSL (-) IRPJ/CSL Profit for the period
55,704 (26,279) (7,670) 21,755 850 (3,527) 19,078 (6,653) 12,425
45,503 (21,416) (6,647) 17,440 182 (2,355) 15,267 (5,927) 9,340
72,374 (48,006) (10,205) 14,163 642 (4,965) 9,840 (3,716) 6,124
60,536 (26,715) (7,379) 26,442 330 (3,603) 23,169 (7,807) 15,362
57,200 (53,941) (210) 3,049 182 (1,509) 1,722 (718) 1,004
48,820 (48,707) (2,853) (2,740) 93 (1,370) (4,017) 1,601 (2,416)
93,928 (41,606) (15,819) 36,503 993 (6,317) 31,179 (11,087) 20,092
67,368 (29,212) (10,555) 27,603 451 (3,851) 24,203 (8,510) 15,693
279,206 (169,832) (33,904) 75,470 2,667 (16,318) 61,819 (22,174) 39,645
222,227 (126,050) (27,432) 68,745 1,056 (11,179) 58,622 (20,643) 37,979
Assets by business segment

Construction Jahu Industrial Services Rental Other Total 9/30/2013 12/31/2012 9/30/2013 12/31/2012 9/30/2013 12/31/2012 9/30/2013 12/31/2012 9/30/2013 12/31/2012 9/30/2013 12/31/2012 PP&E Other assets Total assets 258,999 87,289 346,288 214,221 117,365 331,586 366,823 193,576 560,399 309,293 195,548 504,841 95,233 95,233 73,162 133,393 206,555 563,599 129,553 693,152 406,671 127,016 533,687 87,392 87,392 - 1,189,421 1,003,347 87,392 593,043 660,714 87,392 1,782,464 1,664,061
44
25. FINANCIAL INSTRUMENTS 25.1. Category of financial instruments The classification of financial instruments, by category, can be summarized as shown in the table below: Carrying amount 9/30/2013 12/31/2012 Cash and cash equivalents Loans and receivables: Trade receivables Judicial deposits Financial liabilities measured at amortized cost Borrowings and financing Finance leases Debentures Trade payables Financial liabilities at fair value Derivatives Financial assets at fair value Marketable securities Derivatives Equity financial instruments Stock option plans 25.2. Fair value of financial instruments Several Company policies and accounting disclosures require the determination of the fair value both for financial assets and liabilities and for non-financial assets and liabilities. The fair values have been determined for the purpose of measurement and/or disclosure based on the methods below. When applicable, additional information on the assumptions used in calculating the fair values are disclosed in specific notes applicable to such asset or liability. The Company applies CPC 40/IFRS 7 for financial instruments measured in the balance sheet at fair value, which requires disclosure of fair value measurements at the level of the following fair value measurement hierarchy: Quoted (unadjusted) prices on active markets for identical assets and liabilities (Level 1). In addition to the quoted prices, included in Level 1, inputs used by the market for assets or liabilities, whether directly (e.g. prices) or indirectly (e.g., derived from prices) (Level 2). 45,735 176,218 9,672 24,614 10,736 558,077 61,100 438 22,804 44,200 197,327 11,853 53,986 18,013 550,453 47,784 800 159,606 15,859
45
The Company does not have financial instruments measured at fair value that are classified as Level 3, i.e., obtained based on valuation techniques that include variables for the asset or liability, but which are not based on observable market inputs. The table below shows the Companys assets and liabilities measured at their fair values as at September 30, 2013. Level 2 balances 9/30/2013 12/31/2012 Assets Marketable securities Derivatives used for hedging Financial liabilities Derivatives used for hedging (a) Fair value of securities Available-for-sale securities consist of short-term investments made with prime financial institutions that are indexed to the CDI fluctuation. Considering that the CDI rate already reflects the interbank market position, it is assumed that the carrying amounts of securities approximate their fair values. (b) Fair value of trade receivables and payables The fair value of trade and other receivables is estimated according to the present value of future cash flows, discounted at the market interest rate determined at the end of the reporting period. The fair values of trade receivables and trade payables, considering as the criterion for calculation the discounted cash flow method, are substantially similar to their carrying amounts. (c) Fair value of borrowings and financing Fair value determined for disclosure purposes is calculated based on the present value of principal and future cash flows, discounted at the market interest rate determined at the end of the reporting period. For finance leases, the interest rate is determined by reference to similar lease agreements. The table below shows the Company's borrowings and financing at their fair value and carrying amount: 438 159,606 -
800
46
Borrowings and financing

Debt BNDES Working capital Leasing 1st issue of debentures 2nd issue of debentures 1st series 2nd series Indicator TJLP CDI CDI CDI CDI IPCA Fair value Carrying amount 9/30/2013 12/31/2012 9/30/2013 12/31/2012 24,306 26,211 24,614 26,664 27,134 27,322 10,479 17,796 10,436 18,013 280,752 275,283 280,799 274,067 162,023 117,751 162,395 113,783 162,809 117,165 165,674 113,992
(d)
Fair value of share-based payments The fair values of the employees stock options and rights to Company share appreciation are measured using the Black-Scholes approach. Changes in measurement include share prices on measurement date, the strike price of the related instrument, the expected volatility (based on the historical weighted average volatility adjusted for expected changes based on publicly available information), the average weighted life of the instruments (based on historical experience and the overall behavior of option holders), expected dividends and risk-free interest rate (based on government bonds). Non-market service conditions and performance conditions inherent to the transactions are not taken into account in determining the fair value.
(e)
Derivatives The fair value of exchange forwards is calculated at present value, using market rates that are accrued on each measurement date. The fair value of interest rate swaps is based on quotations obtained with brokers. These quotations are tested as to their reasonableness by discounting the estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar instrument calculated on the measurement date. The fair values reflect the credit risk of the instrument and include adjustments to consider the credit risk of the entity and the counterparty, when appropriate.
25.3. Derivative financial instruments - hedging (a) Derivative policy In order to protect its assets from the exposure to commitments assumed denominated in a foreign currency, the Company has developed its own strategy to mitigate such market risk. When applied, the strategy is carried out to reduce the volatility of cash flows to the desirable level, i.e., to maintain the planned disbursements.
47
Mills believes that the management of such risks is key to support its growth strategy without potential financial losses that reduce its operating profits, as the Company does not aim at obtaining financial gains through the use of derivatives. Foreign currency risks are managed by the Finance Manager and the CFO, who evaluate possible exposures to risks and set guidelines to measure, monitor and manage the risk related to the Companys activities. Based on this objective, the Company contracts derivative transactions, usually NDFs (non-deliverable forwards) with prime financial institutions (with credit ratings of brAAA - national scale, Standard & Poors or similar), in order to guarantee the agreed trading value at the time the imported goods are ordered. Likewise, swaps or NDFs are entered into to guarantee the flow of payments (amortization of principal and interest) for foreign currency-denominated financing. Pursuant to the Companys bylaws, any contract or obligation assumed in amounts exceeding R$10,000 (ten million reais) has to be approved by the Board of Directors, unless it is already set out in the Business Plan. For amounts under R$100 (one hundred thousand reais) for periods of less than 90 days, it is not necessary to contract hedge transactions. Other commitments should be hedged against foreign exchange exposure. The company currently has a contract for NDF (non-deliverable forwards). The swap and NDF transactions are carried out to convert into reais future financial commitments in foreign currency. At the time such transactions are entered into, the Company mitigates the foreign exchange risk by matching the commitment amount and the exposure period. The derivative cost is pegged to the interest rate, usually a percentage of the CDI rate. The swaps and NDFs with maturities shorter or longer than the final maturity of the commitments may, over time, be renegotiated so that their final maturities match or approximate the final maturity of the commitment. Accordingly, on the settlement date, the gain or loss on the swap or NDF can offset part of the impact of the exchange fluctuation in relation to the real, thus helping to stabilize cash flows. As these transactions involve derivatives, the calculation of the monthly position is carried out using the fair value method and they are valued by calculating their present value using market rates that are impacted on the date of each calculation. This widely used methodology can present monthly distortions in relation to the curve of the contracted derivative; however, the Company believes that this is the best applicable method since it measures the financial risk should an early settlement of the derivative be required. Monitoring the commitments assumed and the monthly valuation of the fair value of the derivatives permits following up on the financial results and the impact on cash flows, and ensure that the initially planned objectives are achieved. The calculation of the fair value of positions is made available on a monthly basis for management monitoring purposes.
48
The derivatives contracted by the Company are intended to hedge its equipment import transactions against exchange rate fluctuation risks during the period between the time an order is placed and the time the equipment is delivered in Brazil. (b) Derivatives can be summarized as follows:
9/30/2013 Notional amount 196,466 Fair value 438 12/31/2012 Notional amount 152,868 Fair value (800) Amounts receivable/ payable (800) Amounts receivable/ payable 438
Type NDF Forward US dollar purchase contracted 2.13 to 3.00 rate (USD)
Type NDF Forward US dollar purchase contracted 2.05 to 2.15 rate (USD)
(c)
Derivatives fair value calculation method Derivatives are measured at present value at the market rate, on the base date of the future flow calculated using the contractual rates through maturity. For capped or double-index contracts, the Company also takes into consideration the option embedded in the swap contract.
(d)
Hedge effectiveness calculation method The Companys hedges (swaps) are aimed at hedging against the impact of foreign exchange fluctuations on its machinery and equipment imports. These transactions are classified as hedge accounting. The Company evidences the effectiveness of these instruments using the Dollar offset method, which is commonly used by derivatives market players. This method consists of comparing the present value, net of future exposures in foreign currency, of commitments assumed by the Company with the derivatives contracted for such foreign exchange hedging. As at September 30, 2013, no ineffectiveness was recognized in profit or loss as a result of the Companys hedging transactions.
49
(e)
Gains and losses for the period Since the Company evidences the effectiveness of the conducted hedge accounting swap transactions, the losses and gains on these derivative transactions are recognized as a balancing item to the hedged assets (property, plant and equipment) as part of the initial cost of the asset at the same time the asset is accounted for. As at September 30, 2013 the amount of R$117 negative was transferred from equity and deducted from the initial cost of the equipment. The allowance for unrealized losses/gains is recognized in other liabilities/assets, in the balance sheet, as a balancing item to Equity valuation adjustments, in equity. As at September 30, 2012, total unrealized gains on currency futures, recognized in Other comprehensive income, accumulated in equity, in line item 'Equity valuation adjustments' and related to such future purchases scheduled, amounted to R$517 (unrealized losses of R$300 in 2012). The Company expects that the purchases will occur in the next period, when the amount then deferred in equity will be included in the carrying amount of the imported equipment.
(f)
Embedded derivatives All contracts with potential derivative instrument clauses or securities are assessed by the Companys Finance Manager together with the legal counsel team before their execution, for guidance regarding any effectiveness testing, the definition of the accounting policy to be adopted, and the fair value calculation method. Currently, the Company is not party to any contracts with embedded derivatives.
(g)
Value and type of margins pledged as guarantees The current foreign currency-denominated derivative transactions do not require the deposit of any margin calls.
25.4 Sensitivity analysis The following table shows a sensitivity analysis of financial instruments, including derivatives, describing the risks that could lead to material losses for the Company, with the most probable scenario (scenario I) according to management's assessment, considering a three-month horizon, when the next financial information containing such analysis should be disclosed. In addition, two other scenarios are provided, as established by the Brazilian Securities Commission (CVM), by means of Instruction 475/2008, in order to present a 25% and 50% stress of the risk variable considered, respectively (scenarios II and III)
50
Debt BNDES Leasing Debentures 1st issue of debentures 2nd issue of debentures 1st series 2nd series
Indicator TJPL CDI CDI CDI IPCA Change
Scenario I (probable) 24,614 10,736 280,799 162,809 117,165
9/30/2013 Scenario II Scenario III 25% 50% 24,921 10,971 286,914 166,354 119,211 2.05% 25,229 11,205 293,028 169,899 120,932 4.05% Scenario III 50% 13.07% 7.50% 8.79% 3.35 4.53
Notional CDI TJLP IPCA US$ Euro
Scenario I Rate maintenance 8.71% 5.00% 5.86% 2.23 3.02
Scenario II 25% 10.89% 6.25% 7.33% 2.79 3.77
The sensitivity analysis presented above takes into account changes in a certain risk, keeping the other variables, associated with other risks, constant. 26. INSURANCE It is the Companys policy to constantly monitor the risks inherent in its operations. Accordingly, the Company takes out insurance, whose nature and coverage as at September 30, 2013 are indicated below. Nature of the insurance Rental equipment Property Civil liability Civil liability of officers Vehicles Insured amounts (in thousands of reais) 606,429 279,830 50,600 30,000 2,497
51
27. NON-CASH TRANSACTIONS As at September 30, 2013, the Company made an installment purchase of equipment amounting to R$54,958 as part of its non-cash investing activities. Accordingly, this investment is not reflected in the statement of cash flows (December 31, 2012 - R$41,366). During the period ended September 30, 2013, the Company declared interest on capital of R$20,421, net of income tax. As described in note 8, as at September 30, 2013 certain assets and liabilities were reclassified due to the impacts of the Technical Pronouncement CPC 31. 28. EVENTS AFTER THE REPORTING PERIOD General Meeting of Debenture Holders At the General Meeting held on October 3, 2013, the debenture holders of the first and second issues (1st and 2nd series) were called by means of call notices published as required by Law to decide, for all purposes provided for in the Issue Indenture (and especially for purposes of not featuring an Event of Default), on the transfer of the assets, liabilities, rights and obligations related to the operations of the Company's Industrial Services Division. The Debenture Holders present expressed their agreement with the transfer of the operations of the Industrial Services Division to Mills SI Servios Industriais Ltda., approving since the aforementioned date the performance of all acts necessary to the implementation of such transfer, ands their agreement with the sale of all of the share units held by the Company in Mills SI Servios Industriais Ltda. to Albuquerque Participaes Ltda., on a date to be informed later to the Market. As a result of the decisions above, the Company undertook to pay to each Debenture Holder, until October 10, 2013, a commission equivalent to 0.10% of the debt balance of the Debentures (including the nominal amount and remuneration until October 3, 2013), multiplied by the number of Debentures held by the respective Debenture Holder, of R$561. American Depositary Receipt Level I On October 29, 2013, the Company announces that, on this date, its Board of Directors has approved the terms of the American Depositary Receipt Level I program (ADR Level I Program), backed by shares representing the capital stock of Mills. The ADR Level I Program aims to increase the accessibility of investors, especially those domiciled abroad, to the shares issued by Mills, as well as broaden its shareholder base and liquidity of its shares. The custodian institution will be Ita Unibanco S.A. and the depositary institution will be JPMorgan Chase Bank, N.A. Mills explains that the ADR Level I Program does not involve the issuance of new shares. The effective establishment of the program still requires approval from the Securities and Exchange Commission (SEC) in the United States of America. 52

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3Q13 Quarterly Financial Reports

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

Mills Estruturas e Servios de Engenharia S.A.

Deloitte Touche Tohmatsu

DELOITTE TOUCHE TOHMATSU Auditores Independentes

Antnio Carlos Brando de Sousa Engagement Partner

45,735 174,125 30,939 31,278 325 438 95,233 9,355 387,428

44,200 159,606 194,778 26,938 35,021 6,682 6,452 473,677

Investments Property, plant and equipment Intangible assets

551,915 7,178 320,960 517 104,339 984,909 1,782,464

537,625 233 321,768 (300) 859,326 1,664,061

120.843 6.136 126.979 1.00 0.99

40.395 (2.416) 37.979 0.30 0.30

110.993 (1.105) 109.888 0.87 0.87

1.004 39.645 0.31 0.31

Legal Expansion 61,243 61,243

Special 2,329 (1,140)

(5,581) 13,192 (23) 3,752 -

(1,848) 109,888 109,888 (21,780) (21,780) 89,248 834,721

Total 859,326 14,290 6,945 817 126,979 (23,448) 984,909

99,221 1,240 6,945 15,007 (38,149)

78,521 (2,844) 3,752 11,787 (22,279)

14,290 (39,198) (35,486) 1,038

8,592 (23) (21,892) (25,548) 308,103

(b) (c) (d)

Mills Estruturas e Servios de Engenharia S.A.

Net revenue from sales and services Cost of sales and

(105,181) 117,046 (48,301) 68,745 1,056 (11,179) (10,123)

58,622 (20,643) 37,979 -

Mills Estruturas e Servios de Engenharia S.A.

Current Non-current (*)

Mills Estruturas e Servios de Engenharia S.A.

Mills Estruturas e Servios de Engenharia S.A.

ASSETS AND LIABILITIES HELD FOR SALE

Mills Estruturas e Servios de Engenharia S.A.

8.1 Assets and liabilities held for sale

9/30/2013 39,457 217 39,674 55,484 75 55,559 95,233

(9,949) (4,695) (14,644)

Mills Estruturas e Servios de Engenharia S.A.

8.3 Statement of cash flows of the discontinued operations

9/30/2013 37,462 7,361

Mills Estruturas e Servios de Engenharia S.A.

10. PROPERTY, PLANT AND EQUIPMENT

Leasing 96,182 (10,350) 85,832

Facilities 1,457 1,004 (186) 882 3,157

(295,534) (89,044) 14,716 49,076 30,735 (290,051) 10

(12,890) (4,712) 5,050 (30,735) (43,287) 10

(308,424) (93,756) 19,766 49,076 (333,338) -

(3,104) (1,106) 213 (3,997) 20

(1,080) (530) 307 (1,303) 4

(5,718) (1,232) 3 858 (6,089) 20

(2,522) (380) 7 496 (2,399) 20

(654) (115) 57 (712) 10

(3,073) (420) 265 (3,228) 10

(16,151) (3,783) 10 2,196 (17,728) -

(324,575) (97,539) 19,776 51,272 (351,066) -

Mills Estruturas e Servios de Engenharia S.A.

Mills Estruturas e Servios de Engenharia S.A.

Trademarks and patents 932 (37) 895

Goodwill on investments 44,294 44,294

(3,811) (1,552) 198 (5,165) 20

(122) (130) (252) 10

(8,165) (1,682) 198 (9,649) -

Mills Estruturas e Servios de Engenharia S.A.

Mills Estruturas e Servios de Engenharia S.A.