8104

(Convenience Translation into English from the Original Previously Issued in Portuguese)
Cielo S.A. and Subsidiaries

Individual and Consolidated Interim Financial Information for the Quarter Ended March 31, 2012 and Report on Review of Interim Financial Information
Deloitte Touche Tohmatsu Auditores Independentes
Deloitte Touche Tohmatsu Rua Jos Guerra, 127 04719-030 - So Paulo - SP Brasil Tel.: +55 (11) 5186-1000 Fax: +55 (11) 5181-2911 www.deloitte.com.br
(Convenience Translation into English from the Original Previously Issued in Portuguese) REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION To the Management and Shareholders of Cielo S.A. Barueri - SP Introduction We have reviewed the accompanying individual and consolidated interim financial information of Cielo S.A. (the Company) and its subsidiaries, included in the Interim Financial Information Form (ITR), for the quarter ended March 31, 2012, which comprises the balance sheet and related income statement, statement of changes in equity, and statement of cash flows for quarter then ended, including a summary of significant accounting policies and other explanatory information. Managements responsibility for the financial statements Management is responsible for the preparation and fair presentation of the individual interim financial information in accordance with technical pronouncement CPC 21 - Interim Financial Reporting and the consolidated interim financial information in accordance with technical pronouncement CPC 21 and rule 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 (NBC TR 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 individual interim financial information Based on our review, nothing has come to our attention that causes us to believe that the accompanying individual interim financial information included in the ITR referred to above is not prepared, in all material respects, in accordance with technical pronouncement CPC 21 applicable to the preparation of Interim Financial Information (ITR) and presented in accordance with the standards issued by the Brazilian Securities and Exchange Commission (CVM).
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Deloitte Touche Tohmatsu. All rights reserved.
Deloitte Touche Tohmatsu
Conclusion on the consolidated interim financial information Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated interim financial information included in the ITR referred to above is not prepared, in all material respects, in accordance with technical pronouncement CPC 21 and rule IAS 34 applicable to the preparation of Interim Financial Information (ITR) and presented in accordance with the standards issued by the Brazilian Securities and Exchange Commission (CVM). Other matters Interim statements of value added We have also reviewed the individual and consolidated interim statements of value added (DVA) for the quarter ended March 31, 2012, the presentation of which is required by the standards issued by the Brazilian Securities and Exchange Commission (CVM) applicable to the preparation of Interim Financial Information (ITR), and is considered as supplemental information for International Financial Reporting Standards - IFRS, which does not require the presentation of a DVA. These statements were subjected to the same review procedures described above and, based on our review, nothing has come to our attention that causes us to believe that they are not fairly presented, in all material respects, in relation to the individual and consolidated interim financial statements taken as a whole. The accompanying interim financial information has been translated into English for the convenience of readers outside Brazil. So Paulo, April 24, 2012
DELOITTE TOUCHE TOHMATSU Auditores Independentes
Ismar de Moura Engagement Partner
2012 Deloitte Touche Tohmatsu. All rights reserved.
(Convenience Translation into English from the Original Previously Issued in Portuguese) CIELO S.A. AND SUBSIDIARIES BALANCE SHEETS AS AT MARCH 31, 2012 AND DECEMBER 31, 2011 (In thousands of Brazilian reais - R$)
ASSETS CURRENT ASSETS Cash and cash equivalents Trade accounts receivable Receivables from subsidiary Prepaid and recoverable taxes Prepaid expenses Other receivables Total current assets NONCURRENT ASSETS Deferred income tax and social contribution Escrow deposits Other receivables Investments Property and equipment Intangible assets: Goodwill on acquisition of investments Other intangibles Total noncurrent assets
Note
Company (BR GAAP) 03.31.2012 12.31.2011
Consolidated (IFRS and BR GAAP) 03.31.2012 12.31.2011
LIABILITIES AND SHAREHOLDERS EQUITY CURRENT LIABILITIES Payables to merchants Borrowings and financing Trade accounts payable Taxes payable Payables to subsidiary Dividends payable Other payables Total current liabilities NONCURRENT LIABILITIES Borrowings and financing Provision for risks Deferred income tax and social contribution Other payables Total noncurrent liabilities SHAREHOLDERS EQUITY Capital Capital reserve Treasury shares Earnings reserves Companys owners Noncontrolling interests Total shareholders equity TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
Note
Company (BR GAAP) 03.31.2012 12.31.2011
4 5 22
234,502 3,090,628 1,747 368 10,349 19,621 3,357,215
240,998 2,971,796 134 587 4,609 22,379 3,240,503
284,416 3,144,204 3,616 10,911 29,723 3,472,870
292,915 3,019,499 4,114 4,863 39,939 3,361,330
12 13 14 15 22 18.f) 16
2,018,129 55,950 234,463 193,615 9,890 54,314 2,566,361
1,660,367 19,666 230,259 385,914 11,055 319,457 108,577 2,735,295
2,018,129 55,950 292,263 198,556 77,838 2,642,736
1,660,367 19,666 289,815 391,996 319,457 135,797 2,817,098
6 17 7 8 9 10
338,682 631,216 663 177,798 504,544 10,143 46,209 1,709,255
334,442 597,217 664 176,060 508,259 10,143 49,247 1,676,032
349,301 656,890 691 519,256 139,501 83,950 1,749,589
345,862 622,805 688 522,369 140,101 88,027 1,719,852
13 17 6 16
190,798 672,031 862,829
131,182 640,465 771,647
190,798 709,486 4,484 25,113 929,881
131,182 678,007 4,751 25,580 839,520
18.a) 18.b) 18.c) 18.d), e) e f)
263,835 90,712 (44,829) 1,327,562 1,637,280 1,637,280 5,066,470
263,835 88,888 (50,859) 1,107,729 1,409,593 1,409,593 4,916,535
263,835 90,712 (44,829) 1,327,562 1,637,280 12,562 1,649,842 5,222,459
263,835 88,888 (50,859) 1,107,729 1,409,593 14,971 1,424,564 5,081,182
TOTAL ASSETS
5,066,470
4,916,535
5,222,459
5,081,182
The accompanying notes are an integral part of these financial statements.
(Convenience Translation into English from the Original Previously Issued in Portuguese) CIELO S.A. AND SUBSIDIARIES INCOME STATEMENTS FOR THE QUARTERS ENDED MARCH 31, 2012 AND 2011 (In thousands of Brazilian reais - R$, except amounts per share)
Note NET REVENUE COST OF SERVICES GROSS PROFIT OPERATING INCOME (EXPENSES) Personnel General and administrative Marketing and sales Equity in subsidiaries Other operating expenses, net INCOME FROM OPERATIONS FINANCIAL INCOME (EXPENSES) Financial income Financial expenses Income from prepayment of receivables Adjustment to present value expense g g , Exchange rate changes, net 20 21
Company (BR GAAP) 03.31.2012 03.31.2011 1,168,641 (352,220) 816,421 929,689 (276,008) 653,681
Consolidated (IFRS and BR GAAP) 03.31.2012 03.31.2011 1,220,762 (399,159) 821,603 965,005 (311,493) 653,512
21 21 21 7 21 and 29
(29,568) (64,203) (23,360) 1,738 (11,940) 689,088
(29,677) (68,980) (35,962) 68 (8,147) 510,983
(51,070) (41,829) (23,400) (13,650) 691,654
(44,391) (49,450) (36,019) (10,058) 513,594
28 28 28 28 28
6,141 (11,964) 190,140 (11,391) 4,192 , 177,118
9,520 (8,851) 120,828 (3,716) 947 118,728
7,483 (12,084) 190,140 (11,391) 4,183 , 178,331
10,144 (9,227) 120,828 (3,716) 947 118,976
INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION INCOME TAX AND SOCIAL CONTRIBUTION Current Deferred NET INCOME ATTRIBUTABLE TO Companys owners Noncontrolling interests
866,206
629,711
869,985
632,570
23 23
(303,853) 4,240 566,593
(222,691) 17,635 424,655
(305,991) 3,706 567,700
(223,954) 16,655 425,271
566,593 1,107 567,700
424,655 616 425,271 0.7804 0.7795
BASIC EARNINGS PER SHARE - R$ DILUTED EARNINGS PER SHARE - R$
19.b) 19.b)
1.0409 1.0395
0.7804 0.7795
1.0409 1.0395
COMPREHENSIVE INCOME The Company did not record other comprehensive income. Accordingly, a statement of comprehensive income is not presented.
(Convenience Translation into English from the Original Previously Issued in Portuguese) CIELO S.A. AND SUBSIDIARIES STATEMENTS OF CHANGES IN EQUITY FOR THE QUARTERS ENDED MARCH 31, 2012 AND 2011 (In thousands of Brazilian reais - R$)
Companys owners Earnings reserves Capital Proposed budget additional reserve 143,836 dividends Total Companys owners 1,179,781 Total shareholders' equity 1,194,251
Capital Note BALANCE AT DECEMBER 31, 2010 Allocation of earnings retention: Dividends paid on retained earnings Stock options granted Stock options exercised during the quarter Net income Effect of noncontrolling interests on consolidated entities BALANCE AT MARCH 31, 2011 BALANCE AT DECEMBER 31, 2011 Allocation of earnings retention: Dividends paid on retained earnings Treasury shares acquired Stock options granted Sale of treasury shares through the exercise of stock options Net income Effect of noncontrolling interests on consolidated entities BALANCE AT MARCH 31, 2012 Capital 100,000 reserve 83,532
Treasury shares (68,823)
Legal reserve 20,000
Earnings retention 901,236
Noncontrolling interests 14,470
18.f)
100,000 263,835
3,313 86,845 88,888
156 (68,667) (50,859)
20,000 52,767
143,836 708,202
346,760
(720,304) 424,655 605,587 -
(720,304) 3,313 156 424,655 887,601 1,409,593
616 (1,097) 13,989 14,971
(720,304) 3,313 156 425,271 (1,097) 901,590 1,424,564
18.f) 18.c) 18.c)
263,835
1,824 90,712
(5,800) 11,830 (44,829)
52,767
708,202
(346,760) -
566,593 566,593
(346,760) (5,800) 1,824 11,830 566,593 1,637,280
1,107 (3,516) 12,562
(346,760) (5,800) 1,824 11,830 567,700 (3,516) 1,649,842
(Convenience Translation into English from the Original Previously Issued in Portuguese) CIELO S.A. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS FOR THE QUARTERS ENDED MARCH 31, 2012 AND 2011 (In thousands of Brazilian reais - R$)
Company (BR GAAP) Note CASH FLOW FROM OPERATING ACTIVITIES Net income before income tax and social contribution Adjustments to reconcile net income before income tax and social contribution to net cash provided by operating activities: Depreciation and amortization Recognition (reversal) of allowance for losses on fixed and intangible assets, net Residual value of fixed and intangible assets disposed of or sold Share options granted Loss from equipment lease Provision for tax, civil and labor risks, net Adjustment to present value of receivables Noncontrolling interests Interest on borrowings and financing - FINAME Equity in subsidiaries (Increase) decrease in operating assets: Trade accounts receivable Receivables from subsidiary Prepaid and recoverable taxes Other receivables (current and noncurrent) Escrow deposits Prepaid expenses Increase (decrease) in operating liabilities: Payables to merchants Trade accounts payable Taxes payable Payables to subsidiary Other payables (current and noncurrent) Dividends payable Payment of t civil and labor lawsuits P t f tax, i il d l b l it Cash provided by operating activities Interest received Interest paid Payment of interest on borrowings - FINAME Income tax and social contribution paid Net cash provided by operating activities CASH FLOW FROM INVESTING ACTIVITIES Capital increase in subsidiaries Receipt from the negotiation if Braspag acquisition price Acquisition of equity interest in joint venture Additions to fixed and intangible assets Net cash used in investing activities CASH FLOW FROM FINANCING ACTIVITIES Treasury shares Sale of treasury shares through the exercise of stock options Borrowing - FINAME, net of acquisitions made Dividends and interest on capital paid Net cash used in financing activities DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS Closing balance Opening balance DECREASE IN CASH AND CASH EQUIVALENTS 03.31.2012 03.31.2011
866,206
629,711
869,985
632,570
8 and 10 8 and 10
17 5 13 7
70,427 389 7,929 1,824 6,024 31,577 11,391 3,962 (1,738)
51,528 (1) 3,067 3,313 7,018 29,262 3,716 (68)
73,444 389 8,469 1,824 6,024 31,490 11,391 (1,107) 3,962 -
53,602 (1) 3,144 3,313 7,018 31,581 3,716 (616) -
17
(130,223) (1,613) 219 2,759 (33,999) (5,740)
(37,308) (4) 283 46,278 (29,738) (1,950)
(136,096) 498 10,213 (34,085) (6,048)
(59,009) 238 44,345 (30,104) (1,978)
17
351,738 4,204 (9,783) (1,165) (54,263) (11) 1,120,114 (3,197) (486,369) 630,548
749,565 13,650 (10,289) (15,642) (38,129) 1,404,262 1,049 (1,049) (474,953) 929,309
351,738 2,448 (10,197) (58,735) (11) 1,125,596 (3,197) (489,234) 633,165
749,565 18,339 (9,647) (43,825) 1,497 1,403,748 1,049 (1,049) (477,192) 926,556
13
(2,753) (2,753)
(49,001) (51,857) (100,858)
(2,100) 600 (5,873) (7,373)
(2,000) (47,000) (52,216) (101,216)
18.c) 18.c) 13 18.f)
(5,800) 11,830 25,896 (666,217) (634,291) (6,496)
156 (838,262) (838,106) (9,655)
(5,800) 11,830 25,896 (666,217) (634,291) (8,499)
156 (838,262) (838,106) (12,766)
4 4
234,502 240,998 (6,496)
211,887 221,542 (9,655)
284,416 292,915 (8,499)
237,837 250,603 (12,766)
(Convenience Translation into English from the Original Previously Issued in Portuguese) CIELO S.A. AND SUBSIDIARIES STATEMENT OF VALUE ADDED FOR THE QUARTERS ENDED MARCH 31, 2012 AND 2011 (In thousands of Brazilian reais - R$)
Note REVENUES Revenue from services Losses on equipment rent
Company (BR GAAP) 03.31.2012 03.31.2011
20
1,298,751 (6,024) 1,292,727
1,033,323 (7,018) 1,026,305
1,360,551 (6,024) 1,354,527
1,075,825 (7,018) 1,068,807
INPUTS PURCHASED FROM THIRD PARTIES Service costs Materials, electric power, outside services and other Other expenses, net Loss on realization of assets
(258,793) (85,581) (2,523) (3,392) (350,289) 942,438
(204,192) (103,132) (876) (254) (308,454) 717,851
(296,467) (62,570) (2,505) (3,391) (364,933) 989,594
(230,153) (82,667) (2,746) (254) (315,820) 752,987
GROSS VALUE ADDED RETENTIONS Depreciation and amortization WEALTH CREATED, NET WEALTH RECEIVED IN TRANSFER Equity in subsidiaries Noncontrolling interests Financial income including exchange rate change, net and prepayment of receivables, net
8 and 10
(70,427) 872,011
(51,528) 666,323
(73,444) 916,150
(53,602) 699,385
1,738 189,082 190,820 1,062,831
68 127,579 127,647 793,970
(1,107) 190,415 189,308 1,105,458
(616) 128,203 127,587 826,972
28
TOTAL WEALTH FOR DISTRIBUTION DISTRIBUTION OF WEALTH Employees and charges Profit sharing Taxes and contribution Accrued interest and rentals Earnings retention WEALTH DISTRIBUTED
26
(36,726) (9,836) (436,389) (13,287) (566,593) (1,062,831)
(35,444) (8,951) (314,761) (10,159) (424,655) (793,970)
(56,728) (13,195) (452,716) (16,226) (566,593) (1,105,458)
(51,009) (11,539) (327,448) (12,321) (424,655) (826,972)
(Convenience Translation into English from the Original Previously Issued in Portuguese) CIELO S.A. AND SUBSIDIARIES NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION FOR THE QUARTER ENDED MARCH 31, 2012 (In thousands of Brazilian reais - R$, unless otherwise stated) 1. GENERAL INFORMATION Cielo S.A. (the Company or Cielo) was established on November 23, 1995 in Brazil, and is primarily engaged in providing services related to credit and debit cards and other payment methods, as well as providing related services, such as signing up of merchants and service providers, rental, installation and maintenance of Point of Sales - POS equipment, and data capture and processing of electronic and manual transactions. Cielo is a corporation based in Barueri, State of So Paulo, registered with BM&FBOVESPA S.A. - So Paulo Stock, Mercantile and Futures Exchange. Cielo is controlled by Banco do Brasil Group and Bradesco Group. The operations of the Companys direct and indirect subsidiaries are as follows: Direct subsidiaries Servinet Servios Ltda. (Servinet) - engaged in the provision of maintenance and contacts with merchants and service providers for acceptance of credit and debit cards and other payment methods; development of related activities in the service segment that are of interest to Servinet; and holding investments in other companies as partner or shareholder. Servrede Servios S.A. (Servrede) - engaged in holding investments in other companies as partner or shareholder. CieloPar Participaes Ltda. (CieloPar) - engaged in holding investments in other companies as partner or shareholder. Companhia Brasileira de Gesto de Servios (Orizon), formerly Orizon Brasil Processamento de Informaes de Sade Ltda. - engaged in the provision of consulting and data processing services to medical companies in general; management of back office services for health operators in general; electronic network interconnection services between health operators and medical and hospital service providers (e.g.: hospitals, clinics and laboratories), and other health system agents and drugstores in general,; based on a single technology platform; scanning and process automation services, card issuance, call center services and other solutions; card reading and nonfinancial transactions routing services; lease or sale of card readers, other computer-based equipment and systems used for providing its services and equipment technical assistance; and holding investments in local or foreign companies as partner or shareholder.
Indirect subsidiaries Prevsade Comercial de Produtos e de Benefcios de Farmcia Ltda. (Prevsade) Orizons subsidiary engaged in medicine benefit services to corporate customers, healthcare plans, public customers, and large laboratories. Prevsade manages the relationship of its customers employees with drugstores, doctors and the contracting company itself. Precisa Comercializao de Medicamentos Ltda. (Precisa) - Orizons subsidiary engaged in the sale of medicines in general, with focus on health prevention and maintenance, with a scheduled delivery system. Precisa is a drugstore focused on the distribution of medicines to Prevsades customers, especially chronic patients. It is responsible for delivering medicines regularly administered to Prevsades customers with chronicle diseases, such as diabetes, cancer and heart and blood pressure conditions, which allows monitoring the delivery and use of medicines, increasing the treatments effectiveness. Multidisplay Comrcio e Servios Tecnolgicos S.A. (Multidisplay) - Servredes subsidiary engaged in data transmission services to load fixed or mobile phone credits, the sale of mobile or fixed phone credits, as well as technology, software development and licensing consulting services, product sale, and technology and sales representation services. M4 Produtos e Servios S.A. (M4 Produtos) - Multidisplays subsidiary engaged in data transmission services to load fixed or mobile phone, prepaid television, prepaid transportation and similar credits; mobile payment and technology consulting services; and software development and licensing. Paggo Solues e Meios de Pagamento S.A. (Paggo Solues) - a subsidiary of CieloPar, engaged in the accreditation of merchants for acceptance of credit and debit cards; the supply and provision of solutions and electronic means for transaction capture and processing arising from the use of credit and debit cards; and the management of payables to and receivables from the network of authorized merchants, through the capture, transmission, data processing and settlement of electronic transactions with credit and debit cards for mobile payments. Braspag Tecnologia em Pagamento Ltda. (Braspag) - a subsidiary of CieloPar, engaged in developing computer software; processing electronic transactions; providing advisory services and IT services relating to collection and management of payables and receivables via internet; managing third parties credit cards; obtaining, on behalf of credit card holders and accredited stores, financing with financial institutions; and providing guarantees to the parties under credit card businesses. Cielo and its subsidiaries are also referred to as Group throughout this report.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1. Statement of compliance The Companys interim financial statements comprise: The Companys individual interim financial statements, which have been prepared in accordance with accounting practices adopted in Brazil, identified as Company BR GAAP. The Companys consolidated interim financial statements, which have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board - IASB and in accordance with accounting practices adopted in Brazil, identified as Consolidated - IFRS and BR GAAP. The accounting practices adopted in Brazil comprise the provisions set out in the Brazilian Corporate Law and the technical pronouncements, guidance and interpretations issued by the Accounting Pronouncements Committee (CPC), as approved by the Brazilian Securities and Exchange Commission (CVM). In the individual financial statements, investments in subsidiaries and joint ventures are stated under the equity method, as required by the legislation prevailing in Brazil. Therefore, these individual financial statements are not considered fully compliant with IFRS, which requires these investments to be stated at fair value or cost in the separate financial statements. 2.2. Basis of preparation The financial statements have been prepared based on the historical cost, except if otherwise stated in the following accounting policies. The historical cost is usually based on the fair value of the consideration paid in exchange for an asset. 2.3. Functional and reporting currency The individual and consolidated financial statements are presented in Brazilian reais (R$), which is the functional and reporting currency of the Company. 2.4. Cash and cash equivalents Include cash, bank accounts and highly-liquid short-term investments with low risk of change in the value, stated at cost plus interest earned. Cash and cash equivalents are classified as loans and receivables and their income is recorded in profit or loss for the period. 2.5. Receivables from card-issuing banks and payables to merchants (transactions pending transfer) Refer to transactions carried out by the holders of credit and debit cards issued by financial institutions, consisting of receivables from card-issuing banks less interchange fees and payables to merchants less processing fees (discount rate), both with maturities of less than one year. 10
Present value adjustment is recorded on accounts receivable from card-issuing banks from receivables prepayments; calculations were carried out separately, discounting cash flows for each recorded receivable and using interest rates contracted in these transactions. 2.6. Property and equipment Stated at historical cost, less depreciation. Depreciation is calculated under the straightline method, based on the estimated useful lives of the assets. The estimated useful lives, the residual values, and depreciation methods are reviewed on an annual basis, and the effects from any changes in estimates are recorded prospectively. Subsequent costs are added to the residual value of property and equipment or recognized as a specific item, as appropriate, only if the economic benefits associated to these items are probable and the amounts can be reliably measured. Other repairs and maintenance are recognized directly in income when incurred. A fixed asset is written off after sale or when there are no future economic benefits arising from its continuous use. Any gains or losses on the sale or write-off of fixed assets are calculated based on the difference between the amounts received and its carrying amount and are recognized in the income statement. 2.7. Intangible assets Intangible assets acquired separately Intangible assets acquired separately with finite useful lives are stated at cost, less amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis according to the estimated useful lives of the assets. The estimated useful life and amortization method are reviewed on an annual basis and the effect of any changes in estimate is accounted for on a prospective basis. Intangible assets acquired separately with indefinite useful lives are stated at cost less accumulated impairment losses. Internally-generated intangible assets - research and development costs Research costs are charged to expense in the period they incur. The internally-generated intangible assets resulting from development costs (or an internal projects development stage) are recognized only if the following conditions are met: The technical feasibility for completing the intangible asset for use or sale. The intention to complete the intangible asset to use it or sell it. The ability to use the intangible asset or sell it. How the intangible asset is reasonably likely to generate future economic benefits.
11
The availability of appropriate technical, financial and other resources to complete the development of the intangible asset to use it or sell it. The ability to reliably measure the expenses attributable to the intangible asset while it is developed. The amount originally recorded of internally generated intangible assets corresponds to the sum up of the expenses that have been incurred since the asset started to meet the recognition criteria previously mentioned. If no internally generated intangible asset may be recognized, the development costs are recognized in the income statement when incurred. Subsequently to the initial recognition, internally generated intangible assets are stated at cost, less amortization and accumulated impairment losses, similarly to intangible assets acquired separately. Intangible assets acquired in a business combination In the consolidated financial statements, the intangible assets acquired in a business combination and recognized separately from the goodwill are recorded at fair value, which corresponds to its cost on the acquisition date. Write-off of intangible assets An intangible asset is written off after sale or when future economic benefits will not result from its use. Gains or losses on the write-off of an intangible asset are calculated based on the difference between the net revenue from sale and its carrying amount and are recognized in the income statement when the asset is written off. 2.8. Impairment of tangible and intangible assets excluding goodwill At the end of each reporting period, the Group reviews the carrying amount of its tangible and intangible assets to determine if there is any indication that the assets might be impaired. If there is some indication of impairment, the recoverable amount of the asset is estimated to measure the impairment loss, if any. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit of the asset. When a reasonable and consistent basis of allocation may be identified, the corporate assets are also allocated to the individual cash-generating unit or to the smallest group of cash-generating units of this basis of allocation. The recoverable amount of an asset is the higher of its fair value less selling costs or its value in use. In appraising the value in use, the estimated future cash flows are discounted to present value at the discount rate, before taxes, that reflects a current market assessment of the time value of money and the specific risks to the asset to which the estimated future cash flows were not adjusted. If the carrying amount of an asset (or cash-generating unit) exceeds its recoverable amount, the carrying amount is reduced to its recoverable amount, and impairment losses are immediately recognized in the income statement.
12
2.9.
Business combinations In the consolidated financial statements, business acquisitions are recorded under the purchase method. The amount transferred in a business combination is measured at fair value. Acquisition costs are recognized in the income statement when incurred. On the acquisition date, the identifiable assets acquired and liabilities assumed are recognized at fair value. Goodwill is measured based on the exceeding amount arising from the sum up of the amount transferred, the noncontrolling interest in the acquiree and the fair value of the acquirers interest previously held in the acquiree on the net amounts on the date of acquisition of the identifiable assets acquired and liabilities assumed. The noncontrolling interests that correspond to current interests and entitle their holders to a proportional portion of the entitys net assets in case of liquidation are measured based on the proportional stake of the noncontrolling interests in the acquirees identifiable net asset amounts recognized. Individual interim financial statements In the interim individual financial statements, the Company complies with Technical Interpretation ICPC 09 - Individual Financial Statements, Separate Financial Statements, Consolidated Financial Statements and Adoption of the Equity Method, according to which the amounts exceeding the acquisition cost on the Companys interest in the fair value of the acquirees identifiable assets, liabilities and contingent liabilities on the acquisition date are recognized as goodwill. Goodwill is added to the carrying amount of the investment. The Companys interests in the fair value of the identifiable assets, liabilities and contingent liabilities exceeding the acquisition cost, after revaluation, are immediately recognized in the income statement. The amounts transferred and the fair value of assets and liabilities are measured based on the same criteria applicable to the consolidated financial statements.
2.10. Goodwill Goodwill arising from a business combination is stated at cost on the date of the business combination, net of accumulated impairment loss, if any. For impairment test purposes, goodwill is allocated to each one of the cash generating units that will benefit from the business combination synergies. The cash-generating units to which goodwill was allocated are tested for impairment annually or more frequently, when there is any indication of impairment. If the recoverable value of a cash-generating unit is lower than its carrying amount, impairment losses are firstly allocated to write down the carrying amount of any goodwill allocated to the Cash Generating Units - CGU and subsequently to the other assets of the CGU, prorated to the carrying amount of each of its assets. Impairment losses on goodwill are directly recorded in income statement for the period. Impairment losses are not reversed in subsequent periods. When the related cash-generating unit is sold, the amount corresponding to the goodwill is included in the calculation of the gains or losses on the sale. 13
2.11. Investments in subsidiaries and joint ventures A subsidiary is an entity, including an unincorporated entity such as a partnership, in which the parent owns, directly or through other subsidiaries, shareholder rights that entitle it, on a permanent basis, to prevail in corporate decisions and grant it the power to elect the majority of the officers. Prevalence in corporate decision-making and the power to elect the majority of the officers, on a permanent basis, presumably occur when the investor owns more than 50% of the voting capital in other entity. Under this method, the components of assets and liabilities and income and expenses of indirect subsidiaries are added to the fully consolidated accounting positions and the book value of noncontrolling interests, determined by applying the interest percentage of non-controlling shareholders in the subsidiarys equity. Joint ventures are those jointly controlled by the Company and one or more partners. Investments in joint ventures are recognized under the proportionate consolidation method, from the date the joint control is acquired. Under this method, the components of a joint ventures assets and liabilities, and income and expenses are added to the consolidated accounting positions proportionally to the venturers interest in its capital. In the individual financial statements, interests in joint ventures are recognized under the equity method. When a Group company conducts transactions with joint ventures, the related gains and losses are recognized in the Groups consolidated financial statements only proportionately to the Groups interests in those joint ventures that are not related to the Group. 2.12. Current and deferred income tax and social contribution The income tax and social contribution expense refers to the total current and deferred taxes. Current taxes The provision for income tax and social contribution is based on the taxable income for the year. Income tax was calculated at the rate of 15%, plus a 10% surtax on annual taxable income exceeding R$240. Social contribution was calculated at the rate of 9% on adjusted net income. Taxable income differs from the income recorded in the income statement as it excludes income or expenses taxable or deductible in other years, and also nontaxable or nondeductible items on a permanent basis. The provision for income tax and social contribution is calculated individually (by Group company) based on the statutory rates prevailing at period end. Deferred taxes Deferred income tax and social contribution are recognized on the differences between assets and liabilities recognized for tax purposes and related amounts recognized in the consolidated financial statements; however, they are not recognized if generated in the first-time recording of assets and liabilities in transactions that do not affect the tax bases, except in business combinations. Deferred income tax and social contribution are
14
determined based on the tax rates and laws in effect at the date of the financial statements and applicable when the respective income tax and social contribution are paid. Deferred tax assets or liabilities are not recognized on temporary differences arising from goodwill or initial recognition (except for business combinations) of other assets and liabilities in a transaction that does not affect taxable income or book income. Deferred income tax and social contribution assets are recognized only to the extent that it is probable that there will be a positive tax base for which temporary differences can be used and tax loss carryforwards can be offset. The recovery of deferred tax assets is reviewed at the end of each reporting period and, when it is no longer probable that future taxable income will be available to allow the recovery of all or part of the assets, these are adjusted for the expected recoverable amount. Deferred tax assets and liabilities are measured at the applicable rates in the period in which the liability or asset are expected to be settled or realized, according to the tax legislation prevailing at the end of each reporting period or to a new legislation, when this has been substantially approved. The deferred tax assets and liabilities are measured to reflect the tax implication that would arise from the way in which the Group expects, at the end of each reporting period, to recover or settle the carrying amount of these assets and liabilities. Current and deferred taxes are recognized in income statement except when they correspond to items recorded in Other comprehensive income, or directly in equity, when these current and deferred taxes are also recognized in Other comprehensive income or directly in equity, respectively. When current and deferred taxes arise from the initial recognition of a business combination, the tax effect is considered in the recognition of the business combination. 2.13. Employee benefits The Company and its subsidiaries are co-sponsors of a defined contribution pension plan. Contributions are made based on a percentage of the employees compensation. Payments to defined contribution plans are recognized as expense when the services they entitle to are provided. 2.14. Financial assets and financial liabilities a) Financial assets Financial assets are classified in the following categories: (i) at fair value through profit or loss; (ii) held to maturity; (iii) loans and receivables; and (iv) available for sale. Classification is made according to the nature and purpose of the financial assets and is determined upon initial recognition. Financial assets at fair value through profit or loss Financial assets are classified at fair value through profit or loss when they are held for trading or designated at fair value through profit or loss when acquired. A financial asset is classified as held for trading if it is: Purchased principally for the purpose of selling it in the near term.
15
Part of a portfolio of identified financial instruments that are jointly managed and for which there is evidence of a recent actual pattern of short-term profit-taking. A derivative that is not a designated and effective hedging instrument in hedge accounting. A financial asset that is not held for trading can be designated at fair value through profit or loss upon initial recognition when: This designation eliminates or significantly reduces an inconsistency that might arise upon measurement or recognition. It is part of a managed group of financial assets or liabilities, or both, and its performance is evaluated based on fair value according to the risk management or investment strategy documented by the Company, and the respective information is internally provided on the same basis. It is part of a contract containing one or more embedded derivatives, and technical pronouncement CPC 38 and rule IAS 39 Financial Instruments: Recognition and Measurement permits that the combined contract as a whole (assets or liabilities) be designated at fair value through profit or loss. Financial assets at fair value through profit or loss are measured at fair value, together with gains and losses recognized in income for the period. Net gains or losses recognized in income include dividends or interest earned by the financial asset. Financial assets held-to-maturity Financial assets with fixed or determinable payments and fixed maturities, which the Company has the intent and ability to hold to maturity are classified as held to maturity. Held-to-maturity financial assets are measured at amortized cost using the effective interest method, less the allowance for impairment losses. Revenue is recognized using the effective interest method. Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market, measured at amortized cost using the effective interest method, less the allowance for impairment losses. Interest income is recognized by applying the effective rate method, except for short-term receivables when the recognition of interest would be immaterial. Available for sale Available-for-sale financial assets are non-derivative financial assets designated as available for sale and not classified in the any of the categories above.
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Available-for-sale financial assets are measured at fair value. Interest, inflation adjustment and foreign exchange fluctuation, when applicable, are recognized in profit or loss when incurred. Changes arising from measurement at fair value are recognized in a specific line item of shareholders equity when incurred, and are charged to income when realized or considered unrecoverable. Effective interest method A method used to calculate the amortized cost of a financial asset or a financial liability and allocating interest income or interest expenses over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments of receipts (including all fees paid or received that are an integral part of the effective interest rate, transaction costs, and other premiums or discounts) through the expected financial asset life, or, when appropriate, for a shorter period. b) Financial liabilities Financial liabilities are classified: (i) as fair value through profit or loss or (ii) as other financial liabilities. Financial liabilities at fair value through profit or loss This category includes financial liabilities held for trading or when designated at fair value through profit or loss. A financial liability is classified as held for trading if it is: Incurred principally for the purpose of repurchasing it in the near term. Part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profittaking. A derivative that is not designated as an effective hedging instrument. Financial liabilities that are not held for trading can be designated at fair value through profit or loss upon initial recognition when: This designation eliminates or significantly reduces an inconsistency that might arise upon measurement or recognition. They are part of a managed group of financial assets or liabilities, or both, whose performance is valued based on its fair value, in accordance with the Companys documented risk management or investment strategy, and whose related information is provided internally on the same basis. They are part of a contract containing one or more embedded derivatives, and rule IAS 39 permits that the combined contract as a whole (assets or liabilities) is designated at fair value through profit or loss.
17
Financial liabilities at fair value through profit or loss are stated at fair value, together with gains and losses recognized in the income statement. Net gains or losses recognized in profit or loss comprise any interest paid on financial liabilities. Other financial liabilities Other financial liabilities are initially measured at fair value, net of transaction costs, and are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on a yield basis. The effective interest method is a method for calculating the amortized cost of a financial liability and allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability or, where appropriate, a shorter period. 2.15. Revenue recognition Revenue is measured at the fair value of the amount received or receivable, less estimated returns, commercial discounts and/or bonuses granted and other similar deductions. Revenues from credit and debit card transactions are recognized when transactions are processed. Revenues from credit card transactions payable in installments are recognized in income when each installment is processed. Revenues from services to associates and merchants are recognized when the service is provided. The income from the dividends of investments is recognized when the shareholders right to receive these dividends is established (provided that it is probable that the future economic benefits will flow to the Group and the amount may be measured reliably). Interest income is recognized when it is probable that the future economic benefits will flow to the Group and the amount may be measured reliably. The interest income is recognized under the straight-line method based on the time and the effective interest rate on the outstanding principal. The effective interest rate is the rate that discounts the estimated future cash receipts during the estimated useful life of the financial assets in relation to the initial net carrying amount of this asset. Revenues from prepayment of receivables to merchants are recognized on a pro rata basis through their maturities. 2.16. Provision for risks Recognized when there is a present obligation (legal or constructive) as a result of a past event, with probable outflow of resources, and the amount of the obligation can be reliably estimated. The amount recognized as a provision is the best estimate of the settlement amount at the balance sheet date, considering the risks and uncertainties related to the obligation. When the economic benefit required to settle a provision is expected to be received from third parties, this amount receivable is recorded as an asset, only when reimbursement is virtually certain.
18
Provisions recognized by the Company refer substantially to lawsuits arising in the normal course of business, filed by third parties or former employees. These lawsuits are assessed by the Companys and its subsidiaries management and its legal counsel, using criteria that allow their proper measurement, despite the uncertainty concerning the decision, their period and amount. Provisions for tax lawsuits are recorded based on the total taxes under legal dispute, plus inflation adjustment and late payment interest incurred through the balance sheet date. 2.17. Dividends and interest on capital The proposed distribution of dividends and interest on capital made by the Companys management that does not exceed the mandatory minimum dividends is recognized in line item Dividends payable in current liabilities as it is considered a legal obligation under the Companys bylaws; however, the portion of dividends exceeding mandatory minimum dividends declared by Management after the reporting period but before the issuance of the financial statements is authorized is recognized in line item Proposed additional dividends in shareholders equity, whose effects are disclosed in note 18.f). For corporate and accounting purposes, interest on capital is stated as allocation of income directly in shareholders equity. 2.18. Foreign currency Monetary assets and liabilities denominated in foreign currencies were translated into Brazilian reais at the exchange rate in effect at the balance sheet dates, and currency translation differences were recorded in the net income for the quarter. 2.19. Share-based compensation The Company offers a stock option plan to its officers and executives, and the officers and executives of its subsidiary Servinet. Options are priced at fair value on the grant date of the plans and are recognized on a straight-line basis in income statement as a contra entry to shareholders' equity. At the balance sheet dates, the Company reviews its estimates of the number of vested options based on the plans terms and conditions and recognizes the impact of the revision of initial estimates, if any, in the income statement, as a contra entry to shareholders equity, according to the criteria set out in technical pronouncement CPC 10 and rule IFRS 2 Share-based Payment. 2.20. Use of estimates The preparation of financial statements requires the management of the Company and its subsidiaries to make estimates and assumptions that affect certain assets and liabilities, disclosure of contingent liabilities and the reported amounts of revenues and expenses during the quarter. Significant assets and liabilities subject to these estimates and assumptions include the net book value of property and equipment and intangible assets, allowance for doubtful accounts (on trade accounts receivable from lease of POS equipment), deferred tax and social contribution assets, impairment of goodwill and provision for contingencies. Actual results could differ from those estimates. The Company and its subsidiaries review estimates and assumptions annually.
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2.21. Statement of value added (DVA) The purpose of this statement is to present the wealth created by the Company and its distribution during the three-month period and is presented by Cielo, as required by the Brazilian Corporate Law, as part of the individual financial statements and as supplemental information to the consolidated financial statements, since it is not required by the IFRS. The statement of value added was prepared based on information obtained in the accounting records that serve as basis for the preparation of financial statements and in accordance with the provisions of technical pronouncement CPC 09 - Statement of Value Added. In its first part, the statement of value added presents the wealth created by the Company, represented by the revenues (gross revenue from sales, including taxes, other revenues and the effects of the allowance for doubtful accounts), the inputs acquired from third parties (cost on sales and purchase of materials, electric power and third-party services, including taxes levied at the time of purchase, the effects of losses and recovery of assets amounts, and depreciation and amortization) and the value added received from third parties (equity in subsidiaries, financial income and other revenues). The second part of the DVA presents the distribution of wealth among employees, taxes and contributions, compensation to third parties and shareholders. 2.22. New and revised standards and interpretations In the first quarter of 2012, some new standards issued by the International Accounting Standards Board (IASB) became effective, as well as other standards issued will become effective in 2012 and 2013. The Companys management considered these new standards and, except for the adoption of rules IFRS 10 - Consolidated Financial Statements and IFRS 11 - Joint Arrangements, it does not expect significant effects on the amounts reported. Under rules IFRS 10 and IFRS 11, the Company may no longer be able to proportionally consolidate some of its jointly-owned subsidiaries. However, Management has not completed the detailed analysis of these standards and has not quantified the related effects on its financial statements. CPC has not enacted certain pronouncements that were or would be effective on or after March 31, 2012. However, based on the CPCs commitment to maintain updated the set of standards issued by IASB, it is estimated that these pronouncements and/or amendments issued by IASB will be approved for mandatory adoption. 3. CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements comprise the financial statements of the Company and its subsidiaries and joint ventures. Control is obtained when the Company has the power to control a companys financial and operating policies to obtain benefits from its activities. In the Companys individual financial statements, the financial information on subsidiaries and joint ventures are recognized under the equity method. The net income of the subsidiaries acquired during the quarter is included in the consolidated income statements as of the actual acquisition date. The resulting income (loss) is attributable to the Companys owners and noncontrolling interests, even if results presented are negative.
20
When necessary, the subsidiaries financial statements are adjusted to conform their accounting practices to those of the Group. All intercompany transactions, balances and expenses are fully eliminated in the consolidated financial statements. The consolidated financial statements include the account balances of the Company (parent company), its direct subsidiaries Servinet, Servrede and CieloPar, indirect subsidiaries Multidisplay, M4 Produtos and Braspag (beginning May 23,2011) and proportionally joint ventures Orizon, Prevsade, Precisa and Paggo Solues (Beginning February 28, 2011). In preparing these consolidated financial statements, intercompany balances and transactions among these companies have been eliminated. For subsidiaries, the full consolidation concept was applied, intended for investments in subsidiaries and entailing the recognition of all assets, liabilities, income and expenses in the parent company, thus requiring the recognition of noncontrolling interests. The assets, liabilities, income and expenses of joint ventures Orizon, Prevsade, Precisa and Paggo Solues have been included proportionately to the parents interest in their capital, taking into consideration that the joint control was obtained under Shareholders Agreements entered into between the Company and its partners in these joint ventures, and none of the parties has the power to unilaterally define their financial and operating policies. 3.1. Direct (individual control) and indirect subsidiaries The interests held in the consolidated subsidiaries are as follows: Equity interests - % Total capital Voting capital 03.31.2012 12.31.2011 03.31.2012 12.31.2011 Direct subsidiaries: Servinet Servrede CieloPar Indirect subsidiaries: Multidisplay M4 Produtos Braspag
99.99 99.99 99.99
99.99 99.99 99.99
99.99 99.99 99.99
99.99 99.99 99.99
50.10 50.10 100.00
50.10 50.10 100.00
50.10 50.10 100.00
50.10 50.10 100.00
The balances of assets and liabilities of direct and indirect subsidiaries and the main line items in the income statements for the quarters ended March 31, 2012 and 2011 are shown below:
03.31.2012 M4 Servinet Servrede CieloPar Multidisplay Produtos Braspag Assets: Current Noncurrent Total assets
20,418 47,719 68,137
3,399 62,862 66,261
2,107 92,470 94,577
11,401 10,026 21,427
42,787 9,321 52,108
10,678 936 11,614
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03.31.2012 M4 Servinet Servrede CieloPar Multidisplay Produtos Braspag Liabilities and shareholders equity: Current Noncurrent Shareholders equity Non-controlling interests Total liabilities and shareholders equity
13,009 31,849 23,279 68,137
35 29,534 28,169 8,523 66,261
1,501 5,483 87,593 94,577
13,333 8,094 21,427
46,110 3 5,995 52,108
9,432 16 2,166 11,614
12.31.2011 M4 Servinet Servrede CieloPar Multidisplay Produtos Braspag Assets: Current Noncurrent Total assets Liabilities and shareholders equity: Current Noncurrent Shareholders equity Non-controlling interests Total liabilities and shareholders equity
29,361 48,454 77,815
1,848 64,835 66,683
1 94,746 94,747
10,651 10,102 20,753
42,419 8,575 50,994
9,676 689 10,365
23,857 31,795 22,163 77,815
27 29,801 27,810 9,045 66,683
5,605 89,142 94,747
8,877 11,876 20,753
41,251 5 9,738 50,994
8,852 16 1,497 10,365
03.31.2012 M4 Servinet Servrede CieloPar Multidisplay Produtos Braspag Net income: Net revenue Gross profit (loss) Profit (loss) from operations before financial income (expenses) Income (loss) before income tax and social contribution Net income (loss) for the quarter
25,011 23,923 1,394 1,690 1,116
(1,581) 52 100 359
1,852 (1,553) (1,548) (1,549)
28,391 1,895 2,432 2,447 2,218 03.31.2011
9,969 6,728 2,870 2,995 1,768
4,109 2,319 823 1,108 668
M4 Servinet Servrede Multidisplay Produtos Net income: Net revenue Gross profit Profit from operations before financial income Income before income tax and social contribution Net income (loss) for the quarter
21,319 19,865 1,183 1,208 795
1,218 998 998 (1,205)
18,924 1,546 1,456 1,448 1,235
8,441 2,344 1,515 1,565 527
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3.1.1. Joint ventures Interests in joint ventures include:

Equity interests - % Total capital Voting capital 03.31.2012 12.31.2011 03.31.2012 12.31.2011 Joint ventures: Orizon Prevsade Precisa Paggo Solues
40.95 40.95 40.95 50.00
40.95 40.95 40.95 50.00
40.95 40.95 40.95 50.00
40.95 40.95 40.95 50.00
The financial information of the joint ventures was consolidated under the proportionate consolidation method, considering the joint control exercised in the period under the shareholders agreements. All the balances of the joint ventures assets and liabilities are as follows: 03.31.2012 Orizon Assets: Current Noncurrent Total assets Liabilities and shareholders equity: Current Noncurrent Shareholders equity Total liabilities and shareholders equity Paggo Precisa Prevsade Solues
60,146 57,930 118,076
21,062 744 21,806
3,401 323 3,724
4,039 89,248 93,287
8,660 411 109,005 118,076
8,446 2,323 11,037 21,806
2,618 1,106 3,724
3,387 89,900 93,287
12.31.2011 Orizon Assets: Current Noncurrent Total assets Liabilities and shareholders equity: Current Noncurrent Shareholders equity Total liabilities and shareholders equity Paggo Precisa Prevsade Solues
57,207 56,846 114,053
20,909 680 21,589
2,404 321 2,725
10,348 92,951 103,299
7,929 1,545 104,579 114,053
8,595 2,954 10,040 21,589
2,014 47 664 2,725
5,251 98,048 103,299
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Below are the main line items in the income statements for the quarters ended March 31, 2012 and 2011: 03.31.2012 Paggo Orizon Precisa Prevsade Solues Net income: Net revenue 16,101 Gross profit (loss) 6,963 Profit (loss) from operations before financial income (expenses) 4,222 Income (loss) before income tax and social contribution 5,334 Net income (loss) for the quarter 4,425
21,445 1,283 1,216
2,687 990 501
118 (5,779) (8,163) (8,148) (8,148)
1,144 514 997 442 03.31.2011
Paggo Orizon Precisa Prevsade Solues Net income: Net revenue Gross profit Profit (loss) from operations before financial income (expenses) Income (loss) before income tax and social contribution Net income (loss) for the quarter 4. CASH AND CASH EQUIVALENTS Company Consolidated (BR GAAP) (IFRS and BR GAAP) 03.31.2012 12.31.2011 03.31.2012 12.31.2011 Cash and banks: Local currency Foreign currency Short-term investments: Debentures subject to repurchase agreements (a) Bank Certificates of Deposit (CDBs) (a) Money Market Deposit Account (MMDA) (b) Total
13,874 5,215 1,215 2,010 1,168
16,116 192 (124) (382) (402)
2,103 555 229 137 92
3,095 2,883
1,489 15,453
10,507 2,883
6,257 15,453
197,095 28,511 2,918 234,502
207,508 13,546 3,002 240,998
218,963 49,145 2,918 284,416
223,296 44,907 3,002 292,915
The balances under caption Cash and banks consist of cash on hand and cash available in bank accounts in Brazil and abroad, derived primarily from deposits made by credit and debit card-issuing banks. Such amounts are used to settle transactions with merchants. 24
Short-term investments have the following characteristics: (a) As at March 31, 2012, the average yield of debentures subject to repurchase agreements and CDBs was 101.94% (101.8% as at December 31, 2011) of the interbank deposit rate (CDI). (b) The funds invested abroad (New York - USA) in MMDA earn yield at a fixed rate of 0.25% per year. These short-term investments are highly liquid and their fair values do not differ from their carrying amounts. The effect of exchange rate changes on the amounts held in bank accounts abroad is not material for the Companys financial statements. 5. TRADE ACCOUNTS RECEIVABLE
Company Consolidated (BR GAAP) (IFRS and BR GAAP) 03.31.2012 12.31.2011 03.31.2012 12.31.2011 Prepayment of receivables (a) Bank account blocking (b) Electronic network interconnection services between health operators (c) Meal ticket and transport card capture and processing (d) Receivables from mobile payment services (e) Disputes of credit card charges - Chargeback (f) Other receivables Total 3,067,545 2,924,791 3,067,545 2,924,791 7,373 5,165 7,373 5,165 6,926 6,857
4,624 4,769 4,624 4,769 44,738 38,276 8,603 34,956 8,603 34,956 2,483 2,115 4,395 4,685 3,090,628 2,971,796 3,144,204 3,019,499
(a) As at March 31, 2012, the balance corresponds to prepayment of receivables transactions from the issuing banks within up to 360 days after the date receivables are prepaid to merchants. Additionally, as at March 31, 2012, this amount is net of the adjustment to present value relating to the financial income received in advance on the date of release of cash in the amount of R$112,291 (R$100,900 as at December 31, 2011), as it is related to the prepayment of receivables for installment sales whose original maturity would occur after the balance sheet dates. (b) The Company offers card-issuing banks bank account blocking services upon prior approval from merchants to block any transfer of receivables from such merchants to another bank. For these services, the Company receives a commission, which is paid in the month subsequent to the request of the bank account blocking by the card-issuing banks. (c) Receivables from the joint venture Orizon arising from the provision of electronic network interconnection services, based on a single technology platform, for exchange of information between health operators and medical and hospital service providers, and any other health system agents and drugstores.
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(d) Receivables from Companhia Brasileira de Solues e Servios (CBSS) arising from the provision of transportation and meal tickets card capture and processing services. (e) Receivables from electronic payment services provided by subsidiaries M4 Produtos and Multidisplay through cell phones and sale of phone credits with credit cards. (f) Refers substantially to receivables from disputes from credit card holders. Chargeback losses in the quarter ended March 31, 2012 total R$28 (R$4,289 as at December 31, 2011).
The aging of trade accounts receivable is as follows: Company Consolidated (BR GAAP) (IFRS and BR GAAP) 03.31.2012 12.31.2011 03.31.2012 12.31.2011 Current Past-due up to 45 days Total 6. 3,082,025 8,603 3,090,628 2,936,840 34,956 2,971,796 3,135,601 8,603 3,144,204 2,984,543 34,956 3,019,499
DEFERRED INCOME TAX AND SOCIAL CONTRIBUTION Deferred income tax and social contribution arise from temporary differences mainly due to temporarily nondeductible provisions and are recorded in noncurrent assets. Deferred income tax and social contribution reflect the tax effects attributable to temporary differences between the tax base of assets and liabilities and the respective book value. Reported amounts are monthly reviewed. Deferred income tax and social contribution are as follows: Company Consolidated (BR GAAP) (IFRS and BR GAAP) 03.31.2012 12.31.2011 03.31.2012 12.31.2011 Temporary differences: Provision for risks Accrual for sundry expenses Discount to present value of prepayment of receivables Allowance for losses on POS equipment Total
223,973 75,242 38,281 1,186 338,682
213,241 85,740 34,408 1,053 334,442
234,795 75,039 38,281 1,186 349,301
224,044 86,357 34,408 1,053 345,862
Deferred income tax liabilities in the consolidated financial statements in the amount of R$4,484 as of March 31, 2012 (R$4,751 as of December 31, 2012) relate to the effect of taxes in the purchase price allocation for the purchase of M4U.
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7.
INVESTMENTS Company (BR GAAP) 03.31.2012 12.31.2011 Subsidiaries Joint ventures Total Main information on subsidiaries, joint ventures and indirect subsidiaries
Net income (loss) Shareholdersequity for the quarter Equity interests - % Investments Equity in subsidiaries 03.31.2012 12.31.2011 03.31.2012 03.31.2011 03.31.2012 12.31.2011 03.31.2012 03.31.2011 03.31.2012 12.31.2011 Servinet Servrede Orizon (a) and (b) CieloPar Total 23,279 28,169 109,005 87,593 22,163 27,810 104,579 89,142 1,116 359 4,425 (1,549) 795 (1,205) 1,168 99,99 99,99 40,95 99,99 99,99 99,99 40,95 99,99 1,116 359 1,812 (1,549) 1,738 795 (1,205) 478 68 23,279 28,169 38,767 87,583 177,798 22,163 27,810 36,945 89,142 176,060
139,031 38,767 177,798
139,115 36,945 176,060
Indirect joint ventures

Net income (loss) Equity interests - % for the quarter Shareholders equity 03.31.2012 12.31.2011 03.31.2012 03.31.2011 03.31.2012 12.31.2011 Prevsade (b) Precisa (b) Multidisplay (b) M4 Produtos (b) Paggo Solues (b) Braspag (b) 1,106 11,037 8,094 5,995 89,900 2,166 664 10,040 11,876 9,738 98,048 1,497 442 997 2,218 1,768 (8,148) 668 92 (402) 1,235 527 40.95 40.95 50.10 50.10 50.00 100.00 40.95 40.95 50.10 50.10 50.00 -
(a) The amount of R$5,880 is not reflected in the investment because it refers to the unrealized gain on capital contribution with goodwill, initially reflected in CBGS Ltda. and transferred to the indirect subsidiary CBGS as a result of the merger. In November 2009, CBGS was merged by its then subsidiary Orizon. (b) The financial statements as at February 29, 2012 were used to measure investments as at March 31, 2012. Accordingly, the equity in subsidiaries balances refer to the two-month period ended February 29, 2012.
Changes in investments in the quarter ended March 31, 2012 are as follows: December 31, 2011 Equity in subsidiaries March 31, 2012 176,060 1,738 177,798
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8.
PROPERTY, PLANT AND EQUIPMENT

Annual depreciation rate -% POS equipment (*) Data processing equipment Machinery and equipment Facilities Furniture and fixtures Vehicles Total 33 20 10 10 10 20 Company (BR GAAP) 03.31.2012 Accumulated Cost depreciation 965,951 41,191 41,120 13,018 6,503 2,289 1,070,072 12.31.2011 Net Net 476,102 18,487 2,450 6,027 3,830 1,363 508,259
(493,117) 472,834 (22,560) 18,631 (39,011) 2,109 (7,173) 5,845 (2,811) 3,692 (856) 1,433 (565,528) 504,544
Consolidated (IFRS and BR GAAP) Annual 03.31.2012 depreciation rate Accumulated -% Cost depreciation Net POS equipment (*) Data processing equipment Machinery and equipment Facilities Furniture and fixtures Vehicles Total 33 20 10 10 10 20 968,909 51,572 45,367 26,033 10,469 2,337 1,104,687 (495,817) 473,092 (28,840) 22,732 (42,732) 2,635 (12,548) 13,485 (4,610) 5,859 (884) 1,453 (585,431) 519,256
12.31.2011 Net 476,406 21,697 3,068 13,771 6,065 1,362 522,369
(*) As at March 31, 2012 and December 31, 2011, a provision for losses on POS equipment is recorded in the amounts of R$3,488 and R$3,099, respectively, as a reduction of the respective account.
Changes in property and equipment in the quarter ended March 31, 2012 are as follows: Company (BR GAAP) Additions/ 12.31.2011 transfers Write-offs Depreciation 03.31.2012 POS equipment Data processing equipment Machinery and equipment Facilities Furniture and fixtures Vehicles Total 476,102 18,487 2,450 6,027 3,830 1,363 508,259 69,239 1,439 1 9 178 70,866 (7,929) (7,929) (64,578) (1,295) (341) (183) (147) (108) (66,652) 472,834 18,631 2,109 5,845 3,692 1,433 504,544
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Consolidated (IFRS and BR GAAP) Additions/ 12.31.2011 transfers Write-offs Depreciation 03.31.2012 POS equipment Data processing equipment Machinery and equipment Facilities Furniture and fixtures Vehicles Total 476,406 21,697 3,068 13,771 6,065 1,362 522,369 69,239 2,610 690 25 199 72,763 (7,930) (4) (71) (462) (8,467) (64,623) (1,571) (362) (514) (231) (108) (67,409) 473,092 22,732 2,635 13,485 5,859 1,453 519,256
As at March 31, 2012 and December 31, 2011, property and equipment arising from finance lease transactions are represented only by assets classified as data processing equipment in the net amounts of R$48 and R$120, respectively. The average term of depreciation for this equipment is approximately three years. The depreciation of IT equipment purchased through lease transactions for the quarters ended March 31, 2012 and 2011, recorded in General and administrative expenses, total R$72 and R$289, respectively. As at March 31, 2012, the Company entered into loan agreements with the National Bank for Economic and Social Development (BNDES - FINAME) to acquire new POS equipment, as described in Note 13. As at March 31, 2012 and December 31, 2011, the Company does not have finance leases payable. 9. GOODWILL ON ACQUISITION OF INVESTMENTS The breakdown of goodwill as at March 31, 2012 and December 31, 2011 is as follows: Company Consolidated (BR GAAP) (IFRS and BR GAAP) 03.31.2012 and 12.31.2011 03.31.2012 12.31.2011 Health Project: Goodwill on acquisition of subsidiary (a) Reclassification of the tax benefit from the goodwill merged into Orizon Prevsade Precisa M4U Paggo Solues Braspag Allowance for losses on goodwill Unrealized income (b) Total
26,269 26,269 (16,126) 10,143
26,269 13,532 3,179 1,457 31,348 46,979 38,743 161,507 (16,126) (5,880) 139,501
26,269 13,532 3,179 1,457 31,348 46,979 39,343 162,107 (16,126) (5,880) 140,101
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(a) In calculating equity in subsidiaries CBGS Ltda. and CBGS in 2009, the effects of the Provision for Maintenance of Integrity of Shareholders Equity (PMIPL) in the amounts of R$11,064 and R$15,205, respectively, were eliminated, since the effects related to the goodwill originally reported therein have been reflected in the Company, as established by CVM Instructions 319/99 and 349/01, considering that the mergers carried out in 2009 did not change the economic substance of that goodwill. The recognition of the goodwill was recorded under Other operating expenses, net. (b) Refers to the elimination in the consolidated financial statements for 2009 of the capital gain generated by CBGS Ltda.s investment at market value in Orizon, its then jointcontrolled subsidiary CBGS, in the proportion of CBGS Ltda.s interest in CBGS.
The Company reviews the carrying amount of goodwill and intangible assets with indefinite useful life on an annual basis, regardless of any indication of impairment. No allowance for impairment losses was recorded in the financial statements as at March 31, 2012 and December 31, 2011. Health Project On January 2, 2008, CBGS subscribed 693,480 new common shares without par value in favor of its parent company CBGS Ltda., for R$139,045, which represented its fair value as at that date. As part of the payment, CBGS Ltda. delivered all the shares in Polimed Ltda. and Dativa Conectividade em Sade Ltda. for R$71,691, transferring the goodwill on the acquisition of these subsidiaries in the amounts of R$47,145 and R$9,108, respectively, net of amortization incurred through the transaction date, generating payables of R$67,354 within two years after the transaction. Additionally, as a result of the portion paid in cash, CBGS Ltda. generated goodwill of R$16,764, net of the allowance for losses and amortization incurred through December 31, 2008. The goodwill generated in CBGS Ltda.s capital subscription process is as follows: Goodwill Goodwill recorded in CBGS Ltda. arising from the acquisition of 40.95% interest in CBGS Allowance for losses on goodwill Goodwill recorded in joint venture CBGS: Orizon Dativa Total Acquisition of control - Prevsade and Precisa On March 16, 2009, joint venture CBGS acquired all the shares in Prevsade and Precisa. The investment recorded by CBGS includes a share premium amounting to R$11,322, recorded as goodwill, which is based on expected future earnings of the companies based on the increase in operations expected for future years. 30 Equity interest - % Net
55,880 (39,116) 16,764 47,145 9,108 73,017
99.99 55,880 99.99 (39,116) 16,764 40.95 40.95 19,306 3,731 39,801
Goodwill Prevsade Precisa Total Acquisition of control - M4U 7,765 3,557 11,322
Equity interest - %
Net
40.95 3,179 40.95 1,457 4,636
In August 2010, the Company acquired, through its direct subsidiary Servrede, the control of Multidisplay Comrcio e Servios Tecnolgicos S.A. (Multidisplay) and its wholly-owned subsidiary M4 Produtos e Servios S.A. (M4 Produtos), which collectively form M4U, pioneering Brazilian company in and leader of the technology platform development segment both for loading cell phones and mobile payments. Under technical pronouncement CPC 15 Business Combinations, the goodwill was measured as the amount by which the sum up of: (a) the consideration transferred as payment for the control of the acquiree, and (b) the amount of the noncontrolling interest on the acquiree exceeded the net value (on the acquisition date) of the identifiable assets acquired. The 50.1% interest in M4Us capital stock was acquired for R$50,650, out of which R$25,600 was paid on the acquisition date and the remaining balance, recorded as Other payables in noncurrent liabilities, will be paid in 37 monthly installments, beginning on the transaction date, contingent to the attainment of certain financial performance goals, set out in the Share Purchase and Sale Agreement. The amount of the investment recorded by Servrede includes the goodwill on acquisition of shares in the amount of R$31,348, generated as follows: Net assets acquired Fair value of assets acquired (*) Fair value of net assets acquired (-) Total consideration paid Goodwill 2,300 17,002 19,302 50,650 31,348
(*) The fair value of the service agreements, software platform and non-compete clauses (identifiable assets acquired) of M4U in August 2010 were recognized based in the appraisal report prepared by independent appraisers. The assessment, which is in accordance with the International Valuation Standards, was conducted based on market evidences related to the prices of similar transactions. The adjustments related to the allocation of purchase price were recognized retrospectively on the amounts recorded upon acquisition, as if the business combination had been concluded on that date.
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Acquisition of interest - Paggo Solues In September, 2010, the Company, Tele Norte Leste Participaes S.A. (TNL) and Paggo Acquirer Gesto de Meios de Pagamento Ltda. (Paggo Acquirer, a TNL subsidiary) entered into an Investment Agreement to govern the interests of Paggo Acquirer and the Company (through its subsidiary CieloPar) in a new company called Paggo Solues e Meios de Pagamento S.A. (Paggo Solues). Accordingly, the Company sought to improve its range of products, aligned with its strategy adopted for the mobile payment sector. Paggo Acquirer and the Company hold 50% each of the capital of Paggo Solues. On February 28, 2011, the interest in Paggo Solues was acquired for R$47,000, whose amount was fully paid on the acquisition date. The balance sheet as at February 28, 2011 was considered as the opening balance sheet, as follows: Book value Net assets (liabilities) acquired: Cash and cash equivalents Trade accounts receivable Other receivables Intangible assets Trade accounts payable Other payables Total 35 8,627 1,288 104,406 (9,776) (132) 104,448 Acquisition adjustments (104,406) (104,406) Fair value at acquisition date 35 8,627 1,288 (9,776) (132) 42
The amount of the investment recorded by CieloPar includes goodwill on acquisition of shares in the amount of R$46,979, generated as follows: Net assets acquired Adjustment to the fair value of assets acquired (*) Total amount paid for the assets acquired Goodwill 52,224 (52,203) 21 47,000 46,979
(*) Corresponds basically to the provision for loss of software licenses recognized in jointlyowned subsidiary Paggo Solues in the balance sheet as at February 28, 2011, date of recognition of the effects of allocation of goodwill on the acquisition of joint control. The adjustments related to the allocation of the purchase price were recognized retrospectively on the amounts recorded upon acquisition, as if the business combination had been concluded on that date. Based on the appraisal report on the allocation of goodwill arising from the acquisition of Paggo Solues, prepared by independent appraisers, and according to technical pronouncement CPC 15 - Business Combination, the Companys management believes that the amount paid is basically reflected in expected future earnings, i.e., goodwill.
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Acquisition of control - Braspag On May 23, 2011, the Company acquired, through its direct subsidiary CieloPar, the control of Braspag Tecnologia em Pagamento Ltda., a leading payment processing company in the Brazilian e-commerce industry. All the shares in Braspag were acquired for R$40,000, fully paid on the acquisition date. The balance sheet as at April 30, 2011 was considered as the opening balance sheet, as follows: Book value Net assets (liabilities) acquired: Cash and cash equivalents Trade accounts receivable Property, plant and equipment and intangible assets Trade accounts payable Other payables Total Acquisition adjustments Fair value at acquisition date
1,827 2,362 764 (407) (2,922) 1,624
4,638 (5,605) (967)
1,827 2,362 5,402 (407) (8,527) 657
As at December 31, 2011, the amount of the investment recorded by CieloPar includes goodwill on acquisition of shares in the amount of R$39,343, generated as follows: Net assets acquired (-) Fair value of net liabilities acquired (*) Fair value of net assets acquired Purchase price Goodwill 1,624 (967) 657 40,000 39,343
(*) According to the appraisal report used to allocate the purchase price of Braspag, prepared by independent appraisers taking into consideration the characteristics of the acquiree, the intangible assets identified were the software platform and the customer portfolio totaling R$4,638, net of the provision for fiscal and social security risks of R$5,605. The adjustments related to the allocation of the purchase price were recognized retrospectively on the amounts recorded upon acquisition, as if the business combination had been concluded on that date. In the quarter ended March 31, 2012, subsidiary Braspags cash and cash equivalents was overstated by R$600 thousand. Therefore, Panseg Promoes Ltda., Braspags former shareholder, performed the related payment to CieloPar as goodwill. Accordingly, CieloPar revalued its acquisition price from R$40,000 to R$39,400.
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As at March 31, 2011, the amount of the investment recorded by CieloPar includes goodwill on acquisition of shares in the amount of R$38,743 (R$39,343 as at December 31, 2011), generated as follows: Net assets acquired (-) Fair value of net liabilities acquired Fair value of net assets acquired Adjusted purchase price Goodwill 10. OTHER INTANGIBLE ASSETS Annual amortization rate - % Software (a) Project development (b) Total 20 20 Company (BR GAAP) 03.31.2012 Accumulated Cost amortization Net 108,877 25,044 133,921 (79,395) 29,482 (8,317) 16,727 (87,712) 46,209 12.31.2011 Net 31,768 17,479 49,247 1,624 (967) 657 39,400 38,743
Consolidated (IFRS and BR GAAP) 03.31.2012 12.31.2011 Annual amortization Accumulated rate - % Cost amortization Net Net Software (a) Project development (b) Non-compete agreement (c) Service agreements (c) Customer relationship (d) Total 20 20 13.5 4 20 124,763 25,056 15,197 17,810 1,444 184,270 (84,976) (8,328) (3,064) (3,829) (123) (100,320) 39,787 16,728 12,133 13,981 1,321 83,950 41,859 17,479 12,658 14,674 1,357 88,027
(a) Refers to items acquired from third parties and used to provide customers data and business transactions processing services. There is no individually material software. Additionally, as at March 31, 2012 and December 31, 2011, the provision for discontinued software of R$2,000, respectively, is recorded as a reduction of the balance in the related line item. (b) Represents expenses on the development of new products and services to increase the Companys and its subsidiaries invoicing and revenues. (c) Correspond to allocations of goodwill on the acquisition of control of M4 Produtos and Multidisplay determined based on an appraisal report prepared by a specialized company on the acquisition date. The main components of calculation of intangible assets are: The amount of the non-compete agreement (With and without) was calculated through the Income Approach methodology, by using a discount rate of 17.5% p.a., perpetuity of 4% p.a. and estimated useful life of 89 months.
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The four service agreements with telecommunication operators were measured based on the discounted cash flow of each agreement, by using a discount rate of 16.5% p.a., during the residual life of each agreement, of approximately 53 months. (d) Correspond to allocations of goodwill on the acquisition of control of Braspag, determined based on an appraisal report prepared by a specialized company on the acquisition date. The main component of intangible assets is the customer relationship, whose value was appraised using the Income Approach method, taking into consideration the balance of active customers and their respective churn rate, based on an estimated useful life of 120 months. Changes in intangible assets in the quarter ended March 31, 2012 are as follows: Company (BR GAAP) 12.31.2011 Additions Write-offs Amortization 03.31.2012 Software Project development Total 31,768 17,479 49,247 737 737 (3,023) (752) (3,775) 29,482 16,727 46,209
Consolidated (IFRS and BR GAAP) Additions/ 12.31.2011 transfers Write-offs Amortization 03.31.2012 Software Project development Non-compete agreement Service agreements Customer relationship Total 41,859 17,479 12,658 14,674 1,357 88,027 1,960 1,960 (2) (2) (4,030) (751) (525) (693) (36) (6,035) 39,787 16,728 12,133 13,981 1,321 83,950
Amortization expenses of intangible assets were recorded in line item General and administrative expenses in the income statement. 11. TRANSACTIONS PENDING TRANSFER The amounts due by credit cardholders through the card-issuing banks and the amounts to be transferred to merchants are recorded in memorandum accounts. As at March 31, 2012 and December 31, 2011, the balances of transactions pending transfer are:
Company (BR GAAP) and Consolidated (IFRS and BR GAAP) 03.31.2012 12.31.2011 Payables to merchants Advances to issuing banks (*) Receivables from issuing banks Total 36,117,240 795,865 (34,894,976) 2,018,129 39,227,878 545,721 (38,113,232) 1,660,367
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(*) The Company advances amounts that banks issuing credit cards have to pay to the Company. In addition to the provision of services consisting of the transfer of debit and credit card transaction amounts between the card-issuing banks and the merchants, the Company also guarantees accredited merchants that they will receive the amounts paid with credit cards. As described in Note 24.b), the Company has an instrument to mitigate the credit risk of card issuers, used as a hedge against the risk of default by such issuers. Based on the insignificant historical amount of Companys losses due to default from card issuers and the current credit risks of these institutions, the Company estimates that the fair value of the guarantees provided to merchants is immaterial and, therefore, is not recognized as a liability. 12. PAYABLES TO MERCHANTS The balance of R$2,018,129 as at March 31, 2012 (R$1,660,367 as at December 31, 2011) corresponds to the difference between the amounts received from cardholders relating to transactions made by cardholders and the amounts to be transferred to merchants. In general, Cielo credit card issuers settlement period is 27 days and the average period for settlement by Cielo to merchants is 30 days. Therefore, the balance payable as at March 31, 2012 and December 31, 2011 refers to a float of approximately 3 days. 13. BORROWINGS AND FINANCING Company Consolidated (BR GAAP) (IFRS and BR GAAP) 03.31.2012 12.31.2011 03.31.2012 12.31.2011 Current Noncurrent Total 55,950 190,798 246,748 19,666 131,182 150,848 55,950 190,798 246,748 19,666 131,182 150,848
Financial charges (weighted average rate) Current liabilities Equipment financing (FINAME) Noncurrent liabilities Equipment financing (FINAME) TJPL - Long-term interest rate.
03.31.2012
TJLP + 2.63% p.a.
55,950
TJLP + 2.63% p.a.
190,798
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The noncurrent portion matures as follows: Maturity year: 2013 2014 2015 2016 Total 79,808 90,616 12,997 7,377 190,798
The Company is the beneficiary of a credit facility with the National Bank for Economic and Social Development (BNDES) relating to FINAME onlending transactions, i.e., a loan granted by BNDES to finance the acquisition of new machinery and equipment manufactured in Brazil. The amount is transferred upon a loan agreement that is entered into between the Company and the financial institution authorized to operate as a financial agent (in this case, Banco do Brasil S.A. and Banco Safra S.A.). The loan agreements are collateralized by the transfer of ownership of the assets acquired. Additionally, the Company is required to comply with the provisions applicable to BNDES agreements and the general conditions governing FINAME-related transactions. In the quarter ended March 31, 2012, the Company entered into new financings through Finame, amounting to R$95,135, at a weighted average rate of 2.45% per year plus TJLP. Changes in borrowings and financing are as follows: Company (BR GAAP) and Consolidated (IFRS and BR GAAP) New Accrued Interest paid 03.31.2012 12.31.2011 financings interest Finame 150,848 95,135 3,962 (3,197) 246,748
In the quarter ended March 31, 2012, there were no changes in borrowings and financing. The loan agreements above do not contain financial covenants. 14. TRADE ACCOUNTS PAYABLE Company Consolidated (BR GAAP) (IFRS and BR GAAP) 03.31.2012 12.31.2011 03.31.2012 12.31.2011 Trade accounts payable Accrued payments to suppliers Total 55,877 178,586 234,463 80,754 149,505 230,259 113,677 178,586 292,263 140,310 149,505 289,815
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15. TAXES PAYABLE

Company (BR GAAP) 03.31.2012 12.31.2011 Income tax and social contribution, net of prepayments COFINS (tax on revenue) IRRF (withholding income tax ) ISS (service tax) PIS (tax on revenue) Other Total Consolidated (IFRS and BR GAAP) 03.31.2012 12.31.2011
162,811 3,967 5,815 13,003 5,588 2,431 193,615
345,327 13,787 11,838 6,286 5,626 3,050 385,914
163,632 5,251 6,568 14,016 5,935 3,154 198,556
346,875 14,750 12,776 7,628 5,962 4,005 391,996
16. OTHER PAYABLES

Company Consolidated (BR GAAP) (IFRS and BR GAAP) 03.31.2012 12.31.2011 03.31.2012 12.31.2011 Current liabilities: Accrual for sundry expenses Accrued vacation and related taxes Profit sharing Accrual for management retention (a) Other payables Total Noncurrent liabilities: Payables on the acquisition of subsidiaries (b) Accrual for management retention (a) Total 25,350 18,163 9,835 966 54,314 42, 148 16,987 37,118 12,324 108,577 25,596 28,393 14,623 966 8,260 77,838 42,346 27,061 52,215 12,324 1,851 135,797
25,050 63 25,113
25,050 530 25,580
(a) Refers substantially to the Management Retention Plan, approved by the Board of Directors in November 2009, applicable to the Companys main executive officers, that takes into consideration their performance and permanence in the Company for a period of two years; the expense and related reserve is recognized during the validity of the plan. (b) Remaining balance payable for the acquisition of M4U, contingent to the attainment of certain financial performance goals, as described in Note 9.
17. PROVISION FOR RISKS AND ESCROW DEPOSITS a) Provision for risks The Company and its subsidiaries are parties to lawsuits and administrative proceedings before courts and governmental bodies, arising in the normal course of business and involving tax, labor and civil matters.
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Management, based on information and assessments made by its legal counsel, through the review of pending civil and labor lawsuits and, based on past experience on the amounts claimed in lawsuits, has recognized a provision in an amount considered sufficient to cover probable losses on pending proceedings, as follows: Company (BR GAAP) Write-offs/ Inflation reversals (ii) adjustment Payments 03.31.2012 (4,053) (129) (4,182) 180 234 68 482 (11) (11) 635,356 8,239 28,436 672,031
12.31.2011 Fiscal Civil Labor Total 602,778 10,726 26,961 640,465
Additions (i) 32,398 1,343 1,536 35,277
Consolidated (IFRS and BR GAAP) Additions Write-offs/ Inflation 12.31.2011 (i) reversals (ii) adjustment Payments 03.31.2012 Fiscal Civil Labor Total 625,401 16,331 36,275 678,007 32,398 1,350 1,698 35,446 (4,182) (272) (4,454) 193 234 71 498 (11) (11) 657,992 13,722 37,772 709,486
(i) Correspond basically to the supplemental provision for fiscal risks recorded in the quarter ended March 31, 2012, related to suspended taxes, recorded as a contra entry to Taxes on services, and the other additions to the provision for risks were recorded as a contra entry to Other operating expenses, net, in the income statement. (ii) Basically represented by the reversal of the provision for civil and labor risks due to statute of limitations, lawsuits settled or change in the assessment of loss made by the legal counsel of the Company and its subsidiaries. Civil lawsuits Refer basically to collection of transactions made through the Companys system that were not transferred to merchants in view of noncompliance with clauses of the affiliation contract, and compensation for losses caused by transactions not transferred at that time. As at March 31, 2012, the provision for probable losses on civil lawsuits totals R$8,239 (Company) and R$13,722 (Consolidated), and the escrow deposit is R$6,972 (Company) and R$8,633 (Consolidated). In addition, as at March 31, 2012, the Company is a party to public civil lawsuits and civil investigations, most of them filed by the Public Prosecution Office or professional associations, whose intention is to defend collective interests (such as consumer rights and labor rights). Judicial decisions may grant rights to groups of people (even without their consent). In many situations, the group that will benefit from a favorable outcome will only be defined after the final decision.
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Labor lawsuits Refers to labor claims that, as at March 31, 2012, include 270 labor lawsuits against Cielo and 70 labor lawsuits against Servinet, out of which 107 had been filed by former employees. The remaining labor lawsuits, totaling 233, were filed by subcontractors, some of whom claiming the recognition of employment relationship. Labor lawsuits, when started, are considered of possible likelihood of loss. Only after the court decision is issued, the lawsuits are reclassified to probable or remote loss, depending on the decision and based on the history of losses on similar lawsuits. In general, considering the history of losses, labor lawsuits are related to salary equalization, overtime, annual bonus, rights guaranteed by agreements between the employer and the labor union, recognition of employment relationship, tenure after occupational disease, and pain and suffering. As at March 31, 2012, the provision for probable losses on labor lawsuits totals R$28,436 (Company) and R$37,772 (Consolidated), and the escrow deposit is R$32 (Consolidated). Fiscal lawsuits Arising from divergences in interpretation by tax authorities especially regarding: COFINS - non-cumulativeness - in February 2004, the Company and its subsidiary Servinet filed an injunction to avoid payment of COFINS according to Law 10833/03 that requires the noncumulative calculation at the rate of 7.6%, and began to make escrow deposits for amounts determined monthly. As a result, the difference between the COFINS due calculated based on the rate established by the cumulative and noncumulative calculation method is being recorded as provision for contingencies since then. Escrow deposits have been made for unpaid COFINS amounts. As at March 31, 2012, the accrued balance is R$611,654, Company (R$632,210, Consolidated) and the balance of escrow deposits is R$598,949, Company (R$620,146, Consolidated). The lawsuit is awaiting judgment of the Federal Supreme Court. Amazon Investment Fund (FINAM) - in 2007, the Company received a tax assessment notice for calendar 2002, FY 2003. The Federal Revenue Service alleges that the Request for Review of Tax Incentive Issue Order (PERC) was not filed within the statutory deadline and, therefore, they do not recognize the portion of Corporate Income Tax (IRPJ) destined to FINAM. The Company awaits the distribution of the Voluntary Appeal to the Panel of the Board of Tax Appeals. As at March 31, 2012, the accrued balance is R$11,999 (Company and Consolidated). Provisional Act 1212/95 PIS/PASEP - in April 1997, the subsidiary Servinet was granted an injunction that exempted it from the payment of PIS based on billings. The Federal Government filed an appeal that was upheld by the court. On August 26, 2010, the subsidiary filed a debt expiration claim with the Third Region Finance Attorney of So Paulo. As at March 31, 2012, the accrued balance is R$1,904 (Consolidated).
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CSLL 2002 - In 2002, the Company, supported by a court injunction, offset one third of the Cofins amount paid, including social contribution. The Federal Government filed an appeal claiming the suspension of the amounts offset, thus disallowing the adjustment of accessory obligations. In 2011, the Company filed an action with the 2nd Civil Court in Osasco, So Paulo; the proceeding is awaiting analysis by authorities. As at March 31, 2012, the accrued balance is R$11,372 (Company and Consolidated), and the escrow deposit is R$10,895 (Company and Consolidated). The Company and its subsidiaries are still challenging other interpretations of the law by tax authorities and, to cover probable losses on such lawsuits, as at March 31, 2012, has provisions for risks recognized in the amounts of R$331 (Company) and R$507 (Consolidated). To cover lawsuits assessed as possible and remote losses by the legal counsel, the Company and its subsidiaries have escrow deposits in the amounts of R$14,400 (Company) and R$17,184 (Consolidated). The management of the Company and its subsidiaries, based on the opinion of their legal counsel, believes that the actual disbursement of the provision amounts will not occur before December 31, 2017. Additionally, as at March 31, 2012, the Company and its subsidiaries are parties to fiscal, civil and labor lawsuits assessed by their legal counsel as possible likelihood of losses, for which no provision was recorded, as follows: Company (BR GAAP) Fiscal Civil Labor Total b) Escrow deposits As at March 31, 2012, the Company and its subsidiaries have escrow deposits related to the provision for tax, labor and civil contingencies, broken down as follows: Company (BR GAAP) 12.31.2011 Additions 03.31.2012 Fiscal Civil Total 592,458 4,759 597,217 31,786 2,213 33,999 624,244 6,972 631,216 80,679 90,424 21,206 192,309 Consolidated (IFRS and BR GAAP) 90,733 90,424 24,086 205,243
Consolidated (IFRS and BR GAAP) 12.31.2011 Additions Write-offs 03.31.2012 Fiscal Civil and labor Total 616,439 6,366 622,805 31,786 2,353 34,139 (54) (54) 648,225 8,665 656,890
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18. SHAREHOLDERS EQUITY a) Capital Capital as at March 31, 2012 is represented by 545,913,520 common shares, fully subscribed and paid-in. As commented in Note 19.a), the number of shares outstanding as at March 31, 2012 is 544,752,149 (544,529,228 as at December 31, 2011). b) Capital reserve Represents share-based payment costs and goodwill on the subscription of shares related to capital contributions by shareholders exceeding the amount allocated to capital formation. As at March 31, 2012, the capital reserve amounts to R$90,712 (R$88,888 as at December 31, 2011). c) Treasury shares On November 23, 2009, the Companys Board of Directors, in accordance with article 17 of its bylaws, article 30 of Law 6404/76, CVM Instruction 10/80, as amended, and CVM Instruction 358/02 and subsequent amendments thereto, approved the acquisition of up to 6 million common shares, with no par value, for cancellation, disposal or holding in treasury and, especially, to fulfill the exercise of options granted under the Companys Stock Option Plan, without capital reduction, within 180 days from said date, ending on May 21, 2010.In addition, these share buybacks are limited to the balance available in the capital reserve calculated in the year, pursuant to articles 1 and 12 of CVM Instruction 10/80. The companys management should define the number of shares that will be bought back, within the authorized limits, and the buyback timing. Changes in treasury shares are stated as follows: Company (BR GAAP) and Consolidated (IFRS and BR GAAP) Average cost Shares Amount R$ per share Closing balance as at December 31, 2011 Sale in January 2012 Sale in February 2012 Buyback - March 2012 Sale in March 2012 Closing balance as at March 31, 2012 1,384,292 (7,916) (270,826) 96,850 (41,029) 1,161,371 (50,859) 292 9,953 (5,800) 1,585 (44,829) 36.74 36.74 36.74 59.89 38.60 38.60
The shares bought back will be held in treasury to be later disposed of, cancelled or used in the exercise of stock options granted to the Companys officers and employees.
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d) Earnings reserve - legal Corresponds to 5% of net income for the quarter, pursuant to Article 193 of Law 6404/76, up to the limit of 20% of capital. The legal reserve as at March 31, 2012 and December 31, 2011 is R$52,767. e) Earnings reserve - capital budget The Board of Directors Meeting held on January 18, 2012 approved the capital budget proposal prepared by the Company's management, pursuant to article 196 of Law 6404/76 and article 5, sole paragraph, of CVM Instruction 469, dated May 2, 2008. The earnings reserve is maintained so as to allow the Company to repurchase its shares in the future (share buyback). The capital budget reserve as at March 31, 2012 and December 31, 2011 is R$708,202. f) Dividends and interest on capital Under Companys bylaws, shareholders are entitled to a minimum dividend of 50% of net income after the recognition of the legal reserve of 5% of net income for the year until the reserve equals 20% of the capital. The allocation of the remaining balance of net income is decided at the Shareholders Meeting. At year-end, the Company accrues the minimum dividends not paid during the year up to the limit of the previously mentioned minimum mandatory dividend. Under bylaws, the Company may prepare semiannual or shorter balance sheets and, based on them, in accordance with the limits provided for applicable law, the Board of Directors may approve the distribution of dividends against net income. The Board of Directors may also declare intermediary dividends against existing net income based on the last balance sheet approved by the Shareholders. The Board of Directors decided in the meeting held on February 8, 2012 to distribute supplementary dividends and interest on capital on net income, based on the financial statements for the year ended December 31, 2011, totaling R$658,639 (represented by R$311,879, registered as Dividends Payable as of December 31, 2011, and R$346,760, amount exceeding minimum mandatory dividends registered in shareholders equity as Dividends proposed supplemental to mandatory minimum dividends as of December 31, 2011) and R$7,578 (R$6,441, net of Withholding Income Tax), respectively. Dividends were paid to shareholders on March 30, 2012. Dividends and interest on capital for the year ended December 31, 2011 were approved by the Annual Shareholders Meeting held on April 20, 2012.
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19. NET EARNINGS PER SHARE a) Change in the number of common shares
Company (BR GAAP) and Consolidated (IFRS and BR GAAP) Common shares 544,529,228 7,916 270,826 (96,850) 41,029 544,752,149
Shares issued Shares as at December 31, 2011 Exercise of stock options: January 2012 February 2012 Treasury shares buyback - March 2012 March 2012
b) Net earnings per share As required by technical pronouncement CPC 41 Earnings per Share, below are net earnings and weighted average of outstanding shares reconciled to the amounts used to calculate the basic and diluted net earnings per share. Basic net earnings per share
Consolidated Company (IFRS and BR GAAP) (BR GAAP) 03.31.2012 03.31.2011 03.31.2012 03.31.2011 Net income for the quarter available to common shares Weighted average of outstanding shares (in thousands) Net earnings per share (in R$) - basic 566,593 544,326 1,0409 424,655 544,118 0,7804 566,593 544,326 1,0409 424,655 544,118 0,7804
Diluted net earnings per share

Company Consolidated (BR GAAP) (IFRS and BR GAAP) 03.31.2012 03.31.2011 03.31.2012 03.31.2011 Net income for the quarter available to common shares Diluted denominator: Weighted average of outstanding common shares (in thousands) (*) Potential increase in common shares as a result of the stock option plan Total (in thousands) Net earnings per share (in R$) - diluted 566,593 424,655 566,593 424,655
544,326 724 545,050 1,0395
544,118 634 544,752 0,7795
544,326 724 545,050 1,0395
544,118 634 544,752 0,7795
(*) Adjusted retrospectively to reflect the effects of the share premium payment and reverse stock split occurred in 2011.
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20. NET REVENUE Company Consolidated (BR GAAP) (IFRS and BR GAAP) 03.31.2012 03.31.2011 03.31.2012 03.31.2011 Commissions Rental Other services Tax on services Total 21. EXPENSES BY NATURE The Company elected to present the consolidated income statement by function. The breakdown of costs of services and net operating expenses by nature is presented below: Company Consolidated (BR GAAP) (IFRS and BR GAAP) 03.31.2012 03.31.2011 03.31.2012 03.31.2011 Personnel expenses Depreciation and amortization Professional services Acquiring costs (a) Marketing and sales (b) Costs with medicines and mobile phone credits in subsidiaries (c) Other Total Classified as: Cost of services Personnel expenses General and administrative expenses Marketing and sales Other operating expenses, net Total 53,180 70,427 46,221 269,118 23,360 18,985 481,291 50,461 51,528 53,654 214,756 35,962 12,413 418,774 80,335 73,365 17,459 270,577 23,400 33,594 30,378 529,108 71,561 53,602 30,412 215,506 36,019 23,191 21,120 451,411 928,756 324,697 45,298 (130,110) 1,168,641 736,499 268,168 28,656 (103,634) 929,689 927,838 324,916 107,797 (139,789) 1,220,762 735,055 268,390 72,380 (110,820) 965,005
352,220 29,568 64,203 23,360 11,940 481,291
276,008 29,677 68,980 35,962 8,147 418,774
399,159 51,070 41,829 23,400 13,650 529,108
311,493 44,391 49,450 36,019 10,058 451,411
(a) Acquisition costs are mainly represented by expenses on logistics and maintenance of POS equipment, supplies to merchants, customer registration and customer service, telecommunications services, and transaction capturing and processing services. (b) Marketing and sales expenses include campaigns for trademark development, marketing and advertising, endomarketing and sales incentives to partners and issuing banks. (c) Corresponds to the cost of product sold related to medicines and mobile phone credits sold by indirect subsidiaries Precisa e Multidisplay, respectively.
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22. RELATED-PARTY TRANSACTIONS In the normal course of activities and under market conditions, the Company conducts transactions with related parties, such as receivables from card-issuing banks, which are the financial groups in which its controlling shareholders hold interests, and expenses on and income from services provided by Servinet, Orizon, Multidisplay, M4 Produtos, CieloPar, Braspag e Paggo Solues. When conducting its business and engaging services, the Company makes market quotations and surveys intended to find the best technical and pricing terms, and the decision on whether or not a transaction should be conducted is made by the chief decision maker of the function purchasing the product or service, regardless of whether such transaction is conducted with related or unrelated parties. Also, the type of business conducted by the Company requires it to enter into agreements with several card-issuing entities, some of which are its direct or indirect shareholders. The Company believes that all the agreements entered into with related parties are carried out on an arms-length basis. The tables below include the balances as at March 31, 2012 and December 31, 2011 and the amounts of transactions with the related parties, broken down by type of agreement, shareholder and subsidiaries, for the quarters ended March 31, 2012 and 2011:
Company (BR GAAP) 03.31.2012 Subsidiaries Paggo Orizon M4U CieloPar Solues 12.31.2011
Shareholders Banco do Banco Bradesco S.A. Brasil S.A. Assets (liabilities): Short-term investments (a) Trade accounts receivable Receivables from subsidiaries Payables to subsidiaries (e)
Servinet
Braspag
Total
Total
72,440 824 -
28,488 1,204 -
(9,890)
149 -
1,500 -
70 -
28 -
100,928 2,028 1,747 (9,890)
161,300 2,214 134 (11,055)
Shareholders Banco do Paggo Banco Bradesco S.A. Brasil S.A. Servinet Orizon M4U CieloPar Solues Braspag Income: Income from short-term investments (a) Revenue from other services (b) Revenue from the rental of POS equipment (c) Revenue from securitization of receivables abroad (d) Expenses: Other operating expenses membership commission Other operating expenses (d) Service agreement with Servinet (e) (a)
Company (BR GAAP) 03.31.2012 Subsidiaries
03.31.2011
Total
Total
2,040 2,429 -
602 3,742 -
427 -
987 -
70 -
28 -
2,642 7,256 427 -
4,550 3,516 502 1,049
(1,426) (2,928) -
(1,157) (620) -
(29,164)
(2,583) (3,548)
(3,085) (24,850)
- (29,164)
The terms, charges and interest rates of short-term investments were agreed under conditions similar to those applicable to unrelated parties.
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(b)
Corresponds to fraud prevention and bank account blocking services provided by the Company to the shareholder banks and commissions for the processing of transactions for M4 Produtos and Multidisplay. These related-party transactions are carried out at prices and under conditions similar to the transactions carried out with other issuer banks. See Note 5.(c) Services contracted with shareholder banks, relating to: (i) corporate collective life insurance, (ii) health and dental insurance and (iii) private pension agreement. The Company understands that the financial conditions adopted by the shareholder banks in respect of prices, terms and other conditions were applied under conditions similar to those adopted with respect to third parties. The Company engaged Servinet to provide POS equipment installation and maintenance service to merchants. The payment for the services provided is determined based on the costs incurred by Servinet when the service is provided, plus taxes and a payment margin.
(c) (d)
(e)
Main related-party transactions Balances of issuer banks Receivables from issuer banks, whose net amounts are recorded under payables to merchants, refer to the amounts that must be transferred by the issuers to the company arising from the transactions carried out with credit and debit cards, which will be subsequently transferred by the company to the authorized merchants. These related-party transactions are carried out at prices and under conditions similar to the transactions carried out with other issuers of credit or debit cards. Domicile bank incentives The company entered into agreements with domicile banks to promote the invoicing of commissions and prepayment of receivables. In these agreements, the company remunerates the banks based on the performance goals established therein. Prepayment of receivables with issuing banks The Company has agreements with issuing banks to transfer in advance the amounts from the transactions carried out by the banks customers with credit cards. These advanced payments are performed in order to generate short-term working capital and the amounts deposited in current account are net of rates for advances, on a pro rata basis, calculated at the market rates that do not significantly differ from those adopted by the issuing banks that are not the Company's shareholders. Use of Cielo authorized network (Value Added Network - VAN) The Company has service agreements with Companhia Brasileira de Solues e Servios (CBSS). These services include the capture, authorization and processing of transactions with VISAVALE cards, as well as services provided to merchants, operational and financial back office services, protection against fraud, issuance of statements and financial control over the electronic transactions resulting from these transactions. The rates and tariffs charged from these related-party transactions are carried out at prices and under conditions similar to the transactions carried out with other banks.
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VAN services and connectivity rate - Amex On June 30, 2010, the Company signed a non-exclusive agreement for the rendering of services for capturing of card transactions with Amex Brand (VAN), with BankPar S.A. (BankPar), a company of Bradesco S.A. Group licensed to the right of American Express (Amex) brand in Brazil. In addition, in December 2011, the Company entered into an amendment to the service agreement to renew the VAN agreement by December 31, 2012, as well as to balance the economic benefits of the Company and BankPar in connection with this agreement, based on the appraisal prepared by the advisors of a specialized investment bank. In financial terms, this balance was performed by including the connectivity rate payable by the Company, in the amount of R$38 million, to BankPar for the technology that provides the Company's access to the systems of the American Express merchants (Amex). The improvement of this partnership with Amex brand reinforces the Companys potential for high value generation to the extent that it supplements its brand portfolio. The execution of these documents was approved by the Board of Directors in accordance with the legal restrictions. Bank account blocking Refer to bank account blocking service agreements entered into with various banks, whose service consists of ensuring to the banks the blocking of the bank accounts of the authorized merchants that carry out financial transactions with them. These related-party transactions are carried out at prices and under conditions similar to the transactions carried out with other domicile banks. Recordkeeping of Cielos shares Cielo stock book entry service agreement entered into with Banco Bradesco S.A., whereby it provides stock book entry and share certificate issuance services. Operating services - stock option program Service agreement consisting of the rendering of operating services for the stock option program and the related grants entered into with Bradesco S.A. Corretora de Ttulos e Valores Mobilirios. Other widespread agreements In addition to the balances recorded, the Company engages other services from the main shareholders: Cash Management Services Insurance Private pension services Corporate credit card
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International guarantees Suppliers payment services 23. INCOME TAX AND SOCIAL CONTRIBUTION The reconciliation of the effective income tax and social contribution rate for the periods ended March 31, 2011 and 2010 is as follows:
Company (BR GAAP) 03.31.2012 03.31.2011 Income before income tax and social contribution Statutory tax rates - % Income tax and social contribution at statutory rates Tax incentives (a) Effect on permanent differences, net (b) Income tax and social contribution Current Deferred Consolidated (IFRS and BR GAAP) 03.31.2012 03.31.2011
866,206 34 (294,510) 4,193 (9,296) (299,613) (303,853) 4,240
629,711 34 (214,102) 3,423 5,623 (205,056) (222,691) 17,635
869,985 34 (295,795) 4,193 (10,683) (302,285) (305,991) 3,706
632,570 34 (215,074) 3,423 4,352 (207,299) (223,954) 16,655
(a) Corresponds to tax incentives from the Rouanet Law, Funds for Child and Adolescents Rights, Workers Support Program (PAT) and Sports Law. (b) Represented substantially by reserves for risks and equity in subsidiaries, nondeductible from the calculation of taxable income and tax loss carryforwards.
24. FINANCIAL INSTRUMENTS The estimated fair values of the financial instruments of the Company and its subsidiaries have been determined using available market inputs and appropriate valuation methodologies. However, considerable judgment was required to interpret market data and then develop the most appropriate fair value estimates. Accordingly, estimates presented herein are not necessarily indicative of the amounts that could be realized in the market. The use of different market methodologies may have a material effect on the estimated fair values. The financial instruments are managed through operating strategies, aimed at liquidity, profitability and security. The control policy consists of permanent monitoring of the contracted rates compared to market rates. The Company and its subsidiaries do have transactions for speculative purposes, derivatives or any other risk assets. a) Financial assets and financial liabilities: The Companys and its subsidiaries financial assets and financial liabilities include cash and cash equivalents, trade accounts receivable, escrow deposits and trade accounts payable. The estimated fair values of financial instruments as at March 31, 2012 are as follows: 49
Type Cash and cash equivalents Trade accounts receivable Receivables from subsidiaries Escrow deposits Trade accounts payable Payables to merchants Payables to subsidiaries Payables acquisition of subsidiary Borrowings and financing Loans and receivables Loans and receivables Loans and receivables Loans and receivables Other financial liabilities Other financial liabilities Other financial liabilities Other financial liabilities Other financial liabilities
03.31.2012 Company Consolidated (IFRS and BR GAAP) (BR GAAP) Carrying Fair Carrying Fair value Value amount amount 234,502 3,090,628 1,747 631,216 234,463 2,018,129 9,890 246,748 234,502 3,090,628 1,747 631,216 234,463 2,018,129 9,890 246,748 284,416 3,144,204 656,890 292,263 2,018,129 25,050 246,748 284,416 3,144,204 656,890 292,263 2,018,129 25,050 246,748
The fair value of financial assets and short- and long-term financing was determined, when applicable, by using current interest rates available for transactions conducted under similar conditions and with similar maturity dates. b) Credit risk The Company has an instrument to mitigate the credit risk of the VISA card-issuing banks, used as a hedge against the risk of default by such banks. This hedging instrument consists of the commitment assumed by the VISA brand, pursuant to foreign regulations, to guarantee the transfer to the Companys merchants of all sales made with VISA cards on the related due dates in the event of default by an issuer. The guarantee model implemented by the VISA brand together with the Company prescribes the provision of guarantees (collaterals or bank guarantees) considering the credit risk of the issuer, sales volume with VISA cards and residual risk of default by cardholders. The provision of guarantees is mandatory for all card-issuing banks with credit risk, and amounts are reviewed periodically by VISA and the Company. If the issuer does not provide the requested guarantees, it is not accepted as a member of the system or is disqualified as such. Since July 1, 2010, the Company has also started accrediting the MASTERCARD brand, and the related credit risk is guaranteed by the MASTERCARD brand itself, in case of default by the card-issuing banks with the Company. The MASTERCARD brand requires card-issuing banks participating in the system to provide guarantees, collaterals or bank guarantees. If the issuer does not provide the requested guarantees, it is not accepted as a member of the system or is disqualified as such. The brands systems also prescribe that cardholders can contest transactions made with credit cards within certain timeframes from the date of the transaction. For this purpose, the Company enters into an affiliate agreement with authorized merchants establishing all rules for acceptance of these cards at the point of sale. If transactions are contested by cardholders and the merchant is no longer an affiliated member at the date of the contestation or has no amounts receivable from the Company, then collection will be made through debit to bank account or outside collection agencies and there may be losses to the Company.
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The Company leases POS equipment to all affiliated merchants that do not have their own systems to capture transactions. The rent is deducted, on the due date, from the amount of transactions payable to merchants. However, the rent may not be received on the due date whenever there are no amounts payable to merchants. In these cases, the Company collects the rent through debit to future sales, bank account or outside collection agencies, and losses on rent may be incurred. c) Risk of fraud The Company uses a sophisticated antifraud system to monitor transactions with credit and debit cards, which detects and identifies suspected fraud at the time of the authorization and sends an alert message to the card-issuing bank for it to contact the cardholder. d) Currency risk The Company contracts forward exchange transactions to hedge against fluctuations in exchange rates, which consists of pre-selling US dollars receivable converted into the same exchange rate as those used by brands, which reduces significantly potential risks of exposure to foreign currency. There are no other material transactions in foreign currency that might cause a significant impact on the income or loss of the Company due to the effects of the volatility of the exchange rate on other assets and liabilities denominated in foreign currencies, principally the US dollar. As at March 31, 2012, the net exposure to foreign exchange rate risk, in thousands of U.S. dollars, is as follows: Company (BR GAAP) and Consolidated (IFRS and BR GAAP) Cash and banks Short-term investments Total Liabilities: Payables to merchants Total Long position in US dollars e) Interest rate risk The Companys results of operations are subject to significant fluctuations resulting from short-term investments with floating interest rates. Pursuant to its financial policies, the Company has maintained its short-term investments at prime banks and has not entered into transactions with financial instruments for speculative purposes. 51 2,524 1,602 4,126 (5,659) (5,659) (1,533)
f) Interest rate sensitivity analysis - short-term investments and borrowings and financing The funds from the Companys short-term investments are impacted by changes in the interbank deposit rate (CDI) and borrowings and financing are impacted by the long-term interest rate (TJLP). As at March 31, 2012, assuming an increase or reduction of 10%, 25% and 50% in the interest rates, there would be an increase or decrease in income (expenses) as follows: 10% Short-term investments Borrowings and financing g) Derivatives During the quarters ended March 31, 2012 and 2011, the Company did not contract derivative transactions. h) Financial instruments by category
Company (BR GAAP) 03.31.2012 12.31.2011 Consolidated (IFRS and BR GAAP) 03.31.2012 12.31.2011
25% 1,821 2,507
50% 3,642 5,015
728 1,003
Category Assets Cash and cash equivalents Trade accounts receivable Receivables from subsidiaries Escrow deposits Total Liabilities Payables to merchants Trade accounts payable Payables to subsidiaries Payables - acquisition of subsidiary Borrowings and financing Total Other financial liabilities Other financial liabilities Other financial liabilities Other financial liabilities Other financial liabilities Loans and receivables Loans and receivables Loans and receivables Loans and receivables
234,502 3,090,628 1,747 631,216 3,958,093
240,998 2,971,796 134 597,217 3,810,145
284,416 3,144,204 656,890 4,085,510
292,915 3,019,499 622,805 3,935,219
2,018,129 234,463 9,890 246,748 2,509,230
1,660,367 230,259 11,055 150,848 2,052,529
2,018,129 292,263 25,050 246,748 2,582,190
1,660,367 289,815 25,050 150,848 2,126,080
25. COMMITMENTS The Company is engaged in the capture, transmission, processing and settlement of transactions with credit and debit cards. To conduct said activities, the Company entered into the following agreements:
52
a) Lease agreements As at March 31, 2012, future annual payments under lease agreements in effect are estimated as follows: Year 2012 2013 2014 Total 3,765 5,421 5,855 15,041
Most contracts specify a termination fine equivalent to three-month rent, and a partial return can be negotiated for each case. b) Telecommunications, technology and logistics services As at March 31, 2012, future payments under telecommunications, technology and logistics service agreements in effect are estimated as follows: Year 2012 2013 2014 Total 390,663 562,555 607,560 1,560,778
Transactions capture and processing agreements stipulate termination fines totaling R$21,593. Logistics service agreements are in effect since June 2007, with a minimum period of 12 months and a termination fine of R$10,170. Telecommunication agreements do not provide for a termination fine. c) Bank guarantees As at March 31, 2012, based on the agreements in effect, bank guarantees are as follows: Type Guarantee for personal recharge and multioperator (*) 400
(*) Collateral assigned to the subsidiary Multidisplay by financial institutions to secure the payment of agreements with mobile telephone companies. 26. PROFIT SHARING The Company and its subsidiaries pay profit sharing to their employees and officers, subject to the achievement of operational goals and specific objectives, established and approved at the beginning of each year. Employees and management profit sharing amounts for the periods ended March 31, 2012 and 2011 were recorded in line item Personnel expenses in the income statement, as follows: 53
Company Consolidated (IFRS and BR GAAP) (BR GAAP) 03.31.2012 03.31.2011 03.31.2012 03.31.2011 Employees Directors Total 27. MANAGEMENT COMPENSATION Key management people include the Board of Directors members and Supervisory Board, the CEO and statutory officers. 03.31.2012 Compensation Fixed Variable Total (*) Officers Supervisory Board and Board of Directors Total (*) Does not include the stock option plan, as mentioned in Note 31. Managements overall annual compensation (Board of Executive Officers and Board of Directors) in 2011 set at the Annual Shareholders Meeting of April 29, 2011 was R$20,000. The annual compensation payable to the members of the Supervisory Board was R$309. 28. FINANCIAL INCOME (EXPENSES) Company Consolidated (BR GAAP) (IFRS and BR GAAP) 03.31.2012 03.31.2011 03.31.2012 03.31.2011 Financial income: Income from short-term investments Interest on securitization abroad Other financial income Total Prepayment of receivables: Income from prepayment of receivables (a) Present value adjustment expenses (b) Total Exchange rate variation, net (c) 1,133 339 1,472 3,032 3,032 4,165 339 4,504 7,490 2,346 9,836 6,832 2,119 8,951 10,849 2,346 13,195 9,420 2,119 11,539
6,104 37 6,141
8,436 1,049 35 9,520
7,284 199 7,483
8,978 1,049 117 10,144
190,140 (11,391) 178,749 4,192
120,828 (3,716) 117,112 947
190,140 (11,391) 178,749 4,183
120,828 (3,716) 117,112 947
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Company Consolidated (IFRS and BR GAAP) (BR GAAP) 03.31.2012 03.31.2011 03.31.2012 03.31.2011 Financial expenses: Interest - securitization abroad Late payment interest and fines Fine and interest risks Prepayment of receivables with issuers Interest on loans Other financial expenses Total
(15) (483) (6,068) (3,962) (1,436) (11,964) 177,118
(1,049) (17) (939) (5,533) (1,313) (8,851) 118,728
(46) (501) (6,068) (3,962) (1,507) (12,084) 178,331
(1,049) (48) (1,128) (5,533) (1,469) (9,227) 118,976
(a) Revenue from the prepayment of receivables in the period ended March 31, 2012 comprises income from the transaction volume for the quarter then ended. (b) As described in Note 5.(a), the present value adjustment recorded in the consolidated financial statements was calculated on receivables prepayments. The assumptions adopted for the calculation are as follows: Interest rates used are the same contracted for the transactions of prepayment of receivables from clients. Calculations were carried out separately, discounting cash flows for each recorded receivable. The Companys management recognized the present value adjustment of accounts receivable balance in view of the materiality of values adjusted, of interest rates and transaction terms. Monthly, Management reviews the assumptions mentioned and the changes are recorded in the statement of income. (c) Arises basically from the amount received in US dollars from Visa International Service Association related to transactions with foreign credit and debit cards, the receivables securitization abroad transaction, and gains and losses originally denominated in foreign currency, represented by income in the amount of R$4,507 (R$1,016 as at March 31, 2011) and expenses totaling R$315 (R$69 as at March 31, 2011).
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29. OTHER OPERATING INCOME (EXPENSES), NET Represented by: Company Consolidated (BR GAAP) (IFRS and BR GAAP) 03.31.2012 03.31.2011 03.31.2012 03.31.2011 Doubtful accounts (*) Provision for (reversal of) risks, net Allowance for losses on inactive POS equipment Actual write-off of fixed assets Income from contractual fines Other operating income Total (5,795) 717 (4,217) (4,523) 1,695 183 (11,940) (7,988) (3,045) (3,690) 3,940 2,636 (8,147) (5,795) (1,342) (4,217) (4,523) 1,695 532 (13,650) (7,988) (6,090) (3,690) 3,940 3,770 (10,058)
(*) Includes the provision and actual losses on rental of POS equipment. 30. INSURANCE COVERAGE As at March 31, 2012, the Company has the following insurance agreements: Insured amount 105,000 36,438 11,177 809
Type Civil liability and Directors and Officers Nominated risks (fire, windstorm and smoke, electrical damages, electronic equipment, theft and flood) Loss of profits Vehicles 31. STOCK OPTION PLAN
At the Extraordinary Shareholders Meeting held on September 22, 2008 approved the Companys common stock option plan. This plan was confirmed by the Extraordinary Shareholders Meeting held on June 1, 2009 and is effective for ten years from the date the first benefits were granted. Stock options may be granted provided that capital dilution does not exceed, at any time during the effectiveness of the plan, 0.3% per year. The Companys Board of Directors will define the beneficiaries eligible for the stock option plan annually or at the frequency considered appropriate. At meetings held on July 1, 2009, September 23, 2009, July 6, 2010 and July 22, 2011, the Board of Directors approved the first, second, third and fourth grants of options for the purchase of common and/or restricted shares, respectively, as shown in the table below, without any option for the settlement of options in cash.
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The beneficiaries of stock options granted in 2010 and 2009 under the Stock Option Plan and Vesting Agreement, will be able to exercise the first portion of the stock options granted, equivalent to 1/3 of total, after one year of the granting date. The Extraordinary Shareholders Meeting held in April 2011 approved changes in the fourth grant (July 2011), changing the plan as follows: possibility of eligible employees choosing a stock option plan, a restricted stock plan or a combination of both; exercise of 50% of the options and/or restricted shares after two years and 50% after three years. Number of shares Granted Exercised Balance 1,042,320 220,480 1,073,680 1,312,065 3,648,545 (697,875) (15,654) (258,429) (971,958) 344,445 204,826 815,251 1,312,065 2,676,587 Exercise Fair value price of options (R$ per share) (R$ per share) 28.42 42.38 39.99 31.26 10.43 13.75 13.38 12.48
Granting date July 2009 September 2009 July 2010 July 2011 Total
The fair value of options was measured using the Black & Scholes pricing model. In 2011, the Company used the binomial methodology, based on the following economic assumptions: Granting date July and September 2009 July 2010 July 2011 Dividend yield Share price volatility Vesting period 6.66% 36.67% 4 years 5.73% 37.51% 4 years 8.87% 38.27% 5 years
The fair value is allocated to net income for the quarter with a contra entry to the capital reserve on a straight-line basis over a term of up to 36 months. An expense in the amount of R$2,054 was recognized in the quarter ended March 31, 2012 (R$3,333 as at March 31, 2011), recorded under Personnel expenses, and 319,771 shares in the amount of R$11,830 as at March 31, 2012 were exercised (12,099 shares in the amount of R$20 as at March 31, 2011); the total balance of stock options granted that was recorded under Capital reserves as at March 31, 2012 totaled R$1,824 (R$3,313 as at March 31, 2011). 32. PENSION PLAN The Company contributes monthly to a defined contribution pension plan (PGBL) for its employees and contributions made during the quarter ended March 31, 2012 totaled R$1,667 (R$1,522 as at March 31, 2011), which were recorded in Cost of services and Personnel expenses.
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33. ITEMS NOT AFFECTING CASH Company Consolidated (IFRS and BR GAAP) (BR GAAP) 03.31.2012 03.31.2011 03.31.2012 03.31.2011 Settlement of contingencies using escrow deposits Net assets merged in the consolidation from Paggo Solues Purchase of POS equipment by means of new financings from Finame 34. SUBSEQUENT EVENTS An increase in share capital in the amount of R$236,165 was approved in the General Shareholders Meeting of April 20, 2012 by means of the capitalization of the capital budget reserve, being attributed to shareholders, as a share premium payment, one new ordinary share for each lot of five ordinary shares of which they have title at the end of April 20, 2012, and starting April 23, 2012, inclusive, shares will be negotiated ex-right with regards to share premium payment, changing article 5 of the Company by laws. 35. APPROVAL OF THE FINANCIAL INFORMATION These company and consolidated financial information was approved by the Companys Board of Directors and authorized for issuance on April 24, 2012.
69,239
69,239
303 51,224 -
2012-0105
58
Shareholders: We present the performance analysis and interim financial information of Cielo S.A. (Company) and subsidiaries for the quarter ended March 31, 2012, and the Independent Accountants Report on Review of Interim Financial Information. The Companys financial statements are presented in accordance with IFRS (International Financial Reporting Standards) issued by IASB (International Accounting Standards Board) and in accordance with Brazilian accounting practices.
1Q2012 HIGHLIGHTS
Transaction financial volume under the market criterion totaled R$87.4 billion, up 26.8% or R$18.4 billion year-on-year; under the accounting criterion, the volume was R$88.1 billion, up 25.5% year-on-year; Total revenues (net operating + prepayment of receivables) totaled R$1.4 billion, up 29.3% or R$317.4 million year-on-year and 1.2% or R$16.4 million quarter-on-quarter; Revenue from Equipment Rental totaled R$325.0 million, up 21.1% or R$56.5 million year-on-year and 9.7% or R$28.8 million quarter-on-quarter; Adjusted EBITDA of R$943.8 million, up 37.9% or R$259.5 million year-on-year and 13.3% or R$110.6 million quarter-on-quarter; Adjusted EBITDA margin at 67.4%, up 4.2 p.p. year-on-year and up 7.2 p.p. quarter-onquarter; Cielos net income totaled R$566.6 million, up 33.4% or R$141.9 million year-on-year and 12.3% or R$62.0 million quarter-on-quarter; Cielos net income margin at 40.5%, up 1.3 p.p. year-on-year and 4.0 p.p. quarter-onquarter; Cielo receives the Best Investor Relations by a Latin American Company in the US market award from IR Magazine, one of the main capital market media vehicles. Cielo and Cybersource announce a strategic alliance to release a fully-featured global fraud prevention solution for e-commerce in Brazil.
1Q12 OPERATING PERFORMANCE
Financial Transaction Volume

In 1Q12, Cielo captured 1.269 billion transactions, up 19.9% over 1Q11 but down 2.5% over 4Q11. Transaction financial volume totaled R$88.1 billion, up 25.5% when compared with the R$70.2 billion in the same period of 2011, and down 3.5% in relation to 4Q11. Specifically with credit cards, transaction financial volume totaled R$56.8 billion in 1Q12 up 28.1% year-on-year and 1.3% quarter-on-quarter. The average ticket of credit transactions was R$76.90 in 1Q12, 6.1% and 0.1% higher than the average ticket in 1Q11 and 4Q11, respectively.
With debit cards, transaction financial volume totaled R$31.3 billion in 1Q12, up 20.9% compared with the same period of the previous year and down 11.1% over the previous quarter. The average ticket of debit transactions was R$58.95 in 1Q12, up 1.9% over 1Q11 and down 4.2% over 4Q11.
Transaction Financial Volume (R$million)
25.5% 91,253 74,623 70,205 118.315 29,407 79,775 35,219 31,296 88,082
98.742
162.933
197.541
50,368
56,034
56,786
1Q11
2Q11
3Q11 Credit cards Debit cards
4Q11
1Q12
According to the market criterion in which the total credit amount for purchases paid in installments be recognized at the time of purchase, financial volume grew as follows:
Transaction Financial Volume- Market Criterion (R$ million) Credit (R$ million) Number of Credit Transactions ( million) Debit (R$ million) Number of Debit Transactions (million) Total Financial Volume (R$ million) Total Number of Transactions (million) 1Q12 56,140.9 490.3 31,295.9 530.9 87,436.8 1,021.2 1Q11 43,092.6 404.7 25,887.4 447.4 68,980.0 852.1 4Q11 59,903.2 516.9 35,218.8 572.3 95,122.0 1,089.2 1Q12 X 1Q11 30.3% 21.2% 20.9% 18.7% 26.8% 19.9% 1Q12 X 4Q11 -6.3% -5.1% -11.1% -7.2% -8.1% -6.2%
Such criterion allows the financial volume comparison among other competitors in the market. Affiliated Merchants Affiliated active merchants totaled 1.2 million at the end of 1Q12, up 1.1% quarter-on-quarter and up 11.7% year-on-year. Active merchants are those that have made at least one transaction in the last 60 days.
AFFILIATED MERCHANTS Active Merchants in 60 days ('000) 1Q12 1,212 1Q11 1,085 4Q11 1,199 1Q12 X 1Q11 11.7% 1Q12 X 4Q11 1.1%
1Q12 FINANCIAL PERFORMANCE
Gross Operating Revenue + Prepayment of Receivables

Cielos main sources of revenue are derived from the capture, transmission, processing and settlement of transactions carried out with credit and debit cards, as well as the rentals of POS terminals, other revenues and prepayment of receivables to its clients. The graph below shows the relative importance of each of these sources:
Revenue- Activity(%)
45.2%
44.6%
44.6%
43.8%
43.8%
Credit cards Debit cards POS Rental
16.4% 22.5% 9.8% 6.1% 1Q11
16.6% 21.5% 11.0% 6.3% 2Q11
16.9% 20.4% 11.6% 6.6% 3Q11
18.7% 19.4% 11.7% 6.4% 4Q11
16.5% 21.1% 11.6% 7.0% 1Q12
Prepayment of Receivables Other revenues
In 1Q12, net operating revenue plus net revenue from prepayment of receivables totaled R$1.400 billion, up 29.3% year-on-year and 1.2% quarter-on-quarter. Commission revenue from credit and debit transactions totaled R$927.8 million in 1Q12, up 26.2% compared with the same period of 2011. This R$192.8 million increase was a consequence of the 25.5% growth in the financial volume and of the change in the product mix (lower debit participation), partially offset by the reduction in the gross merchant discount rate. Over 4Q11, total commission revenue decreased R$27.6 million or 2.9% mostly due to the 3.5% reduction in financial volume, partially offset by the increase in the gross merchant discount rate and the change in the product mix (lower debit participation). Revenue from credit transactions totaled R$673.7 million in 1Q12, up 25.0% over 1Q11s R$538.9 million. This R$134.8 million increase is due to the 28.1% higher financial volume and to the change in the product mix (higher credit in installments participation), partially offset by the reduction in the gross merchant discount rate. Credit revenues were up 0.7% over 4Q11. This R$4.7 million increase is due to the 1.3% growth in financial volume and to the change in the product mix (higher credit in installments participation), partially offset by the reduction in the gross merchant discount rate. Revenue from debit transactions rose 29.6% compared with the same period of 2011, reaching R$254.1 million. This R$58.0 million increase is due to the 20.9% higher financial volume and to the increase in the gross merchant discount rate, partially offset by incentive payments to partner banks. Debit revenues decreased 11.3% quarter-on-quarter. This R$32.3 million decrease is due to the 11.1% reduction in the financial volume and to the incentives to partner banks.
Equipment (POS) rental revenues totaled R$325 million, up 21.1% over the same
POS # Installed POS Average Rental (R$/Installed POS) Equipment Rental Revenue ( R$ million) 1Q12 1,524 71 324.9 1Q11 1,293 69 268.4 4Q11 1,484 67 296.1 1Q12 X 1Q11 17.9% 2.7% 21.1% 1Q12 X 4Q11 2.7% 6.9% 9.7%
period of 2011. The number of installed POS devices increased 17.9% and, at the same time, average rental fees were up 2.7%. Equipment (POS) rental revenue increased 9.7% quarter-on-quarter. In the same period, our installed equipment base increased by 2.7%, rental fees were readjusted, discounts offered to merchants decreased, and the representativeness of WiFi/GPRS equipment in the total base (with higher rental) increased. Other Revenues totaled R$107.8 million, a 48.9% year-on-year increase. This R$35.4 million increase is mostly due to the revenue variation at R$11.4 million from subsidiary M4U, and the increased revenue from the value added network (VAN) service. Quarter-on-quarter, Other Revenues were up 10.4%, or R$10.2 million, chiefly due to the impact of the increased revenues from M4U.
Prepayment of Receivables
The financial volume of prepaid transactions was R$5.3 billion in 1Q12, representing 9.3% of our total credit volume. Gross revenues totaled R$190.1 million in the quarter, up 57.4% as compared with 1Q11 and down 1.6% as compared with 4Q11. In 1Q12, net revenues from prepayment of receivables, adjusted to present value, were R$178.7 million, up 52.6% over 1Q11 and stable over 4Q11. Net revenues and financial expenses from prepayment of receivables adjusted to present value in 1Q12 were R$172.7 million, up 54.7% over 1Q11 and 4.8% over 4Q11.
Prepayment of Receivables % Prepayment over Credit Financial Volume Financial Volume of Prepayment (R$ Million) Average Term (days) Prepayment Revenue Excluding Adjustments (R$ Million) Present Value Adjustment Expenses (R$ Million) Prepayment Revenue including Present Value Adjustment (R$ Million) Interest on prepayment of receivables with issuers (R$ Million) Net Prepayment Revenue (R$ Million) 1Q11 2Q11 3Q11 4Q11 1Q12
7.3% 3,236.9 62.9

120.8
7.2% 3,376.9 58.5

137.7
7.7% 3,894.6 56.0

159.9
8.7% 4,899.2 55.8

193.2
9.3% 5,289.9 55.7

190.1
(3.7) 117.1 (5.5) 111.6
(1.6) 136.1 (21.7) 114.4
(5.2) 154.7 (10.1) 144.5
(14.4) 178.8 (13.9) 164.8
(11.4) 178.7 (6.1) 172.7
The average ticket of these operations was R$2.6 thousand in 1Q12, remaining relatively stable over 1Q11 and 4Q11, at R$3.0 thousand and R$2.5 thousand respectively. To finance our prepayment of receivables operations, we have frequently used the prepayment of our receivables with issuers. Costs related to this financing are shown below, as well as a simulation of the disclosed adjusted EBITDA impact:
Prepayment of Receivables 1Q11 2Q11 3Q11 4Q11 1Q12
Prepayment of Receivables including financial expenses (R$ Million) Adjusted EBITDA including Net Prepayment of Receivables* (R$ Million) Net Revenue + Adjusted Prepayment of Receivables (R$ Million) % Adjusted EBITDA including Net Prepayment of Receivables * prepayment of receivables including financial expenses
111,579 678,774 1,076,584 63.0%
114,389 144,535 164,835 172,681 694,753 731,008 819,310 937,779 1,097,526 1,200,796 1,369,158 1,393,443 63.3% 60.9% 59.8% 67.3%
Cost of Services Provided

The cost of services provided increased 28.1% to R$399.2 million in 1Q12, compared with R$311.5 million in the same period of 2011. This R$87.7 million increase was basically composed of: i. ii. iii. Increase of R$34.5 million due to higher fees paid to brands; Increase of R$32.0 million due to the increased number of transactions captured; Increase of R$19.2 million from depreciation of POS terminals, explained by the increase in the total base and the change in the equipment mix with more wireless terminals, which are more expensive; Increase of R$11.5 million derived from costs related to subsidiaries M4U, Orizon and Cielopar (Paggo and Braspag); Reduction of R$9.5 million due to the renegotiation of supplier contracts (processing lines and capture networks).
iv.
v.
The unit cost per transaction in 1Q12 was R$0.314, 6.9% higher than in 1Q11, when it was R$0.294. The unit cost (excluding subsidiaries) per transaction in 1Q12 was R$0.278, 6.4% higher than in 1Q11. Considering the fee structure equivalent to 1Q11, the Companys unit cost would have dropped 2.1% to R$0.255 per transaction. Excluding depreciation, the year-on-year reduction would have been 5.9% to R$0.199 per transaction. Quarter-on-quarter, the cost of services was down R$6.6 million or 1.6% in 1Q12. This decrease was basically composed of: i. Increase of R$11.2 million in the costs of subsidiaries M4U, Orizon and Cielopar (Paggo and Braspag); Increase of R$9.4 million from depreciation of POS terminals, explained by the increased total base; Reduction of R$14.5 million mainly due to reduced maintenance and activation costs of equipment, as well as in costs of processing services and supplies; Reduction of R$7.6 million due to decreased fees paid to brands; Reduction of R$5.1 million due to a decline in captured transactions
ii.
iii.
iv. v.
The unit cost per transaction in 1Q12 was 0.9% higher than in 4Q11. The unit cost (excluding subsidiaries) fell 2.4% quarter-on-quarter.
Operating Expenses
Operating expenses increased R$10.0 million or 7.1% to R$130.0 million in 1Q12, compared to R$140.0 million year-on-year. When compared with 4Q11, there was a 37.5% or R$78.0 million reduction. Personnel expenses increased 15.0% over 1Q11 or R$6.7 million, mostly due to the increase in the total headcount and staff in the commercial area and the 7.0% pay raise stipulated in the collective bargaining agreement in August of 2011. Quarter-on-quarter, personnel expenses were down 2.5%. General and administrative expenses were down 17.0% or R$8.2 million year-on-year, mainly due to decreased expenses with consulting services. As compared with 4Q11, general and administrative expenses were down 23.8%. Marketing and sales expenses decreased 35.0% over 1Q11 or R$12.6 million, mainly due to the not performing campaigns, particularly with partners, considering that this quarter has little movement. Marketing and sales expenses represented 1.7% of net revenues in 1Q12. As compared with 4Q11, marketing and commercial expenses were down 71.5% for the same reasons. Other net operating revenues (expenses) increased R$3.6 million year-on-year mostly due to write-off of uncollectible POS rental fees. Quarter-on-quarter, this line showed a R$5.6 million reduction, due to the decreased contingencies.
Adjusted EBITDA
The Companys Management uses EBITDA as a measurement of its performance. Adjusted EBITDA reached R$943.8 million in 1Q12, up 37.9% year-on-year and 13.3% quarter-on-quarter. Adjusted EBITDA corresponds to net income before income tax and social contribution, depreciation and amortization and financial income/expenses, except net gains on prepayment of receivables operations. The participation of non-controlling shareholders is added to the net profit. EBITDA is not an accounting measurement used in the accounting practices adopted in Brazil. It does not represent the cash flow for the presented periods and it should not be considered as an alternative to net income, an operating performance measure or as an alternative to operating cash flow or as a measurement of liquidity.
Adjusted EBITDA (R$ million) Cielos Net Income Holdings of minority shareholders Financial Income Income Tax and Social Contribution Depreciation and amortization EBITDA % EBITDA Margin Prepayment of Receivables, net Adjusted EBITDA % Adjusted EBITDA Margin
1Q12 566.6 1.1 (178.3) 302.3 73.4 765.0 62.7% 178.7 943.8 67.4%
1Q11 424.7 0.6 (119.0) 207.3 53.6 567.2 58.8% 117.1 684.3 63.2%
4Q11 1Q12 X 1Q11 1Q12 X 4Q11 504.5 33.4% 12.3% 3.1 79.7% -64.5% (166.4) 49.9% 7.2% 249.4 45.8% 21.2% 63.8 36.9% 15.0% 654.5 34.9% 16.9% 54.3% 3.9. p.p. 8.4. p.p. 178.8 52.6% 0.0% 833.2 37.9% 13.3% 60.2% 4.2.p.p. 7.2. p.p.
CAPITAL MARKET
Ownership Structure
Cielo S.A. stock debuted on the BM&FBovespas Novo Mercado on June 29, 2009, initially under the ticker symbol VNET3 and, due to the Companys corporate identity change, since December 18, 2009 under CIEL3. Cielos stock is currently included on the Bovespa Index
Shareholders Structure Controlling Shareholders Banco Bradesco Banco do Brasil Free-Float Treasury Total
ON 312,789,342 156,394,654 156,394,688 231,962,807 1,161,371 545,913,520
% 57.3% 28.6% 28.6% 42.5% 0.2% 100.0%
(Ibovespa), the Brazil Index (IBrX), the Brazil 50 Index (IBrX-50), the Differentiated Corporate Governance Index (IGC) the Differentiated Tag Along Rights Index (ITAG), the Financial Index (IFNC), the Carbon Efficiency Index (ICO2), the Valor BM&FBovespa Index (IVBX-2), the MidLarge Cap Index (MLCX), the Corporate Governance Trade Index (IGCT), the BM&FBovespa Extended Brazil (IBrA) and the Dividends Index (IDIV).
Stock Performance
As the Ibovespa appreciated 13.67% in 1Q12, Cielos stock (adjusted for remuneration) appreciated 31.05%. On March 30, 2012, CIEL3 shares were quoted at R$61.89/share (or R$51.58/share already adjusting to the bonus share occurred April 20, 2012), bringing the Company's market cap to R$33.8 billion.
Shares Performance Base 100 (12/29/2011)
140 130 120 110
31.05%
100
90 80 70 60
12/29/2011 1/28/2012 2/27/2012
13.67%
3/28/2012
Source: Bloomberg
CIEL3
IBOV
The average daily trading volume from January to March of 2012 totaled 1.7 million shares with an average daily trade volume of R$99.1 million, representing 0.7% of the free float. Since IPO, the average volume has been 1.9 million shares with an average daily trade volume of R$74.2 million or 0.5% of the free float.
Average Daily Trade Volume (R$ million)
Average Daily Volume - CIEL3 (million)
700 600 500 400 300 200 100 0

12/29/2011 1/28/2012
12 10 8 6 4 2
Average Daily R$ 99.1 million
Average Daily 1.7 million
2/27/2012
3/28/2012
12/29/2011
Source: Bloomberg
1/28/2012
2/27/2012
3/28/2012
Source: Bloomberg
CORPORATE GOVERNANCE
The Company has adopted a responsible, transparent, ethical stance in managing its businesses and seeks to improve its corporate governance standards according to best market practices in order to preserve shareholdersrights through equal, clear and open treatment. Cielo has a Board of Directors comprised of 10 members (two independent members) and a Fiscal Council with three members. In addition to these corporate bodies, advisory committees were established to make recommendations on business strategy, including long-term strategies, Company performance, and oversight and monitoring of the adopted measures. Currently, besides the Audit Committee, which is provided for in the bylaws, the following advisory committees have been instated: Finance, Personnel and Corporative Governance. The Company has Information Disclosure and Trading polices, as well as a Code of Ethics, which establishes standards of conduct in relationships with all stakeholders: employees, clients, suppliers, investors, regulatory bodies, society and governments.
INDEPENDENT AUDITORS
As required by CVM Instruction n 381/03, we inform that during the first quarter of 2012 the Company contracted Deloitte Touche Tohmatsu Auditores Independentes independent audit services. The Companys policy for contracting independent accountant services ensures there is no conflict of interest, loss of independence or objectivity. In accordance with internationally accepted principles, these principles consist of: (a) an auditor should not audit its own work, (b) an auditor should not perform management functions on behalf of its client and (c) an auditor should not seek its clients interests. In the quarter ended March 31, 2012 neither the independent accountants nor its parties rendered the Company services that were not related to audit. The information in the performance analysis related to EBITDA, adjusted EBITDA, EBITDA margin, financial volume and number od transactions, discount rate, industry and sector information, net revenue contributions, number of employees, total investments, and managerial revenue have not been reviewed by the independent accountants on March 31, 2012.

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

Cielo S.A. and Subsidiaries

Deloitte Touche Tohmatsu Auditores Independentes

Deloitte Touche Tohmatsu

DELOITTE TOUCHE TOHMATSU Auditores Independentes

Ismar de Moura Engagement Partner

2012 Deloitte Touche Tohmatsu. All rights reserved.

Company (BR GAAP) 03.31.2012 12.31.2011

Consolidated (IFRS and BR GAAP) 03.31.2012 12.31.2011

Company (BR GAAP) 03.31.2012 12.31.2011

Consolidated (IFRS and BR GAAP) 03.31.2012 12.31.2011

234,502 3,090,628 1,747 368 10,349 19,621 3,357,215

240,998 2,971,796 134 587 4,609 22,379 3,240,503

284,416 3,144,204 3,616 10,911 29,723 3,472,870

292,915 3,019,499 4,114 4,863 39,939 3,361,330

2,018,129 55,950 234,463 193,615 9,890 54,314 2,566,361

1,660,367 19,666 230,259 385,914 11,055 319,457 108,577 2,735,295

2,018,129 55,950 292,263 198,556 77,838 2,642,736

1,660,367 19,666 289,815 391,996 319,457 135,797 2,817,098

338,682 631,216 663 177,798 504,544 10,143 46,209 1,709,255

334,442 597,217 664 176,060 508,259 10,143 49,247 1,676,032

349,301 656,890 691 519,256 139,501 83,950 1,749,589

345,862 622,805 688 522,369 140,101 88,027 1,719,852

190,798 672,031 862,829

131,182 640,465 771,647

190,798 709,486 4,484 25,113 929,881

131,182 678,007 4,751 25,580 839,520

18.a) 18.b) 18.c) 18.d), e) e f)

263,835 90,712 (44,829) 1,327,562 1,637,280 1,637,280 5,066,470

263,835 88,888 (50,859) 1,107,729 1,409,593 1,409,593 4,916,535

263,835 90,712 (44,829) 1,327,562 1,637,280 12,562 1,649,842 5,222,459

263,835 88,888 (50,859) 1,107,729 1,409,593 14,971 1,424,564 5,081,182

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

(29,568) (64,203) (23,360) 1,738 (11,940) 689,088

(29,677) (68,980) (35,962) 68 (8,147) 510,983

(51,070) (41,829) (23,400) (13,650) 691,654

(44,391) (49,450) (36,019) (10,058) 513,594

6,141 (11,964) 190,140 (11,391) 4,192 , 177,118

9,520 (8,851) 120,828 (3,716) 947 118,728

7,483 (12,084) 190,140 (11,391) 4,183 , 178,331

10,144 (9,227) 120,828 (3,716) 947 118,976

(303,853) 4,240 566,593

(222,691) 17,635 424,655

(305,991) 3,706 567,700

(223,954) 16,655 425,271

566,593 1,107 567,700

424,655 616 425,271 0.7804 0.7795

BASIC EARNINGS PER SHARE - R$ DILUTED EARNINGS PER SHARE - R$

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

Treasury shares (68,823)

Legal reserve 20,000

Earnings retention 901,236

Noncontrolling interests 14,470

3,313 86,845 88,888

156 (68,667) (50,859)

(720,304) 424,655 605,587 -

(720,304) 3,313 156 424,655 887,601 1,409,593

616 (1,097) 13,989 14,971

(720,304) 3,313 156 425,271 (1,097) 901,590 1,424,564

18.f) 18.c) 18.c)

(5,800) 11,830 (44,829)

(346,760) (5,800) 1,824 11,830 566,593 1,637,280